Cablevision’s Momentum Continues

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Cablevision Systems reported another quarter of strong results, with revenue at its cable operations rising 17.9% and adjusted operating cash flow increasing 15.1%, fueled mainly by continued strong performance of its video, voice and data products.

Cablevision added 16,000 basic subscribers during the fourth quarter -- its 11th consecutive quarter of basic-customer growth -- and the MSO ended the year with 3.1 million customers, a 3.3% increase.

Also during the quarter Cablevision added 83,000 digital-cable subscribers, 75,000 high-speed-data customers and 108,000 telephone customers.

On a conference call with analysts to discuss quarterly results, Cablevision said digital growth should slow down in 2007, mainly due to the company’s industry-leading 78% penetration rate.

Cablevision -- which has had the strongest basic-subscriber growth in the industry for the past year -- said basic-subscriber growth should slow, as well, in 2007, to 1%-2% for the full year. Revenue and cash flow growth should be in the mid-teens in 2007, the company added.

On the conference call, chief operating officer Tom Rutledge said future revenue growth at the cable systems will likely be tied more to telephone and high-speed-Internet service subscribers rather than digital video. But that slowdown in digital additions will have a positive effect on capital expenditures -- capex is expected to be $600 million-$650 million in 2007, below the 2006 total of $777 million.

Rutledge added that the company expects strong growth in business services in 2007. While the company offered no revenue guidance on business data and telephone services, Rutledge noted that Cablevision’s existing plant passes more than 600,000 small and midsized businesses within its footprint.

“We are very excited about the opportunity,” Rutledge said. “There are 600,000 businesses that we pass; we have been aggressively and actively marketing them and getting traction in the marketplace.”

Rutledge also tried to calm any fears about mounting competition from Verizon Communications, which has secured several video franchises in Cablevision territory. While Verizon has activated about 850,000 homes passed in Cablevision’s 4.6 million-subscriber footprint to its fiber-based FiOS network -- about 620,000 homes passed have access to video -- Rutledge said that so far, the impact has been minimal.

In the two Cablevision markets where Verizon has had video service for a full year -- Massapequa Park and Nyack, N.Y., representing about 16,000 homes passed -- Rutledge estimated that the cable company’s video penetration has dipped by about 5.5 percentage points. In those same markets, however, Cablevision’s high-speed-Internet penetration has risen by about 2 percentage points and its voice service rose by 10 percentage points.

Also on the conference call, CEO James Dolan said the company is still evaluating whether to offer a wireless product in its bundle. While that is an ongoing process, he added that it is unlikely that Cablevision will participate in any wireless-spectrum auctions to build its own wireless network.

“It’s yet to be proven whether wireless is going to be an effective part of a bundle to offer to the home,” Dolan said. “We continue to study our options. We have quite a few options. I won’t rule out participating in an auction, but I would suspect it’s probably more likely that we go to one of the other options -- partnering, doing some other strategic move -- versus building another facility in our footprint. There are quite a few facilities already.”

Cablevision neglected to provide 2007 financial guidance for its Rainbow National Services programming arm, causing UBS Securities analyst Aryeh Bourkoff to speculate that the programming arm could possibly be on the block or could be taken private. Cablevision has routinely provided guidance for Rainbow in the past.

On the conference call, Cablevision chief financial officer Michael Huseby said no one should read anything into the lack of Rainbow guidance. He added that because the vast majority of Cablevision’s business is conducted through its cable unit -- about 70% of total revenue and 90% of total cash flow -- “the guidance we are giving going forward is the relevant guidance to give.”

Asked on the call whether Cablevision has any plans to sell Rainbow, take it private or keep it as part of the company, Dolan replied, “No comment.”

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