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Cablevision Systems Corporation (NYSE:CVC)

Q1 2009 Earnings Call

May 7, 2009 10:00 am ET

Executives

Patricia Armstrong – Senior Vice President, Investor Relations

James L. Dolan – President and Chief Executive Officer

Thomas M. Rutledge – Chief Operating Officer

Josh Sapan – President and CEO, Rainbow Media Holdings

Hank Ratner – Vice Chairman

Gregg Seibert – Executive Vice President

Analysts

Douglas Mitchelson – Deutsche Bank Securities

Jessica ReifCohen – Merrill Lynch

Craig Moffett – Sanford C. Bernstein

Jason Bazinet – Citi

Ingrid Chung – Goldman Sachs

Benjamin Swinburne – Morgan Stanley

John Hodulik – UBS

James Ratcliffe – Barclays Capital

Tom Eagan – Collins Stewart

Matthew Harrigan – Wunderlich Securities

Operator

Good morning. I would like to welcome everyone to the Cablevision conference call. (Operator Instructions) I will now turn the call over to Pat Armstrong, Senior Vice President of Investor Relations. Please go ahead.

Patricia Armstrong

Thank you. Good morning and welcome to Cablevision's first quarter 2009 earnings conference call. Joining us this morning are members of the Cablevision executive team, including Jim Dolan, our President and CEO; Hank Ratner, Vice Chairman; Tom Rutledge, Chief Operating Officer; Mike Huseby, Chief Financial Officer; Josh Sapan, President and CEO of Rainbow Media; John Bickham, President of Cable and Communications; and Greg Seibert, Executive Vice President.

Following a discussion of the company's first quarter 2009 results, we will open the call for questions. If you don't have a copy of today's earnings release, it is available on our website at www.cablevision.com.

Please take note of the following. Today's discussion may contain statements that constitute forwardlooking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that any such forwardlooking statements are not guarantees of future performance or results and involve risks and uncertainties that could cause actual results to differ.

Please refer to the company's filings with the Securities and Exchange Commission for a discussion of risks and uncertainties. The company disclaims any obligation to update the forwardlooking statements that may be discussed during this call. Let me point out that on page 5 of today's earnings release, we provide consolidated operations data and a reconciliation of adjusted operating cash flow, or AOCF, to operating income.

I would now like to introduce Jim Dolan, President and CEO of Cablevision.

James Dolan

Thank you, Pat, and good morning. Cablevision had a solid first quarter in what continues to be a challenging economic environment. The company's consolidated revenue grew 11% to $1.9 billion. This increase was driven by continued growth in our telecommunications business plus the addition of Sundance and Newsday, which were both acquired at the first quarter of last year.

Meanwhile, Cablevision's AOCF increased by 14% in the quarter to $590 million. Even without the impact of our two acquisitions, strong AOCF growth across our cable, Rainbow, and MSG businesses helped to drive a 13% yearoveryear increase in AOCF.

Another first quarter highlight is that Cablevision generated $170 million in free cash flow, which is more than double what we generated in the first quarter of 2008. This ramp up in free cash flow is a testament to our efficient capital spending over the past few years. We focused on creating a great platform for growth and free cash flow is the result of that investment. We remain pleased with our cable operations, which reported solid results for the quarter.

Tom is going to talk next about some of the new products we are rolling out that will create even greater value for our customers. Meanwhile, Rainbow had another good quarter, which Josh will address. And Hank will give us an update on Garden renovation.

While we are off to a good start for the year, we remain cautious given the current economic conditions. As always, we will continue to focus on building our business for the long term.

Separately, we announced today that our board of directors has authorized the company's management to explore the spin off of its Madison Square Garden business. I am sure you will understand that we will be unable to discuss any details at this time.

Finally, our board of directors has approved another $0.10 per share dividend payable in June. I would now like to turn the call over to our Chief Operating Officer, Tom Rutledge.

