The growing number of consumer options for home internet is having a big impact on Comcast (CMCSA 1.68%).
The biggest internet service provider in the U.S. lost 4,000 customers last quarter. That's after adding just 14,000 total customers over the previous two quarters. Meanwhile, T-Mobile US (TMUS 0.01%) and Verizon Communications (VZ 1.08%) are adding hundreds of thousands of new customers with their fixed wireless access, or FWA, products. Additionally, AT&T (T 0.36%) is building out its fiber network as it aims to replace its legacy broadband services, and it's also expanding its FWA service.
The competitive environment is certainly taking a toll on Comcast, and management doesn't expect a big turnaround anytime soon.
A look at the competition
The big wireless companies are all making moves to grow their broadband businesses.
T-Mobile expects its FWA business to reach 7 million to 8 million customers by 2025. It's already at 2.6 million just five quarters into its official launch. It expects to keep its pace of around 500,000 net additions per quarter for the next couple of years as it builds out and adds capacity to its 5G network, supporting the service.
Verizon expects to reach just 4 million to 5 million FWA customers by the end of 2025. It's behind T-Mobile in its network build and it doesn't have the same amount of spectrum available to dedicate to the service, so the more tempered goal makes sense. Still, it's ramping up the customer additions quickly. It saw 379,000 net additions last quarter, and it produced sequential growth in net additions for every quarter of 2022. Verizon continues to add customers to its Fios home internet service, too.
AT&T is investing heavily in fiber to the home to replace its legacy DSL service. It expects to increase the number of homes it can access with fiber by 25% over the next few years, reaching 30 million in total. Management also offers an FWA service to rural customers, and it plans to expand that offering to business customers in the future where it doesn't make sense to build fiber.
Comcast is expanding its footprint in an effort to fend off the rapidly expanding presence of the wireless carriers, but it's moving much slower. It passed an additional 813,000 households last year, and it expects to expand by 1 million households in 2023. Its bigger focus is upgrading its network and pushing more customers to its high-end offerings.
NASDAQ: CMCSA
Key Data Points
Comcast's expectations for 2023
Don't expect much in the way of broadband subscriber growth in 2023 for Comcast.
As competition continues to weigh on Comcast, management said on its recent earnings call, "We expect [average revenue per user] growth will continue to be the primary driver of our residential broadband revenue growth in 2023." In other words, it's banking on higher prices instead of more customers.
To that end, there's room to grow. Just one-third of its customers are on its Gigabit Plus plan. And with the growing demand for speed and bandwidth from streaming video, Comcast expects demand to keep climbing.
The service compares favorably to T-Mobile or Verizon's FWA service, which runs on the wireless 5G network. And while there's the promise of speeds as fast as 1 gigabit per second (Gbps) from the next-generation networks, the current reality is that they deliver much more modest speeds -- certainly usable speeds, but not at the same level as Comcast's highest tier. If Comcast can convince customers they need gigabit speeds, it may be able to win over customers who have chosen to try FWA.
For now, growing broadband via increases in pricing is benefiting both its top and bottom lines. Margins are improving as Comcast leverages its fixed assets to offer a higher tier of service. And that works as long as Comcast has customers to upgrade and can keep its customer losses to a minimum.
But it's not a long-term solution. Comcast appears to be holding out for the end of the rapid growth of FWA in a few years, as wireless networks reach capacity with the number of home internet customers they can add. But it doesn't provide confidence that it can sustainably grow the most important part of its cable segment long-term. Investors may want to hold off on Comcast stock as it manages through the transition in its business.
