Comcast (CMCSA 12.90%) recently announced plans to launch pilot programs offering Internet services to low-income senior citizens in San Francisco and Palm Beach County, Fla. The program is an extension of Comcast's "Internet Essentials" service, which provides lower-income customers with a 10Mbps connection for $10 a month. Comcast claims that "more than 500,000 families" have signed up for the service since its launch four years ago. Will expanding this service to senior citizens help Comcast reach even more customers?
Source: Comcast.
Market potential
As of 2013, there were 45 million people over the age of 65 in America, accounting for 14% of the population. Only 47% of senior citizens in the U.S. have high-speed Internet at home, according to the Pew Research Center. Twenty-five percent of seniors with annual household incomes less than $30,000 have Internet access, compared to 82% of seniors with household incomes exceeding $75,000.
Assuming that Pew's figures are accurate and Comcast expands its pilot program across America, the company might gain a few million new Internet customers. However, they would also generate significantly less revenue than those using Comcast's basic $40-per-month 25Mps Xfinity service, or pricier "Internet plus TV" bundles.
Last quarter, Comcast's total number of high-speed Internet customers rose 6% annually, to 22.55 million. Revenue from the unit climbed 10% and accounted for more than a fourth of Comcast's Cable Communications revenue. That growth offset a slight decline in cable video subscribers, who likely "cut the cord" in favor of streaming-only services.
Therefore, adding some Internet Essential customers could help Comcast offset overall declines in cable video subscribers. Once those customer relationships are established, Comcast could offer upgrades to "Internet plus TV" bundles to boost revenue per household.
Is this just a PR stunt?
Many critics have called Internet Essentials a PR stunt to improve Comcast's tarnished image. After all, the company was named the "most hated" company in America by Consumerist last year due to various customer-service disasters. Comcast and Time Warner Cable,which it tried to merge with, were ranked as the worst ISPs in the country in last year's American Customer Satisfaction Index. Therefore, it wasn't surprising when regulators nixed the deal earlier this year.
John Randall at Next New Deal wrote back in 2013 that Comcast originally planned to launch Internet Essentials in 2009, but kept it as a "useful bargaining chip" with regulators. If regulators challenged Comcast's growth with antitrust investigations, the company could offer cheap Internet to low-income families as a "compromise." Randall called the program "nothing more than a customer acquisition program in disguise."
Comcast, however, is promoting Internet Essentials as a chance to narrow the digital divide, declaring that its package offers "opportunity for every family online." Comcast has added a similar positive PR spin as it expands the service to low-income seniors.
In its press release, Comcast quotes Anni Chung, CEO of the non-profit organization Self-Help for the Elderly, who states that giving seniors Internet access has "tremendous power" to improve their lives by "restoring a sense of community and inclusion." That might be true, but it's also clearly a way for Comcast to grow its broadband base.
Another way to diversify
The rise of cord cutting saps away Comcast's cable-video subscribers while reducing ad revenues at NBCUniversal's cable and broadcast TV units. To counter those declines, Comcast is investing billions into Universal Studios theme parks, pumping hundreds of millions into "new media" companies like BuzzFeed and Vox, and promoting Stream, a light cable package for Internet-only customers.
Those investments diversify its top line and reduce its dependence on cable-video revenues. Offering Internet Essentials to lower-income families and senior citizens is just another extension of that plan. Investors should see these initiatives as positive catalysts for Comcast, which is struggling along with its media peers to counter the rise of cord cutting and streaming services.
