July 27, 2006 11:03 AM PDT
Comcast voice helps ring up profits
Comcast, the largest cable operator in the United States, reported Thursday that net profits for the company rose 7 percent to $460 million, or 22 cents a share, compared with profits of $430 million, or 19 cents a share, during the same quarter a year ago. Revenue in the quarter increased about 11 percent from the previous year to $6.23 billion.
Brian Roberts, Comcast's chief executive officer, said during a call with analysts that revenue from its voice service was a key contributor to the company's bottom line during the quarter. He expects strong growth to continue for the foreseeable future.
"We feel the phone business is coming into its own," he said, "and it will drive an era of growth we haven't seen in a long time."
Comcast has been taking on phone companies by selling its own telephone service based on voice over Internet Protocol technology, which turns broadband connections into phone lines. With the addition of voice, Comcast can offer customers a so-called triple-play package of high-speed Internet access, TV and telephony.
Even though phone companies AT&T and Verizon Communications have begun fighting back by rolling out TV service, the process has been slow. And as a result, Comcast and other cable operators have been able to capitalize on their first-mover advantage. An AT&T executive recently noted during the company's second-quarter earnings call that Comcast's triple-play offering had impacted the company somewhat.
In total, Comcast reported that it added 306,000 new digital phone users during the second quarter, up from 211,000 in the first quarter of 2006. Phone subscriber growth has been accelerating on a weekly basis for the past few quarters. In the fourth quarter of 2005, Comcast said it added about 10,000 new subscribers per week. And in the first quarter of 2006, it was adding about 16,000 per week. In the second quarter of this year that number jumped again to about 23,000 new phone subscribers per week.
"We see no reason why this momentum won't continue," Steve Burke, chief operating officer for Comcast, said during the conference call. "And we see no reason why we can't add over 400,000 CDV (Comcast digital voice) subscribers in the third and fourth quarters."
While adding new subscribers is certainly good news for Comcast, Burke said that including voice in a package of services is also accelerating revenue and profits. Customers can subscribe to each of the services--TV, broadband and telephony--individually, but Comcast is offering special deals of $99 per month for the first year of service to entice new customers to buy more services. The bundle helps alleviate the need to sharply discount individual services, he explained. As a result, Comcast is selling consumers more services at higher profit margins.
"A year ago, we thought the triple play would be a drag on revenue growth in 2006," he said. "The idea was that we would add customers now, and not see the benefits until 2007. But in reality with the triple play, we are seeing less discounting on video and high-speed data. And as a result, cash flow is accelerating."