Mediacom Communications Corp. reported weaker than expected fourth-quarter results, but said growth in its telephone business and a new premium high-speed Internet service should drive revenue-generating units this year.
Mediacom reported fourth quarter revenue of $280.3 million, an increase of $5.7%, and adjusted operating income before depreciation and amortization (OIBDA, a measure of cash flow) of $100.7 million, a decrease of 1.7%. Mediacom also lost about 6,000 basic subscribers in the period, mainly as a result of three major hurricanes that hit its systems on the Gulf Coast in 2004 and 2005. For the year, Mediacom lost about 35,000 basic subscribers.
Guidance for 2006 was revenue growth of between 8% and 9%, adjusted OIBDA growth of 7% to 8% and capital expenditures of $200 million.
BENCHMARK ON THE RISE
Despite the basic subscriber losses, Mediacom added 56,000 RGUs (a combination of digital-cable, high-speed-data and telephony customers that are a benchmark in tallying the growth of new services) in the quarter and 196,000 for the full year, its largest annual RGU growth ever.
While some of that may have come as the result of extended promotions – Mediacom lengthened promotional periods last year from six months to 12 months – chairman and CEO Rocco Commisso said that the vast majority of new customers that began to roll off the promotions in January 2006 are moving up to higher-priced packages.
“We continue to believe that, while painful in the near-term, extending the promotional discounts was the right move,” Commisso said on a conference call with analysts.
That promotional pricing likely led to stronger digital-cable additions — 17,000 in the fourth quarter, compared to 14,000 in the prior year — and high-speed data additions — 25,000 in the most recent quarter, compared to 17,000 additions in 2004.
Commisso said that while RGU guidance for the year mirrors its revenue-growth estimates — 8% to 9% — he expects most of that to come from phone.
“We don’t think we’re going to get the same digital growth that we had in 2005,” Commisso said. “And on purpose, sort of. We want to concentrate our efforts on phone.” (For more on Mediacom’s history and prospects, see the special report that begins on page 29.)
That already seems to be happening. On the call, Commisso said Mediacom’s voice-over-Internet protocol phone service — offered in conjunction with Sprint Nextel Corp. — added about 20,000 subscribers during the period, to finish the year with 22,000 customers. Mediacom launched the product in one market with 15,000 homes passed in late June 2005. That footprint expanded to 450,000 homes passed by the third quarter and half of Mediacom’s 2.8 million homes passed by the end of the fourth quarter.
“Thus far, we are very encouraged by consumer acceptance [of the phone product],” Commisso said on the conference call. “The first market we launched in June already has a penetration of homes passed of over 6%. More than two-thirds of our phone customers so far are triple play customers.”
Commisso also was encouraged by a new premium broadband service — Mediacom Extreme — that will be rolled out later this year and offer customers 10 Megabit per second download and 1 Mbps upload speeds, a wireless router to connect multiple devices in the home and premium content like online gaming, sports and news.