Cablevision Q4 2005 Earnings Conference Call Transcript (CVC)

| About: Cablevision Systems (CVC)

Monday, February 27 2006

Executives

Jim Dolan - 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

Wilt Hildenbrand - EVP Engineering and Technology

Bret Richter - Senior Vice President Financial Strategy and Development

Analysts

Jason Bazinet - Citigroup

Douglas Shapiro - Banc of America

Jessica Reif Cohen - Merrill Lynch

Craig Moffett - Sanford Bernstein

Aryeh Bourkoff - UBS

Tom Eagan - Oppenheimer & Co.

Kathy Styponias - Prudential

Richard Greenfield - Fulcrum Global

Tuna Amobi - Standard & Poor's

Operator

Good morning, ladies and gentlemen. My name is Brianna and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Cablevision fourth quarter earnings conference call. (Operator instructions) It is my pleasure to turn the floor over to your host, Bret Richter, Senior Vice President Financial Strategy and Development. Sir, you may began your conference.

Bret Richter

Thank you, Brianna. Good morning and welcome to Cablevision Systems Corporation's fourth quarter and full year 2005 earnings conference call. Joining us this morning are members of the Cablevision executive team, including: Jim Dolan, our President and CEO; Hank Ratner, our Vice Chairman; Tom Rutledge, our Chief Operating Officer; Mike Huseby, Chief Financial Officer; Josh Sapan, President and CEO of Rainbow Media; John Bickham, President of Cable and Communications; and Wilt Hildenbrand, EVP Engineering and Technology.

Following the discussion of the Company's fourth quarter and full year 2005 results, we will open the call for questions. If you do not have a copy of today's earnings release, you may obtain one from our website at Cablevision.com. This call can also be accessed via our website.

Please take note of the following: this discussion of Cablevision's results and any discussion of the Company's 2006 outlook may contain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that any such forward-looking 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 forward-looking statements that may be discussed during this call. Let me point out that on page 7 of today's earnings release, we provide consolidated operations data and a reconciliation of adjusted operating cash flow (AOCF) to operating income. I would now like to introduce Jim Dolan, President and CEO of Cablevision.

Jim Dolan

Good morning. I am pleased to share with you today our results for the fourth quarter and full year 2005. 2005 was a strong year for Cablevision. Our cable operations continued to lead the industry in numerous operating metrics. We delivered our seventh consecutive quarter of basic subscriber growth, achieved record RGU growth with over 1.3 million new additions, and more than doubled our Optimum Voice customers to over 730,000. Our ability to continue increasing the market penetration of all our services provides further evidence of the strength of our telecommunications services, competitive position and the outstanding execution by our team.

For the full year 2005, Cablevision exceeded $5 billion in revenue for the first time in our history. Consolidated revenue for the full year grew 9% to $5.2 billion and 2005 AOCF increased over 13% to $1.6 billion.

The 2005 AOCF growth rate was impacted by two significant items in 2004:

    (1) The impairment charges in the fourth quarter related to the Voom HD networks; and,
    (2) The impact on MSG of the Mets' contract termination in the second quarter.

Excluding the net impact of these 2004 items, the full year AOCF growth rate would have been approximately 16%.

For the fourth quarter, consolidated revenue grew more than 12% to just under $1.5 billion and AOCF increased 49% to $480 million. The AOCF growth rate for the quarter was impacted by the impairment charges noted earlier. Excluding those charges, the 2005 fourth quarter AOCF would have increased 21% as compared to 2004.

As we begin 2006, we are pleased with the performance of Cablevision's core business, our competitive position and our prospects for continued growth. Before we move on to telecommunications, let me touch briefly on a recent announcement. On January 31st, the Company disclosed in an 8-K that the board of directors is expected to begin reconsideration of a possible special dividend at its regularly scheduled meeting in March. The filing also stated that there could be no assurance that the board will decide to move forward with the special dividend, or as to the size or timing of any dividend. Please note that we will have no further comment related to this matter at this time.

Now I would like to turn the call over to Tom Rutledge, who will discuss the results of our telecommunications segment.

