News

Cash Flow Declines at AT&T Broadband

10/31/1999 7:00 PM Eastern

AT&T Broadband & Internet Services last weekreported a 2.2 percent decline in third-quarter cash flow, with flat growth projected forthe rest of year.

C. Michael Armstrong, chairman of parent AT&T Corp.,dismissed speculation that telephone-over-cable plans had been dealt a setback. Eighttelephony pilot programs are underway, he noted, with plans to "scale to market"by 2001.

In reporting third-quarter earnings, acting AT&TBroadband president Daniel Somers said cash flow, or earnings before interest, taxes andamortization (EBITA), totaled $539 million for the period ended Sept. 30, down from $551million a year ago.

AT&T also reported a 4.5 percent dip in the parentcompany's third-quarter operating profit, attributing the decrease to costs incurredin absorbing Tele-Communications Inc. Overall, revenue totaled $16.3 billion for thequarter, an increase of 5.6 percent from $15.4 billion a year ago and the seventhconsecutive quarter of revenue growth.

In addition to the cost of "transitioning" TCI,AT&T Corp. chief financial officer Somers said the MSO's lower cash flow could betraced to increased salary, benefits and programming costs.

At the same time, he said, cable revenue of $1.4 billion inthe third quarter was up 6.3 percent year-to-year and 1.6 percent over the comparableperiod a year ago.

That left some observers wondering how to reconcileAT&T Broadband's lower cash flow -- historically the measure of anoperator's financial health -- with higher revenue and subscriber numbers for thecompany's AT&T Digital Cable and AT&T@Home products.

"What am I missing here?" asked one industryanalyst, who requested anonymity. "This isn't a good trend, if these guys aregoing to be judged on cash flow."

Somers said AT&T Broadband is reviewing its corporatestructure and may consolidate field operations as the company searches for "a quickreturn to cash-flow growth that's very positive."

"That makes me a little nervous, too," theindustry analyst said. "He may be talking about centralizing operations closer tohome, which would be the exact opposite of what (departed AT&T Broadband president)Leo Hindery was doing."

Revenue from analog and digital cable totaled $1.4 billionduring the quarter, Somers reported, up 6.3 percent from $1.3 billion last year.

Overall, the MSO passed 19 million homes and had 11.4million customers by the end of September, a subscriber increase of 1.4 percent.Digital-cable customers totaled 1.7 million, and AT&T Broadband expects to add another100,000 by year's end.

Somers said the company now has 2,100 paying customers forits telephony service, mostly in Fremont Calif., where revenues per customer are exceeding$30 a month and installation rates are approaching two lines per household.

The third-quarter subscriber count of 113,000 forAT&T@Home failed to impress some industry watchers, who wondered why those figuresweren't higher if 44 percent of AT&T cable plant is currently two-way capable, asSomers claimed.

"Are you impressed with 113,000 customers? I'mnot," said the veteran cable observer. "Not when the second-largest cableoperator in Canada has 130,000 @Home customers, with only five million homes passed. Ithink the U.S. plant is not in as good a shape as we've been led to believe."

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