Comcast: Integrating AT&T Is Going WellMSO stemmed subscriber loss, saw cable system revenues rise 5/11/2003 08:00:00 PM Eastern
Comcast's turnaround of AT&T Broadband's ailing cable systems is going much better than expected, as evidenced by unexpectedly strong results for the first quarter.
|1Q Report Cards|
|*Vs. first quarter 2002
Source: Company reports
When they took over AT&T's 11 million-subscriber cable systems, Comcast executives braced themselves for a three-year turnaround, a year longer than they have budgeted for past system acquisitions like Jones Intercable and Lenfest Communications. "Is it so screwed up that you can't fix it?" Comcast Cable President Steve Burke recalled his team asking. "Is it so big that you won't have enough people to do it?"
The answer, it seems, is no. "This acquisition seems to be conforming to Comcast standards at the same pace as any other acquisitions," Burke said in an interview. "I've never been this far ahead of a plan in my life."
Not that there aren't some potholes at Comcast. Companywide operating cash flow fell short of expectations because of shortfalls at the MSO's networks unit, which includes E! Entertainment Television and Golf Channel. Digital-subscriber growth was a little less than expected because systems are shifting resources to sales of high-speed data services.
But one positive surprise is Comcast's reversal of basic-subscriber losses at AT&T's systems. It's not that the gain is so huge—43,000 new subscribers during the three months ended March—but Comcast executives hadn't expected those systems to begin adding customers until the third quarter at the earliest. AT&T Broadband lost an astounding 561,000 subscribers last year, largely because the company emphasized sales of phone services rather than basic cable. Sales workers got a $90 commission to sign up a telephone subscriber, but only $10 to sign up a basic-cable subscriber.
"The problem was the way they had their sales team focused on telephony, no matter what the cost," said Comcast Chief Financial Officer John Alchin. "They had higher commissions, higher targets on telephone."
Cable-modem sales totaled 417,000, about 75,000 more than expected. That brings the company's total to 4 million and penetration to 19%. The company now expects to add 1.6 million high-speed Internet subscribers for the year, up from the 1.3-1.4 million the company had earlier projected.
Cable system revenue rose a moderate 10% to $4.2 billion, but cash flow surged 35% to $1.4 billion. That's a "pro forma" comparison, assuming that the AT&T systems had been acquired in January 2002. Now, Comcast doesn't have some restructuring costs that AT&T Broadband did last year, but Comcast is simply running the systems better. One big change: no more loss-leader deals to push telephone sales. Burke said telephone subscriber growth is slower, but the new subscribers are profitable.
Other MSOs posted positive first quarter earnings as well last week. Insight Communications' revenues rose 12% to $215 million while cash flow increased 16% to $90.1 million, driven in large part by gains in high-speed data sales. Cox posted strong financial results for the first quarter ended March. Revenues jumped 16% to $1.4 billion, while operating cash flow surged 19% to $479 million. Basic-subscriber growth ran 0.6%, not great but better than the declines other MSOs experienced last year. Margins improved a full point to 35.1%.