A broadband price war

Cox stox hit after loss, Verizon rate cut

Cox Communications kicked off a week of first quarter earnings announcements in the cable sector Monday, reporting revenues up a healthy 16% for the first three months of the year despite a net loss due in part to high capital expenditures and losses on its investment in Sprint PCS.

The Atlanta-based cabler tallied a loss of $29 million off total quarterly revenues of $1.37 billion, up from $1.18 billion in 2002. Excluding interest charges, tax and non-cash depreciation expenses, the company’s cash flow was up 22% over last year to $479 million.

But Cox shares nevertheless took a hit Monday, falling 5.4% as rival telco Verizon’s decision to slash high speed DSL connections to as little as $30 per month signaled the start of a potentially debilitating price war in the broadband market. The average Cox cable modem subscriber currently pays around $40 per month.

Other cable stocks, including Comcast and Cablevision, also slid in Monday trading.

Despite the high speed pricing pressure and the specter of News Corp. taking the helm of DBS rival DirecTV, cable stocks have rallied recently — up 7% in April compared to the S&P 500’s 4% climb — as investors have become more comfortable with prospects that the gigantic network upgrade investments are starting to generate healthy cash flow. Current trading multiples are valuing U.S. cable subscribers at around $3,300 each.

Cox finished the first quarter with 6.3 million basic video subscribers –up just 0.6% vs. the end of March figure a year ago — while it added 154,000 cable modem subs and 77,000 new digital cable subs during the quarter. Total digital video base now stands at 1.9 million customers.

Considered one of the best-run cable companies in the market, Cox reiterated its target of generating revenue and operating cash flow growth of 15% for full year 2003.

Company improved its cash flow margins to 35.1%, with non-video services now comprising more than a third of total revenues.

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