Street Reacts to Cablevision Rate Cut6/21/2004 10:10 AM Eastern
Cablevision stock dropped 78 cents (3.55%) to $21.22 on Monday after it announced a price cut for new customers of its digital video, high-speed data and telephone products.
Cablevision said it would charge new customers just $29.95 monthly for each of its io: Interactive Optimum, Optimum Online and Optimum Voice services. The discount for new customers of the “Optimum Triple-Play” will run for at least one year.
Some Wall Street analysts focused on the telephone service price cut, noting that Cablevision, which had been charging $34.95 for Optimum Voice, could hurt its profit margins for telephone service.
“This price cut appears to be exceptionally aggressive, particular since the company’s telephone subs surpassed 100,000 in June,” Merrill Lynch analyst Jessica Reif Cohen write in a research note. “
At $35 for phone, the company was projecting a cash flow margin of roughly 40% to 45%. Consequently, all other things constant, the introduction offer reduces telephone to a break-even product,” she added.
Citigroup Smith Barney analyst Niraj Gupta said Cablevision’s rate cut for telephone services could spark industry concerns about a price war.
“We believe [Cablevision’s] promotion has negative near-term implications for cable stocks, as it could ignite fears in the market of an impending price war between the RBOCs and cable MSOs. We do not expect Comcast or Cox to pursue such aggressive offers, and we suspect that [Cablevision] is unlikely to broadly continue this aggressive promotion,” Gupta wrote in a research note.