Flat revenue and cash flow growth in the first quarter may
force Falcon Communications Inc., the Los Angeles-based MSO, to emphasize upgrading its
systems, fueling speculation that it may be one of the next cable companies to raise
capital by going public.
Falcon tallied revenue of $105.8 million during the period,
unchanged from Dec. 31. Adjusted earnings before interest, taxes, depreciation and
amortization declined by 4.8 percent, to $48 million from $50.4 million for the three
months ended Dec. 31. The first-quarter decrease was due principally to the impact of
non-cash deferred compensation costs of $2.6 million, Falcon said in a statement.
Compared to the first quarter of 1998, revenue at Falcon
increased by 63.9 percent, to $105.8 million from $64.6 million. Cash flow rose 44.1
percent, to $48 million from $33.3 million in the same period last year. Those increases
were largely due to acquisitions of Tele-Communications Inc., Falcon Classic and Falcon
Video cable systems during 1998.
Falcon has been among those cable companies rumored to be
considering a public offering, along with Mediacom LLC and Charter Communications Inc.
Earlier this month, another mid-sized MSO Insight Communications Inc. filed
for a $517.5 million offering expected to take place in the second half of the year.
"An initial public offering of the Falcon equity
remains a near-term possibility," Aryeh Bourkoff, a CIBC Oppenheimer Corp. cable and
telecommunication analyst, wrote last week in a report. The MSO is likely to concentrate
on upgrading its cable systems in an effort to boost "anemic" subscriber growth,
Falcon has about 1 million basic subscribers in markets
that collectively pass 1.6 million homes. The company's internal annual subscriber
growth rate remains relatively flat, and its average monthly revenue per basic subscriber
during the first quarter was $36.55.
However, Falcon is preparing to upgrade its systems. It
plans to increase its capital expenditures ($17.8 million in the first quarter) to a total
of $190 million this year. The company expects to upgrade between 25 percent and 30
percent of its plant to 550 megahertz or better by the end of 1999. Also by that time,
roughly 20 percent of Falcon's plant will have two-way capability.
That will be important, as Falcon moves to roll out
advanced services. It is likely that AT&T Corp., which owns 47 percent of Falcon, will
take on a more active role in preparing the cable company's subscribers for new
services, Bourkoff added.