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from: Long Island Business News

Cablevision fights back

By Pete Weiss

Friday, March 7, 2008

When Verizon first cracked the Long Island market with its vaunted FiOS television service, some analysts – and the company itself – predicted subscribers would leave Cablevision in droves for the phone company’s video service.

Instead, the cable operator continues to add customers, leaning heavily on its triple play package, as well as free high-definition service to fend off Verizon, whose aggressive sales tactics include blanketing the market with radio and television ads and sending foot soldiers door to door to win over customers.

Cablevision added 798,000 subscribers for its video, Internet or phone services in the past year, an impressive, and somewhat surprising number, according to some analysts.

“Cablevision has held up much better than investors expected,” said Craig Moffett, senior analyst at Sanford C. Bernstein.

In addition to the pricey national ad campaign, Verizon has spent $20 billion for the technology necessary to roll out its FiOS fiber-optic service, which competes directly with Cablevision in about 30 percent of the Bethpage-based company’s footprint.

All that money has yet to make a dent.

“Cablevision was the first provider in the cable industry to offer a triple-play package, and a lot of customers switched to cable phone service,” Moffett said. “So if you had Verizon phone service and you switched to Cablevision phone, you were immediately removed from Verizon’s telemarketing reach.”

The recent success led Cablevision spokesman Jim Maiella to boast that the triple play is the best value for a bundled television, Internet and phone service.

“We offer more high-definition programming, better phone features, the fastest broadly-deployed Internet service in the nation to every customer passed by our fiber optic network, and a triple-play offer the phone company can't match,” he said.

The company posted 1,155 new basic cable subscribers, 43,000 new digital video subscribers, 62,000 new broadband Internet subscribers and 102,000 new subscribers to its digital phone service in the fourth quarter.

Cablevision is also posting a low churn rate, as only 2 percent of its customers disconnected or left, likely to buy service from either FiOS, DirecTV or Dish Network.

Verizon hasn’t released subscriber numbers for Long Island, though the telecommunications giant announced in January it has 1 million FiOS television subscribers nationwide, which covers areas that include California, Florida and New Jersey.

Verizon, undaunted, is preaching patience.

“Remember, this is a manual build,” said Heather Wilner, a spokeswoman for Verizon. “Our team is out there physically laying fiber.”

Wilner also said New York’s video franchising rules, which lead to long delays, have been a drag on Verizon.

Another concern: Unlike Cablevision, which carries locally aired News 12, Verizon doesn’t have Long Island programming. But that could change, in time, one analyst said.

Kaufman Brothers analyst Todd Mitchell said Cablevision has the Long Island customer concentration “to dedicate a channel to your kids playing soccer. Verizon can’t do that, yet.”

Customer service, billing and technical problems have also soured FiOS subscribers on Verizon. Many people are surprised that the first bill is prorated to include two months of service. So, many FiOS subscribers’ first bill is more than $300.

But Moffett said it would be a mistake to count Verizon out.

“The question is not if, but how much and how long will it take.”

Analysts treated Cablevision’s good news on subscriber gains with a downgrade. The reasoning: the cable operator wants to spend its growing cash position on expanding its portfolio of entertainment venues, which includes Madison Square Garden and Radio City Music Hall.

Richard Greenfield, who follows Cablevision for Pali Research, downgraded the firm on March 4 from “buy” to “sell,” triggering a 3 percent decline to under $25 per share.