Posting record free cash flow and $76 million in third-quarter profits, Comcast Corp. officials last week responded to last-minute questions in a move to win final regulatory approval of its acquisition of AT&T Broadband.
In a letter to the Federal Communications Commission penned by Comcast’s attorneys, the company disclosed that AT&T and AOL Time Warner recently agreed that if the Comcast-AT&T merger did not close by March 1, 2003, even though all other conditions would have been met, AT&T would still enter into a long-sought-after Internet service provider agreement with AOL under terms similar to those for AOL’s ISP pact with the proposed AT&T-Comcast.
AT&T also would make the AOL service available in enough of its own markets to match the same number of cable subscribers AOL would have access to under its agreement with the newly merged company. There would be no guarantees of AOL carriage on the Comcast systems.
The letter, along with a telephone call from Comcast President and Chief Executive Officer Brian Roberts to FCC Chairman Michael Powell, was aimed at quelling pressure from the Media Access Group and other watchdog organizations for the FCC to more closely examine the undisclosed terms of AT&T-Comcast’s broadband carriage agreement with AOL. The pact was part of AOL Time Warner’s difficult dismantling of its Time Warner Entertainment partnership with AT&T.
The FCC has imposed a 180-day deadline on itself to render a determination about the proposed merger. Last Friday, day 176, the FCC was expected to inform Comcast whether it would stop the clock to extend its probe into the AOL pact. The merger could be approved this week and close as early as this Friday.
In a third-quarter conference call with investors and analysts Oct. 28, Mr. Roberts and other Comcast officials indicated they are poised to initiate its comprehensive business plan for the 22 million-subscriber footprint that will emphasize regaining and strengthening basic subscribers, upgrading systems to Comcast standards and shifting the service focus to video from telephony at AT&T.
“We have a very clear sense of what we have to do,” said Steve Burke, president of Comcast Cable, who will oversee the operation and integration of the companies.
Although Comcast posted a record $270 million in free cash flow in the quarter, making $660 million in free cash flow so far this year, company officials cautioned that 2003 would see temporary negative free cash flow before bounding back to the positive in 2004.
Comcast reported a net profit of $75.6 million, or 8 cents a share, compared with a year-ago loss of $106.8 million, or 11 cents a share, reflecting investments such as the now defunct Excite@Home. Operating cash flow rose 18 percent to $825.8 million from $700.6 million on a 12.7 percent increase in revenues to $2.71 billion.
Mr. Burke indicated more downsizing would be forthcoming, but did not elaborate on how much or when.
“Comcast delivered a solid third quarter, showing that it can operate while keeping several hundred people on the road doing due diligence and pre-merger planning to provide for a rapid transition,” said Tom Wolzien, analyst at Sanford Bernstein.
Comcast said it remains on track to meet its targeted 12 percent to 14 percent revenue and cash flow growth for 2002, but said 2003 financial guidance for the newly merged company would not be forthcoming until early next year.