Cable's third-quarter earnings season wound down last week with the two biggest operators showing some mixed results.
Financial metrics continued to be strong, considering the tough economic climate for Comcast and Time Warner Cable in the third quarter; revenue and cash flow was up for both companies in the 2% to 4% range. But while Comcast showed a marked improvement in growth rates for advanced services like high-speed Internet and telephony, Time Warner Cable appeared to be slowing down. And TWC said the outlook for the fourth quarter doesn't look much better.
Comcast gained 361,000 high-speed data customers and 375,000 telephony customers, reversing the poor performance in the second quarter, when high-speed data additions were 65,000 and phone adds were 233,000. At the time, Comcast blamed the slower second-quarter growth on its focus on adding digital cable customers during the federally mandated transition to digital TV broadcasting. In the third quarter, Comcast chief operating officer Steve Burke said, the focus was shifted to selling the bundle.
“We executed well,” Burke said in a conference call with analysts. “We were more aggressive with offers, and customer metrics improved.”
Comcast also shed 132,000 basic video customers in the period, below the consensus estimate of a loss of 183,000 subscribers. That performance was due to a combination of an improving economy and heavier discounts, according to some analysts.
Marketing expenses rose 4% in the period (after declines in the previous two quarters), and a sequential decline in average monthly revenue per unit pointed to increased promotional activity, according to a note that Citigroup media analyst Jason Bazinet wrote to investors.
At TWC, digital additions at 8,000 customers fell well short of consensus estimates of 56,000 additions; phone additions were light at 62,000 customers (analysts had expected 107,000 additions); and high-speed Internet adds slightly exceeded expectations at 117,000 new customers (the consensus was 110,000).
Overall revenue generating units rose by 117,000 in the period, compared with a gain of 522,000 RGUs in the same period in 2008.
Analysts were disappointed in the RGU slowdown, but most were unconcerned because the financial metrics appeared strong and the subscriber growth decline was focused on phone and digital.
“While TWC RGUs disappointed, especially when compared to Comcast's significant beat yesterday, the company is clearly containing costs, which helped the bottom line,” Wells Fargo media analyst Marci Ryvicker wrote in a research note. “Furthermore, the miss in RGUs was more a result of digital video and voice versus basic subs and [high-speed data] — the latter of which are really viewed as the 'core business.' ”
In a conference call with analysts, chairman and CEO Glenn Britt said that the housing slump — he added that housing vacancies are at their highest point since 1966 — has had an effect on subscriber metrics.
While Britt added that there has been a “small glimmer of positive news” on the advertising front, the “macroeconomic factors that are most relevant to our residential subscription business remain sluggish at best.”
While high-speed data additions appear to be holding their own in the fourth quarter, chief financial officer Robert Marcus said, digital and phone additions are trending slower.
“It's still a little early, but with the exception of high-speed data, the other categories are somewhat down, in spite of a weak fourth quarter last year,” Marcus said.
At Comcast, Burke was high on gains in the commercial segment; sales to small and medium-sized business customers are growing at a 40% to 50% quarterly clip, and the unit is on a path to generate about $850 million in revenue this year. Burke added that the company plans to expand into larger businesses — it is currently focusing on customers with 20 or fewer employees — especially with last month's acquisition of Chicago-based competitive local-exchange carrier CIMCO Communications. Burke said businesses with 20 to 250 employees buy between $10 billion to $15 billion in telecommunications services each year in Comcast's footprint. That, he said, “represents a market roughly equal to the small and medium-sized business segment we have concentrated on so far.”
But the No. 1 cable operator was mum on the issue that was at the top of investors' and analysts' minds: its negotiations to purchase a controlling interest in NBC Universal.
Chairman and CEO Brian Roberts would not specifically address NBCU on the conference call, but stressed that the MSO would be highly disciplined in any potential acquisition.
“I'd like to reinforce that we will only look at opportunities in our core businesses that potentially can accelerate growth, make those businesses more profitable and differentiated, and give them the benefits of scale,” Roberts said. “Our entire management team has united in this commitment and effort.”