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Cablevision Plans to Join Dish 'Winback' Rolls

Cablevision Systems Corp.'s cable revenue and cash flow were up during the second quarter, but the MSO warned analysts that growth at its cable systems would not meet earlier expectations.

Cable revenue was up 10 percent to $551 million and operating cash flow rose 9 percent, slightly below the industry average, to $227 million.

Cablevision also revised its cable systems' cash-flow growth forecast for the year from a range of 13 percent to 15 percent to one of 11 percent to 13 percent. The MSO held to forecasts of 10-percent to 12-percent revenue growth.

The Bethpage, N.Y.-based company cited a scrapped plan to lease cable modems to customers, a sluggish ad market and increased call-center costs.

Cablevision executive vice president of finance Andrew Rosengard told analysts the MSO planned to start a modem-leasing program this year, but decided to hold off because of the product's strong retail sales. Previous cash-flow guidance included the expected lease revenue, he said.

Banc of America Securities cable analyst Doug Shapiro bought that explanation. "They had reasonable [cash-flow] growth," he said. "They're not pursuing the lease option. They're shifting expenses that would be otherwise capitalized. From a cash basis, it's a wash."

Rosengard said call-center costs rose mainly because of strong fourth-quarter high-speed data service sales that spilled over to subsequent periods and forced Cablevision to pay overtime and hire outside contract workers.

Cablevision added about 64,000 high-speed data customers in the quarter, ending with 368,000 subscribers.

Basic subscriber growth was also sluggish, at 1.3 percent. Cablevision also reduced its guidance for basic-cable growth for the year to 1 percent from 1.75 percent.

Part of the blame goes to increased competition from direct-broadcast satellite providers. DBS penetration in Cablevision territory is about 10.4 percent, said senior vice president of consumer product management Pat Felice. That's below the national average of 15 percent, but high given Cablevision's concentration in the New York metropolitan area.

Although Felice said she was encouraged by declining DBS growth rates — 2.5 percent in the quarter, compared to 3.7 percent last year — Cablevision will launch a dish winback program next month. The incentive would likely offer discounts on a "time-locked" basis, tying price cuts to the amount of time that a customer commits to Cablevision service.

The discounts could even increase the longer the customer stays with Cablevision.

The strategy comes just days after EchoStar Communications Corp. announced a promotion to offer potential customers 100 channels of Dish Network DBS service for just $9 per month.

"We need to be effective against very deep discounting," Felice said.

Cablevision CEO Jim Dolan said Cablevision's long-awaited digital-cable rollout should begin in September, but gave no further details.

"We will have more to share in the coming weeks," he said.

Cablevision's stock closed down $2 per share on Aug. 9, to $51.85 each.

Cablevision also said it reached an agreement that lets AT&T Corp. dispose of its 30 percent stake in the MSO and its interest in the Rainbow Media Group Inc. tracking stock.

In April, AT&T said it wanted to register its Cablevision stock for possible sale, but Cablevision vetoed the request in May.

Cablevision said it would allow AT&T to piggyback the shares on Cablevision's May 30 registration statement, clearing the way for a sale of the MSO's stock.

AT&T will also get registration rights for the Rainbow stock it holds. Cablevision said it would file a registration statement for those shares by Oct. 1.