Cablevision Still Fighting Off FiOS

Cablevision Systems Corp. (NYSE: CVC) continued to stick it to the telco competition in the third quarter as it saw subscriber gains across most service categories, but, looking out further ahead, it's unclear how smooth the sailing will be in the midst of choppy economic seas.

Cablevision's cable unit posted revenues of $1.24 billion, up 9.8 percent year-over-year, while operating income jumped 32.9 percent, to $281.2 million. (See Cablevision Posts Q3.)

As expected, the MSO lost 19,100 basic video subs thanks to traditional Cablevision "seasonality," as subs departed The Hamptons and the Jersey shore, but balanced that out by adding 25,100 digital video subs, extending its digital penetration to 90.4 percent.

Cablevision also signed up 31,600 high-speed Internet subs, and added 58,000 digital voice subs.

"If there's a recession going on in the New York Area... then Cablevision hasn't gotten the memo," wrote Sanford C. Bernstein & Co. Inc. analyst Craig Moffett. "And there is still no visible evidence of FiOS in Cablevision's numbers more than three years after Verizon's FiOS launch."

Cablevision estimates that Verizon Communications Inc. (NYSE: VZ)'s FiOS platform has passed about 1.4 million homes in the MSO's footprint as of Sept. 30, with video service available to about 1.3 million of them. Although Cablevision has managed to fend off FiOS, less clear is how well Cablevision will fare in a tough economy.

Yesterday, fellow MSO Time Warner Cable Inc. (NYSE: TWC) warned that it had seen demand for premium video services start to tail off in October. (See Time Warner Cable Braces for Bad Economy.) Tom Rutledge, Cablevision's COO, declined to discuss any specific trends beyond the third quarter, but noted that the most significant impact on growth has come way of waning house construction in Cablevision's footprint.

"Other than that, the cable business has been quite strong through the first three quarters of the year," he said.

But, save for another 10-cent dividend payable in September just passed by the board, Cablevision is going to halt any further efforts to unlock the operator's value via some earlier-outlined "strategic alternatives," said president and CEO James Dolan. Cablevision, he added "is [now] concentrating on maintaining strong operational performance." (See Cablevision Does Dividends, Cablevision Roadshow Update and Cablevision Spinning Options .)

Giving WiFi a voice
Cablevision also provided a brief update on its ambitious WiFi rollout, reiterating that it's on a path to allow mobile voice services to ride on it while other major MSOs pursue their own, separate efforts involving 4G WiMax and long-term evolution (LTE). (See Cox Wireless: Soup to Nuts , Cox Preps Cellular Network, Eyes LTE, Cable Plays Clearwire Card, Cablevision Plays WiFi Card and Cablevision Doubles Up on WiFi.)

"We see, ultimately, this WiFi network evolving into a voice network," Rutledge said, noting that gobs of laptops and handsets are being built with on-board WiFi radios. "We don't have to own the electronics or subsidize or distribute [them]. It's a way to put enormous value in the hands of customers quickly."

Still, Cox's approach with 3G and 4G "may be an effective strategy" despite expectations that it will cost much more than Cablevision's initial approach with WiFi, he added.

Among early results, Rutledge said customers who are tapping into the Cablevision WiFi network in the commercial and commuting areas are doing so multiple times per month, with most access occurring during daytime hours and balancing heavier landline, Docsis-based Internet usage typically seen during the evening.

Cablevision is also confident it can recapture the investment it's making in the WiFi network (about $300 million over two years -- a figure that also includes the rollout of Docsis 3.0) if it can increase its average revenue per user per residential customer by $2 per month. Whether that's generated through product pricing or churn reduction remains unknown, "but it's easily achievable," Rutledge said.

— Jeff Baumgartner, Site Editor, Cable Digital News