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TCI earnings weaker than expected

The nation's largest cable operator reports that its combined operating cash flow fell 14.7 percent, weaker than most cable analysts' expectations.

    The nation's largest cable operator, Telecommunications Incorporated, today reported that its combined operating cash flow for the third quarter fell 14.7 percent, weaker than most cable analysts' expectations.

    Still, analysts say investors should not be overly disappointed with the results as TCI positions itself to pull in greater revenues from expanded broadband services.

    Unlike other industries, analysts said, the cable industry looks at cash flow rather than earnings per share to gauge the health of a company.

    The company posted a decline in combined operating cash flow to $604 million from the $708 million reported in the year-ago quarter. TCI reported pro forma operating cash flow from its cable operations of $633 million, a 4.1 percent increase from the year-ago quarter.

    "We were looking on an apples to apples comparison for about 7 percent, but they came in around 4 percent," said Charles Simonds, an analyst at Salomon Smith Barney. "[The results] are very confusing because they are deconsolidating a lot of things due to joint ventures."

    Cable operations generated pro forma revenue of $1.421 billion compared to $1.366 billion for the year-ago quarter.

    "We have been saying for a while that cash flow is going to suffer at cable companies simply because of the self-imposed rate-hike restrictions along with increased programming costs," Simonds said. "That is exactly what we saw this morning with TCI."

    TCI said it ended the third quarter with 12.5 million basic cable customers, but added that while its customer base was essentially flat for the quarter--traditionally a slow growth quarter--on a pro forma basis, excluding the impact of all announced cable partnership transactions, TCI Group's customer base grew around 1.9 percent year-over-year.

    As of early November, TCI said it had approximately 1 million digital cable customers. On a pro forma basis, excluding digital cable customers who are in cable systems that will be transferred to pending cable partnerships, TCI Group had approximately 720,000 digital cable customers, an increase of approximately 300,000 digital customers from the number reported at the end of July.

    Also, TCI had approximately 22,000 TCI@Home customers resulting from its still relatively limited rollout of this service.

    It is these digital services and the capability of offering expanding data services through these installed pipes that will lead TCI to stronger cash flow, analysts speculated.

    "We are looking for material contribution from broadband services," said Simonds, adding that we are already starting to see digital video and high-speed data services at TCI. Simonds also said that TCI will eventually offer IP telephony services.

    TCI only mentioned its mentioned its merger with AT&T in the context that the results did not include the merger costs.

    Shares of TCI inched nearly a half percent higher after the earnings news this morning to 39.38. The stock has traded as high as 44.56 and as low as 21.94 during the past 52 weeks.