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The Street Tries To Get A Clear Signal On Comcast's New Mobile Phone Service

Jayson Derrick

Comcast Corporation (NASDAQ: CMCSA)'s entrance into the mobile phone segment certainly changes the competitive landscape of the entire market.

But what are Wall Street analysts saying?

'Cost Disciplined Approach'

Matthew Harrigan of Wunderlich commented in a report that Comcast is taking a "very cost disciplined" approach in the launch of its new Xfinity Mobile initiative.

The long-term plan for Comcast is migrating traffic away from Verizon Communications Inc. (NYSE: VZ) to contain MVNO (mobile virtual network operator) agreement costs. A risk to Comcast, however, is that it may suffer from consumer frustration with overloaded WiFit hotspots and as such it could see a spike in expensive LTE network usage.

Nevertheless, Comcast is "very attuned to making money" indirectly off Xnifity Mobile, including targeting existing customers and lowering churn. The company can also take advantage of $3.5 billion worth of marketing outlays for the existing Xfinity product line.

The analyst suggested Comcast CFO Michael Cavanagh was "very closed kimono" on offering details for the MVNP economics or further development, including details for eventual 5G offerings or the ability of Comcast to benefit from deploying small cell topologies other than the current WiFi product.

Incremental Growth Opportunity

Bryan Kraft of Deutsche Bank commented in a report that Comcast's mobile expansion represents an incremental growth opportunity for the company, but the "overarching goal" would be growth and retention in its cable unit.

Kraft noted that Comcast does have to pay Verizon a variable cost basis for usage on its network, but Comcast does hold other advantages in other areas such as marketing and selling expenses. Specifically, Comcast can make use of its already existing sales channels, retail presence, online venues and others to offset its network cost disadvantage.

With that said, the analyst is now factoring in a mobile forecast in his financial model. Although the initial figures are conservative for now, mobile will add "only" $645 million (2 percent) to Comcast's 2022 EBITDA. The estimates may change over time since the company's initial launch will be at a "measured pace" but will ramp over time.

Also important to note, Kraft stated that Comcast's offerings will be attractive for most consumers within the pay-as-you-go segment, younger children and the elderly. But the unlimited data savings opportunity will be less significant for most customers. However, around one-quarter of Comcast's X1 subscribers qualify for the $45 unlimited plan, which is below other carriers' unlimited pricing.

Compelling Offering

Anthony DiClemente commented in a report that the "primary value driver" of Xfinity Mobile to Comcast will stem from the churn reduction among its customer base. The analyst also believes subscriber acquisition costs will be "relatively low" and will help Comcast's overall subscriber economics.

Looking at the overall picture, the analyst argued Comcast will be able to offer a "compelling" product versus the already existing wireless plans, especially at the high-end of the market.

But for the time being, Comcast will leverage its existing customer base and network infrastructure to provide customers with a "strong" customer experience that's also profitable to Comcast on a standalone basis as well.

See Also:

Comcast Execs Quiet On Verizon Partnership Details Amid Mobile Offering Launches

Net Neutrality Opponent To Head The FCC; Who Benefits?

Image: Mike Mozart, Flickr

Latest Ratings for CMCSA

Date Firm Action From To
Jan 2017 Pacific Crest Downgrades Overweight Sector Weight
Jan 2017 HSBC Initiates Coverage On Buy
Jan 2017 Deutsche Bank Upgrades Hold Buy

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