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Cablevision Faces FiOS

Jeff Baumgartner
2/28/2008

Shares in Cablevision Systems Corp. (NYSE: CVC) jumped more than 3 percent in midday trading Thursday, after the MSO turned in a healthy fourth quarter and demonstrated its ability to grow despite mounting competition from Verizon Communications Inc. (NYSE: VZ) FiOS.

One surprise: It gained 1,155 basic subscribers in the quarter, countering a trend seen by most other operators except Insight Communications Co. Inc. (See Getting the Basics.) Cablevision lost fewer than 4,000 basics (0.1%) for the year, ending 2007 with 3.12 million.

“That Cablevision reported positive basic subscribers is a remarkable feat given the extensive overlap with Verizon’s FiOS,” wrote Sanford C. Bernstein & Co. Inc. analyst Craig Moffett in a research note.

On Thursday’s earnings call, Cablevision COO Tom Rutledge estimated that Verizon can market video services to about 986,000 homes in Cablevision territories, versus 1.2 million total passings. When asked whether Verizon is slowing down its attack on Cablevision, Rutledge noted that Verizon built 350,000 passings in 2006 and 269,000 in 2007.

Cablevision’s digital rollout remained solid, adding 43,000 (1.7%) in the quarter. It ended the year with 2.62 million Interactive Optimum subs, marking a penetration rate of 84 percent, and an industry best among top MSOs.

The company also signed up 62,000 residential high-speed data customers, up 2.8 percent, giving it a grand total of 2.3 million subs and a penetration rate of 49 percent.

Unlike some other MSOs of late, Cablevision did not provide much guidance on any plans involving Docsis 3.0, the new CableLabs platform that will push cable modem speeds beyond 100 Mbit/s.

Rutledge said the technology won’t become commercially deployable until “at least the end of this year,” but noted that some “interim steps” exist to increase speeds. As one recent example, Vidéotron Telecom Ltd. of Canada has launched a pre-3.0 product that bonds downstream channels. (See Videotron Hits the Gas and Videotron Update .)

“So if you want to go up to higher speeds before the end of the year, we are capable of doing it,” Rutledge said. Presently, Cablevision's high-end “Boost” tier caps the downstream at 30 Mbit/s and the upstream at 5 Mbit/s.

Likewise, he doesn’t expect faster speeds to create any major changes to programming models and the existing subscription and ad revenue streams. “When you put product on the Internet and get a single fee, potentially an advertising fee, I don’t think… even with higher speeds [you will] see a wholesale migration of copyrighted material moving onto the Internet."

On the phone front, the company added 102,000 subs in the quarter, up 6.8 percent. It ended 2007 with 1.59 million Optimum Voice subscribers.

Financial quick hits
The cable division of the MSO said net fourth-quarter revenues jumped 8.6 percent, to $1.17 billion.

Its Optimum Lightpath unit, which delivers services to larger businesses, had quarterly net revenues of $56.1 million, 8.6 percent higher than the year-ago period. On the small- and medium-sized business side of the house, Cablevision recently launched a 12-line offering. (See CVC Gives SMBs a Voice.)

Capex ‘freefall’
Bernstein's Moffett was most impressed with Cablevision’s capital spending intensity, which “is now in a freefall” -- 11.7 percent of revenues in the fourth quarter, versus 13.2 percent a year ago and 16.4 percent in the previous quarter. Investors have expressed concern about larger capex spending expected in 2008 from operators like Comcast Corp. (Nasdaq: CMCSA, CMCSK), Charter Communications Inc. , and Mediacom Communications Corp. (See Charter Hints at Docsis 3.0 , Mediacom Adds $30M to '08 Capex, and Comcast Adds Record 2.5M Subs in '07.)

For 2007, capex for the consumer premises declined to $399.4 million, versus $493.2 million in 2006. Total capex tied to cable was $612.5 million, down from $777.3 million in the prior year.

— Jeff Baumgartner, Site Editor, Cable Digital News




Interested in learning more on this topic? Then come to Docsis 3.0 Strategies: From Product Development to Service Deployment, a conference that will take a comprehensive look at the cable industry's plans to roll out its next-generation architecture around the world. To be staged in Denver, March 19, admission is free for attendees meeting our prequalification criteria. For more information, or to register, click here.


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