BY MAVIS SCANLON If you want to see how the flag has moved in the continuing tug-of-war between cable and satellite, look no further than Mediacom Communications’ second-quarter results. Shares of Mediacom tumbled last Wednesday after the company announced steeper-than-expected basic video subscriber losses and cut its growth forecasts for the year, leading investors to question whether price discounting — or smaller annual cable rate increases — should be built into the equation when evaluating a cable company’s prospects. The availability of local broadcast channels via satellite in areas served by Mediacom grew to 34% from 15% last year, and Mediacom expects that figure to jump to over 60% by year-end. Mediacom instituted a rate increase in February, coinciding with EchoStar Communications’ launch of “local-into-local” service in markets such as Des Moines (Mediacom’s largest market), Cedar Rapids, Iowa, and Huntsville, Ala. EchoStar plans to launch local-into-local in dozens more small markets this year, including Mobile, Ala., another big Mediacom market. Promotions by local satellite dealers grew increasingly aggressive throughout June and July, Mediacom said, taking executives by surprise and leading to an unexpectedly large loss of 24,000 basic customers, about 10,000 more than analysts expected. As a result, Mediacom is being squeezed: fewer customers equals lower revenue, and the company is spending more to acquire and retain customers. Mediacom expects its base to decline 2% this year, a wider loss than its previous range of break-even to a 1% decline. The MSO cut its revenue forecast from a range of 10% to 11% growth to a range of 8.5% to 9.5% growth. Cash flow is now expected to grow at a much slower rate as well, and margins are eroding. Analysts question how quickly margins can recover, and how much the company will have to spend to fend off satellite competition. “Things got so much worse it seems so quickly,” says Richard Greenfield, an analyst at independent research firm Fulcrum Global Partners, who cut his investment rating on Mediacom to a sell on Thursday. “DBS has obviously had more of an impact” than they expected, he adds. The question now is “how much are they going to have to spend to keep their subscriber base?” After plummeting 14%, or $1.24, on the news Wednesday, to $8.85, shares of Mediacom continued drifting down, and closed at $6.86 Friday. While Mediacom has some specific competitive issues, second-quarter earnings results underscore the trend of cable’s continuing weakness in basic video subscriber growth, which is more prevalent in — but not solely confined to — smaller rural areas. Cox Communications reduced its forecast for subscriber growth for the year, albeit fractionally. Even Comcast, which reversed subscriber losses at the systems it acquired from AT&T Broadband, lost over 20,000 subscribers in its legacy systems, a steeper drop than the same period last year, in what is typically a seasonally weak quarter for growth. Both Cox and Comcast expect customer growth to accelerate in the second half of the year. On a conference call last week, Mediacom CEO Rocco Commisso said the long-term solution to the competitive situation is bundling, a strategy that Cox has used successfully. Mediacom has been testing cable telephony over the past six months and has analyzed the telephony deployments of Time Warner Cable and Cox. Commisso believes that for a small incremental investment, launching telephone services will provide a “significant” return on investment. “The triple play makes a lot more sense,” said Commisso. “We’re in the perfect situation to be able to implement our telephony strategy over the next 12 months.” In the short term, however, Mediacom has had to resort to discounting and promotions, which compress margins and reduce average revenue per subscriber. The company is also looking at smaller rate increases.

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Nonprofit local broadcast TV streaming service Locast launched in Indianapolis, delivering 42 channels. The streamer is now available in 24 markets. Locast is currently involved in a legal fight with

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