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Box Deadline Fuels Comcast's Q2

Jeff Baumgartner
7/26/2007

Comcast Corp. (Nasdaq: CMCSA, CMCSK) posted some big digital video additions in the second quarter as the MSO snapped up and deployed integrated security set-tops at a furious clip in anticipation of the Federal Communications Commission (FCC) 's July 1, 2007, deadline. (See Countdown to 'Seven-Oh-Seven'.)

In announcing earnings today, Comcast said it added a record 823,000 digital cable subs in the quarter, about 2.5 times more than the 337,000 it added a year-ago, extending the operator's digital penetration to 59 percent.

About 441,000 digital customers added "advanced services" such as high-definition television and digital video recorders. Twenty percent of Comcast's 14 million digital subs still take the company's "starter" service.

During the quarter, Comcast installed a record 2.1 million digital boxes, or 2.5 boxes per net add, said John Alchin, the MSO's EVP and co-chief financial officer, during this morning's call with reporters and analysts.

"We decided to buy out the production runs of low-end and advanced set-top boxes so we could install as many boxes as possible before the July 1 deadline," Comcast Corp. COO and Comcast Cable president Steve Burke said on the call. He said the separable security elements (i.e., the CableCARD and associated electronics in the host set-top) add about $50 to set-top unit costs. (See Boxing Up 'Seven-Oh-Seven' .)

The digital push created a higher average monthly revenue per video sub -- $101, up about $10 from a year ago. The digital push could not offset a decrease of 95,000 basic cable subs, a drop expected due to traditional second-quarter "seasonality."

Also of note: Comcast has started trials of "whole-home" DVR systems, which aim to reduce the number of hard drives and amount of money required to offer time-shifting on multiple TVs per home. Deployments could start "sometime in the next year," Burke said. Verizon Communications Inc. (NYSE: VZ) has already beat most cable operators to the punch with its version of the product, which it offers today via the Motorola Inc. (NYSE: MOT) QIP platform.

Comcast added a record 1.5 million revenue generating units (RGUs) during the period, up 94 percent versus a year ago. Overall, the company ended the quarter with 3.4 million RGUs, up 77 percent.

On the telephony front, Comcast ended the quarter with 3 million digital voice subs, or a penetration rate of 8 percent. That helped phone revenues almost double to roughly $420 million. Revenues for Comcast's waning circuit-switch-based phone service dipped $56 million -- or 46 percent -- in the quarter as the MSO continued to focus on its IP-based voice offering.

The MSO also added 330,000 high-speed data subscribers, ending the quarter with 12.4 million subs, or a penetration rate of 26 percent. Signups in the quarter were below or just in line with some analyst expectations. Sanford C. Bernstein & Co. Inc. , for example, forecasted about 354,000 net adds in the quarter.

Burke attributed the high-speed data growth slowdown in part to system conversions following takeovers of systems previously run by Adelphia Communications and Time Warner Cable Inc. (NYSE: TWC).

Investors were not wild about Comcast's basic sub losses and slower-than-expected cable modem service growth in the second quarter. In late afternoon trading, Comcast was down $1.08, or 3.82 percent, at $27.19 per share.

Overall, Comcast reported net income of $588 million, 19 cents per share, on revenues of $7.7 billion, compared with net income of $837 million, 26 cents per share, on revenues of $7.4 billion the previous quarter.

— Jeff Baumgartner, Site Editor, Cable Digital News

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