MSOs Report Record-Breaking Quarter for High-Speed Additions

BY MAVIS SCANLON

Despite a looming threat from telcos looking to beef up broadband subscriber rolls, high-speed Internet service was once again a bright spot for the four MSOs that reported earnings last week.

Strong HSD subscriber additions, coupled with higher pricing, drove better-than-expected revenue increases at Comcast and Cox Communications, while Insight Communications reported a record 23,500 HSD subscriber additions. (Comcast's 417,000 HSD additions, bringing its total to more than 4 million, was also a record.) Even Charter, which continued to lose basic subscribers, although at a slower rate, and which sustained a surprising loss of 18,700 digital subs ? the first such loss among MSOs ? added 134,200 HSD customers, pushing its total to 1.3 million.

For now, the biggest cable operators aren't outwardly concerned about Verizon, Qwest and SBC elbowing their way into cable modem territory.

?I see no change in our strategy,? Cox CEO Jim Robbins commented last week on a conference call. ?We really have some question as to the sustainability and profitability of our competitors' actions here.?

Still, investors are concerned: Cable stocks dipped in reaction to Verizon's lower-priced DSL offering after a strong run-up this year. Credit ratings agencies, such as Standard & Poor's, are cautious as well. And many cable analysts have built in lower cable modem pricing into long-term financial projections.

Comcast reversed subscriber losses at the former AT&T Broadband systems ? it added 57,000 basic subscribers ? and raised its year-end estimate for basic subscriber and HSD subscriber growth. A $1 per month price increase for cable modem service, coupled with strong customer additions in basic and HSD service, helped drive the company's overall revenue for the quarter up 9.7%, to $5.5 billion. Comcast also said it expected to add 75,000 to 100,000 basic subscribers this year; previously it expected flat growth.

?The integration is exceeding almost every expectation we set for ourselves,? said CEO Brian Roberts on a conference call.

The company still has a major job ahead completing the rebuild of former AT&T systems. About 12,000 miles of plant has been upgraded since the acquisition was completed; Comcast said it would complete another 46,000 of the 65,000 remaining non-upgraded plant this year, to the tune of about $4 billion.

However, some analysts say that estimate may be too low due to the poor quality of some former AT&T plant, such as in the San Francisco Bay Area. As Lara Warner of Credit Suisse First Boston pointed out in a note, ?In order to properly upgrade AT&T Broadband's plant, many new head-ends and hubs will have to be built and new fiber miles will need to be installed, thus amounting to very high upgrade costs.?