Comcast (NASDAQ:CMCSA) will begin imposing data caps on customers in all of the states it operates in come 2021, after announcing that a dozen states in the Northeast that were previously excluded from the limitations would now be included.
Starting in January, the cable operator will put all Xfinity customers under a monthly 1.2 terabyte cap on data usage and will charge them $10 for every 50 gigabytes of data they exceed the limit, up to a maximum of $100.
Although that sounds like a lot of data to use before hitting the threshold, a family could easily exceed the limits, particularly if it watches a lot of 4K programming on Netflix, or has one or two big gamers in the household. Comcast maintains, however, that only 5% of its customers actually use more than 1.2 TB of data a month, so 95% will not be impacted by the change.
While the change does little to endear Comcast to its existing customers, it suggests the move is a result of cord-cutters who've abandoned the cable operator.
Cutting out cable
Comcast reported it lost 273,000 cable customers in the third quarter, which was actually fewer than the 409,000 it lost in Q1 and the 477,000 that cut the cord in the second. Yet that brings the total number of consumers abandoning Xfinity so far this year to 1.16 million.
At the same time, though, Comcast added 1.43 million high-speed internet customers to the rolls, suggesting that while customers were cutting the cord to cable programming, many were keeping their internet access.
Year to date, Comcast has added over 1.7 million one-product customers, which is easy to believe are mostly internet-only households, but overall it has lost almost 300,000 customers in total in 2020. That means consumers want Comcast's internet service, but not its cable and telephone offerings.
The data cap helps recoup the lost revenue, and could be a sign Comcast expects net neutrality to return.
Staking out neutral ground
Previously Comcast could charge bandwidth hogs like Netflix for direct access to its network, but net neutrality prohibited such access fees. After the FCC killed net neutrality in 2017, Comcast reportedly demanded fees again from Netflix, which eventually agreed to have the streaming service bundled with the Xfinity service, but which gave Comcast control over the important customer billing relationship.
Assuming the Biden administration takes office in January, net neutrality could be back on the table. The fees Comcast collected from Netflix and others might not survive, but the data cap for people using its internet service to stream video would endure.
To help customers offset the higher costs of running over the data cap, Comcast is offering them an Unlimited Data plan for just $30 more per month.
A profitable solution for Comcast
The supplemental plan is independent of actual data usage. Those who sign up will not be covered by the 1.2 TB cap, and according to Ars Technica, customers who sign up in December or January won't be charged the fee until June.
With its basic "double play" bundle of TV and internet service costing $55 per month, Comcast is trying to make it more attractive for customers to retain their Xfinity programming. And the unlimited option represents clear profit for the company, as it doesn't have to share that revenue like it does on the cable side of the business, such as the regional sports network fees it has to pay to broadcast sporting events.
While the media giant has seen some lower costs as major league sports canceled or postponed their seasons this year, Comcast said its adjusted EBITDA was still impacted by higher programming costs, which rose 4% in the third quarter due to retransmission consent fees.
An offer you can't refuse
Comcast is easing its customers into this new reality by giving customers a "credit" for January and February, and it will also give a credit for one month of overage out of every 12 months. So if a customer is under the cap through July, but then goes over in August, the cable operator will waive the $10 per 50 GB fee. If the customer goes over again in September, the fee will be charged.
But because Comcast operates as a broadband provider monopoly in many of the markets it serves, even cord-cutters will have no option but to accept the terms.
Comcast has lost business and revenue because of the cord cutting phenomenon, and it may see streaming services like Netflix begin pushing back on their agreements that gave the cable provider the upper hand. In short, the data cap will help bolster Comcast's bottom line.
That might not do anything to make the company any more beloved with its often restless customers, but investors should see the move as shoring up its finances.