New Products Drive Cablevision’s 4Q

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Cablevision Systems Corp. shares surged more than 5% ($1.39 per share) to $26.59 each in early afternoon trading Monday after the Bethpage, N.Y.-based cable operator reported strong fourth-quarter results that outpaced most analysts’ estimates.

Overall revenue in the fourth quarter was up 12% to $1.5 billion and adjusted operating cash flow rose 49.2% to $479.7 million. That was fueled mainly by growth in its cable-systems division, which reported revenue growth of 16.1% to $909.6 million and adjusted operating cash flow growth of 16.6% to $361.7 million.

Driving the cable division was strong new-product growth. Cablevision said it added 119,496 digital customers; high-speed-Internet customers rose by 93,900; and voice customers rose by 130,133. Cablevision also added about 17,930 basic subscribers during the period. For the full year, basic-subscriber additions were nearly 64,000, a 2.2% increase.

Most analysts had expected basic-subscriber additions in the 9,700-10,000 range; digital additions of 87,000-113,000; high-speed-data additions of 65,000-90,000; and voice additions of 95,000-125,000.

Average monthly revenue per subscriber also topped the $100 mark for the first time, ending the period at $100.46.

Cablevision also offered robust guidance for 2006, predicting basic-subscriber growth of 2%-2.5%, revenue and AOCF growth in the mid-teens and capital expenditures of $650 million-$700 million.

On a conference call with analysts to discuss the quarterly results, Cablevision chief operating officer Thomas Rutledge said those guidance figures were calculated with increased competition from Verizon Communications Inc. and direct-broadcast satellite in mind.

On the call, Rutledge said that he did not see any impact from Verizon’s video launch in Cablevision’s service territory, although he admitted that the service has only been available for a short time.

He added that Verizon has franchises that cover about 15% of Cablevision’s 4.5 million homes passed and that have only about 2% penetration. He added that Verizon has about 3 million video passings across the country, but it has managed to sign up only about 3,000 customers.

Rutledge said the majority of Verizon FiOS TV customers in Cablevision service territory are coming from other digital-subscriber-line and DBS service providers, not Cablevision.

“In the areas where FiOS plant has been constructed, we actually have much higher penetration. Over one-half of our passings in areas where there is FiOS plant have high-speed data from us,” Rutledge said. “It is a situation where they’re building a me-too product at great expense and there really is no reason to leave [Cablevision] when you have the value proposition we are providing.”

Cablevision has been beefing up its high-speed-data product -- it boosted download speeds to 15 megabits per second earlier this year, and the MSO continues to add features that drive subscriptions.

Rutledge added that while Cablevision has been marketing and selling digital-video recorders to its customers, it is “on the verge” of beginning tests for a network-DVR product that would place DVR functionality at the headend. He gave no time frame for the testing of the product, only saying that it would begin “shortly.”

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