Tom Rutledge

Thank you, Jim, and good morning. The cable television company generated revenue growth of 5% and AOCF growth of 7% in the first quarter of 2009 when compared to last year's first quarter. The company gained 84,000 RGUs in the quarter; and average monthly revenue per subscriber was $136 and 55, a sequential increase of $1.70. The yearoveryear increase in RPS was $6.99 or 5.4%.

RGU growth was 84,000 for the quarter. Total customer relationships were unchanged and basic subscribers declined by 6,000.

Our digital customer base increased by 9,000 and penetration reached 92%. We gained 30,000 high-speed data customers this quarter, which was slightly larger than the growth of last quarter. And we added 51,000 voice customers, and we surpassed 40% penetration to homes passed voice penetration.

Our high definition video customers continue to grow as well. At the end of the first quarter, Cablevision had almost 1.6 million high definition customers, up 38% in the last year. At this time last year, we offered 45 HD services. We now have 100 plus high definition channels.

Cable capital spending totaled $148 million for the first quarter. Consumer premises equipment accounted for 68% of capital expenditures as we continue to support our RGU growth and deployed more and more DVRs and HD boxes. Cable capital spending was 11.6% as a percentage of revenue for the first quarter, compared with our 2008 full year spending ratio of 14.3%.

Our wifi network build out is progressing. We've activated the network in commercial and high traffic location areas across Long Island, Connecticut, Westchester, and Duchess Counties. And we've begun activating in parts of New Jersey, specifically Bergen and Passaic Counties, as well as hundreds of commuter rail stations across the New York metropolitan area. This past month we announced our Optimum Online customers had accessed the web more than a million times already using the wifi network. Of course, they did this for free of charge. We also doubled the downstream speed to 3 megabits per second.

We began selling Optimum Online Ultra, our new DOC SIS 3.0 service, which delivers internet access speeds of over 100 megabits downstream and 15 megabits upstream at a price of $99.95 per month, which allows us to market the fastest wire line and wireless residential services anywhere in the country.

Local advertising revenue declined from prior year levels by 21% for the quarter, which, while not good, is better than broadcasting, and, therefore, means we're picking up market share. This summer, we are deploying new advanced advertising products including addressable advertising, telescoping, and direct response commerce applications. We're working with major ad agencies and advertisers and have results which indicate the advertising technology is valuable.

We are also adding new navigation services, including search, web DVR, and mobile applications. Optimum Lightpath continues to drive new Ethernet revenue growth with a 48% increase over the prior year's first quarter. Optimum Lightpath now has 3,300 buildings on net, an increase of 22% over the prior year. Overall revenue growth was 8% over last year's first quarter, and AOCF was up 16%.

A brief update on our over billers. Verizon added 40,000 new passings within our footprint in the first quarter. This is the slowest pace of construction for them in our market since we began tracking this data over 4 years ago.

At Newsday, we saw circulation growth in some key delivery days, but the general advertising environment took a toll on the results for the quarter. Revenue for the quarter was $83 million while AOCF was just above break even. We have initiated various cost cutting measures, from making work force reductions to reducing the size of the newspaper, in response to these market conditions. We're continuing the development of our subscription model for deployment this summer on the internet.

I would now like to turn the call over to Josh Sapan who will discuss Rainbow results.

Josh Sapan

Thank you, Tom. For the first quarter, revenue at our national [inaudible] networks, AMC, IFC, and WE TV increased 9%, $194 million; and AOCF for the quarter was $85 million, which was an increase of 14% as compared to the prior year period.

The quarterly increase in revenue included a 9% increase in affiliate revenue and an 8% increase in advertising revenue compared to the prior year period. The ad revenue increase was accomplished in what is widely considered to be a challenging market given the economy and was accomplished substantially on the strength of effective original programming and ratings on the channels, including notably the series Breaking Bad on AMC and a series called The Locator on WE TV.

