Cox Downplays Big-Buy Speculation

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Cox Communications Inc. CEO James Robbins tried to squelch any rumors that the MSO is on the verge of a major purchase, but left the door open to acquisitions that "make sense."

In a conference call last Monday, Robbins said Cox is "comfortable at our current size" of about 6.2 million customers.

"That said, we may want to grow larger, given the right opportunity," Robbins added.

However, Cox's mergers-and-acquisitions team "thoroughly scours" every deal available, he said.

Back in December, Cox had been one of the bidders for AT&T Broadband, but lost out to Comcast Corp. The Atlanta-based MSO has also been one of those rumored to be interested in Adelphia Communications Corp., or at least some of the systems the troubled MSO is planning to put on the block.

Adelphia has hired four investment bankers — Salomon Smith Barney Inc., Banc of America Securities LLC, Credit Suisse First Boston Inc. and Daniels & Associates — to help it find ways to lower its debt, including by selling assets.

Adelphia's Los Angeles system, with about 1 million subscribers, is said to be one of the operations up for sale.

In the first round of earnings announcements after Adelphia dropped its March 27 bombshell, Cox was careful to start its conference call by assuring analysts there were no hidden surprises on its balance sheet.

"Over the last few weeks, we, along with the rest of our industry peers, have seen some downward pressure on our stock over concerns of other companies' slowing subscriber growth, increasing debt levels and financial-statement disclosures," chief financial officer Jimmy Hayes said during the call. "Let me be clear in stating that none of these are issues for Cox Communications.

"I want you to hear loud and clear today that we are delivering excellent operating and financial results and a strong balance sheet, all of which should instill supreme confidence in Cox Communications."

Cox kicked off cable's earnings season by reporting its strongest basic-subscriber growth in five years. It added more than 54,000 basic video customers in the first quarter ended March 31, an increase of 1.3 percent.

The MSO's revenue rose 17 percent for the period, and cash flow was up 12 percent, in line with most analysts' expectations.

Cox said the increase in basic growth was due to a decline in churn and to stepped-up marketing efforts. It also said its bundling strategy has been successful in retaining and attracting customers.


During a conference call, Cox executive vice president of operations Patrick Esser told analysts that if new non-video customers were included in the figures, basic-subscriber growth would have been 2.1 percent for the period.

The robust growth appears to counter a prediction many MSOs have made this year — that basic-subscriber growth would slow to less than 1 percent.

Still, Cox declined to revise its customer growth target for the year, sticking to its 0.7-percent basic-growth guidance.

Cox added 156,000 digital subscribers in the period, as well as 63,000 telephony customers and 118,000 high-speed data customers.

High-speed data growth surpassed most analysts' expectations for the quarter, largely because of the increased impact of retail sales. Most had predicted about 108,000 additional cable-modem customers.

Cox has points of presence in about 498 retail stores, and said that 23 percent of its new high-speed data connections came from the retail channels in the first quarter, versus 19 percent in the fourth quarter last year.

According to Cox, about 25 percent of new high-speed data customers pursue some kind of self-installation, and 68 percent purchase a cable modem.

That leads to higher rates of return for the service, according to SunTrust Robinson Humphrey cable analyst Gary Farber. In a research report, Farber wrote that increased use of the retail sales channel reduces truck rolls and frees up variable capital.

"The role of retail distribution and self-installation of modems continues to be additive to growth," Farber wrote.