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Cablevision Systems Corporation (NYSE:CVC)

Q3 2007 Earnings Call

November 8, 200710:00 am ET

Executives

Pat Armstrong - IR

Jim Dolan - CEO, President

Tom Rutledge - COO

Josh Sapan - President, CEO Rainbow Media Holdings

John Bickham - President of Cable and Communications

Hank Ratner - Vice Chairman

Mike Huseby - CFO

Analysts

Craig Moffett - SanfordC. Bernstein

James Ratcliffe - Lehman Brothers

Rich Greenfield - Pali Research

Jason Bazinet - Citigroup

Doug Mitchelson - Deutsche Bank

Ingrid Chung - Goldman Sachs

Benjamin Swinburne - Morgan Stanley

Jeff Wlodarczak - Wachovia Capital

Jessica Reif-Cohen - Merrill Lynch

Operator

I would like to welcome everyone to the Cablevision thirdquarter earnings conference call. (Operator Instructions) I will now turn it over to your host, PatArmstrong, Senior Vice President of Investor Relations.

Pat Armstrong

Good morning and welcome to Cablevision's third quarter 2007earnings conference call. Joining us this morning are members of theCablevision executive team, including Jim Dolan, our President and CEO; HankRatner, Vice Chairman; Tom Rutledge, Chief Operating Officer; Mike Huseby,Chief Financial Officer; Josh Sapan, President and CEO of Rainbow Media; andJohn Bickham, President of Cable and Communications. Following a discussion ofthe company's third quarter 2007 results, we will open the call for questions.

If you do not have a copy of today's earnings release you mayobtain one from our website, Cablevision.com. This call can also be accessedvia our website.

We look forward to your questions. I would like to emphasizethat our focus today is on Cablevision's operating and financial results forthe third quarter of 2007. Inthat regard, we will not be addressing any questions regarding the recent DolanFamily Group going private offer during this call.

Please take note of the following: this discussion ofCablevision's results and any discussion of the company's 2007 outlook maycontain statements that constitute forward-looking statements within themeaning of the Private Securities Litigation Reform Act of 1995. Investors arecautioned that any such forward-looking statements are not guarantees of futureperformance and results, and involve risks and uncertainties that could causeactual results to differ.

Please refer to the company's filings with the Securitiesand Exchange Commission for a discussion of risks and uncertainties. The companydisclaims any obligation to update the forward-looking statements that may bediscussed during this call.

Let me point out that on page 6 of today's earnings releasewe provide consolidated operations data and a reconciliation of adjustedoperating cash flow, or AOCF, to operating income.

I will now turn the call over to Cablevision's President andCEO, Jim Dolan.

Jim Dolan

Thank you, Pat and good morning. As you all know, as aresult of last month's shareholder vote, Cablevision will continue as a publiccompany. We view this outcome as an affirmation of confidence from ourshareholders and our company and its prospects going forward. We look forwardto continuing to serve our customers and to building on Cablevision success.

Turning now to third quarter results, Cablevision'sconsolidated revenue grew more than 9% to $1.5 billion as compared with theprior year period. This was driven by strong revenue growth in both our cableoperations and at Rainbow Media. All three businesses -- cable, Rainbow and MSG-- helped to increase consolidated AOCF by 16% to $494 million.

Despite a relatively small third quarter loss in basic videosubscribers, our digital video, data and voice services continued to gainmarket share. This ongoing demand helped to maintain Cablevision's industry-leadingpenetration rates.

Rainbow Media had an impressive third quarter due tosubstantial increases in both advertising and affiliate revenue. Ourprogramming business achieved a 17% increase in revenue and a strong AOCFgrowth of 42%, as compared with the prior year period. While MSG's revenue wasessentially flat compared to last year's third quarter, AOCF increasedsubstantially to $10 million. This was primarily due to team personnel changesincurred in 2006.

I would now like to turn over the call to our ChiefOperating Officer Tom Rutledge, who will discuss the results of ourtelecommunications segment.

