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Cablevision Declares Victory Against FiOS Overbuild

8/10/2015 8:00 AM Eastern
TakeAway

As media stocks fell around him, Cablevision CEO James Dolan declared Verizon FiOS unprofitable and said its effect on the MSO in the greater New York market had been marginal.

Cablevision Systems CEO James Dolan, perhaps a little tired of talk about his cable company’s exposure to Verizon Communications’s FiOS Internet and TV service, came out swinging on a recent call with analysts, claiming the telco has failed in its attempt to compete with the cable operator.

 

Dolan noted that in its first direct competition with Verizon, shortly after Cablevision introduced its video, voice and data triple-play at the beginning of the century, the MSO eventually took 2 million phone customers away from the telco to become the largest telephone service provider in the New York, New Jersey and Connecticut area.

 

In those same years, Dolan said, Verizon has managed to take only about 200,000 total customers from Cablevision, which ended the second quarter with 3.1 million customer relationships. its peak year was 2008, when it had 3.3 million customer relationships.

 

“Despite their overbuild, the impact of FiOS on Cablevision has been minimal,” Dolan said. “It is an unprofitable business today, and I doubt that it will ever be profitable.”

 

Verizon said its products speak for themselves.

 

“We’ll let our FiOS services speak for themselves — better Internet speeds, better connectivity, better TV quality, tops in customer-service rankings and better overall value for our customers,” Verizon spokesman John Bonomo said in a statement. “That speaks volumes.”

 

Analysts have used Cablevision’s FiOS exposure (currently at about 49% of its footprint) over the years to explain Cablevision’s subscriber losses. Some have said that because of that exposure, Cablevision is not as attractive a takeover target as other cable companies.

 

Dolan didn’t talk about M&A — although he has said in the past that the New York market should be consolidated — but said the company’s strategy to transform itself into a connectivity company is working.

 

Cablevision managed to reduce its basic-video losses in the second quarter to 16,000 from 28,000 in the prior year and soundly beat analysts’ estimates of losses of about 34,000 customers. A spike in high-speed data subscribers (14,000 vs. a loss of 9,000 in the prior year) helped push total customer relationships into positive territory in the second quarter with a gain of 5,000 customers. It was the MSO’s first positive gain in about two years.

 

Analysts were impressed with Cablevision’s subscriber performance, as most were expecting double the losses in video — but some wondered if the gain wasn’t due to other factors.

 

Evercore ISI media analysts Vijay Jayant and David Joyce said the subscriber growth seems to indicate a shift in strategy for Cablevision, which has stopped chasing customers more interested in promotions. And they said they believe a cord-cutter package the company launched — high-speed data with a digital antenna to capture over-the-air channels — may have been a big factor in the turnaround.

 

“We think that the strong operational performance was due to the launch of the cord-cutter package, which includes a free digital antenna and a broadband connection costing between $35/month and $45/month,” the analysts wrote.

 

Chief operating officer Kristin Dolan said on a conference call that the cord-cutter packages appear to be resonating with new customers, adding that she doesn’t believe the service is cannibalizing its existing base.

 

“The cord-cutter packages are definitely making the phone ring,” she said on the call. “We’re not seeing a migration.”

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