FD Has MSOs More Cautious

Cable World, March 26, 2001 by Mavis Scanlon

When news broke in mid-March of the investigation into possible violations of Regulation FD (fair disclosure) at defense contractor Raytheon, cable CFOs sat up and took notice.

"If anyone doubted how serious the SEC was taking [the rule]," the Raytheon story "certainly made it very clear," says John Alchin, CFO of Comcast.

The effects of Regulation FD, the Securities and Exchange Commission requirement that companies disclose any material or market-moving information publicly, are being felt, albeit subtly, throughout the cable industry. Cable operators are making sure that guidance is included in earnings press releases, and presentations at investor conferences are more widely available via webcasts.

In general, companies are more cautious, both in their guidance and in their dealings with the Street.

"Bottom line, the impact on us, and certainly on me, is that you are way more circumspect in what you're going to say," Alchin says.

The SEC is reportedly reviewing Raytheon's briefings to analysts about its first-quarter outlook to determine whether the communications violated Reg FD, as it is known. Motorola is also reportedly involved in an SEC review over the regulation.

Since the rule took effect in October, Comcast is giving out more information publicly than before and is also giving more detailed information in its press releases. Its 13-page fourth-quarter and year-end earnings release, for example, includes a full page of financial guidance. Comcast has also begun keeping a running tabulation of every single forecast and every piece of guidance that it delivers. Previously, that was done on a more informal basis.

Cox Communication has also instituted more standardized processes for disseminating information, says finance manager Frank Loomans.

"If we talk about anything new or significant ... we outline it in a press release," he says.

In addition, Cox's calls are broadcast live over the Web and archived for future reference. Likewise with presentations at investor conferences, some of which are notorious for keeping out the press.

Reg FD has also changed the way the way institutional investors approach the company, Loomans says. Portfolio managers used to be able to call the CFO or CEO and ask a direct question, he says. Now, they may not do that as often because they know they won't get a direct answer if it's a topic the company has not discussed publicly.

A side effect of the pipeline between senior management and large investors shutting down is a barrage of requests for one-on-one meetings at investor conferences. At Bear Stearns' recent media, entertainment and information confab in Boca Raton, Fla., for example, Comcast did five one-on-one meetings following its presentation and hosted a breakfast the next morning, which was attended by about 30 investors who fired questions at the company for about an hour.

"The buy side seems to be just hungry for more information," Alchin says.

Even then, he says, "You have to be ultra-careful that you're not giving information you haven't given publicly."

One tricky issue is that it is relatively easy to fall into a complacent viewpoint on individual pieces of information, he adds. What might initially look like an innocuous question could be material when combined with other information the questioner has gathered.

Sell-side analysts, who in the past generally were able to call a CFO mid-quarter for additional guidance, no longer have that edge.

That, in turn, puts "an onus on the analyst to do more of his own investigation," says sell-sider Thomas Eagan, who follows cable and satellite companies at UBS Warburg. "It's not going to be about just what the company reports anymore." After the company information becomes public, it's the analyst's job to find out more information on things that are not public knowledge, he says, such as the company's competitive position and the timing of rollouts of new services. That means working the phones to competitors, vendors, customers and other industry insiders.

Eagan also points out that Reg FD has in some ways been a boon for the cable industry. In the months following the implementation of Reg FD, warnings and negative earnings surprises have increased, adding to the volatility. That has sent investors fleeing to haven stocks such as cable, which Eagan says is "one of the most predictable businesses around."