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Comcast Racks Up Record Quarterly Growth

Alan Breznick
10/26/2006

Basking in the glow of robust broadband, VOIP, and digital video growth, Comcast Corp. (Nasdaq: CMCSA, CMCSK) exceeded financial analysts' estimates in the third quarter, posting its best quarterly results in a decade.

North America's largest MSO reported earlier today that it signed up 558,000 digital cable, 536,000 cable modem, and 483,000 IP phone customers over the summer period, easily besting its gains in all three service categories a year earlier. It also picked up 10,000 basic cable subscribers, reversing its losses of 44,000 in the year-ago period and 91,000 in the second quarter.

Thanks to these across-the-board subscriber gains, Comcast netted nearly 1.5 million new revenue generating units (RGUs) in Q3, up from 816,000 a year ago and 830,000 in Q2 on a pro forma basis. In doing so, the company easily smashed its old quarterly record of slightly over 1 million new RGUs.

"Our priority, we are totally unified, is RGU growth," Comcast COO and Executive VP Steve Burke told analysts on the company's earnings call this morning. "We believe we have a moment in time. This is a unique opportunity."

The RGU growth certainly bolstered the company's Q3 earnings. Revenue rose to $6.43 billion, up 22 percent from $5.28 billion a year earlier and beating Wall Street's already bullish consensus estimate of $6.41 billion. Consolidated net income soared to $1.22 billion, up more than five-fold from $222 million a year ago, partly due to $669 million in one-time gains. Operating cash flow jumped to $2.4, up 25 percent from $2.0 billion.

Even in a quarter of such strong subscriber gains in every major category, Comcast's success with its still-emerging VOIP product stood out. In signing up almost 500,000 new IP phone customers, the MSO set a new cable industry record for VOIP additions for the second straight quarter even though its phone product is still not available to about one-third of its 46 million homes passed.

As a result, Comcast has already added about 1 million VOIP subscribers this year, boosting its total close to the 1.35 million mark. The company seems well on its way to picking up the 1.3 million to 1.4 million Comcast Digital Voice customers for the year that it projected in July, up from its original forecast of 1 million.

In fact, Comcast seems likely to exceed that year-end target by 100,000 subscribers or more. In a research note dashed off to investors earlier today, Craig Moffett, senior analyst for Sanford C. Bernstein & Co., suggested that the company could enlist as many as 600,000 VOIP customers in the fourth quarter, based on its September run rate of 47,000 per week, even without increasing its phone footprint.

Burke noted that Comcast actually added more phone customers than data customers from its "historical" systems during the quarter even though the VOIP product is much newer. The MSO added more broadband subscribers overall because it took over numerous cable systems from the former Adelphia Communications, which didn't offer VOIP, and Time Warner Cable over the summer.

On the downside, Comcast did lose 102,000 older, circuit-switched phone customers in Q3 as it emphasized the newer VOIP service and converted some existing voice subscribers over to the more advanced technology. With the latest loss, the MSO has now shed 300,000 circuit-switched customers in the past year.

But Comcast still closed out the quarter with 740,000 circuit-switched subscribers, giving it a total of nearly 2.1 million phone customers. That gives the company the most phone users in cable land, putting it ahead of previous frontrunners Cox Communications and Time Warner Cable.

Like their counterparts at Cablevision Systems Corp. (NYSE: CVC), Time Warner Inc. (NYSE: TWX), and Cox Communications Inc. before them, Comcast executives credited their latest surge in subscriber gains to the nationwide rollout of their "triple-play" bundles of digital video, voice, and data. With such three-product bundles now available for $99 a month to about two-thirds of their homes passed, company officials said up to half of all new customers are now taking the triple-play.

"I personally underestimated how powerful that value quotient is to millions of homes," admitted Comcast CEO Brian Roberts.

Burke said triple-play customers are forking over an average of more than $120 a month to Comcast because they often upgrade to other services, such as high-definition TV (HDTV) and digital video recorders (DVRs). Largely as a result, the company now collects an average of nearly $92 a month from each basic subscriber, up from nearly $82 per month a year earlier.

