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Cable Operators

Forecasting Phone Gains at Comcast

7/14/2006 8:00 PM Eastern

Coming off a strong first quarter in which cable-telephony subscriber additions topped 200,000, Comcast Corp. is expected to ride that momentum well into the second quarter, several analysts reported.

The Philadelphia-based cable operator, scheduled to report its second-quarter earnings on July 27, is expected to add 175,000 to 275,000 voice-over-Internet protocol telephony customers in the period, the reports say.

Merrill Lynch & Co. media analyst Jessica Reif Cohen is the most optimistic, predicting Comcast added about 275,000 phone customers in the period.

At the low end: UBS Securities cable debt and equity analyst Aryeh Bourkoff, at 175,000 additions.

Second Quarter Forecasts
(in thousands, except for percentage)
COMCAST Moffett Wlodarczak Bourkoff Reif Cohen
VOIP Sub Adds 240 210 175 275
HSD/Digital Sub Adds 357/252 305/300 300/300 315/300
Basic Sub Adds -16 -17.5 -50 -42
Rev/EBITDA Growth 12%/13% 9.3%/10% 9.2%/10.2% 10%/10.1%
COMCAST
VOIP Sub Adds 139 N/A N/A 124
HSD/Digital Sub Adds 79/81 N/A N/A 91/117
Basic Sub Adds 23 N/A N/A 25
Rev/EBITDA Growth 18%/20% N/A N/A 17%/18%
CHARTER
VOIP Sub Adds N/A N/A 53 N/A
HSD/Dig Sub Adds N/A N/A 51/21 N/A
Basic Sub Adds N/A N/A -40 N/A
Rev/EBITDA Growth N/A N/A 7.1%/0.5% N/A
Mediacom
VOIP Sub Adds N/A N/A N/A 28
HSD/Digital Sub Adds N/A N/A N/A 22/13
Basic Sub Adds N/A N/A N/A -8
Rev/EBITDA Growth N/A N/A N/A 7%/3%
Source: Analysts reports

Sanford Bernstein & Co. cable and satellite analyst Craig Moffett predicted Comcast would add about 240,000 VoIP subscribers, mainly because the operator has dramatically increased its telephony footprint. Moffett said Comcast describes a three-phase rollout of voice in any given market as “20 miles per hour, then 40 miles per hour and then full throttle.”

In the first quarter, only the Boston market had reached that third phase. But in the second quarter, Comcast added its Mid-Atlantic markets — Philadelphia, Washington, Baltimore and Pittsburgh — and toward the end of the quarter expanded that into its 1 million-customer Detroit market. For that reason, Moffett sees substantial upside to his phone predictions.

Wachovia Securities cable analyst Jeff Wlodarczak also expects strong gains at Comcast in the second quarter (210,000 voice; 300,000 digital and 305,000 high-speed data additions), adding in his report that performance for the entire cable industry should increase in the second half of the year.

“We believe that cable is well-positioned to relatively outperform other areas of media in a potential weakening consumer environment given mostly subscription based revenue, the fact that TV and increasingly broadband are likely to be the last services a consumer elects to turn off, and likely continued strong growth in almost any economic environment,” Wlodarczak wrote.

Cablevision Systems Corp., the leader in VoIP penetration with about 22% of its households passed subscribing to the service, is expected to have gained 129,000 to 134,000 phone subscribers in the period, while Charter Communications Inc. (53,000 VoIP additions) and Mediacom Communications Corp. (42,000 VoIP additions) are also expected to report gains.

Also at Comcast, basic subscribers are expected to have declined, though not at the same quarterly rate as a year ago. The analysts figure Comcast lost 16,000 to 50,000 basic customers in the period, traditionally slow as college students and snowbirds disconnect service.

Of the four cable companies, only Cablevision is expected to show an increase in basic subscribers — its ninth consecutive quarter of gains — mainly because of a strong presence in vacation spots on Long Island, N.Y., and the New Jersey shore. Moffett predicted Cablevision would add about 23,000 basic customers. Reif Cohen was slightly more optimistic, forecasting 25,000 basic additions.

The growth in VoIP also should propel high-speed data and digital-cable growth, and revenue and cash flow.

Moffett sees Cablevision adding about 81,000 digital subscribers in the second quarter — driving its industry-leading digital penetration to 71% of basic subscribers — while high-speed data additions should top 79,000. Revenue should rise 17% to 18% and cash flow should be up 18% to 20% at Cablevision.

At Comcast, revenue is expected to increase 9.2% to 12%, while cash flow should rise 10% to 13%, according to the analysts. Besides telephony, gains in high-speed data (between 300,000 and 375,000 additions) and digital (between 252,000 and 300,000 additions) get the credit.

Charter and Mediacom are expected to report less dramatic gains in revenue and cash flow, mainly because they are in early stages of their phone rollouts.

Charter, which began rolling out telephony in select markets last year, is expected to increase revenue by 7.1% in the second quarter, while cash flow will rise 0.5%, according to Bourkoff. At Mediacom, Reif Cohen expects revenue to rise 7% and cash flow 3% in the quarter, outpacing last year's second-quarter results of 3.6% revenue growth and a 2.7% decline in cash flow.

September