For Mediacom Communications (MCCC) , the dish has hit the fan.
On Wednesday the cable TV system operator lowered guidance for the year, saying it had encountered unexpectedly fierce competition from direct broadcast satellite operators in the second quarter.
Mediacom executives expressed their confidence that the company will be able to battle satellite over the long run with a bundle of advanced services. But the company acknowledged Wednesday that cable price increases and DBS packages with local broadcast channels leave Mediacom vulnerable to further subscriber defections in the short run.
Mediacom's shares, which have ranged between $3.38 and $11.31 over the past 52 weeks, traded at $7.79 Wednesday, down $1.06, or 12%.
For the second quarter ended June 30, Mediacom reported revenue of $252.2 million, up 9.3% from the second quarter of 2002 and just shy of the $254 million consensus expectation of analysts surveyed by Thomson First Call.
Operating cash flow grew 9.2% to $104.7 million, also in line with expectations.
But falling well short of expectations were the company's basic subscriber numbers. The company suffered a net loss of 24,000 basic subscribers since March 31, roughly 10,000 more than analysts had expected, and more than the 15,000 lost in the corresponding quarter last year.
As a result of the unanticipated basic weakness, Mediacom lowered basic cable customer count guidance for 2003 from a range between break-even and a 1% loss to a new target of a 2% loss.
Mediacom cut revenue-growth guidance, too, from a range of 10% to 11% growth to between 8.5% and 9.5%. Operating cash flow guidance dropped from a rise of 11.3%-12.3% to 8%-9%.
At the heart of the basic cable problem, according to Mediacom CEO Rocco Commisso, were aggressive campaigns by DBS operators in all of the company's markets. These campaigns were particularly intense, the company says, in markets where DBS operators --
Dish Network and
DirecTV -- offer local broadcast channels as a service option. Such local-into-local DBS packages -- which erase one of the usual advantages cable programming packages have had over DBS -- have become a major sales tool for EchoStar and Hughes.
Mediacom says that 34% of its customers are in areas where DBS operators offer local packages. That number is up from 15% one year ago, and it could rise as high as 62% by the end of the year, according to Mediacom.
Additionally, says Mediacom, DBS marketers harped on Mediacom's basic cable rate increase instituted earlier this year. That experience, Commisso told analysts on a Wednesday conference call, will "clearly" be a factor as the company determines to what extent it may raise rates in early 2004. Commisso said the company would no doubt explore offering new low-priced programming packages, but he added that current contracts with program suppliers limited the cable operator's flexibility in this matter.
On the bright side, Mediacom said it had noticed no impact on another competitive front: high-speed data. Subscribers to cable modem service grew at a greater rate than expected, signaling no "fierce onslaught" of DSL service from telcos.
Commisso said one main defense against losses would be to market a bundle of services. That strategy has proven effective for larger operators such as
. One important element of that, said Commisso, will be the Internet-based telephony service that the company expects to roll out by June 2004, at a cost much less than that at which industry participants once believed it could be supplied.
The basic subscriber problem, Commisso told analysts, is "not going to get turned around in one month."