Cablevision Delays Digital-Box Deployment

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Cablevision Systems Corp. will delay its planned rollout of digital services until September, citing a need for more time to get its customer-service infrastructure in place.

The MSO had said last year that it planned to begin the digital rollout in December and January, stepping it up to full scale by April. Now, instead of getting 500,000 digital boxes into customer hands this year, Cablevision figures to distribute 100,000.

Investors appeared to react negatively to aspects of Cablevision's earnings report last Wednesday. Its share price fell by more than 7 percent, or $6.25, to $77.

Cablevision also indicated its capital expenditures might be 20 percent above previous estimates, to pay for upgrades and competitive local- exchange carrier expansion, and that revenue growth at Madison Square Garden might be slower than expected.

Some observers speculated Cablevision might be having software integration problems with its Sony Corp. digital set-tops. But Cablevision CEO James Dolan told analysts that was not the case.

"We are technologically ready as per our original schedule," Dolan said. "The delay is due to the service infrastructure inside of our cable operations."

Dolan said Cablevision wants to be sure its customer representatives are fully able to service, sell and explain the new services before deployment.

Cablevision expects to turn on its first fully functional digital headend-in Hicksville, N.Y.-this fall. The company said an additional pair of digital headends could be deployed after that, depending on demand.

Although the digital launch is being pushed back, gains in its high-speed data service helped fuel revenue and cash-flow gains of 10 percent and 13 percent, respectively, in the fourth quarter.

Cablevision added more than 100,000 new high-speed-data customers over the period, to finish with 238,500 subscribers. It's averaging 7,600 installs per week.

That growth is expected to continue in 2001, with cash flow increasing 13 to 15 percent and revenue up 10 percent to 12 percent by year-end.

At the cable operations, revenue and operating cash flow rose 8 percent each to $455.4 million and $203.6 million, respectively.

The company's cable networks had a better quarter, with cash-flow growth at Rainbow Media Holdings up 19 percent, to $82.5 million, and revenue up 9.8 percent, to $470.4 million. That growth was fueled by a 66-percent increase in advertising revenue at Bravo.

The MSO's cable subscriber growth was a little below past levels at 2 percent, versus 2.7 percent growth in the same period in 1999. That led some analysts to speculate the company is taking some hits from direct-broadcast satellite providers.

Cablevision chief financial officer Frank Golden said subscriber downturns were normal in the fourth quarter, when many subscribers head south and temporarily suspend service.

"Traditionally you'll find that the fourth quarter is our softest quarter," Golden said. "There is no question that we are dealing with competitive forces, but we have not seen much impact in absolute disconnects."

Despite hiccups in the stock last week, SG Cowen Securities Corp. cable analyst Gary Farber maintained a strong-buy rating and said Cablevision has significant upside.

"Cablevision is an asset-rich story," Farber wrote in a report. "The stock is trading at a 12.5 times multiple to 2001 operating cash flow, representing a 2.5 multiple point discount to the rest of the group."

Farber said he sees major positives in the recent $825 million investment by Metro-Goldwyn-Mayer Inc. in 20 percent of four Rainbow networks, the upcoming Rainbow tracking stock and increased value of Cablevision's PCS wireless-telephone licenses.

UBS Warburg cable analyst Tom Eagan wrote in a report that although Cablevision fell short of some of his targets-particularly for 2001 guidance-the company was modestly ahead of cash-flow and revenue estimates for the quarter.

Eagan said he believes that Cablevision's aggressive plant upgrade, growth in high-speed data and eventual rollout of the Sony digital box should be more than enough to fend off competition.

"These efforts, in our opinion, provide Cablevision with a superior product mix and offer its cable subscribers with little reason to migrate to DBS/DSL," Eagan wrote.