In response to analyst questions, Comcast executives said they're gearing up to roll out phone service to small-and-medium-sized businesses next year. The company, which recently lured away former Cox Business Services chief Bill Stemper to head its commercial unit, is now staffing up for the business telecom market.

"Right now there is no competition for small-and-medium-size businesses," Burke said. "We have the ability to come in and be the first real competitor in that market."

Analysts also questioned Comcast officials about rumors that the company might be weighing purchases of either Sprint Nextel Corp. or Yahoo! Inc. Company executives declined comment on the market speculation.

— Alan Breznick, Site Editor, Cable Digital News

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genemorg
genemorg
12/5/2012 | 3:36:35 AM
re: Comcast Racks Up Record Quarterly Growth
Have we forgotten, and it hasn't been that long, how awfull Comcast's basic cable service was??? Now we're gonna give them our Internet and phone service, with all 3 services riding over the same cable...the basic cable pipes? Also we sure have been brainwashed by the big boys, Comcast, BellSouth, AT&T, etc. We now think we need to put all services on one bill in order to get the best deal. I know which button to push to the treat, master. How quickly we forget how things were just a few short years ago!!! If we continue to feed these big giants, we're gonna push the smaller players out and be back to where we were. Do we really want that???
Michael Harris
Michael Harris
12/5/2012 | 3:36:33 AM
re: Comcast Racks Up Record Quarterly Growth
The good news is that to offer Internet and phone service, Comcast and other MSOs have had to significantly upgrade their networks, improving reliability for all three services.

If a subscriber finds the service unsatisfactory, they cancel it. In the meantime, competition from MSOs is driving down local phone and DSL pricing, and forcing the telcos to respond with video, providing another option for consumers in that category.

Not everyone wants a bundle, nor will a bundle always offer the best deal, but it will be appealing for many consumers.

What smaller players do you have in mind? Who else owns pipes besides the telcos and MSOs?
spelurker
spelurker
12/5/2012 | 3:36:32 AM
re: Comcast Racks Up Record Quarterly Growth
> If Cable co's were serious about voice they'd be buiding backhaul to
> Sprint/Nextel and merging with them.

So >7 million voice customers isn't being "serious" about voice?

And what makes you think they aren't building backhaul to Sprint?
rjmcmahon
rjmcmahon
12/5/2012 | 3:36:32 AM
re: Comcast Racks Up Record Quarterly Growth
re: In the meantime, competition from MSOs is driving down local phone and DSL pricing, and forcing the telcos to respond with video, providing another option for consumers in that category.

This is rhetoric. VZ just reported their largest margins on the phone service that consumers want, i.e. cellular. Anybody just *entering* into *wireline voice* is going after a decaying market. If Cable co's were serious about voice they'd be buiding backhaul to Sprint/Nextel and merging with them.

"Verizon Wireless accounted for $9.87 billion of the revenue, up 18.2 percent from the third quarter of 2005, as its customer base swelled by 1.9 million subscribers to 56.7 million. The operating profit margin for the cellular business was 26.2 percent in the quarter, the highest ever for Verizon Wireless, which is owned in partnership with Vodafone Group PLC."
rjmcmahon
rjmcmahon
12/5/2012 | 3:36:31 AM
re: Comcast Racks Up Record Quarterly Growth
re: And what makes you think they aren't building backhaul to Sprint?

Sprint's recent testimony

http://commerce.senate.gov/pub...

to Congress saying that NYC, the most competitive market, had only 3% of sites bid by an alternative supplier (the rest a sole provider being the BOC.) Other markets are even worse. They said this when they were asking Congress not to deregulate special access. Also, the recent hype (I mean press) seems to be about Sprint looking at WiMAX for backhaul. Seems unecesssary (and a bit desperate) if cable cos are agressively building out for their needs.

As far a 7M subcribers goes, how does that compare to Skype? Or Vonage? What's the gross margin trend? Better to secure mobile voice, which has increasing margins, in my opinion.

