Imagine you're raising a 5-year-old boy in a tiny, one-bedroom apartment.

Now imagine that someone just offered to give him a used drum set -- complete with cymbals, bass and snare.

Well, now you've got an idea of what it feels like to be a shareholder in

Cablevision Systems


in the wake of Monday's report that

EchoStar Communications

(DISH) - Get Report

wants to set up Cablevision in the satellite TV business as a ploy to win government approval for EchoStar's merger with

Hughes Electronics



Rather than thank EchoStar for its generosity, Cablevision shareholders panicked that the New York-based Cablevision might actually take EchoStar up on its reported offer. Already down 78% from their 52-week highs, Cablevision shares fell as much as 10% Monday before ending up the day at $9.83, down 4.1%.

At the heart of the plunge is the concern that Cablevision -- headed by Charles Dolan, chairman, and his son James Dolan, president -- will be tempted to stray from its promise to sell assets and cut capital spending in a plan to fund operations through 2003.


In a meeting with analysts this summer, Cablevision outlined moves it said would close a cash shortfall that Wall Street had predicted would force the company to raise capital in the coming year. Among those measures were the sale of its Clearview Cinemas movie chain, a sale or joint venture of a wireless telephone property, and the closure of 60% of stores in Cablevision's electronics retail chain The Wiz.

But after the meeting, one major question remained about a possible future cash drain on Cablevision: the company's plans for its yet-launched direct broadcast satellite service, a service for which Cablevision owns a potentially lucrative slice of the satellite TV radio spectrum. In August, Jim Dolan suggested that Cablevision hadn't decided on a strategic plan for launching DBS, and thus it didn't have a fixed number for DBS capital expenditures in 2003. He did, however, refer to options ranging from $500 million in capex to $2 billion.

It's that nascent DBS business that presumably would dovetail with whatever EchoStar's start-up contribution would be.

EchoStar, which was scheduled to meet with the Justice Department on Monday in an effort to salvage its merger, wouldn't comment on the Cablevision reports. "We have been working very hard with regulatory officials and continue to work with them to propose structural remedies," said an EchoStar statement regarding antitrust concerns about the Hughes merger. "But we will not comment on specifics of any remedies."

A Cablevision spokesman declined to comment.

Of the nation's largest publicly traded cable system operators, Cablevision and

Charter Communications

(CHTR) - Get Report

are the most deeply indebted players. Although the cable industry has borrowed heavily for years to build and upgrade systems, investors have become increasingly skeptical that operators' debt-fueled capex will pay off as free cash flow from operations.

Furthermore, stung by the bankruptcy filing of

Adelphia Communications


and Adelphia's attendant legal mess, investors have welcomed any signs of lessening debt in the industry, such as




comments that it would have less debt after the merger with


(T) - Get Report

AT&T Broadband than originally expected.

Distance and Liquidity

Credit Suisse First Boston analyst Lara Warner articulates the main concern going through Cablevision investors' minds. "Every incremental attempt that Cablevision makes to enter the DBS business distances them further from their public shareholders," she says. Warner has an underperform rating on Cablevision; her firm hasn't done recent banking for the company.

Though Cablevision has an entrepreneurial heritage, newer ventures -- including The Wiz, the movie chain and the company's introduction of advanced digital video services -- "have not exactly been executed well," she says.

One major downside with the reported EchoStar plan, says Warner, is that it gets in the way of Cablevision's need to demonstrate to its shareholders that it can be liquid. Any backpedaling on Cablevision's promises to firm up its finances, says Warner, will continue to hurt investor confidence in the company.

A second problem, says Warner, is that a satellite business would eat into the value of Cablevision's cable operations, since any cable subscriber defections will erode the return on the company's investment into its cable infrastructure.

An asset sale, notes Warner, would be a "wonderful" way for Cablevision to clean up its balance sheet.