Business
The company, which reports first-quarter earnings tomorrow, should “roughly match” the fourth quarters 47 percent growth in small-business sales, said David Joyce, a New York-based analyst at Miller Tabak & Co.
Such sales totaled $558 million last year. While thats a small chunk of Comcasts $34.3 billion in 2008 revenue, Chief Executive Officer Brian Roberts has increased his small-business sales force sixfold to grab share of a market he has said could supply at least $12 billion in annual sales in areas where Comcast already has residential customers.
“Small businesses are the fleshy underbelly of the phone companies” and have long been neglected, said Chris Marangi, a Rye, New York-based analyst at Gabelli & Co. “This is where they have faced less competition at big margins.”
Comcast has ramped up its small-business sales staff to 1,200 from 200 over the past three years ago to pounce on the opportunity. Last year, a salesman approached Jack McManus, who owns a four-person advertising firm called Promotional Outfitters in Alpharetta, Georgia.
Switching to the cable provider after nine years with AT&T Inc. was a “no brainer,” said McManus. Comcast offered high- speed Internet, cable and four telephone lines with unlimited long-distance for $148.12 a month. AT&Ts $365 package had half the Web speed and four lines with varying long-distance rates.
Loath to Reprice
Historically, phone companies have kept residential costs down by charging higher prices to commercial customers, said Craig Moffett, an analyst at Sanford C. Bernstein & Co. in New York. As the industry evolved and costs to carry business service fell, the savings werent passed on to those customers.
“The phone companies are loath to start repricing their base because thats where they all make money today,” said Moffett. “The small-business market is underserved and overcharged, which makes it relatively easy for a new entrant to take share.”
Small- and mid-sized businesses may be a source of more than $30 billion in mostly untapped annual sales, Moffett said.
Miller Tabaks Joyce said he expects Philadelphia-based Comcast to sign up subscribers who are “fed up” with their incumbent providers.
Business contracts also are typically more profitable than residential subscriptions because cable companies dont have to deal with TV programming costs, Gabellis Marangi said.
“A phone and Internet mix, without television, brings in about 70 percent to 80 percent gross margins, much higher than when TVs involved,” Marangi said. Gross margin, a measure of profitability, is the percentage of sales left after subtracting production costs.
As cable providers expand small-business sales, phone companies have either lost customers or seen growth stall. AT&Ts sales to small business fell 3.3 percent to $2.3 billion last quarter while Verizons small-business unit brought in $1.2 billion, little changed from a year-earlier.
Verizon is spending $23 billion and AT&T as much as $7 billion on TV and Internet service to keep customers from switching to cable, Web and phone packages offered by Comcast and its peers. AT&T said its U-verse TV will reach 30 million homes in 2011. Verizons FiOS TV service will be available to 18 million U.S. homes by the end of next year, the company said. It had 2.2 million TV customers at the end of last quarter.
First Quarter
Comcast will probably report tomorrow a 4.4 percent increase in first-quarter sales to $8.76 billion, based on the average of 17 analysts estimates compiled by Bloomberg. Net income may have fallen 10 percent to $657.6 million, or 23 cents a share, the average of 10 analysts projections.
Comcast rose 87 cents, or 6.1 percent, to $15.06 at 2:24 p.m. New York time in Nasdaq Stock Market trading. AT&T gained 6 cents to $25.71 on the New York Stock Exchange. Verizon Communications Inc., the second-largest U.S. phone company, fell 35 cents to $30.61.
AT&T said it remains focused on small business and looks to that market as a way to drive future growth. “Were absolutely not neglecting small businesses,” said John Kampfe, an AT&T spokesman. “Were providing low-cost alternatives for these businesses and can match or beat cables Internet prices.”