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Digital Tops Analog Cable, Says Analyst

Cable had a great second quarter with higher than expected revenue boosts and continued inroads into the telephone business. Digital cable also reached the tipping point, with more digital subs than analog for the first time.

Merrill Lynch estimates that 50.7% of cable subs had digital service as of midyear 2006, up from a tad under 50%.

That's according to a report from analyst Glen Campbell on the performance of major cable and telecom companies in the second quarter, excluding Cox, which the company does not track.

Cable sector revenue growth was up 12% in the second quarter vs. 9.7% for the same quarter in 2005. Cablevision showed the most revenue growth at 17.8%, with Comcast moving into double-digits at 10.5%.

Basic cable sub growth was minimal after a record first quarter, said the financial

analyst, but he still saw potential basic sub gains linked to the rollout of phone service. By contrast, DBS sub growth, at 320,000, was the lowest in at least the past five years, when Merrill Lynch began tracking it.

Cable modem sub growth outpaced projections. The six top operators (though, again, Cox is excluded), added 704,000 modem subs in the second quarter.

Cable's gains in phone came at the expense of the traditional phone companies, whose wireline revenues fell 3.9%. Verizon's residential lines were down 9.5% and AT&T's down 7.7%, for example. Almost two-thirds of U.S. homes are now capable of getting phone service through cable.

AS cable phone subscriptions rise, says Cunningham, "customers seem happy to plough savings from cheaper phone service into new digital TV services."