Comcast Numbers Help Make Merger Case


Comcast Corp. continued to make the case that it can operate AT&T Broadband more efficiently than Ma Bell last week, when it reported its highest cash-flow margins in two years — even with subscribers from weaker-performing former AT&T systems factored in.

The MSO reported its cash-flow margin as 43.7 percent in the third quarter — up from 43.5 percent in the second quarter. Those numbers were driven by the successful integration of new subscribers and by gains in digital cable and high-speed data services.

The period saw Comcast absorb 112,000 former AT&T subscribers as part of a deal that closed June 30. While the former AT&T systems aren't quite up to the historic cash-flow margin levels of Comcast systems, they appear to be on the rise.

During a conference call, Comcast executive vice president and treasurer John Alchin told analysts that acquired systems contributed about 500 to 600 basis points to the cable unit's overall 13 percent cash flow growth.

Although AT&T Broadband's cash-flow margin has improved, to 25 percent in the third quarter, it still lags the industry benchmark of 40 percent to 45 percent.

Comcast made a $51 billion unsolicited bid for Broadband in July, saying it could run the business more efficiently.

Comcast president Brian Roberts declined to comment on the Philadelphia-based company's negotiations with AT&T Broadband or on reports of a late-November deadline for bids.

AT&T rejected Comcast's July bid in August. Later, Comcast signed a confidentiality agreement with AT&T, opening the door to further negotiations.

"I don't think it's appropriate, or that we are able, to make any comments other than to echo what AT&T has said publicly, which is that they hope to have this resolved in the next 45 to 60 days," Roberts said. "That timetable hopefully will be what happens."

In the meantime, Comcast will continue to focus on new product growth.

Cable revenue grew 10.3 percent, to $1.3 billion, and operating cash flow was up 13 percent, to $572 million.

Comcast ended the quarter with about 2.1 million digital subscribers, up 243,000 customers from the second quarter. The MSO ended the period with 793,000 high-speed data customers, up 117,000.

At its QVC Inc. home-shopping unit, domestic revenue growth was 8.8 percent and operating cash flow rose 10.3 percent.

Revenue at content businesses rose 18 percent, and operating cash flow increased more than 43 percent.

Advertising revenue was up 11.6 percent, largely due to Comcast's launch of about 16 new interconnects in the period and some taking of market share from local broadcasters. Comcast does not expect that growth to continue in the fourth quarter, in light of the downturn in the advertising market.

"The next quarter or two is going to be choppy," cable unit president Steve Burke said.

Comcast said that high-speed data growth should continue at a rapid pace, despite a week earlier this month during which it was not allowed to add new customers.

On Oct. 10, Excite@Home Corp. — which provides high-speed data service to Comcast and other MSOs — stopped provisioning new customers to conserve cash. That service was resumed about a week later, after MSOs agreed to pay Excite some upfront money.

Alchin said Comcast was able to pre-provision its backlog of 10,000 customers; it's now back to the 10,000 to 12,000 weekly subscriber-addition levels from prior to Excite@Home's filing for Chapter 11 bankruptcy protection.

"While the situation with Excite@Home is fluid, we didn't miss a beat," Alchin said.

Comcast and Cox Communications Inc. are scheduled to end their exclusivity arrangement with Excite@Home in June. Roberts said that the company may be able to sever that relationship even sooner.

"It might be earlier, depending on how the discussions pan out," Roberts said. "We're taking bids from backbone services. We'll build one set of infrastructure to handle this."

Separately, Comcast said it closed its previously announced acquisition of the Outdoor Life Network from Fox Cable Networks Group.