Why 'Comcast' Spells 'Monopoly'

NEW YORK (TheStreet) -- Comcast (CMCSA) is determined to become a new kind of monopolist, combining elements of the old AT&T (T), Fox (FOX) and Disney (DIS) empires.

The AT&T part is simple, and that is nearly in place.

By using its massive lobbying power in Washington -- it has contributed to nearly every senator overseeing its pending acquisition of Time Warner Cable (TWC) -- Comcast first intends to become the dominant Internet pipe in the country.

This opportunity first presented itself almost 20 years ago, through a technology called Data Over Cable Service Interface Specification, or DOCSIS. Fiber overlays and fat cables designed for video let cable deliver far more broadband to customers than the phone industry's DSL technology, and that advantage has only grown with time.

This means that while cable could upgrade its plant at a measured pace, the phone companies have had to replace copper wiring at customers' homes to catch up. Systems like AT&T's U-Verse and Verizon's (VZ) FiOS are more competitive on sheer speed but are still trailing in market share.

Combine the subscriber counts of Comcast and Time Warner Cable during the first quarter of last year, and you get nearly as many broadband customers as Verizon, AT&T, and CenturyLink (CTL), which runs the old US West, combined. Another way of putting that is that Comcast will have more consumers buying its Internet than the entire Bell system.

The second leg of the plan, vertical integration, is also in place.

The purchase of NBCUniversal a year ago means that Comcast owns much of the programming going through its cable plant. When Comcast the cable company buys NBC Sports rights, or NBC network shows, or rights to show a movie owned by Universal, it is writing checks to itself.

This is what 21st Century Fox (FOXA) was after through the purchase of the BSkyB satellite system in Europe, an effort that was thwarted by scandals at News Corp. (NWS) newspapers. Having divested the newspapers, the company may try again. But they will still be behind.

The third leg, the Disney leg, is now beginning to happen. Having gotten the monopoly power of AT&T over broadband, and the monopoly power of Fox through integration, Comcast now wants the power Disney has to deliver complete experiences through a network of theme parks.

This also came through the NBCUniversal acquisition. Universal owns two theme parks, one in California and one in Florida, and Comcast is now investing heavily in expansion, including building the hotels needed to house guests.

The aim in this case is not to own the space, but to gain the same level of profitability Disney has by controlling licensed merchandise from its creation to its final consumption. The Philadelphia Inquirer notes that Comcast's budget for the parks has increased fivefold since they were acquired.

For investors, all this should mean outstanding profitability. Comcast has generated more than $14 billion in annual operating cash flow for three years now, and that could be ready to accelerate. It has been steadily increasing revenue while maintaining margins in the range of 20%. Despite its huge investments, its debt-to-asset ratio remains less than 25%.

AT&T's debt-to-assets ratio is higher, and it lacks top line growth. Fox has less than half Comcast's revenue and lower margins. Disney's cash from operations is just two-thirds that of Comcast's.

AT&T, of course, has been around since the 19th century and won its monopoly status in telephony early in the 20th century. Rupert Murdoch has been building his media empire since the early 1950s. Comcast's history in its current form, under CEO Brian Roberts, dates to just 1990.

Had you put $1 into Disney stock back in 1978, you would now have more than $10,000, which is impressive. But if you had put $1 into Comcast stock, the small cable operator then run by Roberts' father Ralph Roberts, in 1978, you would now have more than $120,000.

Comcast hasn't invented anything. Its innovations have been copies of what other companies were already doing. But it has been a stellar investment, and looks set to remain one.

At the time of publication the author owned no shares in companies mentioned in this story.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

 

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