Comcast's Project Cavalry: The March of 28 Million DTAs

Comcast has been talking about its “DTA” strategy for more than a year now (see Analog Zappers).

The idea: to eliminate 40-50 analog channels in a cable system, freeing up 250-300 MHz of spectrum, by giving basic cable subs who won’t upgrade to a digital tier a cheap “digital terminal adapter” to convert digital TV signals to analog. (DTAs have also been called “digital-to-analog” devices.)

Now one Wall Street analyst, Sanford Bernstein’s Craig Moffett, has become an outright evangelist of the concept.

In a research note today raising earnings estimates for Comcast, Moffett notes that the DTAs will pave the way for a ton more HD, high-speed data service and VOD… all for around $40 per subscriber ($20 per home passed).

“Perhaps most remarkably, even with all their digital transition gathering steam, Comcast’s capital intensity has still fallen to an all-time low” of 13.5% of cable revenue, Moffett writes. (See Bernstein Ups Comcast, TWC, At Higher Multiple.)

A quick reset on the DTA initiative, a.k.a. “Project Cavalry”:

* Comcast says it will cost about $1 billion – less than 10% “of what a physical rebuild would cost us historically,” COO Steve Burke noted on last week’s earnings call. The MSO currently has 5% of its footprint converted. (See Comcast Reports Strong Q1 Cash Flow.)

* Moffett estimates Comcast will need 28 million DTAs and 2.4 million set-top boxes, as well as 1.7 million incremental truck rolls, to convert its entire footprint in two years.

* Burke said the DTAs cost about $30 apiece, or 25% of the cost of a traditional cable set-top box.

“Project Cavalry means that Comcast can virtually double its network capacity, and substantially improve its already strong competitive positioning for free (at least in DCF [discounted cash flow] terms),” Moffett writes.

Let’s raise a glass and drink some more of the DTA Kool-Aid! And mind you: It’s a heckuva lot cheaper than Champagne.