Tom Rutledge

Thank you, Jim and good morning. Our core cable television business continued to produce excellent results for the fourth quarter and full year 2005. During the fourth quarter, we added more than 360,000 revenue generating units (RGU) and for the full year, we added over 1.3 million RGUs. Our continued RGU growth, and the resulting growth in average revenue per subscriber, contributed to cable television revenue growth of approximately 16% and AOCF growth approaching 17% for the quarter.

Our average revenue per subscriber (RPS) reached a milestone of over $100 for the first time. Fourth quarter RPS was $100.46, an increase of $3.77 versus the third quarter and an increase of $12.13, or 14%, as compared to the prior year period. This was our 11th consecutive quarter of year-over-year, double-digit percentage RPS growth.

The $3.77 quarterly increase was primarily driven by RGU growth, as our Triple Play strategy continued to produce solid results. As of December 31, 2005 nearly 256,000 customers had taken our Triple Play offer. We continue to see positive effects of both our Double and Triple Play offers in our sales results and improving customer churn.

Cable television capital spending totaled $190 million for the fourth quarter. Consumer premises equipment accounted for the majority of the capital expenditures, followed by scalable infrastructure and support capital. This continued investment in infrastructure is to improve our product and strengthen our competitive position. The increase in scalable infrastructure expenditures for the quarter was primarily due to the increase in speed of our high speed data service to 15 MB and the rollout of our 30 MB Optimum Boost service.

Now let me touch briefly on the results and accomplishments of each of our services. The fourth quarter is our seventh consecutive quarter of basic subscriber gain, as we added nearly 18,000 basic video subscribers. For the full year 2005, we gained nearly 64,000 basic video subscribers representing a growth rate of 2.2%.

Our digital video service, IO, added just over 119,000 customers for the quarter. These net adds increased our digital penetration rate by 3.5 points sequentially, resulting in an industry-leading 65% penetration of digital video subscribers. Digital adds continued to grow notably as we surpassed 2 million digital video customers at the end January.

Our high definition video subscribers continued to grow as well. At the end of the fourth quarter, we had more than 325,000 high-definition customers, up 26% from September and 136% from Q4 in 2004. We currently offer 18 high definition services, the highest in the cable industry, at no additional cost to our digital cable customers.

Optimum Online, our high speed data service, recorded a net gain of nearly 94,000 customers in the quarter. The penetration of homes passed at the end of December was 38% and now more than half our video customers are also OOL high speed access customers.

Despite the noise in the marketplace about new competitive offerings and discounted DSL offerings, our high speed data momentum continues to be strong as we grew 7.4 points of penetration in Q4 2004 and 2 points of penetration from Q3 2005. We believe that we can continue to drive penetration rates and roll out product enhancements such as Optimum Online Boost, which was launched in Q4 2005. We have already rolled out Optimum Online Boost on Long Island and more recently in Connecticut and we are on track with our plans for full deployment across our entire service area by the middle of this year.

Our Optimum Voice service continued its strong performance, passing the 730,000 customer mark in the fourth quarter with net additions of 130,000. More than 40% of our Optimum Online high speed data customers now take Optimum Voice as well.

Lastly, we are pleased that Optimum Online and Optimum Voice were named the nation's top high speed Internet and VoIP services in PC Magazine's reader satisfaction survey. This was the second year in a row that Optimum Online received this distinction. It was the first year PC Magazine had conducted this survey of VoIP providers.

In addition to continuing to focus on the growth and quality of our consumer services in 2006, we have also begun to focus resources upon expanding our data and voice services to small and medium-size business customers in our footprint.

Optimum Lightpath continues to market to larger businesses with a focus on offering Ethernet data services. Optimum Lightpath's target market is medium to large-size business customers who seek increased bandwidth capabilities and reliability at lower cost. Optimum Lightpath recorded $51 million of revenue for the quarter, up 15% from the prior year period. AOCF grew 16% to $17 million. These increases are primarily due to growth in Ethernet data revenue, as well as growth in traditional data services. The growth in AOCF reflects both the growth in revenue and impact of certain settlement agreements in the quarter.

We recently experienced a number of key business customer acquisitions and expect these efforts to become easier to repeat. We also expect Optimum Lightpath to become an increasingly important part of our telecommunications segment as we continue to drive customer and product penetration.

