Comcast (NASDAQ:CMCSA) added 278,000 new subscribers to its Xfinity Mobile wireless service in the first quarter. It now counts over 3 million subscribers total.
While that pales in comparison to the big three U.S. wireless carriers, Comcast surpassed a very big milestone. Its wireless business was profitable on a stand-alone basis.
The hierarchy of benefits of Xfinity Mobile
Comcast launched Xfinity Mobile in 2017, activating an MVNO agreement with Verizon (NYSE:VZ) it negotiated several years prior. Charter Communications (NASDAQ:CHTR) activated a similar agreement with Verizon around the same time.
Since then, things have played out exactly as management had hoped. President and CEO of Comcast Cable Dave Watson reviewed those benefits at an investors conference earlier this month.
The first benefit was a reduction in broadband churn. Xfinity Mobile is only available to Comcast internet customers, so if a wireless customer wants to switch their home internet provider, they’d have to find a new wireless provider as well. Broadband churn has declined 13 quarters in a row, Comcast CEO Brian Roberts said on the company’s first-quarter earnings call.
The second benefit is that the service can drive consideration of Comcast and its bundle of services. “Channels for us like retail, it really brought to life foot traffic and interest of going into a cable store that maybe wasn’t as present before,” Watson explained at the conference. “So mobile has energized our sales channels and really all of our sales channels, including digital, whether it’s our call center agents and/or retail.”
And as the business scales, there’s real potential for Xfinity Mobile to become a driver for profit growth. One of the big reasons Comcast has reached breakeven with just over 3 million subscribers is because of its low incremental costs. It mostly uses Verizon’s network, it has retail stores in place already, and it has an existing customer base of 33 million to sell into.
Comcast may try to keep the wireless business operating around breakeven EBITDA for the foreseeable future in an effort to scale the business.
In April, the company started offering price cuts for customers bringing multiple lines to Xfinity Mobile. During the earnings call, Watson says he doesn’t expect the change to materially affect revenue per user or EBITDA.
Moreover, Comcast is starting to deploy its wireless spectrum holdings to build out its own wireless network in dense populations. Comcast holds some 600 MHz spectrum and some 3.5 GHz CBRS spectrum it acquired in 2017 and 2020, respectively.
Charter holds some spectrum licenses as well, and it’s partnered with Comcast for further investments in building out their wireless networks. Watson said the two companies are in alignment and working in tandem on how to build out their own wireless networks.
In the long run, owning a network offers better economics for the telecom companies. “We’ll be doing some trials to see how we can offload, and that really will prove to be a cost savings if we get it right in dense areas,” Roberts said during Comcast’s first-quarter earnings call. Likewise, Charter CEO Tom Rutledge said, “There’s continued opportunities to take advantage of [owner’s economics] in the near term and the long term to create additional value,” during Charter’s first-quarter earnings call.
Deploying spectrum to build out a network will be a major capital expense. But with the underlying profitability of the mobile business proven out, Comcast is now ready to invest more in the service in order to make it as profitable as possible.
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