Comcast shares sink 12% on report

Clearing the Record

Because of an editing error, this article about Comcast Corp.'s adjusted projections for its customer growth incorrectly reported that the company said it would add a total of 6 million subscribers in 2007 instead of the 6.5 million it had predicted earlier. Those figures, however, reflected what Comcast calls "revenue generating units," which represent subscriptions to each of the services it provides. Each subscriber could therefore represent multiple revenue generating units.

Comcast Corp.'s shares were slammed on the stock market yesterday after the company acknowledged that the housing slump and new competitors - mainly AT&T Inc. and Verizon Communications Inc. - were slowing its growth even as its costs climbed.

The shares of the nation's largest provider of cable TV and high-speed Internet plunged more than 12 percent yesterday.

"This is not a robust economy," Comcast chief financial officer Michael Angelakis said yesterday, speaking at the UBS Global Media conference in New York. The company, based in Philadelphia, had predicted this year that it would add 6.5 million of what Comcast calls revenue generating units in 2007, but Angelakis said yesterday that growth would amount to 6 million.

"We will fight in the streets and do everything we can for retention" of customers, Angelakis added. "But when you have a company like that throwing those kinds of resources - not just Verizon but other competitors - we will lose some basic subscribers."

Robin Diedrich, senior analyst for the brokerage Edward Jones in St. Louis, called the new estimate "a small tweaking to expectations."

The looming competition, she said, was "the more meaningful signal. These companies in the cable industry have not had to pull back prices. Our long-term concern is, they are going to have to . . . bring down their prices."

"'09 and beyond is probably when you're going to see the most meaningful type of competition."

Comcast's new projections come as the firm - which employs about 9,300 people in the 10-county region and 90,000 nationally - is fighting a pitched political battle with its chief federal regulator, FCC Chairman Kevin Martin.

Martin wants to limit Comcast's subscriber base to 30 percent of the nation's cable market, or roughly 27 million homes.

Comcast has nearly 24.2 million subscribers. The rule would effectively block the firm from making a mega-acquisition, such as buying Time Warner Cable Inc.'s systems.

Martin has lambasted the cable industry for ever-rising rates and for selling subscribers packages of channels instead of individual ones.

Cable companies have told Wall Street analysts in recent months that they have lost tens of thousands of subscribers, a sign, they argue, that they are not as omnipotent as the FCC says.

Comcast said it lost 65,000 basic-cable customers during the third quarter. But the number of the firm's basic customers - just under 24.2 million - was still 24,000 ahead of last year on Sept. 30, company records show.

Comcast's digital-cable customers rose 489,000 in the third quarter of 2007. That is smaller than the 559,000 digital-cable customers added in the same quarter of 2006. But Comcast still added nearly two million digital-cable subscribers in the first nine months. That was 56 percent more than the 1.3 million added in the same period a year ago.

Comcast's revenue rose 21 percent in the third quarter to nearly $7.8 billion, while operating cash flow rose 20 percent. "We once again posted double-digit growth in revenue and operating cash flow, our two most important metrics," chief executive officer Brian L. Roberts said in a statement.

Although AT&T is a financial giant, its video business, with about 2.1 million customers, is tiny compared with Comcast's, company filings show. Verizon is even smaller, with 717,000 FiOS TV customers, filings state.

Just as AT&T and Verizon have stripped away many of Comcast's video and Internet-service customers, Comcast has taken many of the phone company's phone customers with its Digital Voice service. Comcast's phone-service revenue nearly doubled, to $1.2 billion for the nine months that ended Sept. 30. Its Internet revenue grew to about $4.8 billion Sept. 30 from just under $4 billion a year earlier.

Comcast's revised forecast, announced late Tuesday, produced a vivid response in the market, which beat down the stock $2.55 to close at $18.18 yesterday. Other cable stocks also tumbled.

Comcast's stock had risen above $21 Monday after the company said it would not compete with Google Inc. in bidding for 700-megahertz spectrum licenses at a forthcoming FCC auction.

But its yearlong momentum has been downward. Before yesterday, the 52-week range had been from $18.83 to $30.18 a share.

Comcast said total cable revenue would rise 11 percent instead of 12 percent. "Revenue generating units," or new products sold to subscribers, would rise six million instead of the previously announced 6.5 million.

And cable capital costs would rise to $6 billion, 5 percent more than previous guidance, because of more purchases of advanced digital set-top boxes, the company said. These boxes are coming with a hard drive, turning them into digital video recorders, and creating a gateway to compete with satellite and the popular device from TiVo Inc.

The guidance changes would reduce free cash flow to 80 percent of 2006 levels, compared with previous guidance of 90 percent.

The combination of falling growth and rising capital costs prompted Craig Moffett, senior analyst at Sanford C. Bernstein & Co. L.L.C., to call Comcast's announcement "the worst of all possible worlds."

Analysts at Kaufman Bros. L.P. noted that this was the third time this year that Comcast had cut back expectations. "It is our experience with these cable companies that trends like these take time to develop and are slow to reverse," analyst Todd Mitchell wrote to clients. Mitchell yesterday reversed his recommendation from buy to hold.