Looking ahead, we expect our solid performance to continue in 2006. Our outlook for cable television is as follows:

  • basic video subscriber growth of 2% to 2.5%;
  • revenue generating unit net additions of 1 to 1.25 million;
  • total revenue and AOCF percentage growth rate in the mid-teens; and
  • capital expenditures of approximately $650 million to $700 million.

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

Josh Sapan

Thank you, Tom. For the fourth quarter, revenue at our national programming networks -- AMC, ISC, and WE, Women's Entertainment -- increased 4% to $143 million and AOCF for the quarter was $66 million, up 20% as compared to the prior year.

The results reflect a 19% increase in quarterly advertising revenue, offset in part by lower affiliate revenue. The increased advertising revenue is a result of higher overall prime time CPMs and increased direct response advertising at AMC and WE, Women's Entertainment.

For the full year 2005, AMC, IFC and WE revenue increased 7% to $557 million and AOCF for the three networks rose 6% to $248 million. For the full year 2005, there was advertising revenue growth of approximately 22%, a 6% increase in AMC's prime time rating to 1.9 and increases in viewing subscribers of 3% for AMC, IFC and WE combined.

Looking ahead to 2006, we are projecting revenue and AOCF percentage growth rates at AMC, IFC, WE in the high single-digit range. The primary drivers are expected to be strong continued growth in ad revenue, resulting from our increased investment in original productions and a continued focus on improving ratings.

Turning to Rainbow's other programming businesses, which primarily include our Fox Sports Network, Regional Sports Networks, Fuse, our music-based service, News 12, IFC Entertainment and VOOM HD Networks, and our VOD services, Mag Rack and Sportskool. For those other programming businesses as compared to the prior year, fourth quarter net revenues declined 19% to $75 million and the AOCF deficit declined from $93 million to $23 million.

The decline in the fourth quarter revenue resulted primarily from lower affiliate revenue at Fox Sports Network Chicago, relating to the loss of certain professional sports content and from certain payments not being received in accordance with an existing affiliation agreement. Revenue was also affected by the closure of two metro channels. These declines were partially offset by increased revenues at Fuse from growth in viewing subscribers and advertising revenue and increased revenues at IFC Films and IFC Productions.

For the year 2005, revenue declined 31% to $297 million and the AOCF deficit improved by 35% to $90 million in Rainbow's other programming businesses. The decline in revenue relates primarily to lower affiliate revenue at Fox Sports Network Chicago and the closure of two metro channels. The improved AOCF deficit, both for the quarter and for the year, was primarily due to the impact of impairment charges offset by the decline in revenue at Fox Sports Network Chicago.

During 2005, Rainbow's other programming businesses made some significant strides. Advertising revenue at Fuse increased 41%, combined Mag Rack and Sportskool subscribers increased over 300% to $17.1 million and IFC Films Trans America, a co-release with the Weinstein Company, has garnered Felicity Huffman a Golden Globe Award and an Academy Award nomination for Best Actress. I'd now like to turn it back over to Jim Dolan, who will discuss the results for Madison Square Garden.

Jim Dolan

Thank you, Josh. I'd like to start by congratulating the nine Rangers players who represented five different countries in this year's Olympics. They represented our organization extremely well and we are looking forward to their return to the Garden for the remainder of the exciting season for the Rangers' franchise. I would particularly like to congratulate Henrik Lundqvist on being the goalie for the Sweden team and winning the gold.

Just to touch upon some highlights for 2005, MSG Networks entered into multi-year carriage agreements with key affiliates. Hockey returned to the Garden in the fourth quarter with the end of the lockout, and more than 6 million people attended more than 1,300 events at the Garden and Radio City.

Turning now to MSG's operating results. Fourth quarter revenue totaled $338 million, up 13% from the prior year period. AOCF for the quarter was $86 million, an increase of 56% from 2004. The increases were primarily due to the return of hockey for the 2005/2006 season, lower net charges for team personnel transactions and lower baseball rights payments expense. The AOCF increase was partially offset by an NBA luxury tax provision for the 2005/2006 season.

For the full year 2005, MSG recorded revenue of $804 million, up 3% and AOCF of $120 million, down 29%. MSG's full year comparison includes the impact of $106 million of receipts and credits related to the Mets transaction and an NBA expansion payment in 2004. Excluding these items, 2005 revenue would have increased 5% and AOCF would have increased 89%. The increase in revenue is primarily due to higher MSG network affiliate revenue, offset by the impact of the NHL lockout. The increase in AOCF is primarily due to the increase in revenue, cost savings and cost savings from the lockout and net team personnel transactions.

