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Tough Times

It's difficult to imagine a more challenging time for cable operators. Share prices for some of the industry's largest players are down 70 percent or more, hammered in part by a tough new attitude on Wall Street toward companies valued by their cash flow. A scandal of epic proportions has dragged Adelphia Communications into bankruptcy and almost certain dissolution, while AOL Time Warner faces government probes into its accounting practices.

The bad news doesn't end there. Satellite competition continues to bite hard, stealing about 2 million customers a year from cable, according to John Billock, Time Warner Cable vice chairman and chief operating officer, who has urged operators to put an "obsessive focus" on marketing and customer care.

With so much turmoil swirling around the industry, our listing of the 25 largest cable and satellite operators takes time out to look at fundamentals. Despite the tough times, most companies anticipate double digit increases this year in both revenue and cash flow. Most cable operators also report gains in selling newer services such as digital TV and high speed access and many are moving into VOD this year and next.

Our listing ranks companies by their basic subscriber counts, and includes snapshots of other key statistics. As we listed companies, we took a conservative approach to pending mergers and other ownership changes, depicting companies as they are today rather than as they are likely to look later this year or early next.

Because Comcast's acquisition of AT&T is expected to gain regulatory approval during the fourth quarter, we've included a sidebar looking at how the merged company would look if the transaction was already completed. We didn't do the same for DirecTV and EchoStar, because of lingering regulatory hurdles their combination must still overcome. The satellite TV providers hope to complete their merger by year's end.

It's difficult to predict how much the Top 25 will change within the coming 12 months, although some shifts are already in the works. Adelphia's properties are almost certain to go on the block, and two new MSOs are in the process of emerging. Advance/Newhouse, which currently co-manages roughly 6 million subscribers with Time Warner, will become a separate company serving 2 million subs early next year. Bresnan Communications, which is acquiring 320,000 subscribers from AT&T, expects to enter the ranks of MSOs later this year.

Next year's market for mergers and acquisitions should look a lot like this year's, predicted John Waller, chairman of Waller Capital, with many companies waiting out the action until prices settle into a more reasonable groove. Once prices are in line, equity financing will most likely be plentiful.

"The private equity community is waiting in droves to invest in acquisitions, once pricing reaches an acceptable level," Waller said. "Since the collapse of the telecom sector, cable looks good, relative to other opportunities in the telecommunications sector."

Kathy Haley and Rick Churchill edited this special supplement, with research and writing help from Michael Depp, Wayne Karrfalt, Mark Miller and Alan Waldman. Anthony Besada, associate art director at Multichannel News, created its design. Pittsburgh, Pa.- based Data Mapping (
) supplied the MSO coverage maps.