Revenue and subscribers continued to drop at Coaxial Communications of Ohio-the system in Columbus, Ohio, owned and managed by Insight Communications Co. Inc.-but the parent company is confident that a planned system rebuild will bring new customers into the fold.
Insight chief operating and financial officer Kim Kelly said in a conference call with analysts that revenue for the year at the system was down 2.5 percent to $46.7 million, reflecting a 4 percent reduction in subscribers. Those subscribers were primarily lost to Ameritech New Media, which has a major overbuild operation in metropolitan Columbus.
But Coaxial saw a nearly 5 percent increase in cash flow for the year to $19.1 million, showing that while some subscribers may have left, the ones Coaxial kept are spending more money.
Kelly said average monthly revenue per subscriber in the Columbus system rose by $1.52 during the year, to $45.33 from $43.81.
Insight owns about 75 percent of Coaxial.
A rebuild of the Columbus system-which Coaxial spent $27 million on last year-is beginning to win customers back. As that rebuild moves forward-about 90 percent of homes passed in the system should be completed this year-the impact should be even greater.
Insight was late to launch its digital service in Columbus-it wasn't available until November-but it is now available to about 20,000 subscribers and 40,000 homes. Kelly said that in the four months the service has been available, penetration is greater than 16 percent. "We are winning back some Ameritech customers," she added.
Kelly said another initiative was to remove the deep discounts the system's previous owners implemented in order to compete with ANM. The system recently raised its basic rate by $1.75 per month-its first rate increase in three years-and there has been no impact on subscriber churn.
The Columbus system has about 84,000 customers.
Kelly said a recent arrangement with AT & T Broadband-through which Insight will contribute systems with about 187,000 subscribers, including Coaxial, into a 50-50 partnership called Insight Midwest-will also contribute programming-cost savings.
Previously, Insight received programming discounts of between 11 percent and 15 percent through its relationship with MediaOne Group Inc., which owned a stake in the company. But when Insight bought out MediaOne's interest in November, it lost those discounts.
With Coaxial as part of the Insight Midwest partnership, Coaxial can receive programming discounts through AT & T Broadband.
Kelly said Coaxial budgeted another $30 million for its rebuild this year, which will most likely be funded through equity.
The first phase of the rebuild-which covered about 1,000 plant miles-should be completed next month. The second phase-although covering a smaller distance, 400 plant miles-will be more expensive because it covers an area with fewer homes passed. When the rebuild is complete, Coaxial will have upgraded about 90 percent of its homes passed.
Although Coaxial believes it is winning the battle against ANM, it may be a different story if those overbuilt systems are sold to another competitor. According to reports, Ameritech parent SBC Communications Inc. has hired New York investment bank Morgan Stanley Dean Witter & Co. to shop the ANM systems.
Neither Coaxial nor Insight has been approached to buy those systems, but she is confident that Coaxial will be able to compete with any new owner, said Kelly.
"I think they are being actively marketed," Kelly said. "We've always said we never went in thinking the overbuilders would go away. My suspicion is that anybody interested in them-given the properties and [the fact] that they want to sell to one buyer-it's going to be a tall task given the cost. I would suspect that they would be sold to a traditional CLEC [competitive local-exchange carrier] like RCN [Corp.]."
Because Coaxial is the
incumbent cable company in Columbus, it wouldn't be allowed to buy the ANM systems even if it wanted to. "Columbus is the biggest part of [ANM's] overbuild," Kelly said. "I can't see the Justice Department allowing us to buy that big of an overbuild in the same market."