Comcast Attacks FiOS by Deploying Faster Speeds in New England Markets with Up to 50 Mbps Downstream

| Oct 23, 2008 | Digital Home - U.S. | Competitive Intelligence Reports

| Analyst: Bruce McGregor

Current Perspective: Positive
Vendor Importance: High
Market Impact: Moderate

Event Summary

October 22, 2008 -- Comcast disclosed its ongoing plans to launch faster residential and business broadband services in several of its Eastern markets, including the Boston and Philadelphia metro areas, through its DOCSIS 3.0 deployment in a few weeks. The largest cable company intends to reach over ten of its major markets, passing almost ten million homes and businesses over the next several months. The new residential tiers include Extreme 50 (50 Mbps downstream and 10 Mbps upstream) and Ultra (22 Mbps downstream and 5 Mbps upstream). In addition, existing Comcast broadband tiers’ downstream speeds will be doubled.

Analytical Summary

• Current Perspective: Positive on Comcast’s moves to increase its broadband speeds, because it has been threatened by Verizon’s FiOS Internet offerings. Now, both Comcast and FiOS can compete to attract high-end broadband users with the enticement of up to 50 Mbps downstream. This next launch of Comcast’s DOCSIS 3.0 wideband initiative will focus on markets competing with FiOS, including Boston, Philadelphia, and parts of New Jersey, unlike the initial launch of 50 Mbps service back in April 2008 in the Twin Cities market, part of Qwest’s territory.

• Vendor Importance: High to Comcast, because it put forth lofty goals in January 2008 through its Project Infinity initiative to meet the challenges of an increasingly competitive digital home market with faster broadband speeds and more high-definition programming. The largest cable company will have to stay on task to meet its deadline of faster broadband speeds to ten million households and businesses over the course of the next few months.

• Market Impact: Moderate to high on the digital home services market, particularly Comcast’s broadband rivals, because they need be to able to respond to the cable giant rolling out up to 50 Mbps downstream high-speed Internet service across New England this fall and more markets throughout 2009. The move will have a high impact on Verizon in particular, since most of Verizon’s broadband growth has come from its FiOS services and the new Comcast download speeds are targeted to match today’s FiOS Internet portfolio. However, in uncertain economic times, the market for broadband speeds exceeding 10 Mbps downstream could become weaker, especially at elevated price points of $63 and $140 a month.

Recommended Competitor Actions

• Verizon should continue its pursuit of deploying FiOS Internet in more neighborhoods across its territory (with over 11 million premises passed halfway through 2008). Over time, more aggressive FiOS bundle pricing will be needed to stay competitive with cable offerings.

• Verizon should give its GPON upgrades priority in markets where DOCSIS 3.0 is being deployed since GPON quadruples the capacity of the BPON architecture initially used for FiOS deployments. Doing so will position FiOS with speeds even DOCSIS 3.0 cannot touch.

• AT&T also needs to commit to a FTTP architecture across a majority of its footprint if it intends to compete with Comcast and other MSOs on Internet connectivity speeds beyond the 10 Mbps downstream available with its current ADSL and VDSL architectures. At the end of Q3 2008, AT&T U-verse was commercially available in over 14 million living units with 781,000 customers.

• ADSL providers such as AT&T, Verizon, and Qwest should stress that they have cut their rates to as low as $10 to $25 a month for budget-conscious consumers. With a 6-7 Mbps service already widely deployed, ADSL providers should also point out that most users will not see a substantial speed difference for common applications such as Web surfing, chat, and e-mail — and that the speed difference for bandwidth-hungry users comes with nearly a $120 premium.

• The major phone companies should also point out that, so far, they do not impose a usage cap, a potential competitive advantage over Comcast and other cable providers. Moreover, major telcos should capitalize on their business data experience, network infrastructure, and OSS/BSS advantages as they consider a CoS/QoS-based consumer Internet service.

• Other broadband providers need to support Comcast’s recent actions and not grossly cap bandwidth with monetary penalties, but instead limit available speeds to the few high-demand users that are compromising their networks.

Recommended End User / Customer Actions

• Broadband customers should avoid buying the fastest speed just for the sake of having the fastest speed; rather, users should evaluate how they would benefit from ultra fast speeds. While a faster high-definition movie download is clearly possible with a 50 Mbps connection compared to a 1.5 Mbps downstream connection, most consumers do not consistently need such high speeds and the price premium may not be worthwhile for the occasional demand in bandwidth.

• High-speed Internet users comparing Comcast Extreme 50 to Verizon FiOS should also look at the upstream speeds they need. Some residential users that have a home office and send out large files might prefer FiOS over Comcast, because it offers upstream speeds (20 Mbps) that are twice as fast for about the same price of $140 for 50 Mbps downstream. In addition, FiOS offers a 20 Mbps symmetrical service for $64.95 a month.

• As Comcast launches the new Extreme 50 and Ultra tiers in service areas where FiOS is available, customers should be prepared to negotiate with both Comcast and FiOS for the best possible value based on their bandwidth requirements, especially when it comes to bundle discounts that include the higher speed tiers.

• All consumers should look at the value of their entire triple play bundle and decide if an a la carte menu is preferable given their unique requirements for voice, video, and data. In some cases, it may be sensible to buy a broadband connection from a different provider, as opposed to buying a fully bundled offer; in other cases, that value of the entire bundle may outweigh a faster Internet connection speed.

CLIENTS ONLY

Current Perspective

Competitive Positives and Concerns

Recommended Vendor Actions

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