One of the reasons I remain bullish on Comcast (CMCSA/CMCSK) is that the much feared price war over the components of the triple play – cable TV, high speed internet, and telephony – has not come to pass. In fact, what has long been feared to be a fight to the death is looking a little more like oligopoly with rational competition. If evidence continues to mount that pricing will be firm over the next eighteen months, recently soured sentiment toward cable should improve dramatically. Add that to quarterly reports showing low to mid teens growth in revenue and operating income from Comcast and the other major cable companies and a sharp rebound in CMCSA shares is setting up. I own a small position in CMCSA and CMSK today and have an itchy trigger figure to build it out to a full position.
Last week two separate research reports came out that noted the benign pricing environment. Cable analyst Jessica Reif of Merrill Lynch and her telecom counterpart David Janazzo noted that that cable companies and their satellite counterparts each increased pricing on TV services by 1-5% this spring. Verizon (VZ) and AT&T (T) are just getting started in TV but thus far they are not competing on price. Merrill Lynch also noted that high speed internet pricing is stable with cable holding pricing and VZ and T eliminating most of their super discounted, entry level DSL packages. Telephony pricing has also been stable with cable using the triple play bundle and VZ and T responding through bundles of their own rather than discounting their cash cow….

Credit Suisse came to similar conclusions when updating a report on the pricing of the bundled service packages. They found that the companies were not competing on price, with most bundles having shown little price change vs. a year ago. Competition was intense but the companies were using “marketing gimmicks” and differentiated products (e.g. higher speeds for cable internet) to entice consumers. Credit Suisse also noted that there is very little difference in pricing between the cable and telephone company bundles and that most customers end up paying more than the $99 triple play price because of the attraction of DVRs, high def TV, and premium channels.
If pricing holds and quarterly revenue and EBITDA growth continues to impress, the one remaining obstacle to improved performance for cable stocks is a plateau in capital spending as a percentage of sales. This would indicate that EBITDA growth would translate to free cash flow and entice investors to pay up for the 14% three year CAGR in EBITDA that Comcast management recently forecast.
I think that investors will find reason to believe as the next tow quarters are reported. I’m probably being a little too cute but I am looking to up my position in Comcast closer $25. My feeling that the market ahs entered a more difficult period is weighing heavily on my desire to look for another buck lower before pulling the trigger.