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3 Reasons Why Investors Should Avoid Comcast Corporation

Companies like Comcast and Time Warner Cable are directly tied to consumer trends, what the consumer wants, and will want in the future. Unfortunately for Comcast and Time Warner Cable, both have fallen victim to service that has become second-tier, or could very well become so in the coming years. Specifically, a large part of Comcast's business is landline phones, pay-TV, and Internet, all of which are facing an uncertain future, at least for Comcast.

The irrelevance of landlines get worse

It's no surprise that consumers have elected to terminate their landline phone use, or have chosen to never use them. After all, wireless phone service is now essentially nationwide, with talk time being as cheap as many landline plans.

With that said, the National Center for Health Statistics estimates that 41% of U.S. households are wireless-only, and that 66% between the ages of 25 to 29 use cell phones exclusively. This data implies that the overall statistics for landline use will also worsen in the coming years -- and decades -- which is no surprise. But, with landline phones being one part of Comcast's triple play, this data is noteworthy nonetheless.

Internet problems arise

Comcast's bigger problems lie in Internet and TV; as for the former, the company is now competing against services that are many times faster.

Comcast's fastest residential Internet option is called Extreme 105, which delivers speeds up to 105 megabits per second, or Mbps. While fast, its $89.99 price tag is quite high, especially when Google Fiber is taking the broadband market by storm with speeds of one gigabit per second, Gbps, 10 times faster, for only $70 a month.

While it will take several years to build Fiber across the U.S., Google is building the service to demand, and of the 364 neighborhoods that either have Fiber or have registered, only 16 have not qualified because of lack of demand. In other words, consumers want Fiber, and they are switching when and if it's offered in their neighborhood.

With that said, Fiber is only in three cities, but is expanding into 34 additional cities. Meanwhile, AT&T's Uverse GigaPower has speeds up to 300 Mbps, will increase to 1 Gbps, and has plans to expand to 100 cities. Then, CenturyLink will also launch 1 Gbps service in Portland, Oregon, followed by another 15 cities based on usage patterns.

Therefore, with such steep competition, Comcast's Internet business is clearly at risk. In the past, Comcast had one maybe two competitors, often Time Warner Cable included, but now both Google and AT&T are rapidly building faster networks to compete. So, Comcast could lose customers; to avoid that fate, it'll have to lower prices, affecting revenue or margins either way.

Up until this point, broadband has been Comcast's best-performing segment, creating revenue of $2.8 billion in its last quarter with 9.7% year-over-year growth. However, given the increased competition, Comcast's broadband segment might not look so promising in the future.

Problems in cable

Pay-TV is alive and well, but it does face an ongoing threat from streaming giants like Netflix , a company with over 50 million global users. Much like millenials are responsible for the death of landline phones, they are also electing not to use pay-TV.

nScreenMedia states that 19% of millenials do not have pay-TV, with nearly all having no plans to subscribe. Meanwhile, eMarketer estimates that one in five consumers age 18-29 have Netflix, and that 20% of all U.S. Netflix users have cancelled their pay-TV subscriptions; this doesn't take into consideration other streaming options, like Amazon.

Not to mention, and perhaps most importantly, many of Comcast's top Internet competitors, like AT&T, and now Google, are also offering video options with Internet packages. As of Comcast's last quarter, it had 21.3 million broadband users; if it acquires Time Warner, it'll have 30 million total subscribers.

But, of those 21.3 million, 36% are triple play, and 80% of Comcast's total revenue comes from voice, video, and Internet. Furthermore, 65% of its revenue comes from NBCUniversal and cable. Therefore, we can assume that cable is Comcast's most important piece, but if users switch to Google or AT&T Internet services, there's also a good chance Comcast will lose cable subscribers as well.

Foolish thoughts

As seen, each of Comcast's triple play services are highly connected to the other, as one of the company's biggest advantages is that it leads the nation in triple play subscribers. However, with faster and competitively priced options coming in broadband, Comcast will likely need to invest in infrastructure and in boosting Internet speeds. While Time Warner Cable will take Comcast's total subscribers over 30 million, it'll also add more than $20 billion in debt, thus making large network upgrades more complex.

With that said, Comcast is a near $150 billion company with a nationwide presence, and it has services that expand beyond voice, cable, and Internet. However, these triple play services are the most important, and for the first time, these services are at a competitive disadvantage. As a result, investors might be best served by avoiding Comcast, especially for the long-term.

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The article 3 Reasons Why Investors Should Avoid Comcast Corporation originally appeared on Fool.com.

Brian Nichols has no position in any stocks mentioned. The Motley Fool recommends Google (A shares), Google (C shares), and Netflix. The Motley Fool owns shares of Google (A shares), Google (C shares), and Netflix. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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