I would now like to turn the call over to Mike Huseby, who will briefly cover the Company's overall financial results.

Mike Huseby

Thank you, Jim. Before we discuss the Company's overall financial position, I would like to take a moment to mention that on Friday we entered into new, secured credit facilities that total $2.4 billion at CSC Holdings, which replaced our existing bank facility that was scheduled to mature in June of this year. The new credit facilities provide us with approximately $1 billion of undrawn capacity for general corporate purposes. The terms of the new credit facilities also allow the Company to access up to $3.1 billion of additional funds from an uncommitted incremental secured credit facility.

Now I would like to turn to our financial performance for 2005. The operating performance that Jim, Tom and Josh just summarized translated into the strong AOCF growth that they noted, and the generation of approximately $157 million of free cash flow in 2005. Going forward, the level of consolidated free cash flow will continue to depend on a number of variables, in addition to our operating performance, including:

  • the timing of certain working capital items,
  • the level and timing of capital spending,
  • our actual leverage, and
  • the impact of any future transactions, particularly the outcome of the announced reconsideration of a possible special dividend by our board in March.

Turning to leverage and liquidity. At December 31st, the Company's consolidated leverage ratio, net of cash on hand and collateralized indebtedness, was 4.9X. The CSD Holdings restricted group leverage ratio is at 4X. Currently, Rainbow National Services has no borrowings under its $350 million revolving credit facility, and the ratio under its bond leverage test as of December 31 was 4.8X.

The Company's consolidated cash position as of year end 2005 was approximately $397 million, which was primarily at Madison Square Garden and Rainbow National Services.

Finally, in November, we closed on the sale of the Rainbow One Satellite to Echo Star. The $200 million of cash proceeds from that sale was used to fund certain Rainbow DBS-related shutdown costs, restricted group bank debt and for other general corporate purposes. Operator, we would now like to open the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Jason Bazinet of Citigroup.

Jason Bazinet - Citigroup

Hi, good afternoon. Two quick questions. On the basic sub growth guidance that you guys gave for '06, I was wondering if you could elaborate on what you think the category growth is for Pay TV adoption within your footprint? In other words, are you assuming that you can steal some subs from satellite over the next year? Or, do you think the category growth is in the 2% to 2.5% range?

Second, I was just wondering if you could give us any updated thoughts on the potential relocation of the Garden? Thanks so much.

Tom Rutledge

With regard to the category growth question on basic subscribers, if you look at the guidance by two big satellite companies, it looks like on a national basis that is around 2%. So the implication --whether that's true in New York or not, I don't know exactly -- but that is what their national number is, and you can see our guidance is slightly higher than that.

Jim Dolan

On the Garden, we continue to work and move forward on our renovation plans while we explore all possible alternatives, one of which people have read about is the Farley post office building. At this point in time, we are still exploring all alternatives and again, moving forward with our renovation plan.

Jason Bazinet - Citigroup

Okay. Thank you very much.

Operator

Thank you. Our next question comes from Douglas Shapiro - Banc of America.

Douglas Shapiro - Banc of America

Thank you. A couple things. I know you're not giving specific guidance on each RGU for '06, but should we assume, at least directionally, that the mix is pretty similar in '06 relative to '05?

The second question, I was wondering if you could talk generally about the profitability of VoIP, namely how close you are to -- I think you gave out a 40% to 45% margin target in the past, at some point. I was just wondering, how close are you to that goal?

Tom Rutledge

That was our forecast for the business. We have not changed that forecast and we don't give guidance on that particular item, margin on the voice business. But you can see that our overall margins are the same or slightly improved over last year and that we've added a lot of voice customers. Our average margin is very close to 40% across our whole product range.

With regard to the RGU growth, the mixture I think will, as we increase our digital penetration, skew a little away from that in terms of total RGUs. That is the digital portion of it. We have not broken that out.

Douglas Shapiro - Banc of America

Great, thank you.

Operator

Thank you. Our next question comes from Jessica Reif Cohen from Merrill Lynch.

