Wall St. Comfort Level Soothes Operators


New York -- Despite rising cable valuations and the heavy
debt loads cable operations carry, investors appear to have reached a comfort level with
MSOs, which should mean that cable's access to capital for new services will continue to
be available.

Donaldson, Lufkin & Jenrette Inc. vice president Jim
McVeigh said the recent initial public offering by Insight Communications Co. Inc. and the
pending IPO from Charter Communications have helped to make investors more comfortable
with cable companies.

McVeigh, speaking at a panel discussion during a Kagan
Seminars Inc. conference here last week, said that while cable MSOs are still highly
leveraged, there are efforts by some of the larger MSOs to keep leverage down.

"You're seeing new services and investments by
[Charter chairman] Paul Allen, Microsoft [Corp.] and AT&T [Corp.]," McVeigh said.
"What investors are seeing is that these services are being delivered to

He added, "There is also comfort from a leverage
perspective. Look at Paul Allen. He said, 'Yes, Charter is leveraged to 7.2 [times
cash flow], and I am committed to keeping it below that level,' and he's willing to put up
his own money to do it. That's a strong message to the market. When investors get comfort
and see new growth, multiples tend to go up."

At the same time, private equity companies like Brera
Capital Partners L.P. -- the investment house based here that pumped $100 million into
Classic Cable -- are trying to get back into the cable industry, which also shows the
potential for continued growth.

"A lot of opportunities are really opening up because
you have people like AT&T and private investors in the industry," McVeigh said.

Lehman Bros. Inc. senior vice president of media and
telecommunications Gene Schiffman said past investments by business heavyweights like
Microsoft chairman Bill Gates validate cable investments.

"Gates clearly validated the Internet as a strong
future revenue stream," Schiffman said. "Paul Allen continues to validate that.
AT&T further validated the telephony revenue stream."

Schiffman added that Gates' investment and others added
liquidity to cable balance sheets, which means that money to make those new services a
reality won't be hard to come by.

"Liquidity means that all of the public cable
operations can raise capital and deliver [advanced services]," he said. "It also
emboldened then to go out and make acquisitions."

But while the equity markets have been bolstered by cable's
new services, lending institutions are taking another look at cable for more conservative

"Validation from equity infusions from major players
is important. But what is also important is the cable industry's reinterpretation of
itself as a telecommunications business and a customer-oriented business," said Eva
Hale Leighton, managing director of Citicorp's media and communications group. "All
of that gives banks confidence that this is a redefining industry."

Hale Leighton added that there has also been a change in
"lender psychology" over the past year to 15 months as cable operators began to
include real numbers for new services in their business plans.

"[Going back] 12 months ago, most new plans didn't
have data lines or telephony lines," she said. "Bankers started seeing these
things quantified, and they were asked to lend against them."

Hale Leighton said advanced services like high-speed data
and telephony may be driving valuations, but they aren't expected to contribute
significantly to the bottom line for at least three to four years.

Services like digital cable, though, are showing results
now, which makes cable an attractive investment for bankers, she added.