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Rival telco socks Cox

Pressure from a telco's overbuild in a key market trimmed Cox Communications Inc.'s cash flow and had investors hammering the company's stock Friday.

For the second quarter ended June, Cox posted a 7% increase in cash flow, to $337 million, about three percentage points less than investors had expected. Certainly the shortfall was small, about $9 million. But investors have been hanging on Cox's promises for months that cash-flow growth for the year would reach 11% to 13%. They're now saying that 11% is most likely. Investors hate a loss of momentum. With two quarters of just 7% growth on the books, Cox executives will have to post 15% growth during the next two quarters to hit even the lower end of the range.

Part of the problem was a $3 million error in its San Diego cable-telephone operation. Cox mistakenly sent the unlisted phone numbers of 11,500 of its customers to PacBell's telephone-book unit.

But more important, Qwest's new US West unit is making surprising inroads into Cox's Phoenix system, overbuilding the company with VDSL telephone lines that allow high-speed data and video.

Cox Chairman James Robbins watched his stock slide 19%, to $35.50, by midday Friday. Promising greater cost controls, he said, "We don't want to be in this situation again where $3 million [causes] a $3 billion decline in the market value of the company."

But the competitive problem was larger (two points of the three-point shortfall). US West has been offering free installation and up to three months of free service primarily in areas where Cox hasn't finished upgrading its own plant and, hence, has weaker service.

The company is intensifying marketing throughout its operations.

Cox's decline dragged down other MSOs: Adelphia Communications Corp. dropped 11%; Comcast Corp. 9%; and Charter Communications Inc. 7%.n