With upgrades to its physical cable plant nearly complete, Comcast is contemplating its next big upgrade: the leap to an all digital network. Speaking at the at the Morgan Stanley Global Media & Communications Conference in Boston, Steve Burke, president of Comcast’s cable division, said that about 50% of the bandwidth in its network is consumed by broadcasting about 80 analog channels. If all analog customers were converted to digital, this bandwidth could be used for the equivalent of about 500 more digital channels. The liberated bandwidth could also be used for other applications, such as increasing the downlink speed of the cable modem service to 10 Mbps and above. To get to the all-digital network, Comcast would have to provide digital set-tops to some 30 ~ 40 million customers. The company is considering a very low cost, set-top box (under $35) as one option. Burke said that even if it were to cost $1 billion to provide these set-tops and convert the network to an all-digital infrastructure, he believes it would be “money well spent” due to the increased sales opportunities that would result.
Later this year, Comcast aims to upgrade its average cable modem downlink speed from 1.5 Mbps to 3 Mbps said Burke. This will provide Comcast with “bragging” rights as to why cable is better than DSL. Burke also said that Comcast will invest in a broadband portal to differentiate its service from DSL. As for economics, Burke noted that the cable modem business continues to accelerate, despite recent price cuts by the RBOCs, in part because cable modem service is available in more locations than DSL. ARPU for cable modem service continues to be strong and Comcast is adding 400,000 or more new customers per quarter. Comcast’s most effective means of attracting new cable modem subscribers continues to be people calling in asking for cable TV service and then being up-sold to a bundled TV+data bundle. Comcast also has about 4,000 retail locations (Circuit City, Best Buy, etc.), which provides a sales advantage over the telcos. Burke also observed that the margins for cable modem service improve with greater subscriber density. Comcast’s margins for cable modem service already exceed those for its video offerings.
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