Charter, Comcast Expand Simulcasting—May Avoid Must-Carry

Comcast plans to simulcast signals in 75% of the markets it serves by year end, COO Steve Burke said during a conference call. He said the service was launched in Philadelphia, where the company has hq: “You're going to see [simulcasting in] a lot of additional markets” such as Boston, Chicago and Indianapolis, he added. Charter, which has started simulcasting in 3 markets (CD July 22 p13), will have the service available in 20% of its footprint by Dec. 31, CTO Wayne Davis said in another teleconference. Charter launched simulcasts last month in the St. Louis area, where it has hq. The company also said Tues. that it may sell some systems.

Congressional committees may take up must-carry in a so-called mop-up bill after passing broader DTV legislation, Hill sources have said (CD July 8 p1). Cable operators may be able to head off mandates by starting simulcasting now, analysts said Tues. “It’s a way for them to avoid the issue before it becomes an issue,” said Jefferies & Co. analyst Robert Routh, who recommends buying cable shares.

“It would be very difficult for anybody to press them to do more than what they're already doing,” Routh said: “It’s a preemptive move by Comcast that makes a tremendous amount of sense,” he said, adding that “Charter of all the operators can’t afford to really be involved in any regulatory battles” because of financial and management issues. Officials from Charter and Comcast weren’t available to speak for attribution about simulcasting and policy issues.

As part of the digital push, Comcast plans to offer expanded-basic customers that service for free. That will help the cable provider better compete with all-digital DBS and may over time reduce pressure to multicast signals, said UBS analyst Aryeh Bourkoff. “We think this will fundamentally change the competitive dynamic with satellite,” Burke said. Customers will be able to get digital set-top boxes for “well below $100,” Burke forecast. The company will subsidize some of the boxes’ cost, said Bourkoff, who has a “neutral” rating on Comcast and Charter stock and recommends buying their debt. He said he doesn’t own shares of the companies, which UBS has worked with in the past.

The product may be called Enhanced Basic, Comcast Cable Exec. Vp Dave Watson told analysts earlier this year. Enhanced Basic will offer customers some services that usually come only in a digital package, with more limited video on demand (VOD) programming, Watson said. Comcast sells traditional digital service for $14.95 a month, he said. “Once a market has simulcast in place, we then start rolling out inexpensive set-top boxes, which allows us to raise our digital penetration and give more people VOD,” Burke said Tues.

Expanding the penetration of VOD with Enhanced Basic may help Comcast reap advertising gains. CEO Brian Roberts compared VOD’s potential to Google because of its ability to link advertisers to specific consumers who may be more receptive to certain ads. “The goal is to see if we can’t deliver that same experience, but with a better product,” he said, referring to the Internet search engine. It would be “a TV commercial, not just a [Web] link,” he said. Google’s tack of linking search results to ads may give the cable industry an example of how to bridge the gap between free content such as VOD and commercials, Atlas On Demand Senior Vp Scott Ferris said last week at CTAM (CD July 27 p8).

The transition to simulcasting hasn’t been flawless. “It does create some consumer disruption in the beginning as we have some technical glitches,” Burke said. The launch eventually will allow Comcast to condense the bandwidth taken up by 80 analog channels into 8 digital channels, he said. That frees capacity for products such as VoIP service and VOD enhancements. Comcast has also streamlined the provisioning of adding new products by converting its systems last month to a single platform, Burke said. The company agreed last year to use technology from closely held JacobsRimell of London to carry out Project Bedrock.

Broadband Price Increases

Comcast and Charter’s addition of broadband customers offset the loss of basic customers. Comcast’s broadband sales had the largest increase - 29% to $982 million - of any segment last quarter. Total sales increased 11% to $5.6 billion. Charter’s sales per broadband customer rose 5% as broadband revenue jumped 25%. By comparison, companywide sales rose 7%. “Comcast posted seasonally weak unit volumes across the board,” Sanford Bernstein cable analyst Craig Moffett said in an investor note. “But better-than-expected pricing, especially in high speed data, led to a broadly in-line quarter.” Other analysts said Comcast and Charter’s quarterly results were “in line” with their forecasts.

Charter had the steepest decrease in basic customers. It lost more than 3% from the year-earlier period, with 5.9 million as of June 30. The company said it was behind schedule on plans to roll out VoIP, which cable operators have been launching to compete with Bells. “We are behind our internal deployment plan,” Robert May, Charter’s interim CEO, said on a conference call. “We will do what we can to make up for these delays,” he said, adding that the company will “further refine” a previous year-end target of 6-8 million homes passed. “Issues related to this are largely resolved,” a spokesman said, citing May’s comments.

Charter, seeking to reduce its more than $19 billion in debt, is trying to sell some systems with 250,000 cable customers, said Treasurer Eloise Schmitz. The spokesman said the company wasn’t identifying which systems may be sold. They could fetch about $2,000 per subscriber, or $500 million. That’s the high end of Bourkoff’s estimate and the low end of Routh’s range. “It’s still a good strategy to divest them,” even with the relatively low per-subscriber price, Bourkoff said: “The company could deploy that capital to debt reduction.”