Problem is regulators have to answer to political forces, aka consumers, to justify deregulation. Cable cos would be happy to oblige w/their assistance on that.
Michael Harris
Michael Harris
12/5/2012 | 3:36:26 AM
re: Comcast Racks Up Record Quarterly Growth
re: In the meantime, competition from MSOs is driving down local phone and DSL pricing, and forcing the telcos to respond with video, providing another option for consumers in that category.

This is rhetoric.

Actually, that is rhetoric too. Where I live, the ILEC bundle for 2 lines of voice with calling features is half what it cost five years ago because of the local cable co's voice deployment.

You make a valid point about wireless. Did you notice that the cable-Sprint coalition was the number-two winner in the AWS auction this fall?
spelurker
spelurker
12/5/2012 | 3:36:25 AM
re: Comcast Racks Up Record Quarterly Growth
> As far a 7M subcribers goes, how does that compare to Skype? Or Vonage?

You're actually proving my point here. The amount of capital expenditure by the MSOs is larger than that of Skype or Vonage on a per subscriber basis, as the MSOs provide a primary line service, whereas Skype & Vonage do not. That's a pretty solid commitment. It's a lot cheaper to say "go to BestBuy and get a Vonage kit" than it is to say "we will send a technician to your home and provide you with/install a battery-backed up telephony modem".

(As far as subscriber counts, Skype's subscriber numbers are mostly crap, since their numbers are based on software downloads and not actual users, though there were ~5m users active during peak hours this summer which does compare favorably to ~2m for Comcast. However, Comcast only opened the floodgates on this service in 2006, and appears to be growing faster than it can handle.)

> Better to secure mobile voice, which has increasing margins, in my opinion.

Probably true, but the spin-up time for this is longer, since it requires a nation-wide cell-tower network, which they don't have. They're dealing with Sprint, but they're going to need some new voice-peering tricks to create a cohesive quad-play offering.
rjmcmahon
rjmcmahon
12/5/2012 | 3:36:25 AM
re: Comcast Racks Up Record Quarterly Growth
re:Where I live, the ILEC bundle for 2 lines of voice with calling features is half what it cost five years ago because of the local cable co's voice deployment.

How do you prove this cause and effect relationship? What's the effect been to pricing on wireline voice from celllular? Are you suggesting that there is none and that all pricing changes are due to cable's VoIP?

I don't believe my local access lines have dropped by half over 5 years. I don't have the data at hand but I think the overall prices for local access has been stable and increased a bit. Yes long distance has dropped but giving cable credit for that would be incorrect.
rjmcmahon
rjmcmahon
12/5/2012 | 3:36:23 AM
re: Comcast Racks Up Record Quarterly Growth
spelurker,

I don't know but CPE based battery backed up lifeline voice just doesn't sound too good. Also, regulators will ultimately get involved with this too, similar to what they do w/basic analog cable, forcing providers to offer it at a subsidized rate. I'd avoid it myself and go after mobile gadgets as well as find a way to connect to the cell towers used by Sprint. Just my opinion.
rjmcmahon
rjmcmahon
12/5/2012 | 3:36:15 AM
re: Comcast Racks Up Record Quarterly Growth
re: Clearly, advocating a causal relationship between competition and pricing is a stretch, assuming one was employed by Gosplan (the former Soviet Union's State Planning Commission). ;)

Cute but misses the point. I'd agree that competition has impacted voice pricing. But your implication was that Cable's VoIP was the reason for a five year decline that your experiencing. Cable hasn't even offered VoIP for five years so that seems to be a bit of a stretch.

re: ILEC access line charges have not dropped materially, as those prices are typically regulated.

Ok, so it's not the lack of competition but the regulation that is holding up access prices? Sounds like an acess business owner who is seeing declines in every other part of voice services, i.e. those experiencing real competition, probably wants to keep the regulation.

re: But, at least as far as the ILEC that serves my community goes, enhanced calling features and long distance bundle prices have.

What enhanced calling features are you talking about? Long distance had real competition from the likes of MCI and Sprint and the bottom dropped out on their pricing power.

With all due respect, I can't tell if your young to this industry and are missing the historical background or if you're pandering to the incumbents. I think its the former.
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