Comcast Chief Is Bullish on Broadband
Cable has its share of problems, including massive debt and the baggage of the scandals at Adelphia Communications Corp. (Nasdaq: ADLAC) (see Oh, Brother! Adelphia's Chapter 11 ). And did we mention satellite competition? Someone should, as that's partly why Comcast lost more than 500,000 basic cable subscribers in the last 12 months.
The recent acquisition of AT&T Broadband made Comcast the largest cable provider in the U.S. (see AT&T Completes Comcast Merger). But Roberts didn't seem too beaten down by the pressures of his new role as he gamely chatted with CNBC's Bill Griffeth in front of an audience here at the Western Show. Roberts says that Comcast, unlike most companies these days, is ready to build and spend.
"The cry for free cash flow from Wall Street right now is fine and appropriate at some level, but it should not impinge on the technological development that this industry has the opportunity to grasp," Roberts says.
"We will not hold back on capital spending. In fact we are going to accelerate AT&T's plans dramatically.
"Our definition of success right now is going to be how fast we rebuild. It is nothing short of just tragic that in San Francisco and the Bay Area, we don't offer high-speed Internet to all of those sophisticated Internet users."
As his words rang out, the audience applauded. Indeed, many here recall that AT&T's Bay Area systems came into being because of some 15 different mergers that the phone giant had taken on since 1996. The point is that just because all the cable companies there had the same name on the door didn't mean they operated or billed in the same way, and it certainly made technology upgrades difficult.
Roberts says Comcast will spend some $650 million in California alone to rebuild cable systems here. "It's unfortunate that almost every single market is somewhere between two-thirds and 70 percent complete when it could be 100 [percent complete]," Roberts says.
He said the company has a plan to manage debt and that the AT&T Broadband acquisition would not damage Comcast's long-term viability and financial health. He says with all the securities Comcast has -- including its Sprint PCS (NYSE: PCS) holdings and the AT&T stock it got from @Home -- the company will steadily pay down its debts, while continuing to add more services and increase revenues.
"We can comfortably make the statement that by the end of 2003, we will be less leveraged -- as a ratio of debt to cash flow -- than we were when we signed up to do AT&T," Roberts says. And Comcast will own 21 percent of AOL Time Warner Inc.'s (NYSE: AOL) cable business to boot, he adds. [Ed. note: AT&T Broadband previously held a stake in Time Warner Cable, which Comcast got in the acquisition.]
Such financial bravado, naturally, must be hedged lest Roberts seem as if he's giving financial guidance. "But can I sit here today and guarantee anything? No. It would be foolish to do that. Probably the first guidance we will give Wall Street will be on that question of what are the costs of the rebuild."
Comcast's determination to upgrade all of its systems doesn’t mean that new services such as cable-based telephony will see the light of day in the next year. "We're going to rebuild the systems," Roberts says, "[However], we're not going to necessarily look to innovate next year. We're not going to look to telephony to drive cash flow next year. The main goal is to rebuild the systems and get the margins up."
The Next Big Thing?
In the past several years, Roberts says, Comcast has taken the Disney approach to launching new products -- namely, launch one new thing at a time and have all facets of the company throw their promotional muscle behind it [Ed. note: Comcast Happy Meals, perhaps?]. The next new thing Comcast will muscle forward is video on demand, Roberts says.
Roberts aims to convince content providers that a personal video recorder in every home is the television world's equivalent to Napster, meaning that customers are becoming accustomed to recording and sharing TV programs free of charge and content makers are losing potential revenues. He says if there's a business model out there where cable companies can offer licensed content on demand, where they -- and not the consumer -- can control the rates, the access, and the storage, then "we should get that model going as fast as possible."
How much of this will come to pass? It should be noted that Comcast hasn't issued a specific capital spending projection for the combined company yet. But Roberts clearly wants to invest in technology in his networks. None of this will be easy. Roberts faces the task of bringing together two fierce competitors under one roof, rebuilding several outdated cable systems, and developing a plan to hack away at the some $30 billion in debt held by the combined company.
— Phil Harvey, Senior Editor, Light Reading