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Wednesday, August 13, 2008

Comcast Reports Strong Results In Web Services

Cable-TV giant Comcast Corp. calmed concerns about competition from phone companies by reporting strong sales of its video-phone-Internet packages and higher second-quarter profits.

While competition from phone and satellite-TV companies caused a slight dip in Comcast's video customers, the company posted healthy subscriber gains in both phone and Internet services, albeit at a slightly lower pace than the year-earlier period. Comcast's results contrasted with the latest reports by AT&T Inc. and Verizon Communications Inc., which both posted accelerating landline-phone losses and weak sales of Internet services.

The results suggest that Comcast, the biggest U.S. cable operator by subscribers, saw limited impact from the economic slowdown. The one area clearly affected was ad sales, a business Comcast has been trying to build up but which saw a slight dip in revenue in the quarter.

For the quarter ended on June 30, Comcast reported net income of $632 million, or 21 cents a share, up from $588 million, or 19 cents a share, for the same period last year. Revenue rose 11% to $8.55 billion.

Shares of Comcast traded up 4.6% to $20.07 Wednesday in 4 p.m. Nasdaq Stock Market composite trading, and other major cable operators like Time Warner Cable Inc. and Cablevision Systems Corp. also saw their shares rise. Cable stocks plunged last year amid investor worries about gains being made by phone companies in video.

Comcast's performance affirmed the bullish view on the cable industry held by some analysts. "Comcast's solid results -- particularly in the wake of such weak wireline results from the telcos -- reinforce our long-held view that the battle on the ground is cable's to lose," wrote Craig Moffett, an analyst at Sanford C. Bernstein in a report.

Most of Wall Street's focus was on what the results suggested about how cable companies are increasing their market share as the high-speed Internet market is maturing. While Comcast reported an 18% dip in the number of new broadband customers in the quarter, its 278,000 new customers dwarfed the total number of new broadband customers added by AT&T and Verizon in the same period.

"Cable is taking share, and it is taking it in gulps," Mr. Moffett wrote.

Comcast's gains suggest that phone companies, whose Internet services offer mostly slower speeds than cable, are at a disadvantage as consumers turn to bandwidth-heavy Web applications. In a conference call for investors, Comcast Chief Executive Brian Roberts said the increased demand for online video viewing was helping drive sales of cable modems.

"Video over the Internet is cable's friend," Mr. Roberts said. The shift is meaningful because broadband service is more profitable than video or phone service for both cable and phone companies, estimates Mr. Moffett.

Philadelphia-based Comcast also added 555,000 voice customers during the quarter, 20% fewer than a year ago but still a healthy growth rate, analysts said. Most of these customers are coming from phone companies.

In video, where Verizon and AT&T are taking customers from Comcast, the cable company lost 138,000 "basic cable" customers but added 320,000 customers with high-end "digital" service.

Comcast, which was under pressure from some investors last year to rein in its capital spending, showed that it got the message. Capital expenditures dropped 20% from a year ago to $1.3 billion. That helped the company to triple its free cash flow -- a closely watched metric for the cable sector -- to $1.2 billion.

By: Vishesh Kumar
Wall Street Journal; July 31, 2008