Citi Media: Michael Angelakis, CFO, Comcast; Bad Debt And Churn Climbing

At CES, Comcast CEO Brian Roberts rolled out an impressive list of new features and products. Yesterday, AT&T (NYSE: T) CEO Randall Stephenson warned that the impact of the weakening economy was starting to have an effect. Guess what lead off the conversation during Comcast CFO Michael Angelakis’ appearance at the Citi Annual Entertainment, Media & Telecommunications Conference. Angelakis’ last conference appearance came in early December, just after the company issued an earnings warnings, so the economic story was already out there for the Comcast (NSDQ: CMCSA). This was a chance to describe things more and explain how the company is reacting.
Economy and growth: No surprises here: the economy, along with an increasingly competitive environment is taking its toll, although for now its sticking to its December guidance of 13 percent OCF growth. Angelakis described himself as “bullish” on a company that can deliver this growth and insisted that the problems are still “on the margin”. As for specifics, churn is creaking up and bad customer debt is up $100 million year-over-year. The challenge now is to adjust to the changed environment. Later on it was asked whether cable, as it has long been regarded, is still a recession-proof business, in light of premium product-driven ARPUs. Angelakis: Nobody knows. “We’ll see how deep this recession really is… if there is a recession.”
Strategy: There’s a real difference between what Comcast and AT&T are saying. Yesterday, Randall Stephenson aggressively talked up the triple play. This is still big for Comcast, but in a way it’s backing down. As he said in December, the company is increasingly interested in selling customers one of the three core products. In particular, it’s looking for non-video customers that might want voice or data. Not only can this help the company find new customers, but by marketing single products, it can appeal to budget-constrained customers that don’t need the whole package. Angelakis described digital voice as a value product with “enormous headroom”, which is pretty different than Stephenson, who sees a home phone line as a discretionary product and VoIP playing to second fiddle to wireless. As for the company’s speed upgrades, which was discussed this week, the company is not targeting FIOS markets.
Capital use: There was an interesting question from an audience member pertaining to dividends that touched on the market’s perception of Comcast’s strategy. He noted that the company doesn’t pay a dividend, meanwhile the company’s stock pulled back on news of the Weather Channel auction, out of fears that the company would spend its cash on that instead. The implication is that investors would rather see cash returned to them, as opposed to Comcast spending $5 billion or more to acquire content. There wasn’t much of an answer to this, except that a dividend isn’t out of the question going forward.
Wireless: “I think what we are really trying to figure out is, ‘what is the product?'” Basically, the company doesn’t have a wireless strategy yet.