The AOCF increase was largely driven by this higher revenue as well as lower marketing and promotional expenses in the quarter. Breaking Bad ratings are up 13% over last season to date; and the season two premier of the series called The Locator attracted over 1 million total viewers, making it the most watched ever telecast on WE TV.

We are pleased with these results for the quarter. We do expect that marketing expenditures in support of original programming will rise during the year as we promote new original programming and returning series such as Mad Men Season Three on AMC, which is scheduled to be on the air later this year.

Turning to Rainbow's other programming businesses which primarily include the Sundance channel, News 12, and IFC Entertainment. For that group overall, first quarter net revenue increased 16% to $61 million and the AOCF deficit declined from $24 million to $13 million. These improved results were principally a result of the Sundance channel acquisition in midJune 2008.

Additionally, the net revenue results were negatively impacted and the AOCF results were positively impacted by the shut down of the domestic distribution of the Voom HD networks, which occurred on January 20, 2009.

I would now like to turn it over to Hank Ratner, who will discuss Madison Square Garden.

Hank Ratner

Thank you, Josh. In the first quarter, MSG revenue increased 2% to $271 million compared to the first quarter 2008. AOCF for the quarter increased to $16 million versus an AOCF loss of $3 million in the prior year quarter. These results were primarily driven by the networks consisting of MSG, MSG Plus, and Fuse which generated higher revenue of $9 million, reflected higher affiliate fees for the quarter and lower operating costs of $4 million principally at Fuse.

In the entertainment business, revenue was lower than the prior year's first quarter by $7 million and related expenses were lower by $6 million, due primarily to fewer events in the quarter.

And the teams saw a $4 million increase in revenue for the quarter primarily due to higher ticket sales as well as a $4 million net reduction in expense for the quarter, due in large part to lower legal and professional fees.

Now I'd like to give you a quick update on the Garden renovation. We have made a lot of progress working closely with our consultants on the renovation plans so that we minimize project risks and assure efficiencies in all aspects of the project planning. In order to most efficiently complete the renovation, it will be a yearround project, which is already under way. Our goal is to minimize disruption to the current operations.

To achieve this, we will remain open for the Knicks and Rangers seasons, while we sequence the construction to ensure that we are maximizing our efforts when we close the arena during summer months. As we move forward with this plan, we currently believe that the lower bowl of the arena will be open for the 201112 seasons and the upper bowl will be open for the 201213 seasons.

We expect that the ultimate cost of the renovation will be higher than our prior estimate. While we need to complete our review of the project before the specifics or any plan can be finalized, we remain extremely excited about this project and about creating a oneofakind, stateoftheart facility that's going to be great for everyone, whether they're first time visitors, season subscribers, suite holders, athletes, or partners, from the people sitting in the first row to the people in the last row.

In addition, the Knicks completed their season [inaudible] and optimism under leadership of Donnie Walsh and Mike D'Antoni. The Rangers made the playoffs for the fourth consecutive year, one of only two teams in Eastern Conference to have accomplished that.

Our Sports Property Division once again posted a successful night of tennis, this time featuring the top female tennis players in the world, including Serena and Venus Williams. We also hosted a soldout Big East tournament, which included an epic, six overtime classic between Syracuse and Connecticut.

MSG media won 13 New York Emmy awards, after receiving 52 nominations for MSG, MSG Plus and MSG.com for the second straight year.

Fuse, in partnership with the Rock and Roll Hall of Fame, included a live telecast of the induction ceremony last month, which was one of the highest rated music programs on Fuse this year.

Lastly, MSG Entertainment announced a new vaudevilleinspired Cirque du Soleil show, which will debut in our Chicago Theatre in November 2009 before coming to our recently restored Beacon Theatre in 2010.

I will now turn the call over to Greg Seibert who will briefly cover the company's overall financial position.

