Comcast Has Broadband Bounce

For the third quarter ended Sept. 30, Comcast -- the nation's largest operator of cable TV systems -- reported cable system revenue for the quarter of $4.37 billion, shy of the $4.4 billion to $4.5 billion range of analysts' estimates, according to TheStreet.com's informal survey. That number is up 8.4% from the $4.04 pro forma figure for the third quarter of 2002. Comcast closed its acquisition of the old AT&T Broadband systems in the fourth quarter of 2002.

Operating income before depreciation and amortization for the cable systems amounted to $1.62 billion, up 24% from last year's pro forma figure, excluding 2002 AT&T merger and termination charges. This year's number, in line with analysts' estimates, represents an operating cash flow margin of 37%, up from the 29.7% figure for the third quarter of 2002.

Comcast's companywide revenue dropped more than $1 billion from second-quarter figures, resulting from the company's mid-September sale of its majority stake in QVC to partner Liberty Media (L). QVC is treated as a discontinued operation in this quarter's results.

In the third quarter, Comcast added 473,000 cable-modem subscribers, up from the 339,000 pro forma figure for the third quarter of 2002, and up from the second-quarter addition number of 351,000. Analysts surveyed by TheStreet.com had forecast additions of 445,000 at most.

Comcast raised its guidance for full-year 2003 high-speed net data additions from 1.6 million to 1.7 million.

Perhaps the only disappointing aspect of Comcast's broadband numbers was the average monthly revenue per high-speed data subscriber. That figure amounted to $42.25 for the quarter, up three cents from one year ago but down from $43.34 in the second quarter.

Roberts comments indicated that the decline might be due to introductory promotions for the service, which in some cases provide for six months of discounting before list pricing kicks in.

Comcast Cable president Steve Burke said the company was "standing up well" in the face of low-priced high-speed Internet offerings from telcos, of which the most aggressive, he said, was SBC (SBC). And, contrasting his outlook to a recent decision from Cox, Burke said he saw no need to offer lower-priced tiers of cable modem service.

The company added 800 subscribers in the third quarter, keeping its total basic cable subscriber count at 21.4 million. The company lost 134,000 subscribers on a pro forma basis in the third quarter of 2002, nearly all of them at the AT&T Broadband systems.

Comcast said it now expects to lose 175,000 telephone customers in 2003, not the 150,000 it previously expected. The company has in the past made it clear that it has put its phone operations, mostly inherited from AT&T, on the back burner as it focuses first on developing other advanced services and products, such as video-on-demand and digital video recorders.

Executives spent much of the conference call discussing how they were ahead of schedule on Comcast's multiyear plan for bringing the AT&T Broadband systems' operations and financial performance up to the level of historical Comcast systems. At the time of the acquisition, AT&T Broadband was widely viewed as a fixer-upper, and Comcast has been able to improve operations in many respects.

The company spent other parts of the call discussing promising areas for growth in the future. One, they said, was adding new services, such as video chat, on top of broadband connections. Roberts, in fact, said today's high-speed business resembled the state of the cable business 20 or 30 years ago, when basic service served as the springboard for additional offerings.

Burke also discussed how Comcast was assembling a management team and making other moves in preparation for offering a new generation of telephone service, which, unlike the legacy AT&T offering, would be based on Internet protocols. While the company will continue in 2004 its work on the service, known industrywide as VoIP, Burke said, "The real numbers will start to appear in '05 and '06." VoIP, he said, would serendipitously become significant as the "galloping" growth of high speed data service trails off.

Addressing programming costs -- a hot-button issue in the cable industry -- Roberts said he would like to keep Comcast's programming cost increases in the neighborhood of consumer price index growth. But unlike Cox CEO Jim Robbins, Roberts showed little interest in going public with any suggestions for controlling prices in sports programming, generally acknowledged as being the prime source of cost increases. While indicating that one option was to make sports channels optional, and another was to address the cost structure of the sports economy, Roberts side-stepped an analyst's question, avoiding any discussion of the pros or cons of either option.

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