Verizon is gunning for the lucrative NYC-Long Island market that has been Cablevision Systems’ to win or lose. Based on the cable operator’s Q2 07 earnings report issued this morning, the once-unshakeable operator, who tops the industry’s charts in almost every metric, is feeling the competitive heat from the telco’s fiber-based FiOS high-speed and TV services.
For the first quarter since Q1 04, Cablevision failed to gain any net new basic subscribers and the company is ratcheting down its growth prospects for the year as a consequence. During Q2 07, Cablevision’s basic customer count stayed flat at 3.239 million.
Worse, every other high-growth category went soft during the quarter. Net digital subscriber additions were only 39,000, down 73% year-over-year and 39% sequentially. High-speed data subscriptions advanced by only a net 50,000, down 41% year-over-year and 37% sequentially.
Even Optimum Voice, Cablevision’s VoIP service, went south in terms of growth. Cablevision added 81,000 net new telephony customers during the quarter, a run-rate 34% below Q2 06 levels and 26% below Q1 07’s performance.
During the analysts’ call, Cablevision execs were at a loss to explain the sudden stop-short results. “It’s hard for me to tell what the macro environment is exactly because we don’t have much of a trend,” COO Tom Rutledge said.
Of course the elephant in the room is Verizon’s aggressive deployment of fiber-to-the-home technology throughout Cablevision’s service area, although Rutledge said that the competition was in line with expectations. FiOS only passes 750,000 homes in Cablevision’s 4.7 million-homes passed territory, but Verizon is aggressively trying to peel away customers.
Rutledge said that Verizon is spending $80 million to $100 million in advertising just for those 750,000 homes, which will force Cablevision to up its own marketing budget. “We have upped our marketing spend just so that our position in the marketplace is not drowned out by that kind of marketing.”
To counter the slow-down in new service growth, Cablevision plans to switch “strategies to use the triple-play against our existing customers,” Rutledge said, meaning that it will lower the triple-play bundle prices for current customers to keep them on board. (Competition does lower prices, it seems).
Company forecasts have been revised on the downside. For 2007, Cablevision now expects flat basic subscriber growth, instead of the previous 1% to 2%, RGU additions of 825K to 900K, instead of the earlier 850K to 950K, revenue growth of only 11%, instead of “mid-teens,” and cash flow growth of only 10%, instead of “mid-teens.”
Not that Cablevision is pinning the blame for the reduced expectations on competition. During the call, execs said that the revised growth projections stem from, um, unfair comparisons with stepped-up growth in NYC last year or something like that.
| Cablevision Systems Selected Operational Statistics (in mil. except %) | |||||
| Basic Subscribers and RGUs | 2Q06 | 3Q06 | 4Q06 | 1Q07 | 2Q07 |
| Homes passed | 4.52 | 4.54 | 4.56 | 4.59 | 4.62 |
| Basic subscribers | 3.10 | 3.11 | 3.13 | 3.14 | 3.14 |
| Basic penetration | 68.6% | 68.5% | 68.5% | 68.4% | 68.0% |
| Monthly churn | 1.7% | 2.0% | 1.8% | 1.7% | 2.0% |
| Total Revenue Generating Units | 8.26 | 8.55 | 8.83 | 9.09 | 9.26 |
| Digital Video | 2Q06 | 3Q06 | 4Q06 | 1Q07 | 2Q07 |
| Digital subscribers | 2.27 | 2.36 | 2.45 | 2.51 | 2.55 |
| Quarterly net sub adds | 0.14 | 0.09 | 0.08 | 0.06 | 0.04 |
| Penetration of total basics | 73.2% | 76.0% | 78.2% | 80.0% | 81.3% |
| Monthly churn | 2.0% | 2.3% | 2.0% | 1.9% | 2.2% |
| High Speed Data | 2Q06 | 3Q06 | 4Q06 | 1Q07 | 2Q07 |
| Customers | 1.89 | 1.96 | 2.04 | 2.12 | 2.17 |
| Quarterly net adds | 0.08 | 0.07 | 0.08 | 0.08 | 0.05 |
| Penetration of total homes passed | 41.9% | 43.3% | 44.7% | 46.1% | 46.9% |
| Monthly churn | 2.0% | 2.4% | 2.1% | 2.0% | 2.3% |
| IP Telephony Voice | 2Q06 | 3Q06 | 4Q06 | 1Q07 | 2Q07 |
| Customers | 0.99 | 1.10 | 1.21 | 1.32 | 1.40 |
| Quarterly net adds | 0.12 | 0.11 | 0.11 | 0.11 | 0.08 |
| Penetration of Optimum Voice | 21.9% | 24.3% | 26.5% | 28.7% | 30.3% |
| Source: Emerging Media Dynamics, Inc. analysis of company data © 2007. | |||||
Cynthia Brumfield at 2:05 PM|Comments(0)
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