Greg Seibert

Thank you, Hank. Consistent with our solid quarter in terms of operating performance, free cash flow was $170 million, an improvement of more than $100 million over the prior year period. Cash flow provided by operating activities was higher in the quarter, and capital spending was lower. Total capital spending was $184 million versus $193 million spent in the first quarter of 2008.

Turning to leverage and liquidity, the company's consolidated cash position at the end of the first quarter was $622 million. Included in that amount is $277 million of cash proceeds held to repay senior notes and debentures due in 2009. Net debt was $11.1 billion. As of March 31, the company's consolidated leverage ratio was 4.7 times. The CSC holdings restricted group leverage ratio was 4.5 times.

Currently, Rainbow National Services has $1.3 billion of debt and $365 million available on its revolving credit facility. The ratio under its bond leverage test as of March 31 was 3.7 times.

We successfully completed the cash tender offers for our 2009 debt maturities in early March and now focus on managing our longerterm liquidity and debt profile efficiently and effectively.

Hank discussed the current plans for the renovation of Madison Square Garden. It is our intention to finance the renovation with the existing resources of MSG. To the extent that we determine that outside financing is either required or desirable, we would intend to raise that financing at MSG.

As Jim said, our board of directors has authorized management to explore the possibility of a spin off of the Madison Square Garden assets. We intend to work through the process and will get back to you when we have additional information that we can share. Before we open the call to questions, I'd like to reiterate that we will not address any questions related to the possible MSG spin off at this time. We will get back to you as soon as we have additional information to report.

Operator, with that we would like to open the call.

QuestionandAnswer Session

Operator

(Operator Instructions) the first question comes from the line of Douglas Mitchelson – Deutsche Bank Securities.

Douglas Mitchelson – Deutsche Bank Securities

I guess you can't answer on MSG, but I am wondering if a LeBron James acquisition would be accretive to a public entity. On the FiOS side, just curious with the passings having slowed to 40,000 in the quarter, you said the slowest in four years, are you also seeing their ability to add subscribers slow?

Greg Seibert

I wouldn't say that their overall competitive position has changed significantly in terms of being able to add subscribers. The most significant issue in subscriber acquisition at the moment for us is the economy.

Douglas Mitchelson – Deutsche Bank Securities

Again, I guess you said you couldn't discuss MSG at all, but can you just tell us what the considerations might be for determining whether or not this would be a good idea?

Greg Seibert

The operative word here is explore. We're going to take a look at the considerations associated with a potential spin. But at this point we really can't comment.

Operator

The next question comes from the line of Jessica ReifCohen – Merrill Lynch.

Jessica ReifCohen – Merrill Lynch

And what you're thinking in regards to longer term about Newsday and.

Hank Ratner

We missed the first part of your question.

Jessica ReifCohen – Merrill Lynch

I was just wondering, I know you won't comment on MSG, but I was wondering if you could comment on what your thinking in regard to strategic options for other assets like Newsday and/or Rainbow?

Gregg Seibert

At this point in time we have no intention to enter into any transactions involving any of those assets.

Jessica ReifCohen – Merrill Lynch

And completely separately, more on fundamentals, if one of you could explore on the interactive advertising front, what do you think the upside is and over what time frame? What do you need to see and how does your own effort work with Canoe, since you are partner in that?

Tom Rutledge

I think it will take a number of years for the interactive advertising to be a major driver of the business, but it has an opportunity immediately to expand our inventory at the local level and to make advertising more effective for advertisers. That should create an opportunity to generate new revenue locally.

There's a lot of money being spent on a variety of advertising vehicles, direct mail, broadcast television, newspapers, throughout our footprint, to reach our subscribers. Historically, we have had a fairly limited amount of inventory in the major programming services. So the most fundamental opportunity that it creates is a new way of communicating with customers that essentially gives us more inventory.

In terms of Canoe, Canoe is designed to sell this functionality at a national level. Canoe can plug into the physical assets of Cablevision, and we can take advertising from national advertisers and distribute them, that advertising, on Cablevision's platform to the extent Cablevision's platform is advanced ahead of what the national platform is, and it is, we will begin to develop that locally. But as the market matures, we will take the national money as well. And they're not incompatible strategies.

