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Analysis: Xfinity Mobile still losing money but growing subs, reducing churn


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Analysis: Xfinity Mobile still losing money but growing subs, reducing churn

Comcast Corp.'s wireless phone service continues to grow, adding new customers each quarter; but it also continues to lose money.

Comcast's Xfinity Mobile service, which launched across all sales channels in all Comcast markets almost a year ago in August 2017, ended the second quarter with 781,000 total lines, representing net line additions of 204,000. While at least one analyst expressed concern with these numbers, noting they were below his expectations, others said the wireless offering is off to a healthy start and was never intended to draw large numbers of customers.

"The way we look at Xfinity Mobile is that it's a retention tool they use to try to retain customers. So we're not looking at it saying it's got to be profitable and it's got to be big," Naveen Sarma, an analyst with S&P Global Ratings, said in an interview. Recon Analytics analyst Roger Entner — whose research has focused on the wireless experience, how it influences customer behavior and how customers make choices — agreed, saying in an interview he remains bullish about the service as "it helps [Comcast] greatly with reducing churn."

But BTIG analyst Walter Piecyk wrote in a research note that while Xfinity Mobile is continuing to add customers and may be helping with churn, its slow growth has left it operating firmly in the red. Comcast's second-quarter results included an EBITDA loss of $185 million for Xfinity Mobile, and Piecyk calculated that across five quarters, Comcast's cumulative EBITDA losses from Xfinity Mobile now total $854 million.

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Piecyk said he does not expect these losses to cause Comcast to pull the plug on its wireless efforts, but he would like to have seen stronger net adds during the second quarter. "Subscriber growth has stagnated at 200,000 per quarter, below the pace that would enable the company to top the 1 million subscribers additions that investors expected in 2018," Piecyk wrote, adding that he had expected Comcast to report net wireless adds of 250,000 for the June period.

During an earnings conference call, Comcast CFO Michael Cavanagh said the $185 million EBITDA loss reflects Comcast's "continuing ramp in subscriber acquisitions and the incremental operating cost associated with getting this business launched." While the service is still young, he said the company is "pleased with the early indications we're seeing," including customers choosing to add mobile to their double- and triple-play bundles.

For his part, Sarma said it is a mistake to think too much about the EBITDA loss from the wireless business as that discounts the benefits Comcast is seeing in its other segments. "For them, the bigger math is what does it do to churn on the cable side," he said. "If you are looking at the lifetime value of a customer, are you willing to put up with losses at one of the services because it's benefiting the cable business?"

Kagan analyst Ian Olgeirson agreed, saying in an interview that he viewed Comcast's growth in wireless as "pretty positive so far," especially considering that mobile is "a mature sector." Olgeirson, along with Kagan analyst Tony Lenoir, recently estimated that based on Comcast's performance and the recent introduction of Charter Communications Inc.'s Spectrum Mobile, they expect the cable sector could end 2018 with more than 1.5 million wireless subscribers.

Still, Olgeirson noted Comcast is in somewhat of a "delicate position" given that Xfinity Mobile leverages both Comcast's network of Wi-Fi hotspots and a mobile virtual network operator agreement with Verizon Communications Inc. As such, the more usage that occurs off Comcast's Wi-Fi network, the more Comcast has to pay to Verizon.

Comcast has already taken steps to limit data usage off the Wi-Fi network. For instance, the company earlier this month set 480p as the standard resolution for streaming video through cellular data. With its lower resolution, 480p is roughly DVD quality and consumes significantly less data than the 1080p of high definition.

Entner said this is both a sign of how Comcast is growing and how customers are using the Xfinity Mobile service.

"What this indicates to me is Comcast is paying Verizon by the gigabyte, and people are watching their Comcast content on their mobile devices," he said, noting that T-Mobile US Inc. has similarly set 480p as its resolution standard for its unlimited video streaming service BingeOn. While the lower resolution may not sound as good to customers, Entner said it generally does look as good.

"On a mobile handset, the difference between 480p and HD is not that great," he said. "The screen is so small that your eyes can't see the difference."

S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc. Kagan is a media research group within S&P Global Market Intelligence.