U.S. Cable Companies Lean On New Services To Boost 4Q
By Ellen Sheng
Of DOW JONES NEWSWIRES
Thursday January 22, 1:12 AM
NEW YORK (Dow Jones)--With satellite broadcasters keeping the heat on, U.S. cable companies leaned more heavily on new services during the fourth quarter in efforts to hold onto customers and boost revenue.
Cable companies have been pushing new services such as high-speed Internet, digital video, Internet telephony and digital video recorders. Whereas EchoStar Communications Corp. (DISH) and DirecTV, now controlled by News Corp. (NWS), have emphasized lower prices and value, cable companies have played up bundled services. After spending billions to upgrade their networks, cable operators have been eager to flaunt their technical prowess.
But despite cable's emphasis on bundling and new services, satellite companies have continued to make great strides. Earlier this month, DirecTV, the country's biggest satellite broadcaster, announced that it added 405,000 net new customers during the quarter, exceeding many Wall Street forecasts.
Cable companies are also facing increasing competition from phone companies' rival Internet service, DSL, and have responded with some aggressive promotions during the quarter, which likely had some impact on average revenue per user.
Deutsche Bank Securities analyst Douglas Mitchelson estimated revenue at cable companies increased at a slower pace in 2003 than a year earlier. That was "somewhat offset" by growth of new services, he said.
Scientific-Atlanta
The focus on digital video recorders has done wonders for set-top maker Scientific-Atlanta Inc. (SFA) which is expected to post a strong quarter.
Lawrence Harris, an analyst at Oppenheimer & Co., estimates the company shipped 985,000 digital set tops during the quarter, including 230,000 of the popular Explorer 8000 model. The company disappointed Wall Street last quarter when it missed analysts' expectations, shipping 177,000 of the Explorer 8000 box, short of the 200,000 expected. But Scientific-Atlanta isn't likely to disappoint on that front this quarter, Harris said, as the company signed on two important customers during the three-month period - Charter Communications Inc. (CHTR) and Adelphia Communications Corp. (ADELQ).
Also, Cox Communications Inc. (COX) and Time Warner Inc.'s (TWX) Time Warner Cable rolled out the box in several new markets during the quarter. Harris does not own shares of Scientific-Atlanta, nor does his firm have an investment banking relationship with the company.
Scientific-Atlanta, which reports Thursday, is expected to post earnings of 29 cents a share on revenue of $413 million, according to a survey compiled by Thomson First Call. A year ago, the company posted net income of 16 cents a share on $352 million in revenue.
Market Leaders
Comcast Corp. (CMCSA, CMCSK) and Cox are once again expected to come out on top. Also, Cablevision Systems Corp. (CVC), which raised eyebrows by launching a satellite broadcasting service, Voom, appeared to have turned the tide of unfavorable opinion during the quarter.
The fourth quarter is traditionally the strongest for Philadelphia-based Comcast, which reiterated its year-end guidance at two investor conferences last month. Comcast, the largest cable operator in the country, said it expects to finish the year with 125,000 to 150,000 new basic subscribers and 950,000 new digital subscribers.
Comcast, which acquired AT&T Broadband last year, has pleased Wall Street by running ahead of its integration schedule. The company has improved margins and subscriber additions at the former AT&T Broadband systems, but posted an unexpected loss of basic subscribers in its Comcast systems during the third quarter. Investors will want to see if Comcast can turn that around, said Alan Bezoza, an analyst at Friedman Billings Ramsey & Co. Bezoza does not own shares of Comcast, nor does his firm have an investment-banking relationship with the company.
Deutsche analyst Mitchelson estimates Comcast's special $19.95-a-month promotion will help spur gains in high-speed Internet service during the quarter, but could dampen average revenue per user, a common industry measure. Mitchelson does not own Comcast shares, but Deutsche Bank has received compensation for investment-banking services from the company in the past year.
Comcast is expected to report earnings of 3 cents a share on revenue of $4.72 billion. In the year-earlier period, the company lost 3 cents a share on revenue of $4.37 billion.
Cox Communications Reiterates
Like Comcast, Cox Communications, the country's fourth largest cable operator, also reiterated its year-end projections in recent weeks. The company was among the first to tout a telephony product in its bundle of services and was aggressive in rolling out DVRs during the quarter.
Aryeh Bourkoff, an analyst at UBS, wrote in a recent note he expects strong new service unit growth and continued margin improvement in the fourth quarter. The analyst does not own shares of Cox, nor has UBS received fees from the company for investment-banking services.
Cox, slated to report earnings Feb. 12, is expected to post earnings of 7 cents a share on revenue of $1.52 billion. A year earlier, the company had a loss of 5 cents a share on revenue of $1.34 billion.
Also focused on telephony has been Cablevision, which during the quarter became the first cable company to roll out voice-over-Internet-protocol phone service to its entire customer base. The Bethpage, N.Y., company has reported positive feedback for the service, and analysts expect it will boost revenue.
Cablevision will report fourth-quarter results March 2. The Wall Street mean estimate, compiled by First Call, calls for a loss of 45 cents a share on revenue of $1.22 billion, narrower than results a year earlier when the company lost 52 cents a share on revenue of $1.15 billion.
Turnaround At Charter
St. Louis-based Charter Communications' (CHTR), turnaround continued in the fourth quarter. Since charges of questionable accounting practices threw the company into a tailspin last year, Charter has done much to shore up its financial position. The company sold some noncore cable systems earlier in the year and delayed upgrading its network, but it has started to introduce new services and products as its financial position has improved. Charter introduced customized Motorola DVR boxes in several California markets in the middle of the Christmas shopping season.
The company added basic subscribers during the third quarter for the first time in more than a year, but "Charter will need to show it can stem basic subscriber losses for more than one quarter," said Richard Bilotti, analyst at Morgan Stanley, in a recent note.
Charter has not said when it will release results. Analysts surveyed by First Call expect the company to post a loss of 42 cents a share on revenue of $1.24 billion, narrower than the loss of $6.36 a share on revenue of $1.19 billion a year earlier.
Smaller Operators Lose More Customers
Smaller cable operators such as Insight Communications Co. (ICCI) and Mediacom Communications Corp. (MCCC) have lost more customers, especially in rural areas. EchoStar and DirecTV have taken market share during the last few quarters. DirecTV's better-than-expected 400,000 net subscriber addition can only spell more losses for Mediacom and Insight.
"Every time (DirecTV) gets a subscriber someone else losses one," said Bezoza, who doesn't own shares of any of the companies he covers. His firm, Friedman, Billings, Ramsey has not rendered investment-banking services for any of the companies he discussed.
Insight, based in New York, is expected to report a loss of 11 cents a share on revenue of $235 million, compared with a year-earlier loss of 42 cents a share on revenue of $211 million.
Mediacom is seen posting a loss of 7 cents a share on revenue of $257 million, an improvement from a year ago when the company lost 41 cents a share on $239 million in revenue. |
