Cable's Growth Worries Take a New Twist

Whether these new households add economic value is also hard to judge. Using average figures for construction costs, penetration rates and customer valuations, Bazinet says passing new homes does translate into incremental value for shareholders. But he tempers that conclusion with a caveat. Because it's likely that many of the households being passed by cable already are DBS subscribers, Bazinet suggests it's a stretch to assume that cable will enjoy the same acceptance rates it has in areas where cable is the incumbent, not satellite.

Making a less-precise argument, the short-seller says he believes the cash-flow return on system expansion is lower than the corresponding cost of capital.

To be sure, cable operators acknowledge that the basic cable business isn't what it used to be. But rather than focus on the weak basic business, they say investors should focus on successes with high-end, high-margin offerings, like the high-speed Internet service that Cox crowed about in its quarterly results released earlier this week.

The short-seller, citing the higher churn rates of more advanced services, isn't swayed. Pointing to Cox and Comcast, he says that even the best-operated cable businesses "still can't fight the inexorable tide of satellite."

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