If you listen to the parade of CEOs blaming the economy for their companies' lackluster performance, you'd never know there are actually companies out there that are not only having a good year but a great year. Let me use one industry, the cable business, to show how this economy is working to separate the winners from the whiners. We all know how terrible the cable business has been lately, right? Selling consumers on getting their phone service over their cable TV has been a tougher-than-expected sell. Upgrading systems to sell the new digital services has been incredibly expensive -- and demand for digital cable TV has been tepid in many service areas. Satellite services have been stealing market share. In this environment, AT&T's ( T) cable division lost 432,000 basic subscribers in the first nine months of 2002 -- and showed an almost 4% drop in subscribers in the third quarter alone. The question seems to be not why AT&T decided to get out of the cable business but why Comcast ( CMCSK) wanted to buy these systems in a deal that finally closed on Nov. 18.
The Trouble With Charter
To see how ugly this business can be, just look at Charter Communications ( CHTR). Like AT&T, Charter lost subscribers in 2002 -- about 277,400, or 4% of its total, through October, reports UBS Warburg. But while that certainly has not helped, it isn't the crux of the problem. The real problem is that it's costing Charter more to build out the system than it takes in. Charter estimated that it generated $74.19 in operating cash flow per basic subscriber in the third quarter but spent $87.33 in capital expenditures per subscriber during that period. That's a recipe for disaster, as many former Internet executives can attest. Aligning build-out and customer subscriptions is a delicate balance. Build out too fast and sign up too slow, and debt levels rise as revenue lags spending. Build out too slow, of course, and you'll lose customers to the satellite companies and other potential competitors. (And remember that the company spent money to acquire each one of those 277,000 subscribers it has lost so far this year, and spent more money on building out its system to reach them.)