Jessica Reif Cohen - Merrill Lynch

Thank you. I have a couple of questions also. First on the national networks. Could you comment, Jim, on how strategic these are to you? Do you need to keep them or would you consider selling?

Second, could you comment on what you expect the VOOM HD loss to be in '06?

Finally, could you just review with us your DVR strategy, whether you plan on keeping the programming in your surplus head end? Could you talk about the copyright issues? Or, would you reconsider the strategy in light of DBS becoming much more aggressive in terms of DVR giveaways, pushing DVRs?

Jim Dolan

Okay, I think I will give the last one to Tom. The first one was on how important the networks are to our overall strategy. Was that the first one?

Jessica Reif Cohen - Merrill Lynch

That's one of them.

Jim Dolan

We think that those businesses are important. We think it's important for us to be in the programming business as well as the distribution business. We continue to explore new ways of doing that and we have had a lot of success with networks like IFC, WE and AMC. We have no plans at this time to change that mix, but I would never rule anything out. With regard to the Voom HD loss - we didn't break that out.

Tom Rutledge

With regard to DVRs, Jessica, we are marketing DVRs. We don't break out our results with DVRs, the guidance or reported numbers that we have. We are selling them and marketing them across our footprint. We also are on the verge of beginning our network DVR experiment. We have combined all the elements that we think we need to do a successful experiment to privatize a network-based DVR service and we will be starting that shortly.

With regard to the copyright issues, we think the copyright network DVR is the same as for a physical DVR in a house, where the customer uses the material for their personal use.

Operator

Thank you. Our next question comes from Craig Moffett with Sanford Bernstein.

Craig Moffett - Sanford Bernstein

Yes, good morning. Tom, a couple of questions. First, can you update us on what you're seeing with respect to FiOS in the markets where they have rolled out, America and elsewhere.

Secondly, as I understand it, you're now treating small/medium business inside of the Cablevision business rather than in Lightpath. With the results that you're seeing not broken out separately in Lightpath, can you just tell us what kind of success you're seeing in small/medium business? How big a business could eventually that get for you inside of the telecom unit?

Tom Rutledge

With regard to FiOS, the percentage of our service area that is covered by FiOS activity is about 15% of our passed. The penetration after a year that they have been able to achieve has been about 2% of the homes passed in our service area. The vast majority of that 2% has not come at our expense. It did not come from our customers. It looked like they were conversion from DSL and/or satellite.

There are three small franchises granted, less than 10,000 passing and no discernible activity that we have been able to measure yet., although they have not been in business long. There are three franchises pending in New Jersey and no other active pending franchises anywhere. Nationwide, they have 3 million passing, it looks like around 3,000 customers.

With regard to the small business opportunities. In our service area, in total there is about $5.2 billion of commercial revenue. Currently, almost all of which has gone to incumbent ILEC. Of that, $3.2 billion is small business and $2 billion is large business. Lightpath is going after the $2 billion segment and the cable company is going after the $3.2 billion small business segment.

We have launched a multi-line product to small business. We are ramping that business up. We have had no numbers that we are reported yet, so they are inside of our numbers. I would describe it in the ramp-up phase, but there is a huge opportunity for us. We can serve that business with our existing plant. We can cut the prices dramatically. We can achieve significant market share, like we have in the residential.

Craig Moffett - Sanford Bernstein

Thanks, Tom.

Operator

Thank you. Our next question comes from Aryeh Bourkoff with UBS.

Aryeh Bourkoff - UBS

Thanks, good morning. Just a few quick questions. Given your comments, Tom, on FiOS and the fact that you're really not seeing them around your market; and, given the fact that your guidance for '06 is quite strong and more of the same versus '05 in terms of sub growth, RGUs and cash flow; are you assuming in '06 that you're really not going to see an impact from FiOS? Or, do you think it is really more of an issue for the future versus anything near term?

Secondly, if you look at the basic sub footprint, can you give us a percentage of the basic subs that are now on the Triple Play offering?

Lastly, before you had given us an ARPU number for the bundle. Obviously the offer -- I think is around $90 -- but you've talked about $110 ARPU. Are you seeing the same kind of uplift or any sort of change to that? Thanks.

