Comcast shows resilience to economic downturn
Largest cable operator in the U.S. reports a solid quarter, as company helps prove that TV and broadband are becoming must-have services.
In addition to the phone companies, so far it looks like cable operators are also in good shape to weather the current economic downturn.
On Thursday, Comcast, the largest cable operator in the U.S., reported solid earnings for the third quarter of 2008. The company's net income for the third quarter rose 38 percent to $771 million compared with the same period a year ago. Revenue was up 10 percent to $8.55 billion
Thanks to reduced capital spending, Comcast also improved its cash flow by 77 percent to $928 million. Comcast is now expecting to exceed its free cash flow target for 2008 of $2.3 billion. This is largely due to a reduction in capital spending, as the current housing crunch has lessened the need for new cable equipment.
While an impending recession could still ultimately spell trouble for Comcast in the next several quarters, it appears the subscription TV, phone, and broadband businesses are largely resilient. For many Americans cable TV and high-speed broadband service are seen as must-haves now in addition to home phone service, even when times are tough.
Verizon Communications' CEO Ivan Seidenberg suggested earlier this month at a conference that he believed his company and others that provide home entertainment services, like TV and broadband, could actually do slightly better during an economic downturn because people are more likely to stay home and watch TV and surf the Internet.
Still, the economic crunch is also likely to increase competition between cable and phone companies especially when it comes to price. Consumers may look for better deals and could be more likely to buy the triple-play package of services at a competitive price.
So far Comcast appears to be winning the battle to win new customers, especially when it comes to high-speed Internet. During the quarter, Comcast reported it lost 147,000 basic cable subscribers, but it added 382,000 broadband customers. Compare that to Verizon Communications' and AT&T's results. Verizon added about 225,000 fiber Internet subscribers, and AT&T added only about 148,000 broadband connections.
Despite feeling confident that they will weather the economic storm, Comcast's executives still said they plan to be cautious. The company said it might curtail its stock buy-back program. It said last year it planned to buy back $7 billion in stock. It still has $4.1 billion worth of stock to go.