Cox Expects to Boost RGU Growth in 2002

Cox Communications Inc. said it will buck the recent trend toward lower digital-subscriber growth this year, and expects to add at least as many revenue-generating units in 2002 as it did in 2001.

The MSO added about 1.15 million RGUs in 2001, and expects more of the same in 2002, although it didn't break out expected 2002 digital and data additions.

Though president Jim Robbins said the increases will be driven by the company's bundling strategy and packaging for the service, most analysts said that the reason stems from Cox' relatively low digital-penetration level.

Penetration for Cox Digital Cable was about 22 percent in 2001. Other large MSOs, which have predicted a slowdown in digital growth, are already at about 30 percent penetration.

Cox added about 544,000 digital customers in 2001. Data additions for the year were 401,615 and telephony subscribers rose by 208,919. Many analysts had expected Cox to add about 490,000 digital customers in 2002.

"The growth we've seen across the industry to date has been low-hanging fruit," Robbins said in a conference call with analysts to discuss fourth-quarter results. "It's always easier to track the first 20 percent of penetration, rather than the second 20 percent or the third 20 percent.

"Switching acquired properties that have been on auto pilot, or when neglected prior to integration, has also driven growth more quickly historically," he cautioned. "With the low-hanging fruit nearly gone, the industry is about to be tested."

Robbins said what will differentiate Cox is its brand name, customer service, its bundle of services and a fully upgraded network.

He also threw a dig at Internet-service providers that have been pushing hard for government intervention to gain a place on cable's high-speed networks.

"While other Internet providers spend their time and money lobbying for government assistance in broadband deployment, we have spent our time and energy and money upgrading our network to offer ubiquitous broadband availability," Robbins said.

As a result, the fourth quarter was the first in which Cox digital-cable and high-speed Internet were available to more than 90 percent of its homes passed.

"These are the factors that will translate into faster revenue growth and faster OCF [operating cash flow] growth in 2002 versus 2001, and prevent any slowdown in the pace of our new services rollout," Robbins said.

In the fourth quarter, Cox reported 14 percent revenue growth and 12 percent operating cash-flow growth. The company added that in 2002, it expects revenue to increase between 14 percent and 15 percent and operating cash flow to rise by 13 percent to 14 percent.

Cox' bundle of video, voice and data has been a big help to its revenue and cash-flow growth. According to Cox chief financial officer Jimmy Hayes, 62 percent of customers who take a three-product bundle take digital. About 37 percent of customers who sign up for a two-product bundle — either video and data or video and voice — opt for digital service.

New services like video-on-demand, which Cox plans to roll out in seven new markets this year, will also drive future digital penetration. Cox is currently trialing VOD in San Diego. The company also is talking with Home Box Office, Starz! and Encore premium services about offering a subscription VOD service, said Cox executive vice president of operations Patrick Esser.

Robbins tried to squelch speculation that the MSO was on the hunt for acquisitions after losing out in the bidding for AT&T Broadband. He told analysts that the Atlanta-based cable operator sees no compelling targets in the near term.

Cox was one of several MSOs that bid for AT&T Broadband last year. The winner, announced in December, was Comcast Corp., with a $72 billion bid in stock and assumed debt.

In the conference call, Robbins said the company is happy with its current size.

"That [AT&T Broadband] bid was driven by a unique set of circumstances," Robbins said during the call. "There simply aren't any opportunities out there right now that present the same opportunities that AT&T did, so we have no urgency to do any kind of a deal."

Cox will concentrate on internal growth, Robbins said.