Comcast Comes Up Short

As the North American Broadband Service Providers (BSPs) finish up their 2Q'09 reporting, we're starting to see a somewhat familiar picture--the Q2 slump. Historically, the second quarter is the weakest for US service providers--it is, after all, when students close up shop, and many others disconnect service for the summer months.

Most US service providers have been predictably down in Q2'09, though generally not as bad as last year, when many ended up in a net add freefall.  One notable exception is Comcast, which released Q2 results today.  We had predicted 250k net adds for the company in the second quarter, a somewhat conservative estimate, representing a decrease compared to the same quarter last year.  Therefore, the company's surprising announcement this morning of a mere 65k broadband net adds came as a bit of surprise,--though revenue numbers did hit analyst expectations.  Year-over-year broadband growth was a respectable 7%. 
 
What's behind it the numbers?

Our recent survey research suggests that it's not a question of people dropping broadband service; in fact, we see a 96% keep rate for broadband.  Rather, it's likely the confluence of several factors:

Seasonality: As mentioned previously, broadband is not immune from seasonality, and the second quarter is traditionally low.  For Comcast, this was a particularly rough quarter.

Market Maturity: The US broadband market is quickly maturing, and broadband penetration in the US is estimated to be on the order of 60%.  This means the pool of new customers is continually dwindling.

Competition: In what has become a highly competitive and commoditizing market, service provider strategy is evolving.  It's no longer enough to extol the virtues of broadband, BSPs have to focus on why their particular brand of broadband is superior.  In addition, Comcast had much of its marketing and advertising budget tied up in DTV transition in Q2, according to COO Steven Burke. This will likely be freed up for the current quarter.