Digital Drives Comcast's Cash-Flow Gains

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Growth in digital cable and high-speed data subscribers helped increase cash flow at Comcast Corp.'s cable unit by 10.5 percent during the fourth quarter, despite a churn rate for digital services that far exceeds its competition.

Comcast, the third-largest U.S. MSO, said earnings before interest, taxes, depreciation and amortization (EBITDA)-also known as cash flow-rose 26 percent overall in the quarter, to $674.9 million from $533.7 million in the final 1999 reporting period.

On a same-store basis, cash flow was up 15.6 percent company-wide.

At home-shopping network unit QVC, cash flow rose 24.4 percent to $201.2 million from $161.7 million in fourth-quarter 1999, while revenue rose 13.5 percent to $1.124 billion.

Cable-division revenue in the quarter rose a shade under 10 percent to a pro forma $1.13 billion, from $1.03 billion in the same period a year ago. The basic-subscriber base grew a modest 1.1 percent to 7.6 million.

About 220,000 digital-video customers were added during the period, giving Comcast a total of 1.35 million. The company has a target of 2 million digital customers by year's end-for a 30 percent penetration rate, up from 19 percent as of Dec. 31.

Cable-modem offering Comcast@Home ended 2000 above the 400,000 customer level, after 96,000 customers joined up during the fourth quarter.

Its weekly growth rate was 7,400 customers for the quarter, 48 percent higher than in the third quarter. Comcast's 2001 goal: 750,000 high-speed-data customers by year's end.

Also in the quarter, advertising revenue rose 16.6 percent.

"We're firing on all cylinders," Comcast president Brian Roberts said during a conference call with analysts. "It's a balancing act on how much you step on the pedal for EBITDA right this minute, versus how much you invest and grow for future years ahead and new product offerings. I think we're finding that balance."

But while digital subscribership rose substantially for the quarter and the year, Comcast Cable reported a digital churn rate of about 5 percent per month, more than three times that of direct-broadcast satellite.

However, cable unit president Steve Burke said that number can be misleading, and noted that 2.5 percent of digital churn stemmed from customers who have moved, while another 1 percent came from those who changed digital packages.

"When you net out the effect of moves and changing packages, our churn is about 1.5 percent, right in line with our No. 1 competitor [DBS]," Burke said.

He added that Comcast has been extremely successful in competing with DBS companies: In markets where it is available, digital cable outsells DBS by a 10-to-1 margin.

Comcast's goal for 2001 is to switch 15,000 DBS customers back to cable. However, Burke said that will only be done if it can be achieved profitably.

Maintaining free cash flow will also be a major focus for Comcast in 2001. The company said it expects to double free cash flow from $302 million in 2000 to $600 million this year. And with digital cable and high-speed data services achieving break even in the fourth quarter of 2000, reaching that goal should be easier.

In a report, UBS Warburg cable analyst Thomas Eagan wrote that although Comcast's free cash flow estimate was slightly below his $675 million target for 2001, it is still "far and away the highest free cash flow number in the sector."

Comcast executive vice president and treasurer John Alchin said during the conference call that digital and high-speed data are expected to contribute about $5 million in free cash flow per quarter in 2001.

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