BIGGER IS LOOKING BETTER IN THE NEW COMPETITIVE LANDSCAPE

BY MAVIS SCANLON

More proof emerged last week that the larger cable operators are far better positioned to withstand the competitive onslaught from satellite and telecom companies.

Ninth-largest MSO Insight Communications, which saw customer defections to satellite and disappointing cash flow growth in the third quarter, went on the defensive, pledging to renew its focus on customer service and marketing in an effort to return to double-digit cash flow growth next year. Conversely, both No. 4 MSO Cox Communications and top MSO Comcast are in offensive mode, and could see accelerating revenue and cash flow growth in coming years as new services become available to more of their customers.

Comcast's stellar growth in high-speed data customers was offset by the loss of more than 22,000 basic subscribers in its legacy systems as it focused on upgrading and adding customers in the systems it acquired from AT&T Broadband. But analysts said Comcast's scale, strengthening balance sheet and wider availability of new products and services has positioned it extremely well.

Comcast's third-quarter results ?show there is a tier one versus a tier two cable universe,? said Aryeh Bourkoff, an analyst at UBS. ?That bifurcation becomes more severe as we approach 2004 and the competitive environment intensifies.?

Heading into 2004, cable is competing not only with the two big satellite services, Bourkoff says, but with telco providers that are cutting prices on DSL service to attract and retain customers. ?Comcast and Cox will be able to compete effectively and will be able to thrive in this environment,? while the tier-two smaller players will find it tougher to keep up. Ultimately, the cable landscape might one day resemble satellite, which has two major players, or the telecom industry, with four major players.

Comcast's third-quarter results showed the benefits of size and scale and highlighted the success so far in the integration of AT&T Broadband. By year-end, Comcast expects 95% of its systems will be upgraded, giving it a far larger footprint to deploy high-definition TV, DVRs and VOD.

Comcast expects to be able to offer HDTV to 80% of its subscribers by year-end, up from 65% in September; about 7,000 customers a week are signing up for the service. VOD is available in 30% of its footprint; that number should shoot up to 75% by year-end. In Philadelphia, its flagship market, Comcast received a million orders for VOD service in one week in late October, the company said. And although less than 10% of customers can now order a DVR set-top, Comcast expects to deploy DVRs in additional markets by year-end.

The big news for both Comcast and Cox were their high-speed data numbers, which exceeded expectations. HSD is now available to 84% of Comcast's subscriber base, and the company expects improvements in the services, such as the availability of a new streaming video product at its portal Comcast.net, will lure new customers. Comcast added a record 473,000 cable modem customers in the quarter.

Cox added 169,000 net new data subscribers. In somewhat of a strategic shift, Cox said it planned to introduce a lower-price data tier in the $20 to $30 range as well as a higher-priced tier that would appeal to heavy users. For now, at least, Comcast indicated it would not add a lower-priced tier.