Tom Rutledge

Thank you, Jim andgood morning. Overall, our core cable business continued to produce solidresults in the third quarter of 2007. The company gained approximately 161,000RGUs in the quarter, contributing to cable revenue growth of 9.7% and AOCFgrowth of 8.5% compared to the prior-year period.

Our average monthly revenue per subscriber was $120.91 forthe third quarter, slightly less than our second quarter RPS which had theimpact of a popular pay-per-view fight included. This quarter's RPS represents an8.8% increase over the prior-year period.

Consumer demand continues to drive the expansion of our twoproduct and three product offers, along with VOD and DVR. Today, almost halfour customer base subscribes to all three of our primary products: video,high-speed data and voice. We've seen consistently higher retention rates withthree product customers compared with customers who do not have all threeproducts.

Cable capital spending totaled $186 million for the thirdquarter. While on a quarterly running rate basis this is an anomaly, we stillexpect our full-year capital spending to be within the targets we had previouslyset for the full year.

Consistent with recent quarters, consumer premises equipmentrepresented the largest component of capital expenditures as we continue tosupport RGU growth and deploy more and more DVRs and HD boxes. Year-to-date, wespent $470 million in capital, a reduction of 26% from last year's comparableperiod.

Now let me briefly address Telco competitive activity in ourfootprint in the last quarter. We estimate that Verizon has built out a planthat passes approximately 1.1 million homes as of September 30. Of this total,they have approval to offer video services to about 890,000 of these homes.

Turning to specific results of for video services we endedthe third quarter with 3.12 million basic video customers, reflecting a loss ofapproximately 16,000 customers in the quarter. As a reminder, our third quarteris typically not our strongest growth quarter due to seasonal discount in ourbeach communities, especially on Long Island and New Jersey. Year-to-date basic subscribers were essentiallyflat, down by less than 5,000. Our basic penetration at the end of the quarterwas 67.2%.

Our digital video service, iO, added 35,000 customers forthe quarter. We have now reached almost 83% digital video penetration whichenhances our ability to offer more digital products to our customers. Forexample, this past quarter we launched our tenth language category with theaddition of our first French language network. This brings our internationalnetwork offerings to more than 60 channels.

Our high-definition video subscribers totaled 898,000 at theend of the quarter, an increase of 71% over the past year, reflecting ongoingstrong demand for our HD product. We continue to make our HD offering moreattractive. In addition to recently adding the 15 VOOM HD channels, CNN and TBSare now offered in HD, all at no extra charge to our customers. TodayCablevision provides 42 HD programming services to our HD customer base, and weexpect to add more HD channels in the coming months on our 500 channel capableplatform.

Turning to Optimum Online, our high-speed data service, wehad a net gain of 52,000 customers in the quarter. Our a penetration of homespassed at the end of September reached 48%. Now our Optimum Online basic videocustomer base is 71%.

Our Optimum Voice service had a quarterly subscriber gain of91,000. Optimum Voice is now the phone service of choice in almost one of everythree homes passed, and today two out of three Optimum Online customers takeOptimum Voice as well. If these trends continue, the majority of our customerswill be buying their landline voice from us by the end of this year.

The success of Optimum Voice continues to drive growth allacross Cablevision services. Today more than 60% of new sales include the fullsuite of Optimum video, data and voice services.

On the business front, Optimum Lightpath Ethernet-basedbusiness continues to generate impressive growth, adding customers and newbuildings at a steady pace. As a result, Ethernet revenue for the third quarterincreased 90% compared to last year.

Today we are providing the following updated 2007 outlookfor cable television as follows: basic video subscriber growth to be flat; RGUadditions of approximately 800,000; revenue growth of approximately 11%; AOCFgrowth of approximately 9%; capital spending in the range of [inaudible] to $650million. Once again we expect capital spending to be closer to the lower end ofthat range.

I would now like to turn the call over to Josh Sapan whowill discuss Rainbow's results.

