Comcast (NASDAQ:CMCSA) has cut it outlook for 2007 citing “an increasingly challenging economic and competitive environment.” And just to hammer the point home, Michael Angelakis, co-chief financial officer, said Thursday at a UBS investment conference in New York that “this is not a robust economy.”
The reasons for Comcast’s warning (Techmeme)–cable revenue growth will be 11 percent, off from the 12 percent predicted just six weeks ago–aren’t all that stunning. The economy is weak and competition in key markets is increasing. Specifically, Comcast’s Revenue Generating Units (RGUs) are now expected to increase by about 6 million to 57 million, versus previous guidance of 6.5 million additions. Cable cash flow growth will also be off about a percent from prior guidance at 12 percent.
But the issue with Comcast is a matter of weighting between the economy and competition. Is it the economy driving the shortfall or is it competition? Are the two factors evenly split or 70 percent competition vs. 30 percent economy. Perhaps consumers really got squeezed on their budgets in the last six weeks and are making some tough choices. Perhaps Comcast is getting hit with foreclosures and the housing downturn. Or customers, which are “under some financial pressure,” are really just choosing other options.
Disclosure: I jumped ship from Comcast to Verizon’s (NYSE:VZ) FiOS Internet, phone and TV service (gallery right). It was more of an uptime issue for me–I got sick of my Internet service being down at least once a week.
That weighting between the economy and competition is critical when evaluating Comcast. To its credit, Angelakis was a straight shooter. Comcast will “lose some basic subs” to Verizon, but will remain disciplined about pricing. Angelakis also said Comcast needs to be more diligent about monitoring customer credit scores to predict trouble ahead.
On the other hand, Comcast is increasing its capital spending plans to upgrade its network. Comcast will spend $6 billion on capital spending, up 5 percent from its previous target.
It’s that last item–all those network upgrades going on in my neighborhood–that leads me to believe Comcast’s problems have more to do with competition instead of the economic downturn we’re seeing in the U.S.