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Joshua Cho
AT&T Corp. wowed the investment community last week by pursuing a plan to beat out Comcast Corp. in its bid for MediaOne Group, Inc. while announcing first quarter top-line revenue growth coupled with a drop in expenses.
"The quarter was better than expected," said Anthony Ferrugia, a telecommunications analyst at A.G. Edwards. "It was a cost control story."
Indeed, on a stand-alone basis-excluding results from the recently absorbed Tele-Communications Inc.-AT&T had revenues of $13.6 billion, an increase of 6.1%, compared to the first quarter of the previous year. At the same time, selling, general & administrative (SG&A) expenses, excluding TCI, fell by 5.1%, or $167 million. More expense slashes are planned, according to AT&T chairman C. Michael Armstrong.
"We not only promised in 1999 to get the company more cost competitive," Armstrong said at a first quarter earnings conference call, "but we also disclosed that in the year 2000 an additional $2 billion is coming out of the cost structure. We're ahead of that commitment."
Also speaking on the call was AT&T Broadband & Internet Services (ABIS) president and CEO Leo Hindery, whose division's revenues grew 5.9% while operating cash flow was flat.
In one instance of the culture clash between cable and phone industries that's expected to crop up in this convergent era, telecommunications analysts who focus on AT&T were either unimpressed with ABIS's first quarter results or said it was too early to formulate any expectations.
Indeed, according to AT&T CFO Dan Somers, only one month of TCI results are included in the company's consolidated numbers since the TCI merger closed this past March.
But as for the ABIS, it had launch and development costs of $47 million in the first quarter, up from the $18 million of similar costs in the first quarter of last year.
"We're building an industry and it reflects in these numbers," said Hindery.
Subscriber growth on an apples-to-apples basis was 1.43% in the quarter, an increase of 153,000 subs. Hindery said he expects sub growth of between 1.5%-2% for the year. Digital subscribers grew by 204,000 during the quarter to a total of 1.143 million. The company also had 47,000 high-speed data subscribers at the end of the quarter with expectations of reaching a total of 150,000-175,000 by the end of this year.
"By the end of the first quarter of 2000 when we typically retest this number, you'll see very substantial growth (from) the introduction of DOCSIS, essentially the retail accessibility of the service," Hindery said.
The company's cable plant rebuild was 68% complete at the end of the quarter with plans underway to have all of the systems two-way by the middle of 2000, six months ahead of the original schedule.
AT&T's bundling tests in Texas also offered reason for company execs to be enthused. According to Hindery, two-thirds of the customers in that test are taking AT&T voice, 90% are taking AT&T video and 10% are taking the service.
"We're thrilled with the outcomes of bundling and look forward to doing it more and more everywhere," he said.
But analysts were cautious about being over-enthusiastic.
"If they roll out bundled services in one or two cities, that's not going to produce the kind of revenue they need to support the investments. The coverage, and the timing of getting that coverage, will determine success from a financial or shareholder perspective," Ferrugia said.
In other news: Earnings also came out last week from a number of cable and entertainment companies. Among them were Cox Communications Inc. and MediaOne Group Inc., which are both enjoying increased revenues from high-speed data and telephony offerings, and from the Walt Disney Co., Viacom Inc., CBS Corp., USA Networks, Inc. and Scientific-Atlanta Inc.
MediaOne increased its first quarter telephony and high-speed data revenues by 120% to $22 million from $10 million on a year-over-year basis. Total broadband revenues, which include cable, PPV, advertising and others, increased by 11.4% to $654 million from $587 million on a year-over-year basis.
The company's first quarter operating cash flow remained flat on a year-over-year comparable basis, increasing by a mere 0.4% to $241 million. Basic subscribers went up by 1.1% to roughly 5 million on a pro forma basis. The company also said it now has more than 22,000 telephone lines used by nearly 17,000 customers and 114,000 Road Runner high-speed data customers, which represents a 35% increase since the end of last year.
Huge gains were seen in MediaOne's international ventures, which had pro forma proportionate operating cash flow of $101 million, a 321% increase over the same period last year. The company's international operations currently provide 8.9 million cable, telephone, Internet access and wireless subscriptions to customers in Europe and Asia.
Atlanta-based Cox saw its first quarter data revenues rise 193% to $9.8 million from $3.4 million on a year-over-year basis. Telephony revenues went from $5.0 million in the first quarter of last year to $16.2 million this year. The company said it now has 88,890 Cox high-speed data customers in nine markets and 41,894 telephone customers in six markets.
Total first quarter revenues increased 13% to $498.5 million compared to $439.3 million in the first quarter of last year. Total cable revenues were up 10% to $472.5 million for the quarter. Cox said it now has 3.8 million basic customers, a 2.8% increase on a year-over-year basis.
The company's first quarter operating cash flow was reported at $188.5 million, an 11% increase over the same period of last year.
Both Viacom and Disney saw their respective video businesses produce disappointing quarterly results, which affected overall performance.
Viacom said that while its Blockbuster video segment had 20% increase in first quarter revenues to $1.1 billion, increased expenditures on advertising for the video chain contributed to a 13% decrease in first quarter operating cash flow. Revenues were up 10% to $3.0 billion while operating cash flow was flat.
Disney said its second quarter net income was down 41% to $226 million, or 11 cents per share, on a year-over-year basis. The company said it had lower video sales, continued weakness in worldwide merchandise licensing and fewer comparative store sales for the Disney stores. The company's revenues were up 5.5% to $5.5 billion.
CBS beat Wall Street earnings estimates with net income of $387 million, or 55 cents per diluted share. USA Networks had a loss of 2 cents per share, also beating Wall Street expectations. Back to this issue
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