Josh Sapan

Thank you, Tom. Forthe third quarter revenue at our national programming networks AMC, WE TV andIFC increased 13.8% to $164.4 million and AOCF for the quarter was $77.9million, an increase of 12.3% as compared to the prior year. This quarterlyrevenue growth includes a 22% increase in advertising revenue driven by higherCPMs (cost per thousands) and units sold at AMC and WE TV, as well as highersponsorship revenue at IFC and a 9% increase in affiliate revenue compared tothe prior-year period. The increase in AOCF was primarily driven by this higherrevenue, partially offset by higher contractual rights expense and marketingcosts versus the third quarter of 2006.

Once again, it is expected that full year spending drivenprimarily by programming and marketing expenses will be equal to or greaterthan prior years as we continue our strategy of investing in high qualityoriginal programming to drive viewership.

AMC enjoyed a successful summer with the first full seasonof a series called Mad Men, a popularseries set in the 1960s. The series gathered impressive critical acclaim, hadgood ratings, and we have commissioned a second season which is scheduled fornext summer. Additionally, third quarter 2007 was WE TV's best quarter ever forprimetime audience delivery.

Turning now to Rainbow's other programming businesses, whichprimarily include News 12, the VOOM HD Networks, Fuse, IFC Entertainment andour VOD services LIFESKOOL and SPORTSKOOL. Third quarter net revenue for thoseother programming businesses increased 24% to $63 million and the AOCF deficitimproved by 21% to a loss of $26 million as compared with the same quarter lastyear.

The increase in net revenue is primarily driven by higherrevenue at the VOOM HD Networks, impacted by growth from the existing affiliatesub base, as well as the addition of Cablevision subscribers. This favorablerevenue impact fueled improvement in AOCF, partially offset by increasedprogramming acquisition costs.

I would now like to turn it over to Hank Ratner who willdiscuss the results of Madison Square Garden.

Hank Ratner

Thanks, Josh. Turningto MSG's operating results, third quarter revenue was essentially flat whencompared to the third quarter of 2006. AOCF for the quarter was $10 million,compared to an AOCF loss of $6 million in last year's third quarter. Third quarterresults were principally driven by higher MSG Network revenue and AOCF,including a $6.2 million increase in affiliate revenue, which more than offseta $1.3 million reduction in other revenue, primarily ad sales, and a higheroperating cost of $2.2 million.

Higher AOCF from the Knicks and Rangers, primarily relatingto the provision for certain team personnel transactions taken in 2006 which totaled$33 million. Higher venue operating costs of $3.2 million relating primarily tothe addition of the Beacon Theatre.

Turning to our sports teams, both the Knicks and Rangersbegan their respective seasons with deeper and more talented rosters that energizedfan bases and heightened expectations for success. For the 2007/2008 seasonKnicks subscribers expressed their enthusiasm and excitement for this youngteam with a 91% renewal rate, the highest number since 2001.

Higher expectations for the Rangers resulted in all remaining2007/2008 individual game tickets selling out in less than one hour. This wasafter a 97% season subscriber renewal rate, which is believed to be the fastestseason sellout in our team’s history.

This month marks the beginning of our two holiday shows. OnNovember 1 the world renowned Cirque du Soleil debuted the widely anticipatedproduction of Wintuk, which will make the WaMu Theater at Madison Square Gardenits home over the next four winters. November9 marks the start of the 75th celebration of the perennial holiday favorite,the Radio City Christmas Spectacular, featuring an enhanced production with newsets, costumes and the show-stopping Rockettes numbers.

In October, Madison Square Gardenadded the legendary Chicago Theater to our lineup of world-class venues. Whilewe expect to make a more detailed announcement soon, this addition expands thereach of Madison Square Garden beyond New York and further differentiates our unrivaledcollection of assets in the entertainment industry.

I would now like to turn the call over to Mike Huseby whowill briefly cover the company's overall financial position.

Mike Huseby

Thank you, Hank. With respect to leverage and liquidity, thecompany's consolidated cash position at the end of the third quarter was $808million and net debt was $10.5 billion. At September 30, CSC Holdings $1billion revolving credit facility was undrawn except for $56 million restrictedfor outstanding letters of credit. As of September 30, the company'sconsolidated leverage ratio was 5.1 times. The CSC Holdings restricted groupleverage ratio was 4.9 times.

