TCI results due; AT&T deal proceeds
Analyst sees cabler's 'respectable' subscriber growth
By David B. Wilkerson, CBS MarketWatch
Last Update: 1:49 PM ET Nov 12, 1998
ENGLEWOOD, Colo. (CBS.MW) -- John Malone's TCI Group is slated to report third-quarter results Friday morning, though analysts will be looking ahead to the close of AT&T's $48 billion acquisition of the company.
The nation's largest cable operator (TCOMA) is expected to post a loss of 12 cents a share in the period, according to First Call's survey of six analysts.
Ted Henderson, analyst at Denver-based Janco Partners, told CBS.MarketWatch.com the AT&T merger, expected to be completed early next year, will indeed close. He added that TCI shares are all the more attractive because they're "trading at a discount" to their post-merger value.
Updated:
11/12/98 6:21:38 PM ET
Observers say AT&T's financial clout would allow TCI to accelerate its upgrade program, which would allow most of its cable systems to carry as many as 440 channels with digital compression. The company could then get maximum leverage from the cable assets owned in whole or in part by its programming arm, Liberty Media (LBTYA).
Those assets include Encore Media Group, along with interests in Time Warner, Discovery Communications, Fox Sports Net, QVC, USA Networks, United Video Satellite Group, the newly private BET Holdings, Court TV, Odyssey Channel and E! Entertainment Television.
In recent quarters, revenue growth has been just about stagnant, partly due to President Leo Hindery's insistence on keeping rates down even in the face of soaring programming costs.
Henderson is looking for overall subscriber growth of about 2 percent compared to the year-ago period, a rate he called "respectable." He also said he expects the news on new digital customers to be "good," but echoed Hindery's remark after the June period that digital subscriptions tend to cannibalize pay-per-view numbers.
Analysts will also be eager to hear what TCI's high-speed Internet data rollout looked like during the quarter.
Gary Farber of Cowen & Co. said earlier in the week that new services are closely watched, and it's not hard to see why. To offer those services, cable companies have had to sink millions of dollars into plant upgrades, and those costs need to be justified.
Farber said a key quarterly benchmark for cable companies is whether or not they're able to sustain low double-digit cash flow growth. Janco Partners' Henderson thinks TCI may have pulled it off in the September period.
Advertising sales, which only account for about 7 percent of TCI's revenue, are expected to be higher than the previous year's third quarter. Ad sales were higher year-over-year in the previous quarter. However, some of that gain may be offset by increases in programming and marketing expenses.
TCI's Hindery, who leveled a blast at certain cable programmers after the company reported its June results, may want to take aim at Major League Baseball this time. With top free agent salaries expected to exceed the $12-million-per-year mark going into next season, owners will probably want to pass those costs on to networks such as ESPN and Fox Sports Net. The networks, in turn, may hike the license fees they charge to cable operators.
TCI shares were unchanged in Thursday afternoon trading at 40 5/8.
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