Comcast's broadband pickle

Comcast announced this week its intention to issue a stock dividend and to buy back $7 billion of its stock to keep the price up. The move calls into question its strategy for future rollouts and upgrades of broadband services.

Growth companies don't issue dividends or make stock buybacks, since that money can be invested in opportunities that eventually lead to a higher return. Comcast's $7 billion payout is an acknowledgement that the company is utility than innovative growth stock.

The buyback represents a major exit of capital from the business that could otherwise be applied to growth of Comcast's key operations - such as a high speed broadband infrastructure or an expansion of existing services into the half of the country that has no broadband at all.

According to this Wall Street Journal story, "Cable investors have complained about expensive upgrades sapping free cash flow..." To boost that and salve investors' irritation, Comcast is cutting back on capital expenses as a percent of total revenue. It's apparent that the financial benefits of broadband infrastructure build-out do not accrue fast enough to meet the expectations of investors.

Comcast is feeling the pressure. Its traditional business is shrinking. It lost 94,000 cable subscribers last year. It did gain 331,000 new high-speed Internet customers in 2007, but the rate of growth has been declining, slowing by about one third over the previous year. That's probably one reason why investors aren't so hot on seeing more money poured into broadband infrastructure capital projects. Comcast continues to mine revenues from its existing broadband infrastructure by stealing away teleco customers with its digital telephone services, but the company does not appear to be interested in pushing basic broadband infrastructure deeper into rural areas, and efforts to provide higher speed Internet services in metro areas aren't exactly surging ahead.

As I wrote last time (see Trouble in FiOS land), the only other serious competitor for broadband services - the telephone companies, lead by Verizon and AT&T - face the same market forces that are pushing communications companies to slow - or even divest - infrastructure efforts in some areas.

Comcast's financial moves represent a continuing flight of capital from the broadband markets and puts another dent in the argument that markets alone will create the kind of broadband infrustructure that's vital to the United State's long-term prosperity.