Jessica ReifCohen – Merrill Lynch

On the local level for your efforts, how do you get paid? Is this inventory you own outright or is there some split with the programmers?

Tom Rutledge

Well, we do own the inventory outright in the sense that you can sell the inventory over to multiple advertisers at higher CPMs because the inventory is targeted. But we also, because we own the network and because we have the technology, we can sell the functionality to other networks that don't own distribution systems.

So if a broadcaster or a national programming service wanted to buy this functionality from Cablevision, using its inventory to reach customers in new ways, we have the ability to enter into that kind of business relationship as well.

Operator

The next question comes from the line of Craig Moffett with Sanford Bernstein.

Craig Moffett – Sanford C. Bernstein

Question for Tom. If it looks like, based on our estimate of what you guys probably spent on wifi, that capital intensity in the cable unit may have dropped below 10%. Is that right? And how low could it go and how long could it stay at these or, alternatively, how long could it stay at these kind of levels? This is much lower than anything I think we or anyone else as far as to my knowledge has forecast.

Tom Rutledge

We have said for a long time that capital intensity, we thought, would continue to go down. The biggest capital expenditure we have is set top boxes. You can see from our numbers that we've almost reached all of our customers with digital services and we're actually right in the process now in the second quarter of taking out additional analog services and putting out more digital set top boxes. Really by the end of this year, we're going to stop selling analog service.

We've reached maturity on the digital penetration at 100%, really, by the end of the year. And we'll have continued growth with HD sets. HD sets, interestingly, cause the old set to move to another room which means that we don't waste inventory. The box moves to another room and we acquire a new HD set.

We're still buying new assets that are going into the field and creating additional revenue streams and they’re not counted as RGUs. RGU, for a digital set top, is the first set top in a household that has never had a digital box. So, that said, we’ll still be spending money on digital products, even after we reach 100% digital subscriber base. But the intensity will continue to decline, I think.

Craig Moffett – Sanford C. Bernstein

Do you think some 10% kind of number is a sustainable number?

Tom Rutledge

I think that we will go down from where we are today.

Operator

Our next question comes from the line of Jason Bazinet with Citi.

Jason Bazinet – Citi

You generated a little over $500 million of free cash. When you go through the cash flow statement in both ’07 and ’08, it seemed like there was a fairly sizable drag related to program rights. I think it was about $290 million in ’08. And presumably I guess that was investment in the Rainbow nets. Are we sort of done, do you think, in terms of investment in programming? In other words, will that be as large of a drag going forward, do you think?

Josh Sapan

We do plan to continue to invest in original programming. We think it’s working for us, and it’s elevating our ratings. We think it’s a piece of our strength.

Jason Bazinet – Citi

Will the magnitude be as large, I guess, maybe I should recast the question.

Josh Sapan

The $290 million, it’s unclear as you’ve asked where that $290 million comes from. So I am having trouble responding to that magnitude question because I can’t parse the $290 million. Forgive me for that. It’s just a little foreign to me, so I have to do a little studying on the $290 million.

Jason Bazinet – Citi

All right. Fair enough. What it’s under is program rights under change in current assets and liabilities.

James Dolan

That’s for all businesses and programming rights. I think Josh answered the question. We will continue to invest in original programming because it’s working. We’re not going to forecast the magnitude, but I think he answered the question. We’re going to continue at an investment level that makes sense based on the benefits we are getting out of it. You see that also with AMC, WE advertising increases year-over-year versus many other broadcasters and others who are actually facing declines.

Jason Bazinet – Citi

Absolutely. I didn’t mean to imply it wasn’t working. Thank you.

Operator

Your next question comes from the line of Ingrid Chung of Goldman Sachs.

