Comcast Sees VoIP, ISP Growth

Comcast CEO Brian Roberts
Source: Reuters

Comcast, the largest U.S. cable service provider, posted a higher quarterly profit as it gained market share in Voice over IP (VoIP) phone and ISP customers while controlling expenses, sending shares up 6 percent.

The company said free cash flow rose 216 percent rise to $1.163 billion — an increase largely due to lower spending on expanding its cable systems to new communities, a development prompted by a slowdown in U.S. homebuilding.

While that slowdown contributed to weaker video subscriber growth, analysts said Comcast’s (NASDAQ: CMCSA) VoIP service was winning market share from phone competitors including AT&T (NYSE: T) and Verizon Communications (NYSE: VZ).

“Free cash flow was better than we expected and that was partly due to the fewer customer adds, so they didn’t incur costs of adding new subscribers,” said Tom Eagan, an analyst at Collins Stewart.

Comcast said it added 278,000 high-speed Internet subscribers and 500,000 VoIP subscribers during the second quarter. Seven analysts polled by Reuters had on average expected Comcast to add 327,000 new Internet subscribers and 579,000 new phone subs.

Steve Burke, Comcast’s chief operating officer, told analysts on a conference call that the company’s faster Internet access speeds are helping to win over phone company DSL customers as they want to watch more online video.

Burke said the company is also on target to add more than 2 million phone subscribers by the end of the year. It currently has 5.6 million, making it the fourth-largest U.S. phone provider. The Philadelphia-based company has 24.6 million customers for all of its services.

Compared to its growth in IP-based services, Comcast gained 320,000 digital video subscribers during the quarter — analysts had expected Comcast to add around 450,000 — while it lost 138,000 basic video subscribers. Analysts on average had been expecting the company to lose 129,000 such users.

Net profit in the second quarter rose to $632 million, or $0.21 per share, from $588 million, or $0.19 per share a year earlier, Comcast said on Wednesday. Revenue rose 11 percent to $8.553 billion. Wall Street had expected Comcast to post revenue of $8.574 billion and per-share profit of $0.22, according to Reuters Estimates.

The company also spent less on buying new digital TV set top boxes than a year ago, when it bought a significant number of new boxes ahead of a U.S. regulatory deadline to adopt a different set-top box.

That deadline came as a result of a government mandate to switch from analog to digital broadcasts, freeing up highly sought-after spectrum sold in a multibillion-dollar auction earlier this year.

Shares in Comcast rose $1.08 cents to $20.26. Shares of rival Time Warner Cable (NYSE: TWC) also rose 4 percent, while Cablevision (NYSE: CVC) shares rose 4.8 percent.

The company is also facing scrutiny over its network management policies for high-bandwidth ISP customers, particularly those BitTorrent. The Federal Communications Commission, for instance, is looking into allegations that the cable provider arbitrarily blocked certain Internet traffic without warning subscribers.

Comcast has maintained that the charges against it are overstated, and that the policies it imposes on traffic aim only to ensure the smooth operation of its network.

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