Tele-Communications Inc.'s shares got an early lift
last Friday from third-quarter results that saw continued growth in digital-cable and
basic subscriptions, but relatively weak cash-flow gains.
In a conference call with analysts, TCI president and chief
operating officer Leo J. Hindery Jr. said he underestimated the impact of such
distractions as the pending merger with AT&T Corp. and "deconsolidation"
efforts that will remove 4 million subscribers from the company's customer count.
Digital-cable marketing costs and relatively low rate
increases also put an expected pinch on TCI's cash.
Still, TCI shares were up in early trades, possibly due to
basic- and digital-subscriber growth and to Hindery's optimism that the AT&T
merger was progressing toward an early 1999 closing.
"It sounds like customer growth was good," SG
Cowen Securities Corp. analyst Gary Farber said. "It sounds like cash flow was weak,
but it's partly a function of rate increases being low."
On a pro forma basis, adjusting for the numerous system
transactions, cable arm TCI Group's operating cash flow rose 4 percent, to $616
million from $592 million in the same period in 1997. Revenue rose 4 percent, to $1.42
billion from $1.37 billion. Basic-cable revenue rose 3.3 percent, to a pro forma $982
million from $951 million.
Basic-subscriber growth was "relatively flat" in
the quarter, but it was up by a "quite strong" 1.9 percent year-over-year on a
pro forma basis, Hindery said. TCI had 12.5 million subscribers as of Sept. 30.
TCI's digital-subscriber count rose to 1 million in
the quarter, or 720,000 in the systems that TCI will continue to own and operate. Those
numbers were up from 600,000 and 420,000, respectively, at the end of the second quarter.
TCI is targeting 1.2 million digital customers overall, with 800,000 in the
The current quarter will be strong, but not as robust as
last year's fourth quarter, Hindery said, adding that the targets include 70,000 to
80,000 additional basic subscribers and cash-flow growth in the low- to mid-single-digits.
The company's 1998 cash-flow growth should also be in
the low- to mid-single-digit range, he said, in line with the company's guidance
after the second quarter.
TCI, as expected, stepped up its capital spending in the
quarter, to $525 million, in an effort to finish planned rebuilds before the end of 2000.
Capital spending will rise again in the current quarter, Hindery said.
Hindery also disclosed that TCI's much-publicized
agreement with BankAmerica Corp. to provide interactive financial services to
digital-cable customers had been allowed to "lapse."
TCI had trumpeted deals with BankAmerica and Intuit Inc.,
which were to pay TCI an estimated $50 per digital box as the first of several
"anchor tenants," slashing the cost of TCI's advanced-digital boxes down to
about $175 each.
Hindery said AT&T chairman C. Michael Armstrong decided
to scrap the deal and to reopen talks with another major bank, as well as with
BankAmerica. The original deal was announced in March, before BankAmerica agreed to merge
with NationsBank Corp. and before its former CEO, David Coulter, resigned.
Hindery said TCI needed subsidies to make the digital
economics work, but AT&T, which plans to offer consumers a range of bundled services,
doesn't feel the same imperative.
"I would expect that you're going to see a quite
different-looking [interactive] screen environment with AT&T Consumer Services than
you would with TCI," Hindery added.