At Rainbow National Services, on August 31 we exercised our35% clawback rights and redeemed $175 million of the RNS 10 3/8% seniorsubordinated notes. At September 30, RNS had approximately $1.1 billion of debtand its full $300 million revolving credit facility was undrawn. The ratiounder the RNS bond leverage test as of September 30 was 3.5 times.

During the nine months ended September 30, the companygenerated free cash flow of approximately $74 million compared to a deficit of$10.9 million in the same period a year ago. For the third quarter, free cashflow was a deficit of $20.7 million, principally due to the relatively highlevel of capital expenditures falling into the third quarter of the year asnoted by Tom, and the impact of increased working capital requirements in thequarter.

Total company capital expenditures for the nine months were$554.4 million and compared to $700 million for the same period of 2006, which wasa decline of 21%. This decrease was principally due to about $100 million inlower CPE spending for the nine months and the investment we made in early 2006to enhance our Optimum Online and BOOST offerings.

Operator, we would now like to open the call for questions.

Question-and-AnswerSession

Operator

Your first question comes from Craig Moffett - SanfordBernstein.

Craig Moffett - Sanford C. Bernstein

Tom, I wonder if you could talk a little bit more about thecapital intensity trends that you are seeing. Exactly what is it that isdriving the big reduction from last year? You said it is clearly a lot of it iscustomer premise equipment. Is that a reduction in capitalized labor? Is that areduction in unit set-top box cost?

Given the reduction in capital intensity that you are seeingnow and looking forward, a question for Jimmy is what do you do with the cashat this point? Do you consider a dividend, do you consider special dividends,and how do you prioritize the options?

Tom Rutledge

Craig, the biggest single driver in the reduction of capitalintensity is the fact that our digital penetration is so high; that our need tobuy additional set-top boxes is declining. So we've gone through a process ofessentially digitizing our entire analog base now at 83%. We have a pretty deepdigital penetration per household. So while there is capitalized laborassociated with transactions which also is reduced as transactions are reduced,the bulk of the capital intensity reduction comes from less customer premisesequipment.

The biggest single cost of customer premises equipment isdigital set-top boxes; modems have actually gotten much cheaper and are lesssignificant by a factor of almost 4:1 relative to set-top boxes when it comesto RGU costs. Voice capital on a customer premises basis, almost 13:1 in termsof its reduction in capital cost per RGU gain. So it is a much less capitalintensive business going forward.

Craig Moffett - Sanford C. Bernstein

How long do you thinkthat capital intensity can eventually get to, Tom?

Tom Rutledge

Well, it all dependson how fast you are growing your RGU base, obviously. But I don't think modemand phone or voice capital costs significantly less going forward. I think mostof the cost reductions are out of it. There is still some capital to be spenton network going forward, particularly in increasing high-speed data speeds. Nowwe have already spent $15 a passing in '06 to take us up to 30 megabit speeds. Similarkinds of investments may be required in the future, but from a CPE perspectiveI don't think we will get much in reduction going forward.

Jim Dolan

As far as the use of free cash flow, it is a competitionbetween reduction of debt, reinvestment into the company, growth opportunities.We all look to see what we think will provide the greatest enhancement toshareholder value.

Operator

Your next question comes from James Ratcliffe - Lehman Brothers.

James Ratcliffe -Lehman Brothers

Jim, could you give us from a high level your thoughts on themerits of combining distribution and content in a single company? Particularlynow that News Corp is divesting its stake in DIRECTV and there is a lot of talkthat Time Warner might divest its stake in Time Warner Cable?

Secondly for Tom, for customers who are ending their firstpromotional year on the triple play bundle, what sort of ARPU changes are youseeing for them? Are you getting them to step up to higher ARPUs or are theystaying about where they are? Thank you.

