How Will Comcast Fare?
Comcast’s stock price is near its one-year low, but I am selling my shares, and I recommend sale of the stock in general. If the “death match” continues along its current path, it seems the cable companies have the most to lose. Comcast is the largest cable company and may be one of the final few telecom giants left standing, but I think that could be years from now.

More and more people are dropping their wirelines for wireless phone service, which doesn’t bode well for Comcast’s bet on VoIP. Wireless revenues exceeded local phone service revenues for the first time last year.*

Cable’s share of U.S. households shrunk from 83% to 72%, while satellite TV’s market share increased from 13% to 24% over the last four years.*

If their previously estimated 12% growth rate and $24 billion long-term debt made me nervous about recommending puchase of Comcast, a 6% growth rate (Kalla’s prediction for cable companies) makes me not even want to own the stock.

*Barron’s, “Telecom Death Match”, June 21, 2004

“Sharp Discounts that Don’t Provide a Return on Capital”
This drastic competition for each other’s products is the problem that will result in less than 1% annual revenue growth for the industry, according to an in-depth industry evaluation done by Susan Kalla, a senior telecom analyst at Friedman Billings Ramsey Group, and reported in this week’s Barron’s article “Telecom Death Match.” (Normally I am not so strongly swayed by an analyst’s opinion, but I remember her call to sell telecom equipment stocks in early 2001, based on her survey of those people at the service providers who were in charge of ordering telecom equipment for their companies. She was right then, because she went to the source for demand.)

Kalla’s conversations with corporate buyers of telecom services and company executives lead her to conclude that this aggressive bundling at sharp discounts will result in declines in revenues for each sector from 5% to 10%. Plus, their costs to provide the new services are not small. Verizon is spending $2 billion to rollout its internet services and plans to charge $110 a month for voice, video, and data, which households typically pay $160 for; the cable companies, according to the Barron’s article, have spent $63 billion to upgrade their systems for voice and data; telephone companies are charging as little as $30 a month for DSL, a no-profit situation, just to keep their wireline phone business customers from switching to wireless.

Comcast vs. the Other Telecoms
A long, drawn-out battle is underway between the cable companies, the satellite TV companies, and the telephone companies, in which each group now offers or will soon offer the same services as each other at ever-cheaper prices, preventing much real growth for any of these “bundlers”. And the cable stocks appear to be the most vulnerable as this war plays out.

Morphing into One Commodity
Everyday you hear or read about new deals and new offerings as each kind of telecom company struggles to sell all the commodities of the telecommunication industry: content and programming, internet access, and voice communication. Here are some announcements I have read in the last month that indicate this morphing:

• Both Sprint and Verizon have recently announced wireless broadband internet services on their mobile phones.
  
• Cablevision will charge new customers only $29.95 a month for advanced digital video, voice services, and high-speed internet access, if all three services are purchased together.
  
• SBC, Verizon, and BellSouth have all made deals with EchoStar Communications or DirecTV to bundle satellite TV with their DSL services. Some of the Bells are laying fiber lines so that they can offer video.
  
• Comcast and other cable companies intend to make voice over internet protocol (VoIP) available to their cable customers in the not too distant future.