Study: Cable services sector set to grow

Susan Rush
From the October 10th edition of CED Broadband Direct

The Nasdaq may be trading at 1,142 and demand in the telecom sector may still be weak, but one analysis sees the cable services sector as a silver lining.

CIBC World Markets is predicting that although near-term growth will be flat, long-term growth in the cable services sector will be spurred by the companies in this market segment that offer advanced services. With network upgrades nearing completion for many cablers, CIBC analyst Alan Bezoza says the companies are "moving into an era when they can provide new services that generate higher revenue per subscriber."

Bezoza estimates that by mid 2003, cable companies will usher in a period of strong free cash flow growth, fueled by increased operating cash flow and lower capital expenditures.

Since cable companies have already invested in network upgrades, they will be able to jump ahead of RBOCs and DBS providers in the race to provide advanced services such as digital video, high-speed data, cable telephony, online gaming and interactive television. "The fact that investors aren't willing to provide the enormous amount of capital it would take for the RBOCs and the DBS providers to carry those services," says Bezoza.

CIBC is just jumping into coverage of the cable service provider sector and has initiated coverage of six cable companies: Cablevision Systems, Comcast Corp., Charter Communications Inc., Cox Communications Inc., Insight Communications and Mediacom Corp. Of these six companies Bezoza rates Cox and Insight as "outperformers." He expects these two companies to exceed the performance of the overall cable sector during the next 12 to 18 months.