Comcast Is Rapidly Turning It Around
Comcast Corp. Chief Executive Brian Roberts is proving why some investors see him as a media mogul in the making.
In the first full quarter since its $47-billion acquisition of AT&T; Broadband in November, Comcast reversed huge losses of pay TV subscribers and dramatically improved profit margins that had been the worst in the cable business. The first-quarter results, released Thursday, were better than most analysts expected, particularly with regard to subscriber growth, a key cable indicator.
“The integration is exceeding almost every expectation we set for ourselves,” said the 43-year-old Roberts during a conference call with analysts.
Comcast is the nation’s largest cable operator, serving nearly one of every four U.S. households. With roughly 500,000 customers in Los Angeles, Comcast is the largest in the city, and recently earned regulators’ praise for elevating customer service.
On the face of it, Thursday’s results might appear disappointing. For the quarter, Comcast’s net loss widened to $297 million, or 13 cents a share, from an $89-million net loss, or 9 cents a share, a year earlier.
But analysts saw that as the price of future investment. The losses stem from the Philadelphia company’s push to upgrade all former AT&T; systems with digital technologies that enable the delivery of advanced services such as high-speed Internet access and interactive TV.
“Comcast has motored into the media elite,” Merrill Lynch analyst Jessica Reif Cohen wrote recently, adding that “the sounds emanating from Philadelphia suggest a brilliantly designed acquisition plan being skillfully executed.”
While AT&T; Broadband’s systems in Los Angeles were a test bed for cutting-edge services, a cash crunch forced the company to scale back such upgrades nationwide.
As a result, AT&T; Broadband lost some 481,000 subscribers last year, or about half the subscribers lost by the entire cable industry during the same time.
Under Comcast, however, 80% of the former AT&T; systems have been upgraded with digital technologies. Comcast’s cable unit president, Steve Burke, said Thursday that 90% of the older systems would be overhauled by year’s end.
The upgrades have all but halted the migration of subscribers to satellite. In the first quarter, Comcast added 57,000 new cable subscribers, bringing its total count to 21.3 million nationwide.
As a result, revenue climbed 9.7%, to $5.52 billion, from a year earlier. For purposes of comparison, year earlier sales were reported as if the AT&T; acquisition had been completed in January 2002.
Belt tightening and staff reductions -- Comcast closed AT&T; Broadband headquarters in Denver -- improved margins at the former AT&T; systems. They jumped to 29%, from 21% in the last quarter of 2002, but still have a way to go. Margins at Comcast’s traditional systems increased to 42%, up from 41% in fourth-quarter 2002.
Burke said part of the challenge was refocusing local management on cable service rather than on phone service, which AT&T; had pushed in part because that was its expertise.
Commission structures were changed to emphasize cable growth. New programming, such as packages aimed at Latino viewers, was added. Customer call centers were taken out of third-party hands and put under local control.
“Complaints are at an all-time low,” said Debi Picciolo, Comcast’s Southern California region senior vice president.
An aggressive satellite dish buyback program also is helping attract customers. Viewers who commit to signing up with Comcast for 16 months will get $400 for their old dish. “This has been easier to fix than we thought,” Burke said. “It’s not that we’re doing anything that remarkable, it’s just that AT&T; was doing such a bad job.”
Comcast shares declined 20 cents to $30.22 on Nasdaq Thursday. The stock has risen 28% this year.