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Dialing for Dollars

Phone, high-speed data services are growth engines 8/29/2004 08:00:00 PM Eastern

When it comes to future strategy, says President and COO Stephen Burke, Comcast regards itself as being in essentially three businesses: video, high-speed data and telephone. It's the mantra of the cable business these days as cable operators large and small see their subscriber base for cable maxed out.

Ringing Up Revenues
Comcast doesn't have projected growth numbers for VoIP, but Merrill Lynch thinks it's the coming thing for the cable industry overall.
SUBSCRIBERS IN THOUSANDS 2003E 2004E 2005E 2006E 2007E 20808E
Cable numbers include both wireline and VoIP customers, but virtually all the growth comes from VoIP
*Total includes telco access lines and cable VoIP subscribers.
Source: Merrill Lynch Estimates
Cable VoIP/wired 2,685 3,731 6,950 10,500 13,500 16,000
Independent VoIP providers 100 400 900 1,600 2,100 2,400
Total 2,785 4,131 7,850 12,100 15,600 18,400
Cable share of all phone lines* 1.9% 2.8% 5.3% 8.1% 10.6% 12.6%
Cable + independent share of all phone lines* 2.0% 3.1% 5.9% 9.4% 12.2% 14.5%

Right now, data and phone together currently account for approximately 20% of the company's revenues, with video bringing in all the rest. But that's going to change, and Burke foresees a day in the next five or so years when approximately half of its revenues will come from phone and data together.

By the end of the year, fully 85% of Comcast homes will be able to receive video-on-demand (VOD), much of it free and some of it in high-definition. Video instant messaging will launch this year, and Comcast is expected to enter the phone business more aggressively with its voice-over-Internet-protocol (VoIP) in the next year and in 2006. By then, the changing face of Comcast should be evident for all to see.

Comcast will transform more in the five years ahead than it has in the previous five years of seismic change, Burke says. Driving this will be the products and services that broadband and Internet-protocol technology make possible.

"The idea is [that in each of the three businesses] we're going to have the best-in-breed product," says CEO Brian Roberts.

"We see ourselves right at the intersection of technology, entertainment and the Internet," Burke says. "We're not a single-product company, and the products we're in are products that are changing quickly, and we're going to do our part to change them."

The next change includes time shifting and on-demand viewing, whether through personal video recorders (PVR) or VOD. Broadband and high-speed data will remain an important part of the picture, as well. At present, the reason most people sign up for these services, Burke says, is that they are "always on and [have] faster speeds." In the next few years, Comcast expects to double its number of high-speed Internet customers, attracting some five million new customers with features like video streaming and video chat, rather than simply higher-than-dial-up connection and download speeds.

Comcast once de-emphasized the phone business in favor of high-speed data customers, but now Comcast is betting on VoIP as a big ticket.

"Voice-over-IP will allow us to offer a lot of things that you can't get out of a traditional circuit-switch phone," Burke says. "What in effect you can do is blur the line between your telephone, your high-speed data connection and your television set. Wouldn't it be great if you could get all of your messages, whether they're e-mail messages or instant-messaging messages or telephone voice messages all in the same place? Call it unified messaging. So whether you're on your cell phone, watching television or on your computer, you could pull up and say, 'These are all the messages that are coming in to my cell phone, office phone, home phone, my Internet account at work, my Internet account at home'—all right there, and you can click on it."

And when two Comcast IP phone customers with IP phones call each other in the near-term future, they'll be able to switch from audio to video phone as well, Burke predicts.

In the past decade of cable rebuild, Comcast itself has spent "roughly" $40 billion of the $85 billion that the industry as a whole has invested, according to Dave Fellows, executive vice president and chief technology officer at Comcast Cable, who formerly was chief technology officer at AT&T Broadband.

That money has gone to create a two-way IP platform that is cheap, scalable and uses the "language of the Internet" itself. It supports advanced services, from VOD to HD to PVR functionality to VoIP and video telephony. "We're finally getting to the end of [the rebuild], where we can launch these new services in a ubiquitous kind of a fashion, instead of a targeted fashion," Fellows says. "Every service we can think of, every combination of service we can think of, is provided by the [two-way] network that we are now done spending on, so the talking about how good it is going to be is over with. The talk is now how we are launching these services."

Fellows emphasizes a mantra that the IP platform makes possible: "All services, all devices, one platform." They all add up to convergence.

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