Ingrid Chung – Goldman Sachs

I’ve got two questions, one for Tom and one for Gregg. For Tom, I was wondering if you could talk about monthly trends in the quarter. Based on your comments on the 4Q08 earnings call, it sounded like trends were fairly strong going into January and February. I was wondering if March was weak and if you could give us some clue as to how April is trending. That would be great.

And then for Gregg, I was wondering if you could tell us what you think the ideal leverage level for CVC is? And would you consider de-levering to become investment grade?

Tom Rutledge

Well, I said we were doing better when I spoke at the fourth quarter earnings call, through the first quarter, and we were. March was a difficult month for us, relatively speaking, compared to the last year. And the effect of March was almost all in lower income or working class neighborhoods like the Bronx and Brooklyn and Newark, and not really a change in the competitive environment. With regard to going forward, I really don’t think I want to make a forecast. But in terms of overall RGUs, when you look at the data and voice business, they were actually slightly up, even for the first quarter, from a trend perspective, over fourth quarter.

Gregg Seibert

On the leverage front, there’s an argument that says ideal leverage probably changes on what type of markets you’re in; and in certain markets high leverage is an asset and in other types markets high leverage is a liability. I think what we tend to be more focused on here at this point is looking at the overall debt maturity profile of the company. And we clearly have significant maturities in the 2011 to 2013 period.

What we’re focused on at this point in time is getting in place a maturity profile that will more closely match the cash flows coming out of our business on a longer-term basis. So, as we commented in the last earnings call, we’re highly focused on 2012 and 2013 amortization, particularly on the bank side, and I think you can expect to see us address that at some point in the not too distant future.

As far as investment grade ratings are concerned, my expectation is that we’ll continue, over time, to be leveraged based upon traditional metrics, just based upon the way that the company operates. So really you’ll see, we should expect to see those ratios improving over time, but investment grade is not a goal for us. I think that we finance very competitively at this point in time versus like say a Cox Communication or Time Warner Cable, I would not want to see additional constraints upon the way that we run the business that might be imposed by shooting for and trying to maintain an investment grade rating.

Operator

Your next question comes from the line of Benjamin Swinburne of Morgan Stanley.

Benjamin Swinburne – Morgan Stanley

Couple of questions. One is for Hank on MSG. I think you said the renovation was going to cost a little more than you had expected. It would be helpful for us if you could sort of talk about the capital costs, but also the impact on either some events that will be delayed or won’t occur, any seats that you will have to pull out of the sporting games. If there’s one number you would throw out as this is the impact of the renovation all-in, that would be very helpful.

And then, Tom, on the 100-megabit DOC SIS 3.0 roll out, what are you seeing? If there are any numbers you could share with us there in terms of adoption rates or customer reaction or along those lines or how maybe people are viewing that product versus Verizon, which I believe has some high-end data offers in the market that they’ve had for a while. How those might compare. Thank you.

Hank Ratner

As it relates to the renovation, I think most importantly our expectations are that the lower bowl will be open for the ‘11-‘12 season and the upper bowl will be open for the ‘12-‘13 season. We’re still very much working on the planning and the exact time frames in which we’ll be closed and how to best and most efficiently do it to minimize disruption both to events and to consumers.

We are not there yet with those final plans nor are we there yet with final numbers. The most we can say on that, as Gregg said before, is that we feel we will be able to fund the costs through the resources at Madison Square Garden. But at this point in time, we’re just going to leave it with those dates when we think we’ll be back fully open, and we’ll come back in the future with whatever the time schedule is and what the exact numbers end up being.

Tom Rutledge

With regard to 100-megabit sales, we actually have been selling it to friendlies in an experimental mode and are going to go full marketing starting May 11. So we don’t have any sales information to give you. But we expect that it’s a fairly limited marketplace initially, and that small businesses will probably be more interested in it than residences. But there are residential users who will find it attractive.

