Comcast Is Wired for Success

When I moved to Michigan last summer, I couldn't call Comcast (Nasdaq: CMCSA) fast enough to get my cable modem installed. The cable guy was hooking up my Internet access even before I moved into my new house. I was pretty satisfied with the service until Comcast informed me that my high-speed Internet bill would double (because I wasn't a cable subscriber). Being a loyal EchoStar (Nasdaq: DISH) DISH Network subscriber, I had no choice but to scrap the cable modem for the adequate digital subscriber line (DSL) service provided by SBC Communications (NYSE: SBC).

The communications industry has always been controlled by various market monopolies, but this closed market began opening up around the turn of the century. Customers now have choices among satellite, cable, or telecom companies for everything from television to Internet to phone access. Comcast has spent billions of dollars upgrading its old, stodgy cable network to the clearer reception and sound of digital lines. It has also recently worked hard to roll out its high-speed Internet service after a slow reaction initially to tremendous demand.

One look at Comcast's second-quarter earnings reveals a company that is perfectly positioned to benefit from all of the money it has spent on infrastructure upgrades. A little digging into the company's press release reveals that only 37.5% of Comcast's subscribers are utilizing the digital cable service; this obviously means that 62.5% of its subscribers (21.5 million subscribers) are still watching TV the way TheFlintstones did. (Even Fred and Barney would have made the switch to digital by now.)

The company's other major opportunity and growth vehicle is high-speed Internet access. With Comcast's penetration rate only about 16% of available homes, there is much room to grow; Comcast added 1.1 million homes to its Internet footprint/coverage area in the second quarter and now has the service available to 93% of its customers.

Comcast is a classic case of a company that has taken its lumps and continued to invest in networks that are about to bear fruit. With the firm producing solid earnings in the second quarter, versus a prior-year loss, it might be time for investors to start believing in it. Comcast also announced that it has increased its stock repurchase program by $1 billion, giving it a chance to reinvest some of that $2 billion of free cash flow expected this year. With the majority of the company's infrastructure upgrades essentially complete, I see both the company's results and its share price flourishing.

How are you wired? Connect with others at the Comcast discussion board.

Fool contributor Phil Wohl spent over 12 years on Wall Street and now concentrates his writing on more fictional characters. He has no stake in any firm mentioned above.