Tom Rutledge

On the step up of revenues after the first year, nothing haschanged in regard to that. We have promotional pricing during the first yearand the step up is approximately $25. At the end of that period the churn ofcustomers stepping up in the triple play product is lower than churn in generalso that continues to be successful marketing tactic which we've been doing foryears.

Jim Dolan

As far as having bothprogramming and distribution in the same company, I think there are still quitea few companies out there that have programming distribution together. Thiscompany has had those two aspects of the business almost since its inception. We'vealways seen that the programming business is enhanced by having a connection tothe distribution business. (1) to incubate new services, and (2) just to stayclose to the customer environment to understand the environment that thecustomer is watching programming in. I think that has helped the Rainbowprogramming services and we think that they will continue to do so.

Operator

Your next question comes from Rich Greenfield - PaliCapital.

Rich Greenfield - Pali Research

You are at about three times, maybe more than three timesthe level of triple play penetration than your peers. When you look at thecompetitive impact, the subs that you're losing to Verizon, how many come from tripleplay homes? Is it a really small percentage versus your unbundled triple playsubscribers?

In the last proxy statement it discussed something like $150million of CapEx this year at Madison Square Gardenand a few hundred million dollars of negative working capital. I just wanted toget a sense of whether that was still in your budget and what that related toor whether that actually has changed in your mind as we look out over the lastquarter of the year? Thanks.

Tom Rutledge

Let me address thecompetitive position. Obviously we've been at the triple play for a number ofyears now. With a strategy of improving the value proposition for our consumersso that in a more competitive world we would be a more successful company. We'vebeen facing wireline competition for three years now, construction started in'04. If you look at where we've gone from the end of '04 till now, we've added159,000 video customers, 867,000 data customers and 1.2 million voicecustomers. Now almost half of our customer base is triple play.

During that period of time, our wireline competitors havebeen under construction and seeking a national franchising regime whichactually slowed down their ability to get franchises. So when you look atactivated video passings of our competitor, of the 890,000 passings that ourcompetitor is selling against us in, 800,000 of them have come on in the last12 months. So the greenfieldterritory, a different use of the word, that they've had to sell this year isgreater than it will ever be and ever was because of their construction pace.

During the last year we've gained 11,000 customers. Thereason we've been able to hold our own against that competitive thrust isbecause of the triple play and the fact that triple play customers disconnect,even in a competitive environment, at much lower rates.

Jim Dolan

With respect to thesecond question, Rich, on the proxy, we are not going to address anything thatwas in the proxy as we mentioned. As it relates to MSG's capital requirementsin general, the significant ones if any, will be determined by their decisionon either the renovation or the move of Farley, and that has beenwell-publicized and discussed in prior calls and that is still underconsideration as to which alternative will happen.

In terms of significant working capital, I will only addressthat simply because I referred to it earlier in my comments when I talked aboutthird quarter free cash flow, we did have some significant uses of workingcapital in the third quarter. For examples team personnel charges that Jimreferred to, are run through AOCF in one year and paid in another year and someof those came due in the third quarter for 2006. Personnel charges at theGarden.

We had some performance awards divest that people earnedover a seven-year period, and those were paid in the third quarter. So workingcapital is going to vary depending upon what happens in the business, but alsoon differences between the accruals that take place over many years and whenthe payments are made.

So I'm not commenting on the proxy, but as it relates to thethird quarter those are some examples of what happened this third quarter interms of the free cash flow. That is one of the reasons we don't forecast freecash flow.

Rich Greenfield - Pali Research

Is there anything inthe Beacon Theatre in terms of capital spending or anything within the MSGsegment in terms of project CapEx that you are still working on or might beworking on other than the major rebuild of the Garden which is several yearsaway?

Jim Dolan

Nothing more that weare willing to discuss at this point. Can we go to the next question?

Operator

Your next question comes from Jason Bazinet - Citigroup.

Jason Bazinet - Citigroup

Could you just give us an update on what portion of yourfootprint is passed by Verizon's fiber? Secondly, how much of that is actuallyselling the video product today?