And the other interesting aspect of the investment we’ve made in the DOC SIS platform is that we actually can improve our service to our existing 2.5 million data customers, too, as a result of that capital. So that the overall reliability and quality of the network will continue to improve, and it's a new marketing opportunity. It's an opportunity to create new revenue streams and an opportunity to improve existing revenue streams by enhancing the customer service, the business, and improving the customer relationship.

Operator

The next question comes from the line of John Hodulik of UBS.

John Hodulik – UBS

Just a couple quick followups for Tom. On the commentary about March, was the changes on March, was that, if you could tell us, more of a gross add issue or a change in sort of the churn you were seeing in those areas? And then, secondly, do you think the company picked up any other video or corollary other RGUs from the digital transition this quarter?

Tom Rutledge

First, we haven't really seen a significant change in our nonpays or churn activity. And it's primarily in less affluent areas that we've seen the less sales in March. With regard to the second question, would you repeat it?

John Hodulik – UBS

Digital.

Tom Rutledge

I would say no impact of the digital transition yet. We had a little runup, I think, at the beginning of the quarter that might have been residual from last year. But no stations have gone off, pulled their analog signal in this market. In June, we'll have the impact of that.

Operator

The next question comes from the line of Vijay Jayant of Barclays Capital.

James Ratcliffe – Barclays Capital

It's James Ratcliffe for Vijay. Couple questions. First of all, Tom, clearly you guys are fully competitive on content on the video side. But anecdotally there seems to be some preference among customers for the FiOS user interface. Any thoughts on the current user interface and if you are going to need to make changes to that going forward? And secondly, for the MSG renovation, can you talk about your expectations for ROI on that investment and has the Yankees' difficulty in selling some of their superpremium seats have any impact on that? Of

Tom Rutledge

Our research shows actually that our customers who have defected to FiOS miss our user interface. That said, we continue to invest in our user interface and, as I said in the script, we have plans to roll out over the next several months new features to our user interface. And we have an internal project to continue to develop that over a multiyear period, and we expect to continue to have a better user interface than our competitors.

James Dolan

As far as your questions on the renovation, we're going to do the renovation because it's going to be a positive thing for both the company and for all those who come and visit Madison Square Garden. At this point, we're not prepared to get into an ROI as we still haven't finished our planning. As far as the Yankees and the general economy, we're very mindful of that and we keep our eye on that. We will learn from that. But we don't see that having an effect on the project to this point.

Operator

The next question comes from the line of Tom Eagan of Collins Stewart.

Tom Eagan – Collins Stewart

I guess this is for Tom. Could you share with us any trends you've seen in the customer service metrics? You know from Q4 to Q1 or Q1 to Q1? Just in terms of customer complaints or response time. I have just been hearing some comments about that.

Tom Rutledge

We measure our customer metrics all the time in terms of response and satisfaction. We've actually improved our customer service during that period.

Patricia Armstrong

Operator, we have time for one more question.

Operator

The next question comes from the line of Matthew Harrigan of Wunderlich Securities.

Matthew Harrigan – Wunderlich Securities

Could you talk a little bit about the small and medium enterprise contribution on the cable side in terms of RGUs, because that's obviously been a pretty good pull of incremental growth for you that's buffered you a little bit against the trends in the economy?

Tom Rutledge

We don't break out the RGUs or the revenues. I've said in the past that we thought we achieved about 20% penetration in the business universe, small business universe. At the time I said it, that our revenues per small business customer was $130 a month, that was going up because we had actually started the business at the very low end of the business, smaller businesses first. Now selling up to 24 lines through the cable company’s assets and through Lightpath, obviously.

Actually Lightpath will be selling [40] gigabit services symmetrically later this year, so massive data quantities. And we expect the RPS to go up as we move up through the market place from the very small businesses to the larger businesses. We don't break out any of that information for you, I'm sorry. Other than what I just said.

Patricia Armstrong

Thank you all very much. That concludes our call.

Operator

Thank you. This concludes today's conference call. You may now disconnect.

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