DBRS Upgrades Comcast to BBB (high)

Dominion Bond Rating Service (“DBRS”) has today upgraded the ratings on the Senior Unsecured Notes and Debentures of Comcast Corporation (“Comcast”) to BBB (high) from BBB. The Commercial Paper rating has also been confirmed at R-2 (high). This resolves the positive trend placed last year and now all trends are Stable.

The upgrade on the long-term debt reflects Comcast’s improvements to its financial profile including a strong balance sheet and generation of meaningful free cash flow in an intense competitive environment. Secondly, Comcast is executing its strategy of continually improving its core services with new services (such as VOD, HDTV, DVRs, digital simulcast, and increased broadband speeds). These features/add-ons are having a positive impact on customer churn and are a key driver to growth. From a strategic competitive perspective, satellite operators are not able to replicate all of these enhancements due to current technology limitations. Furthermore, this increases the hurdles for telco operators looking to launch a comparable video service of their own. DBRS believes this strategy will help secure Comcast’s long-term customer retention and hence the ability to further cross-sell and grow.

Comcast is able to offer a facilities-based ‘triple play’ of services, including video, Internet, and telephony (telephony is being rolled-out and is currently available to approximately 20 million homes passed or 50% of Comcast’s footprint). DBRS believes this should present Comcast with a window of opportunity to bundle telephony to high-valued customers with multiple services, which contributes to decreased customer churn and drives EBITDA growth. However, DBRS notes this window of opportunity is not sustainable and it is simply a matter of time before telco operators launch full triple-play service (several telco operators have begun to test video services in select markets).

DBRS views the pending Adelphia Communications Corporation acquisition as neutral for Comcast’s long-term debt rating. It allows Comcast to divest is stake in Time Warner Inc. in a tax efficient manner and better cluster Comcast’s assets.

As a result of this upgrade, Comcast is at the top of the range of DBRS’s rated cable operators. However, DBRS believes Comcast’s credit profile would need to approach the strength of its telco competitors before further long-term rating improvements are considered. Additionally, DBRS notes that the ratings could come under pressure should the competitive clash with the telcos lead to deterioration in subscriber base and EBITDA.