Cox posts net loss; cash flow, revenues rise

Cox Communications today posted a net loss of $73.1 million or 12 cents a share in the third quarter, compared with a profit of $143 million or 24 cents a share in the same quarter last year, despite a cash flow that rose 14% to $453.4 million. Cox also posted a net loss on investments of $157.9 million, related to declines in the value of investments.

Despite the negative figures, Cox continued to grow its basic subscriber base by 1.2%, even after the company diverted marketing funds and focus from digital cable to high-speed data and telephony services that generate higher revenue margins.

“Digital additions are down quarter-over-quarter, while high-speed Internet and telephony additions are up significantly, exhibiting the power of our focused marketing message,” said Patrick Esser, executive vice president of operations at Cox. “Our three-product bundling strategy continues to be one of the key drivers in the success of all our services.”

Cox added 157,000 high-speed Internet subscribers in the third quarter, a rate of 12,100 per week and had 1.3 million customers representing a penetration of 13% of data-ready homes passed.

“With growing demand and average revenue of approximately $40 per customer, high-speed Internet continues to be a home run for Cox,” said Esser, who also announced a plan to increase monthly charges $5 per month over the current $34.95 monthly fee for those who buy modems and $49.95 for those who lease.

“We do not expect the price increase to disrupt the growing demand for Cox high-speed Internet because we will still be at or below DSL price points,” Esser said.

The MSO ended the quarter with 651,000 telephone customers and 17% penetration to telephone-ready homes passed, Esser said, adding 5600 customers per week versus 4800 per week in the first and second quarters of the year.

“Our telephone switches are now processing almost 24 million calls per day,” he said.

Cox expects to continue pouring marketing dollars and effort into the two non-video services because the return-on-investment is greater. Digital cable, including costs for set-tops and installation run about $400 per customer, but return only between $16 and $18 in revenues, said Jimmy Hayes, the company’s CFO.

“Contrast that to high-speed Internet where, in reality, most of the time now the customer is buying the cable modem and there is very little incremental capital,” he said. Average revenue per subscriber is around $40 and delivers a “very, very strong margin.

Telephony, which does require substantial amount of capital upfront, generates $50 in monthly revenue and incremental margin around 15%, he said. “From a return on capital standpoint, the other two products are just much stronger.”