Tom Rutledge

With regard to our guidance, we have considered satellite and FiOS, the competitive situation. and given our guidance with that in mind. What they will do beyond the guidance period, I don't know. It is really a function of whether they can continue building without getting subscribers and whether they can take away our customer base. One of the things that we're finding is that we have a reduced churn environment as a result of having Triple Play products. In the areas where FiOS' plant has been constructed, we actually have much higher penetration. Over half of our pass areas where there is a FiOS plant have high speed data from us, for instance. Not half our customers, half our pass. So we have very high penetrations in those areas and higher Triple Play product penetration.

It is a situation where they are building a "me too" product at great expense. There is really no reason to leave when you have the value proposition that we provide. I forget the rest of your question.

Aryeh Bourkoff - UBS

The percentage of the subs on the Triple Play and the ARPU on average for the bundle.

Tom Rutledge

Well as you know, the ARPU went over $100. The rate that Triple Play customers are coming on continues to be over $115 on average. They step up to $140 after a year, on average. After 19 months, the average Triple Play customer has a 14.3% more likelihood of remaining a customer than a non-Triple Play customer historically does. All 730,000 reported Optimum Voice customers -- almost all of them -- are Triple Play but actually on the offer, I believe there are about 250,000 Triple Play customers.

Aryeh Bourkoff - UBS

And the percent of the basic subs on Triple Play?

Tom Rutledge

Well, divide 700,000 into 25%.

Aryeh Bourkoff - UBS

Okay, thanks.

Operator

Thank you. Our next question comes from Tuna Amobi with Standard & Poor's.

Tuna Amobi - Standard & Poor's

Thank you very much. Good morning. On the national mix, it seems like your guidance implies some kind of continued spending on programming costs, particularly given the easy comparisons in 2005. I was expecting some stronger numbers there. Could you comment on the trends in the scatter or cable scatter market and what you expect to see in terms of affiliate fees that is implied in that guidance?

Separately -- Jim, maybe for you on the wireless strategy -- do you worry that it's taking a little bit longer than necessary to articulate what your wireless strategy is? Particularly given the experience that you had in the digital launch, in which you came off slower than your peers but ramped up pretty quickly. I was looking for some comments on how you anticipate your wireless strategy to evolve. I know you have talked about WiFi hot spots in the past, but just some more color on that would be helpful. Thank you.

Jim Dolan

The cable scatter market is in accord with our expectations. We have increased, and continue to increase, our spending on programming -- we think reasonably -- year-over-year and have, as we mentioned, increased both AMC and WE's prime time ratings, which is what turns into ad revenue.

Tuna Amobi - Standard & Poor's

So what does that mean for affiliate fees outlook for 2006? Do you expect that to decline or to increase commensurate with the mid single-digit or high single-digit outlook?

Tom Rutledge

The rate of our ad revenue growth has been double digits and high double digits year-over-year. We have seen, and expect to see, affiliate rate increases in the roughly low to mid single digits. There has been some moderation on the wholesale rate side of our business.

Tuna Amobi - Standard & Poor's

Thank you.

Jim Dolan

I'm not sure how to answer the wireless strategy. Did you want to give it a shot, Tom?

Tom Rutledge
Sure. This is Tom Rutledge on the wireless strategy. We have a variety of strategies that we are contemplating. We have the ability to opt into a Sprint deal, which other cable operators have entered. We have not yet done that. We are selling wireless hot spot subscription services to the third parties. We are experimenting with various WiFi mesh networks and have deployed some of those in parts of our service area on an experimental basis. We are considering various opportunities that that may present us to build a fourth leg of our product mix.

Tuna Amobi - Standard & Poor's

Are we likely to see some announcement on that front in the first half of '06?

Tom Rutledge

You will be the first to know.

Tuna Amobi - Standard & Poor's

All right, thank you.

Operator

Thank you. Our next question is coming from Tom Eagan with Oppenheimer & Co.

Tom Eagan - Oppenheimer & Co.

You gave 2006 CapEx guidance, spending down from 2005. I wonder if you could talk or give a little bit more detail on, for example, might the CPE spending be up in '06? What new boxes or features you may be rolling out in '06? Is the CSR support level? Is that where you want it to be? Lastly on CapEx, isn't there some plant on the Island that although may be above 550, may have been there for a while and may be due for an upgrade? So that was: CPE spending, new digital box features, CSR where you want it, and is there a plant that may be due for an upgrade? Thanks.

