Despite data slowdown, Comcast’s Q2 profit spikes 53%

Thu, 08/06/2009 - 8:50am
Mike Robuck

Despite the recession and a slowdown in subscriber growth, Comcast’s second-quarter profit increased by 53 percent.

The nation’s largest cable operator earned $967 million, or 33 cents per share, for the quarter that ended June 30, compared with $632 million, or 21 cents per share, in the same quarter a year ago. Comcast’s revenue grew 4.5 percent to $8.94 billion from $8.55 billion, partially due to increased ARPU for the company’s services.

The company’s operating cash flow increased 5.5 percent to $3.5 billion, while operating incomeincreased 7.1 percent to $1.9 billion.

Over the past six months, revenue increased 4.9 percent to $17.8 billion, while operating cash flow increased 7 percent to $7 billion, and operating income increased 11.5 percent to $3.7 billion, all compared with the same time period in 2008.

Comcast CEO Brian Roberts said he was pleased with the second quarter, but he did take note of the slowdown in subscriber growth for high-speed data. Comcast added 65,000 high-speed data customers in the second quarter, compared with the 320,000 who signed on in the first quarter.

Comcast lost 213,800 basic video customers after losing 138,100 a year ago. While digital cable did add almost 250,000 subscribers, that was off the pace of last year’s 320,000 additions in the same quarter. On the voice side of the triple play, Comcast added 233,000 new customers, which was down 58 percent.

“The combination of weak economy and increasing competition does continue to translate into slower growth in new customer additions,” Roberts said during this morning’s conference call. “In the second quarter, units are also seasonally soft, but our high-speed Internet adds, in particular, were disappointing. We believe we understand what happened, and [we] have already made some corrections and are pretty optimistic that second-quarter high-speed Internet growth will not represent a new trend.”

Steve Burke, Comcast’s chief operating officer, said high unemployment in some areas coupled with a focus on running advertisements for the digital TV transition impacted the slow growth rate for high-speed data, but those numbers are already starting to turn around. With a renewed advertising focus on both its high-speed data and triple-play services, Comcast has already added more data customer in July than in all of the second quarter, a trend which Burke said would continue over the coming months as students go back to school.

It was a busy second quarter for Comcast as the company pushed several key projects forward.

DOCSIS 3.0 to more homes
Roberts said this morning that Comcast plans to have its DOCSIS 3.0 wideband service in 80 percent of its footprint by year’s end, which was up from the 65 percent the company previously targeted. Comcast currently has DOCSIS 3.0 in 50 percent of its markets, and it has increased the speeds of its other data tiers in those markets, as well.

“I think we have always been real believers, and one of the earliest sort of advocates of DOCSIS 3.0, and it was always our intention to roll it out to the majority of the country,” Burke said. “A lot of it is operational how you get it into the markets, and is it working well, etc., and I think part of raising the estimate is just we are getting it implemented and we are a little further along the line and continue to be big believers in it. I think everybody in the industry eventually is going to put DOCSIS 3.0 pretty much everywhere, and it is just a question of how fast you go.”

Comcast has launched DOCSIS 3.0 in the following markets to date: the Twin Cities; the Boston metropolitan region and parts of southern New Hampshire; parts of Hartford, Conn.; the city of Philadelphia, as well as the greater metropolitan area; Harrisburg and Pittsburgh, Pa.; large parts of New Jersey; Atlanta; Baltimore; Chicago; Ft. Wayne, Ind.; Chattanooga, Tenn.; Portland and Eugene, Ore.; and Seattle and Spokane, Wash.

Wireless coming into focus
On  the wireless front, Comcast has launched its Comcast2G0 4G service on Clearwire’s network in Portland and Atlanta, with Chicago, Philadelphia and other markets set to launch before the end of the year. The wireless service is paired with Comcast’s data service, and Burke said the Portland division has seen a 40 percent increase in new data subscribers, which he attributed to the wireless offering.

Comcast is currently offering the service for $49.95, but it will increase to $69.95 later this year.

Comcast’s iPhone and iPod Touch app has been downloaded more than 200,000 times since it was launched last month, and the company is working on a similar offering for BlackBerrys. Comcast customers will be able to program their DVRs using the Apple app this fall.

Digital migration update
In addition to supporting the federally mandated digital TV transition through ads, Comcast has also devoted a lot of time and resources to converting its analog tiers into digital in order to reclaim bandwidth. Burke said it takes nine to 12 months to convert a system to digital, but the end result of 100 HD channels, more HD VOD choices and additional ethnic channel offerings gives Comcast an edge over its competitors.

Comcast has 10 percent of its systems converted to digital, with another one-third projected to be finished by the end of the year. Comcast has relied heavily on digital terminal adapters (DTAs) during its digital migration – it deployed 1.4 million of them in the second quarter – but will start exploring the use of switched digital video in its Motorola systems, according to Burke.

Local ad sales down, business services up
Comcast’s local ad revenues decreased nearly 20 percent to $325 million from $405 million in an advertising market that Burke described as “very opaque.” Burke didn’t have much to offer on the Canoe Ventures front other than to say that the cable industry initiative could have its EBIF application rolled out to 25 million homes by the fourth quarter.

On the plus side, Comcast’s business services were up 51 percent in the second quarter, and it is expanding its cellular backhaul efforts.

Both Burke and Roberts said the On Demand Online project with Time Warner for video over the Internet was going well. Comcast is currently conducting a trial with 5,000 subscribers but will expand the offering nationally this fall.

On the competitive front, AT&T and Verizon have overbuilt 28 percent of Comcast’s footprint to date; Burke said that number could increase to 30 percent by year’s end. Burke said Comcast was losing more customers to the RBOCs than satellite providers.

More Broadband Direct 08/06/09:
•  Despite data slowdown, Comcast's Q2 profit spikes 53%
•  DirecTV claims it's the biggest pay-TV provider
•  Google Android on the way to set-tops?
•  Arris close to critical mass with IPTV demo
•  Cisco's earnings fall 46% in Q4, beat expectations
•  Windstream sees revenue slide 6% in Q2
•  FairPoint posts Q2 loss of $17.8M
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•  Vonage posts Q2 profit, boosted by lower costs
•  Broadband Briefs for 08/06/09



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