Tom Rutledge

Yes, Jason. We've already said that. They passed 1.1 millionpassings. They are selling for video 890,000 passings. And of that 890,000passings 800,000 of them became available for sale in the last 12 months, dueto the delayed franchising process that they created for themselves throughtheir national policy, which they failed at.

Operator

Your next question comes from Doug Mitchelson - DeutscheBank.

Doug Mitchelson - Deutsche Bank

Jim, you've obviously shown pretty firmly your belief thatCablevision is worth a lot more than where it is currently trading, and so Iguess I am curious why one of your uses of capital might not be to do the sharerepurchase program? Even just give yourself the flexibility to buy stock whenyou do think it is attractive, sort of a rolling LBO concept is one way tothink about it.

Tom, you've been marketing small-medium business enterprisenow for five months or so. Can you walk us through how that business istracking and what contribution it might have to revenue and EBITDA growth nextyear? Thanks.

Jim Dolan

I think I will gofirst on this one. I'm not quite sure whether that was a suggestion or aquestion, but the share repurchase is certainly within the scope of returningvalue to shareholders.

Tom Rutledge

With regard to your question on enterprise, we haven't givenguidance for next year on how we think that will do, nor have we broken thatout. But we have sized the marketplace for you in previous discussions andthere are about 650,000 businesses inside of our serviceable footprint. Theyspend approximately, before we started marketing our services, about $5.8billion a year to the incumbent telephone companies. We think that is a bigopportunity for us. We are aggressively marketing against it.

This year is the first year that we have ubiquitouslyoffered business class services across our footprint. We continue to expand ourproduct offering. We are now up to 12 lines on the small business universe. Wehave a full Ethernet product for large enterprises. And we are happy with ourperformance in the marketplace, but we haven't broken it out.

Doug Mitchelson - Deutsche Bank

Can you at least tellus if the execution has gone as expected and what the major hurdles are togrowing that business as rapidly as you would like?

Tom Rutledge

Yes, it is morecomplicated than the residential business. There are more variations incustomers, therefore there are more variations in hardware. The revenueopportunities are obviously bigger per customer. There is a different sellingproposition. So we had to build an infrastructure to make it go, and we arevery satisfied with our performance and we are on our plan.

Operator

Your next question comes from Ingrid Chung - Goldman Sachs.

Ingrid Chung - Goldman Sachs

I was wondering if Tom could comment on the year-over-yearuptick in churn? Was this mainly from lower ARPU, unbundled customers? I thinkyou had commented before that people coming off the initial promo offeractually have lower churn. So if you could just comment on that, please.

Tom Rutledge

Churn is up, and there are two elements of it. When we you lookat our marketplace we have new wireline competition and when an activationoccurs the wireline competitor gets some customers, single-digit. As I saidbefore, obviously this year there is more of that than any prior year andprobably any subsequent year, just because of the nature of the way theactivations occurred and the approval process occurred. So that has an impact.

That was actually planned for by us in our thinking and inour guidance this year. It has gone in pretty much exactly as we expected itto. The difference this year over what we experienced in prior years has beennon-paid churn is up slightly and that is primarily in lower incomeneighborhoods. We think it is a macroeconomic effect.

We started noticing it in September of last year, and itdoesn't appear to be getting any worse after 12 months. So it seems to haveflattened out. But there was a definite change in churn outside of the wirelinecompetitive areas that has had a significant impact on our performance relativeto last year where there is no wireline competitor.

Ingrid Chung - Goldman Sachs

So that competitionis mainly coming from satellite?

Tom Rutledge

No, it is not.Actually I think satellite is losing share in our footprint.

Operator

Your next question comes from Benjamin Swinburne - MorganStanley.

BenjaminSwinburne - Morgan Stanley

There have been some press reports on a rate increase in thebasic tier next year which I think would be the first one in a couple of years.I am just wondering if you could talk about the strategy there as Verizon isclearly adding footprint? I think they've got some pretty aggressive offers inthe marketplace today.

