Keeping the Cash Flowing

3:00 PM -- Would it not seem logical that the loss of some customers should have a negative effect on the bottom line of some of the nation's largest cable MSOs? Not so, with the latest financial reports indicating that operators are still experiencing significant gains in free cash flow, calculated as operating cash flow minus capital expenditures.

The industry as a whole lost an estimated 1.4 million basic video subscribers in the past 18 months, which represents a base that's larger than three incumbent MSOs in the U.S. top 10, according to National Cable & Telecommunications Association (NCTA) data. Yet cash flow among some of the largest operators in the land has increased significantly.

Table 1: Comparing free cash flow*
Company FH 2009 FH 2008 % Difference
Comcast $2,536 $1,865 36%
Time Warner Cable $1,031 $806 7.9%
Charter Comm. $66 ($523) N/A
Cablevision $62.5 $12.6 96.3%
* In millions of dollars
Source: The companies

Cable operators have historically found it difficult to keep and add customers during the seasonal summer months, but several factors, including surging telco TV competition and a struggling economy, have conspired to make it an even more difficult year for MSOs.

But there are multiple reasons why free cash flow is still pouring in. With fewer customers to manage, operators are not spending as much to maintain those customers, and with most infrastructures built out, capital expenditures have declined significantly. In conjunction, operators are taking advantage of that previous capital spending on new services to upgrade existing customers to higher paying packages. Thus, free cash flow is now king in cable financial reporting.

Although cable capital expenditures have been significant in the past, they do not seem to match the cash required by Verizon Communications Inc. (NYSE: VZ) to deploy FiOS, though this completely fiber-based architecture has led some to believe that the platform's flexibility and enhancement capabilities will ensure that the telco will be a force to be reckoned with well into the future.

In the meantime, MSOs continue to sit in the cat bird’s seat with their customer clout and advanced service penetrations, but they should never view short-term cash flow as the answer to all ills.

— Leonard Grace, a cable industry vet, is a telecom strategist and blogger. He can be reached at [email protected]. Special to Cable Digital News

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