MediaOne CFO Cites 3rd Quarter Internet-Access, Telephone Growth
By Tom Locke
11/03/1999
Dow Jones News Service
(Copyright (c) 1999, Dow Jones & Company, Inc.)
(This story was originally published late Tuesday.)
DENVER -(Dow Jones)- MediaOne Group (UMG) posted a "terrific" third quarter with slightly better-than-expected operating cash flow driven by faster customer growth than expected, Chief Financial Officer Rick Post told Dow Jones Tuesday.
The Englewood, Colo., provider of cable TV and other broadband services sold various international operations for prices that are "dead on" with the prices it and AT&T Corp. (T) had expected and talked about, Post said. It will receive about $11 billion for its interests in 11 international companies.
AT&T's purchase of MediaOne is still expected to close in the first quarter of next year, Post said, and he doesn't foresee any major problems in getting approvals for the deal from the Federal Communications Commission or the Department of Justice.
Post emphasized that an important aspect of the quarter was MediaOne's success in selling telephone services and high-speed data services over its cable TV lines.
He expects the telephone part of the business to become operating-cash-flow positive in the first half of 2001. MediaOne uses earnings before interest, taxes, depreciation and amortization, or EBITDA, as its measure of operating cash flow.
And Post expects the high-speed data business to become EBITDA-positive in the fourth quarter of this year and remain positive for all of 2000, he said.
MediaOne reported proportionate third-quarter revenue, including its share of results in joint ventures, of $2.1 billion on a pro-forma basis. That was up 15% compared with a year ago.
Consolidated EBITDA for the quarter was $220 million, up 14% over a year ago.
MediaOne's net loss per share, on normalized continuing operations, was 36 cents, compared with a net loss of 32 cents for the year-ago quarter.
The loss beat the First Call/Thomson Financial consensus estimate of a net loss of 38 cents per share.
Analyst's Expectations Beat By Telephone, Data Growth
PaineWebber analyst Tom Eagan said the third-quarter results were "pretty strong" and exceeded his expectations in some respects. Revenue growth in domestic broadband operations were both above his expectations.
Growth in high-speed data services, which provide access to the Internet, were part of the reason. Eagan was expecting MediaOne to have 164,000 high-speed data customers by the end of the quarter, and instead it hit 173,000, he said. That meant it was adding 3,200 high-speed data customers a week, 10% more than the average of 2,900 a week he had projected.
In telephone service, too, he was surprised on the upside. He had expected 35,000 customers by the end of the quarter, and MediaOne came in 20% higher, at 42,000.
Eagan noted that MediaOne's cash flow has improved because of lower Year 2000 costs and lower infrastructure costs related to customer service. Meanwhile, telephone and high-speed data services are heading toward break-even cash flows.
For both high-speed data and telephone services, attaining a level of about 200,000 customers is about where EBITDA breaks into the black, according to Post.
MediaOne, which has about 5 million U.S. cable TV customers, is expecting "north of 50,000" telephone customers by the end of the year, Post said. That number is expected to "be well north of 100,000 customers by the end of 2000."
Post said he anticipates close to 200,000 high-speed data customers by the end of this year, compared with 80,000 at the end of last year.
MediaOne is speeding its ability to meet demand partly because it's using one technician, instead of two, in 80% of its installations. That compares with 50% a year ago.
"We're seeing some very good penetration," Post said. In markets where it has offered high-speed data service for a year, penetration rates are hitting 7%. In markets with two years of exposure, the high-speed data penetration rate is in the "upper teens," Post said.
For telephone service, MediaOne is seeing 5% penetration in of those homes receiving an initial marketing push. Monthly revenue per telephone subscriber is ahead of plan, said Post, averaging in the mid-$40s. MediaOne is averaging 1.38 telephone lines per customer, compared with roughly 1.2 lines per customer for the Baby Bells, he said.
MediaOne posted 10.5% third-quarter revenue growth in its domestic broadband services - which include video, data and telephone - and that was slightly higher than expected. Part of the upside surprise came from higher-than-expected growth in video revenue. Post attributed the video growth to marketing, to more sophisticated cable-TV packages and to new digital video and audio offerings.
Domestic broadband cash flow grew at 7.6% compared with the year-ago quarter, compared with less than 5% year-over-year growth in the first two quarters of this year.
But Post noted that the first two quarters of this year had tougher comparisons with a year ago. That's because in the first half of 1998 MediaOne hadn't yet begun heavy investments in Year 2000 solutions and in modernization of customer call centers.
-By Tom Locke; Dow Jones Newswires; 303-293-9294
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