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Insight Takes a Hit From Satellite Rivals

The cable operator says DBS outfits made hay of an ill-timed rate increase.

Insight Communicationsundefined missed Wall Street expectations and nudged cash flow guidance lower for the year.

The cable operator primarily blamed one-time difficulties related to its business of offering telephone service over cable, but also alluded to aggressive marketing by direct broadcast satellite competitors in one of its largest markets.

Insight's results -- which follow positive quarterly reports from fellow operators






, as well as mixed results from rebounding

Charter Communications


-- calls attention to the small margin of error cable operators have as they seek to reap revenue from advanced services.

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As Insight President Kim Kelly indicated on a conference call with analysts Friday, bundling advanced services such as telephony and high-speed Internet connections with basic cable is a key element of the cable industry's strategy for reaping money from its billion-dollar system upgrades.

One pitfall of that strategy, which Insight wasn't able to avoid this past quarter, is that if one element of that bundle encounters difficulties, it has a ripple effect on the financial performance of related services.

On Friday, Insight's shares fell 74 cents, or 5%, to $12.88.


For the second quarter ended June 30, Insight's revenue amounted to $223 million, up 11% over the second quarter of 2002 and on target with the Thomson First Call analyst consensus of $224 million.

Of greater disappointment to Wall Street was Insight's operating cash flow, or operating income less depreciation and amortization. OCF grew 6% to $94.5 million, below estimates such as $96.3 million at Credit Suisse First Boston and $100.8 million at Guzman & Co.

Though, as other operators have said in days previous, the second quarter is a seasonally week one -- especially in college towns, which Insight says amount to half of its service area -- subscriber numbers for the quarter missed already diminished expectations for basic video, digital video and high speed data.

Guzman analyst David Joyce, noting that Insight is guiding OCF guidance for the year to the low end of a previous range of growth between 11.5% and 13.5%, said his price target of $23 for the company was under review. Guzman doesn't have a banking relationship with Insight.

Changing of the Guard

The basic problem, said Insight executives, was a slowdown in telephony marketing in the second quarter due to a changeover in its telephony partner from



to Comcast.

That changeover, said Kelly, caused delays in doing installations and delays in marketing efforts in the 30% of the company's markets where it offers telephone service.

The telephony problem exacerbated a separate problem in the Insight market of Louisville, Ky., said Kelly. That's because the company raised Louisville's basic cable rates in line with rates elsewhere in its systems. And that June/July rate increase came as the Federal Communications Commission released a report about rising cable rates. DBS companies zeroed in on Insight's rate increases in their marketing, said Kelly. "Our ability to react, given where we are with telephone, was somewhat limited," she said.