Fortune, May 8, 2008
By Scott Mortiz

Just as the race for your TV, phone and Internet dollar speeds up, the gains for the companies peddling the triple-play service bundles have slowed to a crawl.

Cablevision is the latest consumer communications shop to report almost negligible movement in its overall subscriber numbers. The net new basic video customers totalled 2,000 in the first quarter, that's about flat with the previous quarter and much better than the 13,000 service cancellations some analysts were expecting. Last week, Comcast reported nominal user losses. And Time Warner Cable showed modest gains.

The apparent stillness at on the surface belies the turbulence deep below where subscribers are switching service providers in record numbers. Phone companies like AT&T and Verizon are stealing core video subscribers from cable operators with TV offers wrapped in fast Net and unlimited calling promotions. Meanwhile, cable is winning scores of core phone and Internet customers from the telcos.

The brutal competition has created a no-growth scenario among the communications giants.

"It's weird," says one investor. "It's having virtually zero impact."

The number of customers gained versus the number of customers lost is reflected in the so-called monthly churn number provided by the companies. Cablevision, which has watched Verizon expand its fiber-optic powered TV bundle over its lucrative suburban New York and New Jersy turf, says it will no longer report churn. "We felt it was something we didn't want to continue reporting, and we are not," a Cablevision executive told analysts on a conference call Thursday.

It's not called churn for nothing. But all this vigorous action while standing in one place is not exactly producing cream.

The fact that Cablevision - a former TV monopoly in its regions - has just shown that it can withstand two years of head-to-head triple play competition with Verizon's multi-billion dollar Fios roll out is a revelation to some observers.

The investor, a long time telco fan who asked not to be named to protect his investment strategy, says he has switched his holdings to cable names largely because he feels the most intense phase of the phone company attack has passed and the cable companies are still standing in sustainable positions.

Bernstein analyst Craig Moffett has been one of the first and most prominent Wall Street voices sounding a rally cry for the cable sector. In his research note Thursday, Moffett saw more evidence to back up his call. "Their remarkable string of positive surprises on the cable side simply can't be sustained, we'd argue, in the face of the Verizon onslaught. And yet each time, we've been positively surprised," Moffett writes.

But one weapon used in this battle doesn't get much attention: price locks and win-back offers. Time Warner Cable said last week it was offering to freeze its prices if customers would sign on for two years. And Cablevision said on its conference call that it was increasing its assortment of inducements to win back customers. That effort showed up "lots in our growth numbers," a Cablevision executive said on the call.

It wouldn't be a big stretch to say that promising fixed prices and promotional giveaways will slow churn. But the cure for customer defections seems to mean capping a big portion of your revenue growth. If successful, price freezing could have the unintended effect of taking a zero impact situation to slightly below zero.

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