Oct. 29 (Bloomberg) -- Comcast Corp., the largest U.S. cable operator, said third-quarter profit increased 38 percent as the company cut capital spending and added Internet and telephone customers.

Net income rose to $771 million, or 26 cents a share, Philadelphia-based Comcast said today in a statement. Excluding a tax gain, profit of 24 cents beat the 22-cent average of 22 analysts' estimates compiled by Bloomberg. Sales gained 9.9 percent to $8.55 billion, compared with an $8.6 billion estimate.

Capital spending on Comcast's video, voice and data networks dropped $260 million. That decrease, along with gains in digital TV, voice and Internet subscribers, countered a loss of customers who subscribe to the most basic video offering. The slowdown in the housing market has reduced customer turnover and the need to invest in network expansion.

Comcast produced ``good-not-great results,'' Craig Moffett, an analyst with Sanford C. Bernstein & Co. in New York, said in a research note. He expects the stock to outperform the market and doesn't own the shares. ``The debate is not whether Comcast can continue to grow, but instead, on the margin, how fast?''

The stock declined $1.68, or 9.9 percent, to $15.28 in Nasdaq Stock Market trading at 4:01 p.m. New York time after gaining 25 percent yesterday as U.S. markets rallied. Comcast said, without being specific, that it may not spend all of the $4.1 billion remaining under a 2008-2009 share buyback plan because of ``turmoil and instability in the capital markets.

`Ample Liquidity'

``We have ample liquidity,'' Chief Financial Officer Michael Angelakis said on a conference call. ``We're just taking a step back on the buyback and just re-evaluating all aspects of the credit markets, of the capital markets.''

The company lost 147,000 of its 24.6 million basic-video customers in the quarter. It added 417,000 digital-video subscribers, 382,000 to its Internet service and 479,000 telephone customers.

The customer additions and the drop in spending contributed to a 77 percent gain to $928 million in free cash flow, or funds available after capital spending.

Comcast spent $2.8 billion on share repurchases through the first three quarters, said Ingrid Chung, a New York-based analyst with Goldman Sachs Group Inc.

``If they were going to continue to buy back shares at that same rate, they would have had to go back to the markets,'' Chung said in an interview. ``There's no reason to pay high fees for borrowing money to buy back shares in this kind of environment.''

Less Is More

Comcast could spend less and buy back the same number of shares because the price has dropped since the repurchase was announced on Feb. 14, when the stock closed at $19.24.

``To me it would make sense that they cut their buyback more than 20 percent, but say, `Hey we're buying back almost as many shares,''' Chung said in an interview. She recommends investors buy the stock and doesn't own shares.

Through nine months, Comcast had generated $2.8 billion in free cash flow, enough to exceed its goal of a 20 percent increase for all of 2008 from $2.3 billion reported in 2007. The company continues to predict revenue and operating cash flow growth of 8 percent to 10 percent for the year.

Phone Competition

The cable provider is competing with the traditional phone companies by offering bundled products that include phone, TV and high-speed Internet services.

Comcast's telephone gains came as AT&T Inc. and Verizon Communications Inc. reported losing more than 2 million telephone lines.

Cable operators ``enjoy a huge marginal cost advantage'' because they can provide video, telephone and Internet services through one network, Moffett said in an interview before the results. ``In hard times the low-cost provider wins.''

Telephone companies can offer all three major services only in the 20 percent of cable territories where they have built new high-speed networks, Moffett said.

Comcast said it spent $800 million to repurchase 39.7 million shares in the quarter, bringing year-to-date buybacks to $2.8 billion.

To contact the reporter on this story: Todd Shields in Washington at tshields3@bloomberg.net

Last Updated: October 29, 2008 16:11 EDT