Cablevision Rolling Out IP Phone Service

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Cablevision will roll out telephone service to virtually all its metro New York systems by month's end.

The service is not the conventional "switched-circuit" service offered by telcos and MSOs Cox and Comcast. Cablevision will offer voice-over-IP service, using Internet protocols to piggyback on its Optimum Online high-speed Internet service, which 33% of its customers already take.

For $34.95 a month, Cablevision customers can receive unlimited local and long-distance service. But this is not lifeline service. It will fail if the power goes out in a subscriber's home.

The phone plans were disclosed when Cablevision announced third-quarter earnings last week. Despite strong revenue growth at its cable properties, the MSO couldn't escape the shadow of accounting, expense and corporate issues in the third quarter.

Cable system revenue increased a strong 15% to $693.5 million, much better than the growth posted by most other operators this earnings season. The bulk of that gain came from high-speed data service, which now generates 18% of Cablevision's revenues.

The company plans to restate earnings to reflect improper accounting at its AMC Networks unit. Forensic accountants have been reviewing the books at AMC and all of Rainbow Media since Cablevision purged 14 employees, including AMC Networks President Katie McEnroe. So far, the investigation has determined that division expenses have been understated by $15 million this year. That means the unit overstated 2003 operating cash flow by about 10%. But the $15 million is not large compared to the $1.2 billion in companywide earnings Cablevision is expected to post for 2003.

Operating cash flow grew more slowly, just 9%. A big part of that stems from expenses related to the company's fight with the New York Yankees' YES Network. Cablevision had refused to carry YES, prompting the network to file an antitrust suit. An interim settlement has Cablevision carrying the network on favorable terms, on a sports tier.

But Cablevision has to cover YES's losses if other operators seek the same terms. So far, Time Warner has pounced. That cost YES—and Cablevision—$6 million.

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