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Cablevision Sets Penetration Benchmark

Cablevision Systems Corp. — long an industry leader in revenue per home and in packaging video services — wears another crown these days: It sports the industry's highest cable-modem penetration rate, at 14 percent of its 3 million basic customers.

And it's done so with a largely self-installed, retail-modem-sales model that most in the industry are trying to adopt. Nearly all of Cablevision's customers buy their own modems, and some 85 percent install it themselves. Most other MSOs are in the 20 percent to 30 percent range for either of those metrics.

Cablevision now has 423,000 modem subscribers across its 2.7 million serviceable homes, giving it a 15 percent penetration rate — nearly double its 8 percent rate of a year ago, the company said.

"And we're still experiencing growth," Cablevision CEO Jim Dolan told financial analysts on the company's third-quarter earnings call last Tuesday. "I don't see it slowing down."

Indeed, Cablevision increased its guidance for full-year modem growth from 475,000 to 490,000 subscribers. It's achieved a 24 percent penetration rate on Long Island and an 85 percent share of the market, Dolan said.

In Connecticut, Cablevision reported a 20 percent penetration rate and 76 percent market share. "We're very encouraged by those statistics," Dolan said.

Dolan attributes the growth to the service's price and performance. Cablevision video customers — who account for 95 percent of its data customers — pay $29.99 a month for modem service. Non-video customers pay $39.95 a month.

As Cablevision's modem penetration has climbed, its marketing messages have also evolved.

"The messaging to the marketplace has been in sequence," said senior vice president of high-speed products Gemma Toner.

The early focus was on the pure benefits of high-speed access. As Cablevision approaches the end of the early-adopter phase, there is a greater focus on the multimedia experience that a high-speed modem can bring. Examples offered include online wedding planning or visual tours of new homes or vacation destinations, she said.

During last year's fourth-quarter holiday retail season, Cablevision added a record 99,000 high-speed subscribers. It posted quarterly gains of 65,000, 64,000 and 55,000 in each of the first three quarters of 2001, respectively, heading into this year's traditionally strong holiday-sales season.

Despite the slowing economy, Toner hopes for strong fourth-quarter growth.

"We'll have a killer fourth quarter," she predicted.

One reason is increased consumer recognition. Word of mouth has spread to a point at which many customers of The Wiz — Cablevision's consumer-electronics retailer — know what they want when it comes to high-speed Internet, she said.

"They need an alternative to narrowband," said Toner.

Cablevision's fourth-quarter marketing will center on modems as a gift item, or as "the Internet in a box" that can "make all those gadgets you get for Christmas better," said Toner. Those gadgets could include MP3 players and digital cameras, she said.

Cablevision's holiday offer includes a modem, a network-interface card and 12 months of service for $389, Toner said.

The offer is less aggressive than last year, Dolan said, because there's no need for heavy discounts.

"This product is much more established," he said. Without the deeper discount, more revenue from this year's fourth-quarter modem sales will fall directly to the bottom line, he said.

Toner said the average Cablevision user is online for 25 hours a week — almost twice the national dialup average of 13 hours, she said.

"We know they are doing more with just about everything," she said. "MP3 is a totally different experience. The PC is always on, you use it for everything."

Toner said Cablevision has looked at the types of services it might offer when new Data Over Cable Service Interface Specification (DOCSIS) 1.1 modems — which allow for tiered services —hit the market next year.

"It all goes through our heads, question is the timing of it," she said.

Offering premium services at prices above the standard monthly subscription is another possible future avenue, she said, but for now, "We're focused on building market share."