Mediacom Pays to Stop Sub Losses

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Mediacom Communications Corp. managed to stop the basic-subscriber bleeding that has plagued the small-market MSO for about two years, but it may have come at the expense of other key financial metrics.

The company reported that basic subscribers increased by 3,000 in the first quarter, its first positive quarter in two years. While the Middletown, N.Y.-based MSO also reported gains in advanced services -- digital customers rose by 34,000 and high-speed-data customers increased by 40,000, both personal bests for the company -- revenue for the period was flat and cash flow declined by 5%.

Although financial results were essentially weak, analysts were generally encouraged by the results, especially in new services, where Mediacom outperformed most expectations.

In a research report, Citigroup Smith Barney cable and satellite analyst Jason Bazinet said the revenue and cash-flow shortfalls likely came from heavy promotional spending. But he was pleased with the basic-subscriber growth (ahead of his flat expectation). Mediacom’s digital adds were nearly four times Bazinet’s estimate of 9,000 in the period, and its high-speed-data-subscriber growth was almost double his forecast of 25,000 adds.

“Although unit growth was robust, investors’ enthusiasm for the shares may be tempered by the cost of the growth,” Bazinet wrote in his report.

Mediacom shares were down about 9 cents each to $5.83 per share in afternoon trading Friday.

In a conference call with analysts, Mediacom chairman and CEO Rocco Commisso called the quarter “quite a turnaround” from a year ago, adding that the MSO’s 77,000 revenue-generating-unit additions were greater than the past eight quarters combined.

But Commisso added that losing 85,000 subscribers in 2004 weighed heavy on year-over-year financial comparisons, as did a decision by the MSO to hold back on rate increases that normally take effect in February and March. Mediacom expects to begin implementing those rate increases in the second quarter.

While Mediacom plans to launch voice service in its first market next month, and it is encouraged by the potential of offering a three-product bundle, Commisso cautioned that it would not have an impact on 2005 financial results.

“Our performance this quarter validates the strategies we have pursued with our product marketing and investments in our business,” he said. “We have laid the groundwork for accelerated growth in our financial results and, as we roll out our telephony service to consumers for the rest of the year, we're optimistic that our strategies will continue to bear fruit.”

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