Cabler’s triple play

Digital cable, high-speed data fuel Comcast

NEW YORK — A $3.3 billion gain from the sale of home shopping net QVC helped Philadelphia-based Comcast to a fat third-quarter profit of $3.2 billion off total revenues of $4.5 billion.

But the big story for the country’s largest cabler was huge growth in digital cable (318,000 new subs added in the quarter) and high-speed data. Like many of its peers, Comcast scored big gains in high-speed Internet connections, with 473,000 new cable-modem customers added in the quarter, up 35% from the seasonally slower second quarter. Company increased its forecast for the balance of 2003 and said it should end the year with some 5.3 million high-speed customers. Total digital cable subs stand at 7.3 million, a 34% penetration rate.

Excluding the gain on the sale of its 57% stake in QVC to Liberty, Comcast on Thursday reported a third-quarter loss from continuing operations of $153 million compared with a profit of $24 million in the year-earlier period.

Cable revenues rose a modest 8% to $4.3 billion, with EBITDA earnings up a hefty 24% to $1.62 billion, proving again that Comcast is capable of some of the best operating margins in the cable biz. Total operating cash flow from cable exceeded $1.6 billion in the quarter, a 35% jump over the same period last year, accompanied by a big margin improvement from 30% to 37% year over year.

The only slightly sour note to some analysts was the slower-than-expected top line growth at the old AT&T properties, which grew only 6.8% year over year compared with 11% at core Comcast systems.

Comcast’s content businesses — which include E! Networks, the Golf Channel and Outdoor Life Network — reported revenues up 17.5% over the third quarter last year to $173 million, with operating cash flow up almost 50% to $50 million.

Speaking on a conference call with analysts Thursday, Comcast CEO Brian Roberts said the company has met or exceeded its goals integrating the former AT&T Broadband systems, which it acquired last year.

Comcast indicated that it expects cable modem additions to continue to grow steadily for at least a couple of years to come without having to offer a budget-priced product.

Management said that while sports programming costs are indeed an issue, Comcast was not comfortable with created pay tiers to accommodate and pass along the added cost.

Tough times ahead?

Some analysts worry that after such a robust round margin growth in 2003, next year could be tougher financially. Company won’t really be generating big sales on its new voice service until 2005-06.

Echoing the position of fellow MSO Cox Communications, Roberts and his team indicated that programming costs increases should be in line with inflation. In exchange for such annual fee hikes to its suppliers, the cabler expects to get new revenue streams in the form of VOD and high- definition add-ons.

As for its hefty balance sheet, the big chunk of cash from QVC should enable the company to reduce its debt load from around $25 billion to roughly $23 billion by year-end.

Company also said its plant — lines of cable — upgrades are ahead of schedule, with 43,000 miles so far upgraded this year. It said the acquired AT&T systems are now 89% upgraded to deliver digital cable and high-speed Internet. By year-end, company will have upgraded 95% of its total plant, 15% ahead of its original goal and achieved within the original capital spending guidance of $4 billion.

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