Weak economy costs Comcast basic video subscibers

By Paul Thomasch

NEW YORK (Reuters) - Comcast Corp, the largest U.S. cable service provider, on Wednesday reported a sharp fall in basic video subscribers, hurt by the weak economy, competition with phone companies, and hurricanes.

Shares of Comcast fell as much as 11 percent, even as the company said it would exceed its full-year free cash flow forecast as the slowdown in subscriber growth helped it trim capital expenditures.

"They were lackluster. Both in terms of customer and financial growth on most metrics, they were below our expectations," said Thomas Eagan, an analyst with Collins Stewart.

Comcast's basic video subscribers fell by 147,000 to 24.4 million in the third quarter -- a sharper decline than the year-ago period's 56,000 drop -- as the economy hurt business.

Competition from phone rivals including AT&T Inc and Verizon Communications Inc also hampered subscriptions, as did hurricanes, which accounted for 15,000 of the basic video losses in the quarter.

Chief Executive Brian Roberts said the issue was not the customers were dumping Comcast's service. Rather, with the poor economy and housing slowdown, new customers were tougher to find.

"What we have seen, and this has been going on for a while and accelerating recently, is that our connects are lower than they were last year. Interestingly, our disconnects are not rising," Roberts said on a conference call.

The resulting decline in subscribers was larger than many expected. Goldman Sachs forecast basic subscriber losses of 110,000, Barclays Capital forecast 100,000 losses and Bernstein Research forecast 27,000 losses.

Bernstein analyst Craig Moffett said the basic subscriber numbers were "the weakest link" in the results.

"Here, recession has been a double-edged sword. On the one hand, rising foreclosures and the collapse of new home construction have trimmed overall market growth, as fewer net housing units are added to the pay TV base," he said in a note.

"On the other hand, however, record low velocity in existing home sales has reduced churn, and in the process has trimmed the number of occasions when households might otherwise reconsider their video provider choice," he said.

Comcast's third quarter net profit rose to $771 million, or 26 cents a share, from $560 million, or 18 cents a share, a year earlier. Excluding special items, earnings rose to 24 cents a share, above the average analyst forecast of 22 cents according to Reuters Estimates.

Revenue also climbed 10 percent to $8.55 billion, just shy of analysts' revenue forecast of $8.59 billion.

Comcast added 417,000 digital cable customers, 382,000 high-speed Internet subscribers, and 479,000 phone customers in the quarter.

It reported a 77 percent rise in free cash flow, a metric that is closely followed by U.S. cable investors who are concerned that cable companies may be overburdened by capital costs in building out new cable lines. Free cash flow totaled $928 million for the quarter.

With capital spending trending lower, Comcast said 2008 free cash flow could exceed its previous forecast of at least 20 percent growth from the $2.3 billion reported in 2007. The cable provider confirmed the rest of its 2008 outlook.

Shares of Comcast fell 92 cents to $16.04 on the New York Stock Exchange. They hit an earlier low of $15.08.

(Reporting by Paul Thomasch; Editing by Derek Caney)