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Top MSO Execs: Stay the Course

9/29/2002 8:00 PM Eastern

The cable industry should "stay the course" with respect to rebuilds and new-service rollouts, despite pressure from Wall Street to curb capital expenditures, senior cable executives said at a breakfast panel here.

"I have a lot of investors, with the stock prices as they are, [who] think they should be cable operators," Insight Communications Co. president and chief operating officer Kim Kelly told the audience at the Cable & Telecommunications Association for Marketing New York breakfast Sept. 25. She was referring to the amount of free advice she's received from some financial analysts these days.

Kelly urged operators to keep doing what they're doing — and to operate for the long term.

"It's a very competitive world we're in," she said. "We're right at the inflection point."

Insight's completed rebuilds — and its strategy of bundling video, voice and data products — have generated increased revenue and customer satisfaction, as well as lower subscriber churn rates. "The promise is here today," she said.

Added Dave Watson, executive vice president of sales, marketing and customer service for Comcast Corp.: "We need to spend to compete. The name of the game is to stay the course."

Executives said there are plenty of success stories in cable — if only Wall Street would look hard enough.

Selling in

Insight has generated a 23 percent sell-in rate for its combined video, voice and data package, priced at $117 a month, said Kelly.

"The bundle does work," she said. "And that subscriber pays back the total investment in 16 months."

Subscribers to Insight's three-component bundle churn half as often as analog customers, Kelly said. "We're not a one-trick pony."

Although digital-cable growth has leveled off, both Watson and Charter Communications Inc. chief operating officer Dave Barford saw room for growth.

Charter has hit digital penetration rates of 70 percent or higher in some markets, and Barford believes that can be replicated elsewhere.

And digital can go beyond the historic base of addressable set-top penetration through sound packaging strategies and new services like video-on-demand, said Watson. VOD could add as many as five penetration points to current digital levels, he noted.

"There are signs that we have begun to break through," he said.

Modem penetration will continue to rise at a faster clip than digital, executives said.

"Data's still got a ton of growth ahead of it, which will also be funded by new applications," Watson said.

Operators will soon be able to break out a higher-end data tier for $60 to $80 a month, which could include gaming, music, digital photos and other applications, Watson said.

"High speed data has a tremendous upside for us," added Charter's Barford.

HDTV upside

High-definition television will also present cable with some upside. Insight's Kelly predicted that the MSO could reach an HDTV-penetration level of 10 percent next year. "I'm bullish on HDTV," she said. "We're well situated with satellite."

Added Watson, "HD has been a real surprise to us." And with HDTV sets breaking through the $1,000 barrier, consumer interest should only increase, the executives said.

Kelly believes Insight also could achieve a 30 percent penetration rate for telephony, "and 30 percent of a $110 billion business is looking just rosy."

But all that "good" news has done little to sway Wall Street. "There are a lot of people on Wall Street that do not understand our business," Kelly said flatly. Even with strong cash-flow growth reported by most MSOs, she said, "it's not that it wasn't good enough, they just don't care at this point."

Which leaves MSOs in a wait-and-educate mode. "I think this cycle will be happening for about a year," Kelly said.

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