The Street Warms to Cable

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Last week, the National Cable Television Association released a survey that tracked third-quarter deployment of advanced digital services.

The numbers look pretty good for cable, and that has not gone unrecognized by Wall Street. In a nutshell, cable-modem penetration now stands at 2.95 million homes. If cable companies continue at that pace, the NCTA projects that number will rise to 3.6 million by year's end.

On other fronts, residential cable phone service is now at 568,000 customers. That's not too shabby, considering that at the end of 1999, cable only had 198,000 telephony customers.

And not surprisingly, digital video-the darling that's kept direct-broadcast satellite at bay-now enjoys a robust customer base of 7.8 million homes. At the start of 2000 there were fewer than 5 million digital-video units.

None of that good news is lost on investors, and that's kind of hard to believe, seeing where stock prices remain. But thankfully, Wall Street is not as down on cable as one might believe, at least judging from what analysts said at our finance roundtable, which appears on page one this week.


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finance editor Mike Farrell spoke with three leading cable-stock gurus: Rich Bilotti of Morgan Stanley Dean Witter; Barry Kaplan of Goldman Sachs & Co.; and Gary Farber of S.G. Cowen Securities Corp.

Though cable stocks have fallen between 40 and 50 percent since December, those analysts were nonetheless quite bullish about on cable's future-especially in terms of advanced digital services.

In fact Kaplan gives cable operators much to be optimistic about. He said he's "detected a fundamental shift in investor sentiment about these (cable) stocks" during the last several months.

And that's largely because cable has done a good job in abating competitive threats. Investors are again focusing on the sector and its acceleration of new services.

That's heartening news, and there's more. Bilotti, whom
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magazine has ranked as the leading cable-stock analyst for the past several years, said, "I've had the weird situation this year of having downgraded the entire sector in January and upgraded the entire sector in August."

Clearly, telecom, media, technology and the dot-coms have taken a bath this past year. But cable is now less sensitive to the wild swings that other sectors continue to experience, argued Bilotti.

And Kaplan takes it a step further. He said that cable, compared to some other sectors, almost looks like the "safe port in the harbor," and is "kind of a best-of-all-worlds when people are looking to get out of the way of a truck."

In other words, it's heartening to hear that Wall Street does not seem to think that a dot-com style correction is in store for cable, and that investors have become more patient with the industry.

"There hasn't been an investor in months that has called me asking about the potential for electronic-commerce derived from cable-modem platforms, and that's a very good thing," Bilotti said.

He also pointed to another subtle shift in the way programming networks are approaching costs. That's a subject you'll be reading more about next week, when we publish our annual programmers' roll out round table, moderated by
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programming editor Linda Moss.

Bilotti confided that some programmers have privately told him they would consider "moderating the size of their basic analog programming wholesale price increases for access to the digital tier."

Clearly, the advanced digital rollout is working just fine, for now, as long as cable operators continue to concentrate on the devil in the details of execution. And it's premature to bet the farm on the rollout of other advanced digital services, like interactive television or video-on- demand, according to our finance panelists.

They like VOD, said Farber, but he pointedly asked, "can they (operators) do it on the 2000 box?"

A good question, and one we'll all be hearing about soon as we make the annual trek to the Western Show. See you there.

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