CABLE SWITCHES FROM SUBSCRIBERS TO REVENUE-GENERATING UNITS
Hoping to win back affection of Wall St., CEOs of 11 publicly traded cable MSOs pledged Mon. to adhere to new standards in reporting their operating metrics. Group, led by NCTA Chmn. Michael Willner, CEO of Insight Communications, stressed that measures were voluntary and that pledge wasn’t intended to supplant SEC reporting requirements of individual companies or alter their responsibilities or those of their accountants. None of companies said they would restate earnings or otherwise change what they had reported in previous quarters or years, but instead would adopt new metrics from this point on. Pledge calls for companies to adopt new accounting standards by first quarter next year, although some said they would do so as early as 3rd quarter 2002. Noticeably absent from N.Y.C. press conference was Adelphia CEO Erland Kailbourne, whose company was plunged into bankruptcy as former CEO John Rigas and his sons were indicted on federal charges that they had bilked company of billions of dollars. Kailbourne nevertheless signed pledge. NCTA spokesman said Kailbourne was among several CEOs who had scheduling conflicts.
Sign up for a free preview to unlock the rest of this article
Timely, relevant coverage of court proceedings and agency rulings involving tariffs, classification, valuation, origin and antidumping and countervailing duties. Each day, Trade Law Daily subscribers receive a daily headline email, in-depth PDF edition and access to all relevant documents via our trade law source document library and website.
“Let me stress that these are not accounting changes,” Comcast CEO Brian Roberts said. “However, by providing more transparency and consistency in how the industry reports important operating metrics, we believe we will help demonstrate to investors what we all so firmly believe, that the cable business is healthy, robust and poised for great growth.” Willner said pledge was result of analyzing “each other’s individual 10-Qs and 10-Ks so we would be more consistent.” He said process hadn’t resulted in any of individual companies’ changing their accounting practices. CEOs said that in complying with Sarbanes law and with certifying their results, they already had made any changes that would have been necessary to adhere to law. This new effort, they said, was more about creating uniform standards across cable companies to allow analysts to better compare and contrast companies within sector. Roberts said his own company would continue to use EBITDA (earnings before interest, taxes, depreciation and amortization) as No. 1 metric to measure general health of company, as well as free cash flow.
Established with NCTA’s support, new guidelines quantify subscribers in 2 ways. First, they establish definition of customer relationships as: “The number of customers that receive at least one level of service, encompassing voice, video and data services, without regard to which service(s) customers purchase.” Second, guidelines create standard definition for revenue-generating units (RGUs), expanding definition as “sum total of all primary analog video, digital video, high-speed data and telephony customers, not counting additional outlets.” That means company can say it has certain number of customers, yet have many more RGUs depending on how many services each customer buys. Such consistency may help companies such as Charter that have been criticized by financial analysts for counting cable modem subscribers as basic video subscribers, even as number of video subscribers has been in decline. Willner said RGUs would give evolving cable companies credit for their growing telephony and high-speed Internet businesses as video business matures. “We think that the count of subscribers, of customers that we've been focused on over the past 40 years, have been right for the past 38 years,” he said, “but for the past couple of years it’s probably been less of an indicator of revenue.”
New guidelines also address Wall St. analysts’ questions about capital expenditures. They had complained it was difficult to evaluate such expenditures without clarification since some companies had said their systems were almost entirely rebuilt already. New standards identify 6 standard reporting categories for capital expenditures: (1) Customer- premises equipment (CPE), which is money spent at subscribers’ homes. (2) Commercial, expenditures to hook up industries and businesses, mostly to telephony and Internet access. (3) Scalable infrastructure, which is money spent to increase business such as adding head-end servers or telephone switches. (4) Line extensions for new subdivisions and other extensions to pass potential new customer homes. (5) Upgrade/rebuild. (6) Support capital to maintain business. Willner acknowledged some analysts had complained about past cable pledges on final rebuilds but said this new technology was truly scalable to point where major rebuilds wouldn’t be necessary in future. “What’s different today is that the technology is different… That cable has a relatively unlimited amount of capacity.”
Those signing pledge were Kailbourne, Roberts, Willner, AT&T Broadband CEO William Schleyer, CableONE CEO Thomas Might, Cablevision CEO James Dolan, Charter CEO Carl Vogel, Cox CEO James Robbins, GCI Cable Pres. Ronald Duncan, Mediacom CEO Rocco Commisso, Time Warner Cable CEO Glenn Britt.