Comcast is adding new wireless plans. Here are quick thoughts on what it means…
Status quo: Comcast had two wireless price plans at launch: 1) by-the-GB at $12 / GB and 2) unlimited at $45 / month. Families can mix and match and individuals can switch between by-the-GB and unlimited during the course of the month.
What’s new: Comcast is keeping everything that exists, and adding three new options. The new plans include: 3GB for $30; 10GB for $60, and; uninterrupted HD for $20 (video will not be downgraded during times of congestion; this just applies to unlimited customers). In addition, the first 100MB of usage are no longer free for new customers.
What does it mean: Comcast is trying to expand the addressable base for more profitable by-the-GB plans. It should translate into faster subscriber growth in future quarters. There may be some ARPU pressure in the near term, but Comcast will gain more by shifting the mix to by-the-GB and accelerating sub growth to cover fixed costs than they will lose in ARPU.
The details: In our original analysis of Comcast’s wireless economics (LINK), we concluded that by-the-GB customers would generate healthy margins for Comcast; however, unlimited customers were probably breakeven. Comcast has always had a strong incentive to favor by-the-GB. Over the last year, Comcast’s cost per GB will have fallen as usage grows (wholesale rate indexed to retail revenue; call us if you need further details). This means the by-the-GB plans are even more profitable while there has probably been no change in profitability for unlimited.
The problem for Comcast is that at 4GB of consumption, consumers are better off going to unlimited, and there are a limited number of consumers in the broader market using 3GB or less. Average consumption is probably around 6.5GB / month, and it is growing at a steady clip. The addressable base for 3GB or less is declining as Comcast is trying to grow its base (profitably).
Comcast’s new plans will expand the addressable base for by-the-GB plans. The new Plans offer a compelling price point for subs, and particularly families, who use more than 3GB per person but aren’t consuming enough to get value from unlimited. It doesn’t expand it by much; this won’t drive a massive change. It is a change that is in keeping with Comcast’s slow and careful strategy. They have launched a product with acceptable margins; they are experimenting with modest adjustments to the formula in the hopes of getting faster growth with better margins.
There is an upfront cost. Some of Comcast’s existing subs will be able to opt into the new pricing and cut their bill, which means lost revenue and cash flow for Comcast on those customers. With the business in its infancy, they likely see much more opportunity in accelerating the pace at which they get to breakeven than cost from foregone ARPU on some existing subs. All new by-the-GB subs on the new plans will be very profitable (and existing subs that adopt the plans will be profitable too, though some perhaps less so than before).
What you can ignore: There have been stories of Verizon slowing Comcast’s traffic; we think this is nonsense. Comcast’s terms of service have been updated to reflect the Verizon traffic management protocols that they use to manage all of their traffic during times of congestion. As far as we understand, the traffic of Verizon subs and Comcast wireless subs is treated the same.