AT&T's cable unit posted startlingly weak cash flow with already-low profit margins sinking into the teens. For the three months ended March, AT&T's Broadband's cash flow dropped 7% to just $394 million, even though the company's revenues grew 11% to $2.5 billion.
The disparity sliced AT&T's Broadband's cash flow margin to just 16%. Most other operator's margins run in the 40-50% range. Cox Communications is often criticized because its margins run 37-39%. AT&T's cable cash flow margins had been running in the 25-30% range for the past year.
"It's shocking," said one Wall Street analyst. "How can they go public when they have numbers like this?" That's a reference to the planned separation of AT&T Broadband from the rest of the company.
AT&T executives blamed the shrunken cash flow to the cost of rolling out broadband telephony, higher programming costs and increased restructuring charges from layoffs, Even excluding the $56 million in restructuring charges however, would only boost AT&T Broadband's margin to 18%. Ad and pay-per-view sales also dropped.
Even more surprising is that the figures exclude weak systems that AT&T is selling to companies like Mediacom and Charter Communications, properties considered among the weakest and most neglected in AT&T's portfolio. The company gave no indication how much different the results would look if those weak systems were included.
AT&T Broadband Chairman Dan Somers said the the division's cash flow would turn around later in the year. Last year goal was to heavily push sales of cable telepohne services, high-speed Inter net acceess and digital cable. For 2001, Somers said, "Our top priority is [cash flow] growth and margin improvent with sustained revenue growth." Indeed, the company did post strong digital cable sales growth, though cable telephone growth slowed from the fourth quarter. - John Higgins