Be careful what you wish for, Comcast.
In reporting second-quarter earnings on Wednesday, CEO Brian Roberts said he was happy with the cable operator’s addition of 118,000 broadband subscribers in the period, bringing net gains to 517,000 for the year. But Comcast’s strength in high-speed data services, at the expense of competitors like the telephone companies, is certain to create a bigger red flag for regulators looking to place tighter restrictions on broadband providers.
It is particularly tricky for Comcast, which is undergoing a separate review for its proposed joint venture with NBC Universal in which regulators are itching to wring out concessions from the cable giant. “Comcast’s very success in broadband versus the telcos will make the political will for regulation only more resolute,” said analyst Craig Moffett of Sanford Bernstein.
If Comcast executives are concerned, they didn’t express it on a conference call Wednesday. “We are pleased with the constructive dialogue with the FCC and other stakeholders,” Roberts said. “And we are hopeful that the resolutions will allow businesses … to be pro-investment and pro-innovation.” In recent months, the cable industry worried that regulators were looking to target the prices broadband providers charged consumers. But Roberts noted on Wednesday that “the extreme scenarios from our point of view are off the table.”
And Comcast executives said they did not foresee any major obstacles for its proposed merger with NBC U, in which Comcast will own 51%. They said they expected the deal to win approval and close by the end of the year. “We have been there before where we feel everything goes against you,” said Comcast COO Steve Burke, an obvious reference to Comcast’s unsuccessful $54 billion bid to buy the Walt Disney Co. in 2004. “This time everything is going our way.” Burke is expected to be the Comcast executive who will oversee the new entertainment properties.
Comcast reported that profits fell nearly 9% in the quarter to $884 million, largely on costs associated with the NBC U deal, but that revenues rose 6% to $9.5 billion. Comcast’s shares closed Wednesday up 23¢ to $19.56, with investors pleased with certain aspects of the second-quarter results, including a big rebound in advertising.
Advertising grew 23% in the quarter, Burke said, led by auto, retail and food and beverage spots. “This is a big deal for a company that will have advertising revenue of $10 billion,” he added, in reference to what a combined Comcast-NBC U will bring in from ads. “That is the biggest headline.”
In Comcast’s core business, TV subscribers declined by 3% in the quarter to 23.2 million, which executives blamed on seasonal trends when college students are home for the summer and people head off to vacation homes. In addition, promotions associated with last year’s federally mandated transition to digital TV have begun to expire. High-speed data customers grew 7% to 16.4 million. Services to increase broadband speeds now reach 80% of Comcast’s footprint. Meanwhile, digital phone subscribers jumped 16% to 8.1 million, executives said. Customers who are so-called triple-play subscribers grew 3.4% in the quarter.