Fiber to the Home: A World of Headaches for Comcast

Comcast (CMCSA) is the media titan that dominates all things cable. Which is great, until cable becomes extinct.

Unfortunately all those investors who waited out massive capital spending cycles in the hopes of reaping the benefits of massive cash-flows may in the end be very disappointed. Technology may have rained on the party, as it often does.

The Baby Bells have brought Fiber to the Home [FTTH], and with it comes a world of headaches for Comcast. With Comcast already sitting on strapped networks (ask anyone in a metro area using a cable internet connection during peak hours), new devices and bandwidth-eating applications are cropping up everywhere. From YouTube to iTunes, bandwidth usage is growing, and it makes near perfect sense this will only continue exponentially. Just think back to old PCs in the early nineties, as software apps continually demanded greater and greater processing speeds.

Little has changed, and just as it was then, many never envisioned a need for such bandwidth, its necessity becoming most apparent when it may be too late. Most notably, Apple’s recent introduction of iTV and downloadable Movies and TV shows demonstrates the growing thirst for bandwidth from consumers and developers alike.

A convergence of the Internet and TV is a question of when, not if. When this happens, Comcast will be in the unenviable position of needing a network upgrade. Outside of a few billion dollars for a network upgrade, it could be a boon for Comcast, but not until the spending cycle is completed ...again.

I'd steer clear of this Cableco giant as the risks are mounting. With the stock coming of a fresh run at recent highs, it remains a risky proposition to bet against the evolution of technology.

Disclosure: Author is short CMCSA

Comments

[Adam]

Micheal, you are another one of these people that lacks the basic knowledge of how cable systems work, why your getting the speed you are getting from you cable modem and how a cablesystem is mostly already a fiber system.

Equating the speed that you experience from a Cable Modem service in a metro peek hour is the same as saying a Ferrari is slow because its on the FDR at 5pm.

What cable companies have been very unsuccessful in doing is explaining to investors how their technology works and its strengths and weaknesses. In fact, the Cable business is an extremely insulated group thats further complicated by their regional structure of limited competition.

While you should do what your analsys leads you to, I wouldnt go as far as being short and wouldnt buy stock in the equipment vendors that supposedly are going to benefit from your predicted build.

Frankly, I dont think you could be more incorrect. Ultimately all capacity gets consumed (processors, harddisks and networks) but there is much more avaiable capacity than you are aware of, combined with subscriber usage behaviours that would shock anyone. The only people who have to build FTTH are the DSL guys, they dont have a choice and the numbers are not going to work.

Good luck with your pick, your going to need it

Adam

[schmitt]

I am not a fan of comcast but this post typifies the herd mentality that surrounds FTTH. The vulnerabilities of cable are more complex and less certain than what the author descibes.

[Michael Church]

While trying to be poetic, my point was obviously missed. I do have a basic understanding of these networks, I am not an engineer, but i am aware of hybrid fiber networks. And while I agree Cablecos can certainly squeeze more out of their networks, that still doesn't mean its enough. Comcast may very well be a ferrari, but the Bells are building a maserati thats faster and cooler. The real winner is the future content distributors who ride these networks for free.

Bells dont care about cable, they are selling bandwidth. They may have a video offering now, but its a puppet offering. Comcast just got caught with its pants down as the rest of tech land unbundled video content for them right before their eyes. If you think their network is currently capable with competing with that model you are mistaken. Set top boxes are a sizable investment of theirs, and converting to an unbundled content offering would cost them significant cash, from the software on up.

On Demand you say??? Yeah that will stack up well to a Microsoft or iTunes based platform. Gotta love those Motorola set top boxes!!

Price action may say i'm wrong right now, but the Bells are tolling. Forgive me if i doubt Comcast can innovate beyond just being "Comcastic" After all this is a company that has never had to compete before, maybe thats why they are feeling so Comcastic.