Basic Sub Additions Mar Comcast, Cox Reports

Cable World, Nov 4, 2002

Byline: MAVIS SCANLON

While the number of consumers signing up for broadband access via their cable companies continues to pleasantly surprise Wall Street, concern is growing over basic subscriber growth, still the meat and potatoes of the business.

Both Cox Communications and Comcast last week reported better-than-expected subscriber additions for high-speed data services. Comcast added a record 169,800 new cable modem users, for a total of 1.3 million, while Cox, which added 157,000 new modem users, beat some analysts' expectations by as much as 20%. That bodes well for the future of the high-margin broadband product; since overall industry penetration of HSD remains under 15%, there is plenty of room to run. Virtually all MSOs reported accelerated growth rates for their data product for the third quarter, driven by marketing and promotions, as well as a strong retail presence.

But concern over basic sub growth - which has dogged AT&T Broadband and Charter Communications - is also nipping at Cox and Comcast, both considered the blue chips of the group.

After its Tuesday earnings report, shares of Cox tumbled over 7%, to $27.85; the stock closed Friday at $28.02. Shares of Comcast initially saw a slight pop after its Monday earnings report but then fell after Cox reported. Comcast closed Friday at $23.72, up 71 cents.

Although growth in advanced services as well as revenue and EBITDA were strong, Comcast lost 2,500 basic subs in the quarter, prompting some analysts to lower year-end estimates for subscriber growth. Cox added about 13,000 basic subscribers in the quarter and met its guidance for about 1.2% basic sub growth over last year, but the MSO lowered its guidance for 2002 subscriber additions to 1.1% to 1.2% from 1.3% to 1.5%. Cox's subscriber additions were mixed, with strong numbers for telephony and HSD, but weaker digital net adds.

A top priority for Comcast after closing the merger with AT&T Broadband will be to stem that company's basic sub losses. That means focusing more on video rather than telephony, Steve Burke, president of Comcast Cable, told analysts. The company has developed preliminary operating plans and has highlighted key issues for each market. Principles the company will adhere to in integrating the AT&T systems include an emphasis on the Comcast structure and management experience, prioritizing EBITDA generation and system upgrades, repackaging AT&T's digital offering and monthly reviews as part of financial reporting procedures.

THIRD-QUARTER SUBSCRIBER ADDITIONS

For the quarter, Comcast reported net income of $75.6 million, or 8 cents a share, compared with a net loss of 11 cents a share last year. Total revenue increased 12.7%, to $2.7 billion, while operating cash flow rose 17.8%, to $825.8 million. Cox posted a 16% revenue increase, to $1.3 billion, while EBITDA rose 14%, to $458 million.

THE NEXT QUESTION:

*How quickly can Comcast stem AT&T's basic subscriber losses?