Mediacom Stems Basic-Sub Losses - Multichannel

Mediacom Stems Basic-Sub Losses

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Mediacom Communications Corp. showed some sequential improvement in basic-subscriber losses in the third quarter -- it lost 8,000 customers versus 24,000 in the second quarter -- but its revenue and cash-flow growth for the period were still below analysts’ expectations.

Revenue was up 7.4% to $251.1 million and operating income before depreciation and amortization (OIBDA) rose just 4.1% to $101.1 million in the period, mainly due to basic-subscriber losses. Most analysts had expected revenue growth of about 8% and OIBDA growth of around 6%.

Mediacom did report free cash flow (cash flow after interest payments and capital expenditures are made) of $1.9 million, the first period of positive free cash flow in its seven-year history.

Chairman Rocco Commisso said fourth-quarter free cash flow should be between $8 million-$10 million, with annualized free cash flow coming in between $36 million-$40 million.

Digital subscribers rose 8,000 and high-speed-data customers were up 27,000, appearing to back up the MSO’s claims that lost subscribers were mainly low-paying ones.

Mediacom has been hit hard by direct-broadcast satellite competition -- DBS penetration is about 17% in Mediacom markets -- and heavy discounting and new launches of local-to-local service by competitors have continued to pose a challenge to the MSO.

Mediacom said DBS currently has local-to-local service in 43% of its markets -- up from 15% in 2002 -- and that figure is expected to increase to 64% by next year. The operator’s answer to that competition is to step up retention efforts and to aggressively roll out new services like HDTV, video-on-demand, digital-video recorders and telephony.

Commisso told analysts on a conference call discussing third-quarter results that VOD service will be rolled out more aggressively in the fourth quarter and that DVRs will be launched next year.

VOD will be available to about 50% of Mediacom’s customer base by the end of the year, with HDTV available to 60% of customers in the same time frame.

He added that Mediacom also believes telephony service -- which represents a $1 billion market in its territory -- should further differentiate it from DBS and will be rolled out in the second half of 2004.

Chief financial officer Mark Stephan said Mediacom has done some promotional pricing on some services to attract customers, but not as dramatic as the two months of free digital and data service Charter Communications Inc. has come under fire for introducing in the third quarter.

Stephan said Mediacom’s promotions are typically a 50% discount for digital service in the first four months, free installation or a reduction in high-speed-data pricing for one month. "We’re not aggressively pounding the price down on digital units to attract customers," he added.

Commisso added that Mediacom should hit its previous year-end revenue-guidance target, albeit on the low end of the 8.5%-9% growth range.

Data subscribers for the year should exceed the high end of previously announced guidance of between 265,000-275,000 subscribers, and digital additions should be flat to up by about 5,000 customers. He declined to give guidance for basic subscribers.

Mediacom stock was up 25 cents to $7.50 each in afternoon trading Wednesday.

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