AT&T: We'll Double Cash Flow
By Mike Farrell -- Multichannel News, 7/24/2001 4:53:00 PM
In what appeared to be an effort to justify its rejection of Comcast Corp.'s unsolicited offer for its AT&T Broadband unit earlier this month -- or to force a higher price -- AT&T Corp. said it would double the unit's cash-flow margins to 38 percent to 40 percent in three years.
On July 8, Comcast made a $52.5 billion unsolicited bid for AT&T Broadband, claiming that it could bring AT&T's cable unit in line with industry operating benchmarks quicker and more efficiently. On July 18, AT&T's board of directors rejected Comcast's bid as too low.
AT&T executives touted AT&T Broadband's improved performance in a conference call Tuesday -- cash-flow margins were 19.5 percent including restructuring charges in the second quarter, up from 16 percent in the first quarter -- and it said future growth will be fueled especially by growth in its cable-telephony unit.
AT&T spent a good portion of the call justifying its decision to invest in circuit-switched telephony rather than waiting for Internet-protocol technology to become available like other MSOs, including Comcast.
AT&T Broadband chief technology officer Greg Braden said that by investing in circuit-switched telephony now, the MSO has the ability to gain market share, as well as valuable experience in a difficult industry.
'If you haven't gone through that learning curve, you're going to have to do it eventually,' he added. 'Starting now makes sense.'
AT&T Broadband CEO Dan Somers said telephony has also helped it to reduce churn in some of its major markets, using Boston, Chicago and San Francisco as examples.
In the Boston market, churn rates have been lowered by 40 percent with customers that take the bundle, Somers said. In Chicago, which has the highest telephony penetration among AT&T Broadband markets, revenue and cash-flow growth have been accelerating at rates higher than the rest of the company.
The San Francisco Bay area has the best overall penetration across product lines, reporting 16 percent revenue growth, 21 percent cash-flow growth, 63 percent basic-cable penetration and more than 100,000 telephony customers.
Despite that growth, Somers said he was disappointed with basic-subscriber penetration, which, at 56 percent, lags behind the industry average of 63 percent. He added that it will turn around, pointing out that each 1.3 percent increase in basic-penetration growth translates into 1 percent growth in cash-flow margins.
'We have turned our sights and our guns on moving this business forward in the second half of this year,' he said.
AT&T's stock closed at $19.46 per share Tuesday, down 59 cents.
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