Comcast is feeling the pressure

Cablers lose subs as competition from AT&T, Verizon grows

While many in the industry have seen cable giant Comcast's size as at least somewhat threatening, it is exactly this scale that might hurt the company in a weak economy.

Long-ailing cable stocks declined further Wednesday after Comcast cut its 2007 financial guidance and predicted basic-cable subscriber losses this year and next, citing increased competition and economic woes.

If Verizon and AT&T — which have rolled out competing video services — stay as aggressive with free TV offers and the like in the market right now, "we will lose some basic subscribers over the next few years," Comcast co-CFO Michael Angelakis said Wednesday on the last day of the UBS Global Media & Communications Conference in New York.

Angelakis said Comcast's scale across the U.S. has meant that it has been stung by the downturn in the housing market and a sluggish economy. "When we see a little bit of a rise in both churn and bad debt, that indicates there's an economic issue," he said. But he vowed to fight hard to boost customer trends. "One of many tactics we are looking at is lower-speed (broadband) service" to retain economically pressured homes, he told the UBS conference.

The largest U.S. cable operator late Tuesday reduced its 2007 forecast for subscriber additions by half a million and cable revenue growth from 12% to about 11%.

Investors didn't seem to care that Comcast still targets to add 6 million revenue-generating units, up from 5 million in 2006, and that most analysts have had lower estimates than management already.

Comcast Class A shares were down 12% at $18.01 after being down more than 10% intraday. Comcast led Wednesday's decliners on The Hollywood Reporter's Showbiz 50 stock index.

Other cable stocks also suffered. Time Warner Cable shares fell 4.4% to $25.87, while Cablevision Systems' stock declined 4.2% to $25.76 and set a new low of $25 intraday.

Goldman Sachs analyst Anthony Noto on Wednesday removed Comcast shares from his firm's "America's buy list" and downgraded his rating from "buy" to "neutral." He also cut his price target by $3 to $22. "Our extreme downside scenario is playing out worse than we thought and are thus lowering our estimates again," he said in a report. "Shares have fallen 27% since our Jan. 3 initiation, versus the S&P Broadcasting/ Cable Index down 19%; and are down 24% over the last 12 months."

In the title to a research note highlighting the competitive pressure exuded by telecom and satellite TV firms, Pali Research analyst Richard Greenfield summarized Comcast's situation like this: "The war intensifies."

Only five weeks after lowering 2007 free-cash-flow guidance, Comcast has reduced it again — to a 20% decline over 2006 from an original projection of unchanged results, he said.

Angelakis' appearance Wednesday capped a UBS conference that put the spotlight on cable operators' slowed subscriber momentum amid increased competition.

Cable executives at the conference admitted to increased competitive pressures but largely shrugged off their financial impact for now.

Charter Communications president and CEO Neil Smit said Verizon's FiOS TV and AT&T's U-verse video services are available in 6%-7% of Charter's markets — below the overlap with other cable firms.

"We have seen increased competitive advertising in these markets," Smit said. "But in many cases, these are me-too products. There are many introductory promotional offers," but the ultimate price is about the same as for cable.

Smit said Charter feels its bundled services are a solid counter-offer, and the company has a council that analyzes markets with upcoming telecom video launches and tailors pricing and packaging to be as competitive as possible.

Similarly, Time Warner Cable chairman and CEO Glenn Britt said that Los Angeles and Dallas, where TWC acquired systems in the Adelphia Communications deal, have seen competition from FiOS TV and U-verse.

"They have made good headway there, especially Verizon," Britt said. But he added that the telecom competitors' financial impact on TWC is "pretty small right now."

Verizon president and COO Denny Strigl had an understandably good time when asked about FiOS TV at the UBS conference Wednesday. "What have you heard!?" he replied when confronted with the fact that the cable presenters had all referenced FiOS.

"We have been very pleased," he added, saying that FiOS subscriber momentum has been better than expected by his team in markets where Verizon offers its video service together with telephone and broadband services.

He declined to say how much longer Verizon would give LCD TVs away as part of promotional offers, but he lauded their success and said they were for a limited time only.

"It's an idea, by the way, that we stole from the cable companies," Strigl said.
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