Mediacom, which doubled in size earlier this year when it bought systems from AT&T Broadband, boosted the margins at its new systems in the third quarter, bringing them closer to industry averages.

Mediacom saw double-digit growth in cash flow, an improvement from the second quarter, when system cash flow grew only 8.7% on a pro forma basis. But because of an overall increase in service costs, general and administrative expenses and interest expenses on debt incurred from the acquisitions, the company's net loss widened compared with last year.

Still, the company increased its operating margins by lowering overhead at systems it acquired from AT&T, said chairman and CEO Rocco Commisso on Mediacom's earnings conference call.

Prior to Mediacom's acquisition, those systems were running at margins of about 30%, far below the 47% average margins of Mediacom's original systems. Under Mediacom's management ? the company closed its acquisitions in June and July ? corporate overhead as a percentage of revenue at those new systems fell to 1.2%, Commisso said, down from 4% in the year-ago quarter under AT&T Broadband's management. The lower expenses represent annual cost savings of $27 million, Commisso said.

Overall, Mediacom has ?already achieved margins within the average measures of the industry,? Commisso said, ?but we do expect improvement in the future.?

Investors reacted positively to the report. On a day when the broader market rose following the announcement of another half-point interest-rate cut, shares of Mediacom jumped 65 cents, or 4.8%, to $13.94. Near midday last Wednesday, Mediacom had gained another 55 cents, to $14.49.

?We believe management has successfully executed a sharp turnaround from slightly disappointing second-quarter figures, while also demonstrating significant integration success with the recently acquired AT&T properties,? said Karim Zia, an analyst at Deutsche Banc Alex. Brown, in a research report.

Zia added he was confident in Mediacom's ability to deliver above-average EBITDA growth over the next year.

For the third quarter, Mediacom posted a net loss of $65.3 million, or 54 cents a share. That compares with a net loss of $22..9 million, or 26 cents a share last year. The results were in line with analysts' estimates.

On a pro forma basis, which accounts for all acquisitions as if they had closed on June 30, 2000, Mediacom reported total earnings before interest, taxes, depreciation and amortization of $88.8 million, up 12.6%. Mediacom's EBITDA margin jumped to 42%, up from 39.6% last year.

Total pro forma revenue increased 6.1%, to $211.6 million, up from $199.4 million last year.

Despite the uncertain economy and the events of Sept. 11, Mediacom reiterated its previous guidance that it would report revenues of $424 million and EBITDA of $179 million in the second half of this year. That guidance excludes the impact of expenses related to Excite's bankruptcy. Mediacom is currently assessing its options of partnering with another third-party ISP or taking the service in-house.

During the third quarter, the company added a net total of 11,000 basic subscribers, bringing its total subscriber base to 1.6 million. Most of that growth came at the acquired systems, with Mediacom's core systems actually losing a few thousand subscribers. The company attributed the losses to satellite competition.

Mediacom added a total of 37,200 new product revenue-generating units, slightly more than analysts expected. Zia at Deutsche Banc says these additions put the company solidly on track to meet its previous guidance of ending the year with 315,000 to 325,000 digital cable customers and 115,000 to 125,000 cable modem subscribers.

On a pro forma basis, Mediacom added 22,000 digital cable customers, to end the quarter with 298,000. On the conference call, management reiterated previous guidance that it would end the year with 320,000 digital subscribers.

The company also added 15,200 cable modem subscribers during the quarter and had a total of 95,000 modem customers as of Sept. 30. Mediacom's cable modem penetration, at 5.9%, is lower than the industry average of close to 10%, which means it still has plenty of room to grow in this area. Mediacom said it should end the year with 116,000 modem customers, for a penetration rate of about 7%.

Mediacom will start its first video-on-demand test this quarter in Mobile, Ala., with a commercial launch scheduled for the first quarter. On the call, Commisso said additional markets would be launched next year. The company had a slight delay in beginning an upgrade of certain AT&T systems and expects to end this year with 74% of its plant upgraded to 550 MHz to 860 MHz (compared to its previous target of 77%). By the end of next year, executives said, 94% of its systems will be upgraded to 550 MHz to 860 MHz.

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