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Comcast to Offer Prepaid Data Plan

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Comcast Corp. (CMCSA) − the largest cable MSO (multi service operator) in the U.S. will be the first cable operator to offer a pre-paid Internet service to new customers, hence completely outwitting the business model of the cable industry.

At the end of 2012, Comcast tested the new business model with downloading speed of 3 Mbps in the state of Philadelphia. Following the success of this new strategy, the company plans to nationally implement its new pre-paid Internet service plan, thereby targeting a new market worth $7 billion.

Comcast will offer its new service through Xfinity Internet Prepaid Service brand, well supported with dedicated website and more than 70 stores across the parts of Philadelphia, Delaware and New Jersey. Moreover, it will also sell its pre-paid data service through wireless retail outlets of Alpha Wireless Communications, T-Mobile USA, Speed Wireless and Leap Wireless International Inc.’s (LEAP)  subsidiary Cricket Communications Inc.

The customers residing near the Comcast-operated areas without an active company account will be able to access the pre-paid data service through a cable wire and Arris Group Inc. (ARRS) manufactured DOCSIS 3.0 modem. The whole service kit inclusive of modem, cable wire and a 30 days activation code comes at $69.95.

In order to target the low income group and college students, Comcast has kept its prices as low as possible with services starting at $15 for seven days and $45 for 30 days with 3 Mbps downlink and 768Kbit/s uplink speed, respectively. However, 1 Mbps downlink speed is lower than FCC’s set standard of 4 Mbps downloading speed for broadband.

Moreover, Comcast's 6 Mbps Performance Starter service starts at $49.95 per month, while it’s 20 Mbps service costs $62.95 per month. Additionally, $7 per month will be charged on customers going for leased modem from the operator.

In the recently concluded quarter, High-Speed Internet revenue for Comcast was $2,438 million, up 8.7% year over year with 9.955 million Internet customers (up 6.6% year over year). However, lower than Time Warner Cable’s (TWC) 10.935 million Internet customers. So we believe that the opening of new pre-paid data platform will further bolster the High-Speed Internet revenue growth, consequently expanding Internet subscriber base in the cable industry.

On the flip side, the new pre-paid market may give rise to cannibalization, thus denting post-paid data market margins unless the pre-paid network speed is not slowed or the data cap limits are not set for the pre-paid customers.

Comcast currently has a Zacks Rank #3 (Hold).

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