Jim Dolan

I will start with the last question. No, there is no plant upgrade required or contemplated. We have completely rebuilt our plant and created very small node sizes with the opportunity, actually, to go smaller if we want to with a drop-in upgrade. We don't think we will need that in the near term or mid term, if ever.

We have an experiment going on right now in Patterson, New Jersey. It's a switch video, which allows us to capture a lot of bandwidth and use the VOD spectrum essentially to have an infinite amount of channel capacity. So I think the one thing we can say with great assurance is we will not need to do another upgrade of the physical plant.

With regard to boxes, we are continuing to buy Scientific Lab boxes and the mix in those, we have not changed any models we are buying. Although as I said, we are marketing DVRs. So the mix of DVRs to other boxes may change. Also, the high definition box mix continues to be much greater. I think more high definition sets were sold last year than standard definition sets. So you have that as well, although it is not a different product line for us, just a mix change.

With regard to customer service representatives, we continue to scale customer service personnel. We are hiring lots of people as our subscriber growth increases. I don't think the ratio of employee to subscribers, including the RGU effect and the growth effect, is going to move negatively. In fact, I think it's more likely to move in a positive direction. As we do more and more Triple Play connects, the total amount of connects per dollar of revenue actually goes down even more.

Bret Richter

Brianna, I think we have time for two more.

Operator

Thank you. Our next question comes from Kathy Styponias from Prudential.

Kathy Styponias - Prudential

Hi, thanks. A question for you, Josh. Can you talk a little bit about the VOOM HD channels? In particular, how many subs do you currently have? Who is carrying them besides Echo Star? In particular, is Cablevision carrying them? What is the net cash requirement? What do they generate in terms of losses in '05 and what do you expect them to do in '06? When do you expect to be breakeven? Thanks.

Josh Sapan

Echo Star is our charter affiliate and partner, as we have previously disclosed, in our VOOM HD offering. In early February, just about a month ago, they began to aggressively roll out and sell their new MPEG for HD offering, of which VOOM is a component. So we are less than 30 days into that experience. That is pretty much the summary of our experience with Echo Star. It is really occurring right now in its early stages. We are having discussions with other distributors across the country about their interest in carrying VOOM and we will pursue them through the year.

We did not detail the individual VOOM expenses. We have disclosed information earlier on our relationship with Echo Star, and there is information included in that.

Kathy Styponias - Prudential

Thanks.

Bret Richter

Last question.

Operator

Thank you. Our final question is coming from Richard Greenfield.

Richard Greenfield - Fulcrum Global

Hi, a couple of questions. One, could you just talk about churn on the voice product? Last year, you said it was too early to give any sense of that but now that we're several quarters into this, where do we stand now with voice churn?

Mike, you mentioned the fact that the board is still ongoing in terms of its review of a special dividend. Could you just maybe comment -- or maybe this is a question for Jim -- why not look at a tender offer in terms of a share buyback or just an ongoing, larger share buyback program versus simply a dividend? What is the reason behind the focus on a special dividend? Thanks.

Tom Rutledge

Richard, to your question on churn, we don't report churn for voice. I will say this -- the churn trend line for voice is very similar to our experience with high speed data. Our ability to forecast our voice churn is very good because we use our experience with high speed data and the results of that experience as a basis for making our churn forecast. While I can't tell you what our number is, it's favorable and moving in the right direction.

Jim Dolan

Richard, this is Jim. I said before we are not going to comment on it. The board is considering the dividend but there is no guarantee that it will move forward with that or that it won't go in any other direction. So as I said before, we are really not discussing it at this time.

Richard Greenfield - Fulcrum Global

And then if I could just follow up, could you just follow up on Kathy's question of why Cablevision is not yet carrying the VOOM HD networks?

Josh Sapan

Well we are in the process of bandwidth reclamation and we have a variety of bandwidth initiatives going on that, at the moment, make it not easy for us to carry 15 more additional channels of HD, but later this year, we will have that capability. When we do, we will evaluate them in that light.

Richard Greenfield - Fulcrum Global

Thanks a lot.

Bret Richter

We want to thank you all for joining us this morning. A replay of this conference call will be available on Cablevision's website and on streetevents.com through March 6.

Operator

Thank you. This does conclude today's Cablevision conference call. You may now disconnect.

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