Comcast banks on rate hikes, cable modems, voice service to counter increased programming costs

MSO will expand rollout of Xfinity X1 and wireless gateways
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Comcast (Nasdaq: CMCSA) will bank on rate hikes and profit margins from new products such as high-speed Internet, voice and home automation services to offset increased costs to carry sports networks and local TV stations, executives said Wednesday.

Neil Smit, Comcast

Smit (Image source: Comcast)

The nation's largest cable MSO saw its programming expenses increase by 7 percent in 2012, and said it expects programming costs to increase by more than 10 percent this year. "We're able to offset that with efficiencies in the business and moderate rate increases," Comcast Cable CEO Neil Smit told analysts on the company's fourth-quarter earnings call Wednesday.

Comcast will also benefit from increased retransmission-consent fees from NBC stations and cable network license fees through its NBCUniversal subsidiary. The company announced a deal late Tuesday to acquire the 49 percent of NBCU that it didn't own from General Electric for $16.7 billion.

"I think our affiliate fees are not what they should be in terms of the cable channels and retransmission consent," NBCU CEO Steve Burke told analysts. "And on the advertising side, our CPMs [cost per thousand impressions] are lower than some of the other [networks] in the business that have lower ratings than we do," he added.

Comcast said it will expand the rollout of its Xfinity X1 service to all of its cable systems nationwide this year. Smit said the MSO is also deploying new wireless gateways that combine the functions of a cable modem and router, and can increase the throughput to multiple devices in subscriber homes from 22 Mbps to more than 200 Mbps.

The MSO launched X1 last year in several markets, including Boston, Atlanta, San Francisco and Denver. Smit said Comcast has seen lower subscriber churn in markets where it offers X1. The advanced digital cable product comes with a home video gateway that contains six tuners and delivers interactive applications and a new interactive program guide from cloud-based servers.

CFO Michael Angelakis said selling subscription video programming packages accounts for about half of the revenue generated by Comcast's cable division. The other half comes from higher margin products such as high-speed data and voice.

The average monthly bill for Comcast subscribers was $154 in in the fourth quarter, up 9 percent from the same period in 2011, thanks to rate hikes and increased sales of cable modem and voice service, Angelakis said.

For more:
- see the earnings release

Special Report: Cable in the fourth quarter of 2012

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