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Comcast Lights Up Beyond TV

5/02/2008 8:00 PM Eastern

Comcast “is not about basic video anymore,” chairman and CEO Brian Roberts told Wall Street last week.

Cable TV remains the crucial core of Comcast's business, but increasingly, the company's financial growth is being driven by voice and data services. The No. 1 U.S. cable multiple-system operator grew overall revenue 14% in the first three months of 2008, but its overall TV business eroded slightly.

Comcast reported a decline in basic-video subscribers of 57,000, or 0.2%, for the period — a reversal of the net gain of 75,000 video subs in the first quarter 2007. Meanwhile, Philadelphia-based Comcast added 639,000 new digital voice customers and 492,000 high-speed Internet subscribers in the quarter.

Roberts, on a conference call with analysts, said investors should “look at how we're delivering multiple products and that we've been able to diversify the revenue stream.”

The bundle's the thing, according to Roberts: Comcast has been able to growth average revenue per subscriber to $107 from $96 in the last 12 months. “I view that as a pretty bullish statistic to be looking at in terms of your future prospects,” he said.

“Comcast's broadband growth remains strong, and is clearly gaining share. And its Digital Voice growth is still accelerating,” Sanford Bernstein senior analyst Craig Moffett wrote in a research note, noting that the video subscriber loss was in line with low expectations. “The bundle is working.”

Net income in the first quarter of 2008 was down 12.5%, to $732 million ($0.24 per share), compared with $837 million ($0.26 per share) in the year prior.

But revenue increased to $8.4 billion, from $7.4 billion a year ago, driven by price increases for video services as well as growth in data, voice and digital cable with advanced services. Sales were offset by “modestly” lower average revenue per unit on several products because of an increase in customers receiving service as part of a promotional offer or in a new product package, the company said.

Investors were encouraged by the results, with Comcast's stock price up 8% the day earnings were announced, closing at $21.88 per share last Thursday (May 1).

Comcast chief operating officer Steve Burke noted on the call that broadband penetration is now more than 28%.

He said 68% of new high-speed-data customers in the quarter switched from telcos' digital subscriber line (DSL) services, up from 55% in the first quarter of 2007.

“We think with wideband and DOCSIS 3.0, we have an opportunity to gain share with this increased speed,” Burke said.

Comcast has “moved to a more aggressive marketing plan,” Burke said, with new double- and single-play offers, increasing marketing spending in the quarter about 20% year over year.

He also called attention to Comcast's growth in services for small and midsize businesses, which grew 37%, to $120 million, compared with a year-ago period.

Burke provided an update on Comcast's bandwidth-reclamation initiatives, which primarily involve converting systems to all-digital platforms.

“The idea is to capture over 40 analog channels and use that capacity for more high-def local channels and faster Internet speed,” he said.

Comcast expects to convert about 20% of its systems to all-digital by the end of this year.

Burke said the operator is still in the midst of testing switched digital video and said it will play “a significant role in our future.”

Comcast kept pace with delivering 20% growth for the year in free cash flow. That is a measure of cash generated from operating activities minus capital expenditures and dividends. It includes other adjustments for non-operating items and estimated tax benefits.

For the quarter, free cash flow rose 59%, to $702 million in the quarter, compared with $442 million in the first quarter of 2007.

The company said the increase was due primarily to growth in consolidated operating cash flow along with “relatively unchanged” cable capital expenditures of $1.4 billion.

Snapshot: 1Q Results
COMCAST
Sources: Comcast, Time Warner Cable
Revenue: $8.4 billion, up 14%
Operating Income: $1.6 billion, up 23%
Free Cash Flow: $702 million, up 59%
TIME WARNER CABLE
Revenue: $4.2 billion, up 8%
Operating Income: $636 million, up 10%
Free Cash Flow: $339 million, up 51%

September