Comcast Cuts Raise Fears on Price Front

Investors can't stop worrying about high-speed Internet pricing among cable companies.

Over the past year, most major cable operators have repeatedly said they feel no pressure to cut prices on cable modem service in order to compete with telcos' offers for high-speed Internet connections via DSL.

But as Comcast (CMCSA Quote) -- the nation's largest operator of cable systems -- has seen in recent days, investors are quick to see signs that pricing of broadband Internet service will crumble among cable operators.

Though industry executives and analysts say such lower prices might make sense a few years out, as the high-speed Internet market matures, any indication that high-speed data subscription prices are falling more quickly than expected would call into question a major part of the cash flows that investors expect cable operators to reap from advanced services.

And unfortunately for cable operators, investors are quick to see such indications of pricing weakness, no matter how much the cable operators insist they aren't there.

The latest example: reports that Comcast was offering a one-year discount on high-speed Internet service in selected markets for $19.95 a month, less than half of the company's standard monthly basic rate of $42.95. Reported Nov. 7 on the broadbandreports.com Web site, news of the promotion was picked up last week by CNet, USA Today and Reuters.

Though the emailed offer was limited, says Comcast, to current customers for DSL service in three states where Comcast offers high-speed Internet service, some observers saw the offer as a sign that cable operators are effectively dropping prices for cable modem service -- or, at least, as a reminder that pricing is a front-and-center issue. "We believe Comcast's promotion clearly heightens price competition as the company specifically targets the current DSL subscriber base," wrote Merrill Lynch analyst Jessica Reif Cohen in a note Monday.

Comcast's shares traded at $31.14 Tuesday, down 56 cents. The stock is down 8% since the beginning of the month.

Terms of Endearment

A particularly striking element of the promotional offer was the one-year term. Late last month, when Comcast reported its third-quarter financial results, the company said that a decline in monthly revenue per broadband customer from the second quarter was due to promotions that involved up to six months of discounted service. News of one-year discounts so soon after Comcast's discussion of six-month discounts could be interpreted as rapidly deteriorating pricing.