Second, along those same lines I think they put out arelease that they are going to take their HD lineup to 100 channels plus. Canyou give us an update on your use of switch to digital, where you are on thatin the footprint right now and where that takes your HD lineup over the nextsay 12 to 18 months?

Tom Rutledge

Yes, well, withregard to pricing we have been very moderate in our pricing over the last threeyears. We've been almost all of our growth and all of our revenue growth hasbeen due to additional RGU growth. We did announce a rate increase a littleover 4% for next year. Our prices are currently lower than Verizon's. They willcontinue to be lower than Verizon's absent a change on their part. They raisedtheir rates over 7% last year in the face of the competitive environment, andobviously programming costs on the video side continued to impact the coststructure of the whole industry.

We have lower prices than our competitor, and we willcontinue to have lower prices and so we are comfortable with our rate structurein the competitive environment.

We now have approximately 70 channels being carried in theswitch digital format, almost all of that is ethnic programming. We just testedand proved out to ourselves that HD switch video works. We are prepared tolaunch additional HD channels as they become available to us. We currentlycarry more regional HD than any of our competitors, and we have more HD and OnDemand HD that our competitors can't replicate.

We think we can carry using switch digital and othertechnological changes in our infrastructure, like for instance in New York City we went all digital, and we have morespectrum unused than we are currently using. We think that we have the capacityto carry as many HD channels as can be launched.

Operator

Your next question comes from Jeff Wlodarczak - Wachovia.

Jeff Wlodarczak - Wachovia Capital

Is there any indication that Verizon is slowing down FiOSpassings within your footprint? Where do you all predict they are going toreach by 2010? Can you talk about your FiOS win back efforts and how successfulyou have been? Thanks.

Tom Rutledge

Well, I am not goingto talk about 2010; but we told you in these calls what their passings countis, and if you go back and do the analysis of what we've said, you can see thattheir construction pace has slowed. With regard to win backs, we find that wecan win back customers, and we find that proportionally relative to how we doagainst satellite we do as well against Verizon.

Operator

Your final question comes from Jessica Reif-Cohen - MerrillLynch.

Jessica Reif-Cohen - Merrill Lynch

On the CapEx, Tom, I am just curious about the CPE it was up$5 million year over year but your RGUs were down quite a bit, net adds weredown. So is it just the cost of the HD DVR boxes, and what is that cost?

Could you talk broadly about your wireless strategy, whatplans if any you have and would you prefer to partner with other cableoperators or go it alone?

Tom Rutledge

Fourth quarter, a lot of HD sets are sold so there is alittle bit of CapEx in the third quarter that is anticipated for fourth quarteractivity, which is disproportionately high. DVR capital is also included in theCPE CapEx. DVRs are not counted as RGUsfor historic reasons ,even though they are revenue generating. That capital isin there; and we don't report our DVR penetration or revenues.

JessicaReif-Cohen - Merrill Lynch

How much does an HD DVR box cost now?

Tom Rutledge

I will have to getback to you on that. I can't answer that anymore. I don't know exactly; I know what it used tobe and I haven't checked it in a while.

Jim Dolan

Jessica, we continueto keep our eye on the wireless business. The cellular business is quitecrowded, and it really is somewhat of a commoditized product although it doesseem to be like there is an unending market demand for it. We are taking a lookat other technologies, such as WiFi and looking at its application. But we arenot really ready to commit ourselves at this point.

JessicaReif-Cohen - Merrill Lynch

How important is itfor you to have a mobile service for your customers? For data, voice or video?

John Bickham

I think data much like you saw us do with the voice over IPstuff I think it is important to have a data infrastructure and then you canlayer reasonable cost VoIP on top of it. It is the smart thing to do in acommodity business.

Tom Rutledge

We actually have installed some WiFi in some communities,which we have begun announcing, relatively small, customers who alreadysubscribe to our wireline services can get WiFi throughout their communities.

Pat Armstrong

Thank you for joining us this morning. This conference callwill be available on Cablevision's website and on StreetEvents.com throughNovember 15th. Have a good day.

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