Morningstar Magazine - August/September 2017 - 61

it's important to understand why an industry
is the way it is today, and how conditions may be
different from what they were in the past.
In the case of Comcast, it was a matter of
understanding the technology and how it had
evolved to where industry was in the mid2000s. To do that, I had to understand the
technology choices that companies had made over
the preceding decade and the impact of those
choices in the subsequent decade. We could see
that the technology choices Comcast made
and the pain that it had endured in the late 1990s/
early 2000s spending billions of dollars to
build a network that was able to meet customers'
needs were important. Its competitors were
thinking short-term trying to fund shareholder
returns rather than investing in the long-term
competitive positioning of their networks.

Just because someone buys companies
with competitive advantages doesn't give
the strategy itself a competitive advantage over
other fund managers. Sometimes managers
want to conflate those two things.
Kevin McDevitt

from the company that you're covering, it can be
difficult to sort through and weigh all the
information that's being proposed. It's a skill that
only improves as an analyst covers an industry
group for a longer period of time, but at first, it can
be quite challenging.
Collins: Mike, when you were on the equity
research team, you covered Comcast CMCSA, and you
determined that it had a wide economic moat.
You covered Comcast for many years. As an analyst,
what were your most important high-level
activities? What did you spend your time on that you
felt had the most impact on your ability to forecast
the future?

Hodel: Andrew mentioned that tenure covering
a company is important. Whenever I would
pick up a new company, I would try to build what
I called "virtual experience" by studying the
history of the industry and the company as
deeply as I could. We said numerous times that
moat ratings are forward-looking, but I don't
think you can understand what the future's
going to look like unless you understand why the
past evolved the way it did. So, building
that virtual experience was really important for
me. Going back and looking through changes
in the competitive landscape and why they took
place-consolidation, new entrants, what
fostered entry, what fostered consolidation-

So, understanding the technology and the
investment choices that companies competing
in the industry were making, and what that
meant for the industry's future competitive
dynamics, was key. And we've seen that story play
out over the past 10 years. Cable companies
have taken all of the growth in Internet access.
The phone companies are fighting for the scraps.
Where does it go from here? If I were looking
at Comcast today, I'd ask a whole set of other
questions around technology and wireless. What's
the future of the next generation of wireless
technology, and how's that likely to have an impact
on the cost position of cable versus other players?
Staying on top of the evolution of technology
and figuring out how past investment choices will
affect a company's ability to take advantage
of new technologies is really important.
This is very specific to determining Comcast's
moat, but the takeaway here is that every industry
is unique and has its own points of competition
where companies meet and compete for
the customer's dollar. Understanding what those
points of competition are and how they're likely
to evolve over time are important. K
Elizabeth Collins, CFA, is director of equity research,
North America, with Morningstar Research Services. She is
a member of the editorial board of Morningstar magazine.

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