NEW YORK (TheStreet) -- Comcast (CMCSA - Get Report)  seems to win all the battles when it's really losing the war.

The war in question is between the Internet Core, represented by Google (GOOGL) and Netflix (NFLX - Get Report), and the Internet Edge, represented by companies such as Comcast and Time Warner Cable (TWC) as well as the phone companies AT&T (T - Get Report), Verizon (VZ - Get Report), and CenturyLink (CTL - Get Report).  

Internet Core companies operate by sending bits out of a data center and therefore are more nimble and with lower costs than Internet Edge companies, which manage the actual connections and the physical network needed to run them. While such concepts can be a blur for customers who can buy content from both, Edge companies are finding it more and more difficult to get paid for the transmission of content. 

Comcast certainly won another battle this quarter. Revenue was up 3.5%, cash flow was up 7%, operating income was up 10.7%, and earnings per share were up 16.9%, beating analyst estimates at 76 cents per share.

The stock rose and now trades at a Google-like price-earnings multiple of 19.4. But the casualties of the ongoing war were also disclosed with Tuesday's release. The number of video customers kept falling with a drop of 144,000 to 22.46 millions. The number of Internet-only customers rose by 203,000, but these accounts have lower Average Revenue per User than video accounts. 

The net neutrality fight is over who pays for bits that travel from the core companies to the edge ones. Under the traditional doctrine of "peering," bit traffic is designed to be two-way as in a traditional phone call, or the sender of bits is supposed to pay for use of the recipient's network. The Federal Communication Commission (FCC) has been trying to find a way to enforce peering rules in an age where people want video streams and think their Internet Service Provider (ISP) bill pays the full costs of delivery, which it does not. Millions of people complained against the FCC proposal fearing that it may put an end to the "open Internet age," but what the regulator is trying to do is simply have core companies paying for the "last mile" delivery.

This is especially important when it comes to edge networks, which cost more to maintain and upgrade than core networks. To upgrade a core network you may have to run a new fiber line, or you may just have to upgrade the electronics in a data center so that the fiber between centers recognizes more "colors" and thus has more capacity. To upgrade an edge network you have to run trucks -- most edge networks still lack fiber to the home that could be remotely upgraded. Maintenance also means costly truck runs.

Comcast has  been fighting net-neutrality rules that would overrule traditional peering norms. It insists that core services like Netflix pay it for carriage through its edge network, since video downloads are one-way traffic. Users, who never like to pay extra are overwhelmingly opposed to the FCC proposals for allowing this, and to Comcast.

The load represented by video streams is no longer as great as it was, because of a better  technology to compress the streams and send them. Special deals may mean a better picture for those who have lots of streams to move but not that stream will not be possible. The rules won't force TheStreet.Com (TST), for instance, to pay Comcast extra so you can watch Jim Cramer's latest market calls. We don't do that kind of volume as an HD movie can do.

Modern battles are won through economics, not marketing and lobbying. The core Internet is winning the market because of technology trends. Google is winning because i has a better cost structure than Comcast. It can do more with its capital than Comcast, which is relying on high-end video from its networks and control of the edge for future profit.

Comcast can shift the market battlefield. It can buy core assets, providing cloud and cloud-based services. It can become more balanced between the consumer core and the edge, buying core companies such by Yahoo! (YHOO). It could become more balanced between the business core and the edge, buy Rackspace  (RAX). It has the capital to do that. 

But the trend in the Internet market is clear. Edge assets don't draw sales like data centers, and they wear down. Comcast's Internet revenue can't catch up with those of video, and it can't stop core assets from reaching its "captive" subscribers.

Eventually, the net neutrality advocates will win the day, and where will Comcast be then?  

At the time of publication the author had a position in CMCSA and GOOGL.

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

TheStreet Ratings team rates COMCAST CORP as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate COMCAST CORP (CMCSA) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its solid stock price performance, growth in earnings per share, increase in net income, revenue growth and notable return on equity. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • COMCAST CORP has improved earnings per share by 16.9% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, COMCAST CORP increased its bottom line by earning $2.56 versus $2.29 in the prior year. This year, the market expects an improvement in earnings ($5.82 versus $2.56).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Media industry average. The net income increased by 14.9% when compared to the same quarter one year prior, going from $1,734.00 million to $1,992.00 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 12.4%. Since the same quarter one year prior, revenues slightly increased by 3.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Media industry and the overall market, COMCAST CORP's return on equity exceeds that of both the industry average and the S&P 500.