Broadband Gets Top Billing at Comcast, Cox
George Mannes
07/30/03 - 07:03 AM EDT
Is it the season or is there another reason?
That's the question about high-speed Internet connections that analysts are trying to answer as the first of the standalone cable TV operators report their quarterly financial results this week.
With
Cox Communications (COX - Cramer's Take - Stockpickr) and
Comcast (CMCSA - Cramer's Take - Stockpickr) leading off, analysts expect a slowdown in one of the most closely watched statistics in the cable industry these days: the number of new subscribers for high-speed data service -- the fastest-growing of the high-margin advanced services that cable operators offer with their upgraded systems.
Following broadband's burst of growth over the last few quarters, the anticipated slowdown, say analysts, reflects the seasonal weakness that affects other cable industry statistics in the second quarter, such as basic subscriber additions.
But investors are also trying to figure out if and when cable modem numbers could be hurt by telcos' efforts to push their competing DSL-based high-speed service -- a task that's muddled by mixed reports in recent days from
Verizon Communications (VZ - Cramer's Take - Stockpickr) and
SBC Communications (SBC - Cramer's Take - Stockpickr).
At issue are significant revenues that operators expect in coming years as a result of the billions of dollars they've spent upgrading their systems for advanced services. Over the past few months, cablers have consistently declared that the regional Bell operating companies haven't cramped their performance, but RBOC-inspired worries persist.
Cox, the nation's fourth-largest cable operator, is set to report earnings Wednesday morning, while Comcast, the nation's largest, is due to report Thursday morning.
Flatlands
The slowdown in additions for high-speed data -- also known as broadband -- among cable operators has already begun. Earlier this month,
AOL Time Warner (AOL - Cramer's Take - Stockpickr) reported 170,000 second-quarter net additional broadband customers, compared to 197,000 one year earlier and 260,000 in the first quarter of the year.
"With signs the business is becoming increasingly seasonal, high-speed adds should be down sequentially and only about flat year over year," analyst Doug Shapiro of Banc of America Securities wrote in a sectorwide note Monday. Those numbers, combined with strong DSL performance and higher spending at SBC, "may play into fears about the impact of increased RBOC discounting and marketing," says Shapiro. "However, we think 3Q results, which should show a seasonal rebound, will be the first good look at the impact of heightened RBOC competition."
Shapiro argues that RBOC competition is already built into Wall Street's expectations. While cable operators are now reaping nearly 70% of new high-speed subscribers, with DSL getting the rest, that split will drift to 50-50 within about three years, he says.
Shapiro estimates 114,000 net additional broadband customers for Cox in the second quarter, down from the 157,000 the operator added in the second quarter of 2002 and the 154,000 it added in the first quarter of the year. Other analysts, including UBS and SG Cowen, expect only 101,000 additions this quarter from Cox.
Comcast, expects Shapiro, will net 350,000 additional broadband subscribers in the quarter -- slightly up from the 342,000 it gained last year, but down from the 417,000 it added in the first quarter, in the wake of its acquisition of AT&T Broadband.
Mixed Bag
Meanwhile, the RBOCs have been showing mixed results. As
foreshadowed on
Yahoo!'s (YHOO - Cramer's Take - Stockpickr) conference call in early July, SBC reported last week that it added 304,000 DSL subscribers in the second quarter, up from 260,000 in the first quarter.
BellSouth (BLS - Cramer's Take - Stockpickr) added 103,000 subscribers in the second quarter, up from 101,000 in the first.
Verizon, however, came in weaker than expected -- 101,000 additions in the second quarter, down from 160,000 in the first quarter. As discussed in a Tuesday note from SoundView Technology analyst John Hill, the shortfall resulted from factors that include a temporary wartime advertising halt and the shutdown of outbound telemarketing. Verizon's strategy isn't to target cable modem customers, says Hill, but to go after dial-up customers and customers who have moved into new households.
Certainly, analysts and industry participants will continue to debate the implications of the numbers for some time to come. Though Time Warner Cable's quarterly numbers looked disappointing, for example, AOL Time Warner executive Don Logan suggested on his company's second-quarter call that they weren't conclusive. Pointing out that the company's cable broadband additions for the first half of 2003 matched those of first-half 2002, and that 2003 was affected by the war, Logan said, "It's too early for us to know whether there's a trend developing."
