CFOs: Data, VoIP Will Drive Cash Growth

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San Francisco -- With capital expenditures falling and revenue from new products pouring in, a panel of chief financial officers from four top MSOs said Sunday that continued double-digit cash flow is not only sustainable -- it’s practically inevitable.

“If you look at the growth we reported over the past six years, average revenue per subscriber has gone from $42 per month to $77. What’s really interesting about those numbers is that more than 50% of that growth has come out of new product categories,” Comcast Corp. executive vice president and co-CFO John Alchin said.

Alchin added that Comcast was able to maintain that growth rate even before the launch of its digital-voice service, which it plans to make available across its footprint by the end of this year. He said high-speed-data revenue grew 38% in 2004 alone, or about $800 million.

“As we see the next three to five years, we feel very confident that we can sustain this high-single-digit, almost 10% revenue growth, which converts into a low-double-digit number for cash flow and, ultimately, to a 20%-30% growth profile for free cash flow,” Alchin said.

At Time Warner Cable, CFO Landel Hobbs was equally optimistic, adding that the No. 2 MSO in the country sees double-digit top-line and cash-flow growth for the foreseeable future.

Even in the mature video business, which has relatively flat basic-subscriber growth over the past few years, cash flow is rising via enhanced services like digital cable, video-on-demand, subscription VOD and digital-video recorders. Hobbs said Time Warner has enjoyed 25% growth rates in each of those products.

Time Warner launched voice-over-Internet-protocol telephony service last year, ending the fourth quarter with about 220,000 subscribers.

Mediacom Communications Corp. -- which struggled last year with competition from direct-broadcast satellite service providers, losing a total of 85,000 basic subscribers in 2004 -- is beginning to see some light at the end of the tunnel.

Mediacom reported 2% cash flow growth in 2004, but CFO Mark Stephan said that with local-into-local DBS launches behind it and new products coming online, he is encouraged that this number will improve.

“We came off a tough year last year from a standpoint of competition,” Stephan said. “We didn’t really have a complete video product. Our platform now on the video side is now complete with VOD and DVR. The two-product bundle is beginning to take hold. And now we’re adding a VoIP product in May and June. We’re very excited.”

Declining capex also leads to free cash flow (cash flow after interest payments and capital expenditures are made), which Alchin said would be reinvested in the business. However, he added, some “bite-sized” acquisitions -- ranging from $500 million-$2 billion -- could be made, along the same lines that Comcast made in 2004.

Both Alchin and Hobbs declined to comment about the auction for Adelphia Communications Corp. Time Warner Inc. and Comcast have made a joint bid for Adelphia, estimated to be worth $17.6 billion.

Hobbs said Time Warner is interested in growing its footprint, but only at the right price.

“We’re fine at the size we are,” he added. “If we are in this, we are in this because we like the business.”

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