For years, investors in cable stocks have accepted that companies have to spend money today to make money tomorrow. But in recent months, it appears, they've grown nervous that tomorrow will never come.

Over the past few months, declining share prices have hit all the major operators of cable TV systems, including

Comcast

(CMCSK)

,

Cox Communications

(COX)

,

Charter Communications

(CHTR) - Get Report

and

Cablevision

(CVC)

. Though some of the decline arises from company-specific issues, a bigger trend is at work: fear that the companies won't be able to reap profits commensurate with the capital expenditures they're plowing into the ground, and the interest they're paying to fund their investments.

These worries, fueled by slowing sign-ups for digital video offerings, steady competition from rival satellite TV services and rising programming costs, have dampened investors' enthusiasm for cable TV stocks. Though the ability of cable operators to generate cash flow from operations is hardly in doubt, what's suddenly troubling investors is delay they're seeing in the debut of

free

cash flow -- the cash, if any, left over, after interest expense and capital expenditures are subtracted from EBITDA, the bottom-line yardstick that the industry often favors.

"The race to free-cash-flow break-even has taken longer than many had expected," acknowledges Ryon Acey, cable analyst with BB&T Capital Markets. Achieving free cash flow, along with cutting debt, are investors' top priorities for cable companies, says Acey, who has hold ratings on the cable operators he follows.

Key Point

Over the next few months, investors will be looking to see whether, in fact, cable operators can stay on schedule for hitting free-cash-flow targets; it seems unlikely that cable stocks will recover unless they can overcome this skepticism.

While the cable industry is in a far healthier state than dot-com media companies were two years ago, cablers face a similar challenge as far as Wall Street is concerned. Dot-com investors, who had lived with immense operating losses because they believed the eventual profits would dwarf the losses, lost confidence that profits would ever arrive. Cable investors for years understood that system operators had to invest billions to upgrade systems -- losses they could live with until they began to worry whether the returns from advanced services would recoup investment in cable plants before operators started upgrading the plants again.

To get a sense of how the free-cash-flow issue is nagging at investors and operators, consider a recent report from Salomon Smith Barney cable analyst Niraj Gupta on the subject of the cable industry's national trade show last week. Noting that investors continue to doubt whether the cable industry's upgrades are winding down, Gupta says that a universal theme of the trade show was that capital expenditures associated with plant upgrades have peaked, and that once fully upgraded in 2003 and 2004, operators don't expect to upgrade again.

Insight Communications'

(ICCI)

CEO Michael Willner, reports Gupta, went so far as to swear there wouldn't be another upgrade.

So when will the free cash start flowing? As the dot-coms were saying way back when, wait till next year. Comcast, which is in the process of getting approvals for its merger with cable systems owned by

AT&T

(T) - Get Report

, actually was free-cash-flow positive in the first quarter of the year, says Gupta. But the merger will set the company back, Comcast told analysts; on a pro forma basis, AT&T Comcast hopes to return to free cash flow in the fourth quarter of 2003. That's when Cox expects to be free-cash-flow positive, says Gupta; Charter, however, will take another year.

Leverage

Despite the delays, Acey says he believes operators will deliver on the promises they've made to achieve free cash flow by the end of 2003 or in the beginning of 2004. "The

cable operator community has heard what investors have to say over concerns over leverage and ... the achievement of free cash flow," he says. "If your stock is down 40% and you don't hear it, then there's something wrong."

Cable operators' projections for capital expenditures in 2003 are coming down in increments of hundreds of millions of dollars from 2002, Acey says. "Once you guide numbers down that materially, you can't go back and tack them back on there and say, 'We were just kidding.' "

Acey says that capital spending numbers aren't coming down forever, though. Starting in 2004, he says, he expects an uptick in capex -- though not to current levels -- as operators invest in telephony over cable. "The question is how much," says Acey, "and I can't tell you that, and neither can anyone else."