Comcast (CMCSA) has become the first major cable company to begin offering wireless broadband accessible through a data card connection. The company is rolling out its initial launch in Portland, Oregon today, and intends to have the service available in Philadelphia, Atlanta, and Chicago later this year. Comcast, whose stock has fallen 16% this year, is trying to capitalize on the growing demand for mobile accessibility to internet and data services. Comcast has long been known as provider of cable television, internet and telephone services to customer’s homes, but with “Comcast High-Speed 2go” Comcast is starting to provide services to customers on the go.
The network will utilize the fourth and newest generation of wireless technology or 4G, also known as WiMax. The idea is to have the network blanket an entire metropolitan area instead of the Wi-Fi hotspot which provide high speed broadband internet only for a short distance. The actual 4G network will be provided by Clearwire (CLWR), and this is the first incarnation of a product between Clearwire and Comcast since the two partnered together. Comcast has spent more than $1 billion in this partnership last year alone. Obviosuly, the 4G network is still a work in progress, so where not available Comcast will rely on the 3G network technology of Sprint/Nextel (S).
The original promotion will reportedly be available for $49.95 per month for the metro service, which will include Comcast wired home service as well as a Wi-Fi router. The non-promotion price is $73, and if you want nationwide access through Sprint’s network it will cost an additional $20. It is not hard to imagine where Comcast will try and take this business; eventually abandoning wired internet service for the ease and mobility of wireless service. Over the last few years the same transition has occurred in telephone services with households opting out of wired lines in favor of mobile phones, it is not much of a stretch to imagine seeing the same shift in internet service providers. However, for now there are limitations and concerns about the strength of the signal penetration indoors, which could adversely effect speed. In the near term it will be a supplement to the wired service rather than a replacement. Furthermore, eventually Comcast would also like to offer their WiMax service to cell phones although no timetable has been revealed.
The line between cable companies and telecom companies continues to blur. The telecom companies have thus far successfully infiltrated the television market, and now Comcast has become the first to roll out its much anticipated 4G broadband network. As we mentioned earlier, Comcast stock has taken a hit this year even as the broad market has show gains. At Ockham, we believe that Comcast stock has been too hard hit in this market, and the underlying fundamentals still suggest strength. Earnings have outpaced estimates the last 3 quarters, and appear to rebounded from there low point last year. Comcast receives a Greatly Undervalued valuation according to our ratings methodology, because the stock is selling well below its normal levels of price-to-sales and price-to-cash earnings. Using a conservative expectations for long term earnings estimates (in this case fiscal 2010) of $1.09, well below consensus estimates, for Comcast to come back into more historical valuation ranges we would expect the stock to sell for more than $24.
Today’s announcement shows that Comcast is more than a “one-trick pony”, they are actively trying to grow their service offering. There are of course concerns over Comcast’s core business for cable television surrounding the prevalence of television shows being available for free on the internet, but thus far it has not had an adverse effect on earnings. Furthermore, Comcast aims to grab a large share of the WiMax market, so if you are Comcast and the internet threatens your television content, simply become a bigger provider of intenet. Of course, it is more complicated than that, but there is no doubt that Comcast is getting a leg up on the competition in the next generation of internet access.