Fitch: U.S. Cable Outlook Stable With Telephony and Triple-Play Bundle Success.

CHICAGO -- Fitch believes that the strong subscriber growth and improving operating metrics generally reported by cable multiple system operators (MSO) during 2006 will carry on into 2007. This momentum will lead to stronger positioning of credit profiles within existing rating categories and a Stable Rating Outlook for the industry. From Fitch's view point, 2006 will be characterized by the emergence of the triple play service bundle facilitated by the wide spread launch of digital telephony services using voice over Internet protocol (VoIP) technology. During 2006 Fitch estimates that cable MSOs in aggregate will add nearly 10 million revenue generating units (RGUs), including approximately 2.7 million RGUs during the third quarter of 2006. The RGUs expected to be added in 2006 reflects a 32% increase relative to the RGUs added during 2005.

In Fitch's opinion, the most significant factors driving the RGU growth in 2006 are the cable MSOs ability to scale their cable telephony business coupled with the increasing importance of the triple play service bundle. The triple play offering, from Fitch's viewpoint further diversifies the RGU base, positively impacts the other service offerings, and strengthens the cable MSOs competitive position relative to the direct broadcast satellite (DBS) providers and incumbent local exchange carriers (ILECs), and more specifically, the regional bell operating companies (RBOCs). The influence of the triple play service offering on cable's other service offerings is clearly evident when examining basic subscriber metrics. Due primarily to competitive pressures from DBS providers cable MSOs collectively experienced significant erosion to its basic subscriber base during 2005 and 2004. However, Fitch anticipates that cable MSOs in aggregate will modestly increase basic subscribers during 2006. Additionally, high speed data (HSD) subscriber growth has been spurred by the triple play bundle and the launch of cable telephony service. Fitch believes that the MSOs have been able to maintain a relatively consistent pace of incremental HSD penetration.

Looking forward into 2007, Fitch anticipates that RGU additions will approach 11.5 million collectively. Again during 2007, the triple play bundle and cable telephony is expected to drive RGU performance. In Fitch's opinion RGU growth during 2007 will benefit from the ongoing integration of the former Adelphia cable systems into Time Warner Cable and Comcast Corporation as the Adelphia cable systems are brought up to typical Time Warner Cable and Comcast Corporation operating metrics. Fitch expects that during 2007 all of the largest cable MSOs will complete the telephony service roll out and the related triple play service offering. In total Fitch expects cable telephony subscribers to exceed 10 million subscribers by the end of 2007 reflecting a growth rate over 70% relative to 2006 year-end subscribers. Moreover, Fitch expects that telephony additions will represent over 35% of all RGUs added during 2007. Fitch believes that cable MSOs will again grow the basic subscriber base modestly during 2007. Digital video subscriber growth will continue during 2007, however, Fitch believes that the pace of incremental digital penetration will moderate during the year. Fitch estimates that digital penetration will approach 60% by year-end 2007 reflecting approximately 500 basis points of incremental penetration. Based on the strength of cable telephony, HSD subscriber growth will remain strong with over 4 million net additions during 2007, and Fitch expects that total HSD subscribers will be over 28 million by the end of 2007.

From Fitch's perspective RGU growth reflects the continuing diversification of the MSOs customer and revenue base and sets the foundation for further revenue growth and average revenue per unit ARPU expansion. Fitch expects low double digit overall revenue growth during 2007. Fitch believes that basic ARPU growth will again reach low double digits during 2007 driven by a more meaningful revenue contribution from cable telephony services, continued pricing increases and higher penetration of advanced digital services. From Fitch's perspective the cable MSOs will continue to strike a balance between HSD subscriber growth and ARPU stability. Fitch believes that as penetration of subscribers that take triple play services increases, the level of promotional activity around stand alone products will fall away adding further stability to HSD ARPUs.

Fitch estimates that EBITDA growth will be in the low to mid-teens during 2007 as cable MSOs realize scale benefits to drive operating efficiencies and temper year over year programming cost increases. EBITDA growth will benefit from the integration of the former Adelphia systems into Time Warner Cable and Comcast Corporation. Fitch believes that significant margin improvement opportunities exist within the former Adelphia systems. Fitch expects that capital expenditures will be slightly elevated compared to 2006 capital expenditures, which are expected to be approximately $10 billion, and for the continuation of the shift to more success based capital spending in 2007. Fitch expects that cable MSOs will continue to invest in the cable plant to improve bandwidth efficiency. This issue will become more important as the RBOCs complete their respective fiber deployment strategies. Free cash flow generation is expected to grow modestly during 2007, however, Fitch expects that cable MSOs will continue to utilize free cash flow for shareholder friendly initiatives.

With the acquisition of Adelphia by Time Warner Cable and Comcast completed during 2006, merger and acquisition risk will be low during 2007. Fitch anticipates that cable MSOs will continue to buy and sell cable systems in an effort to improve cable system clustering and maximize operating and cost synergies. Insight Midwest, LP, the partnership between Comcast and Insight Communications Company, Inc. will be dissolved during 2007 further consolidating the industry. Comcast will benefit by transforming a passive investment into a cash flow generating asset.

From a competitive standpoint Fitch continues to believe that cable MSOs and in particular, MSOs with large scale, are in an enviable consumer mass market competitive position relative to the DBS providers and the RBOCs, and are better positioned to maintain market share than the DBS and RBOC competitors. Fitch's perspective is based on the cable MSOs ability capitalize on the ongoing convergence of consumer based telecommunications services. The DBS operators' ability to compete with cable's triple play offering is limited by inadequate infrastructure, which in Fitch's opinion weakens the DBS providers' competitive position and ability to respond to the changing and riskier operating environment. Fitch believes that the services offered by the cable MSOs and telephone companies in residential markets will continue to converge, leaving DBS's market share vulnerable to competition. Relative to the RBOCs, the competitive threat will grow somewhat during 2007 as the RBOCs continue to deploy fiber based telecommunications solutions. However, the cable MSOs will continue to enjoy a first to market advantage during 2007 as the RBOCs fiber deployment will lack wide spread availability to meaningfully compete with the cable MSOs. From Fitch's perspective, the cable MSOs bundling strategy is appropriate and should continue to focus on up - selling subscribers that take analog video service only as a subscriber that takes multiple services is less susceptible to competitive offers.

The individual issuer default ratings assigned to cable MSOs are expected to be relatively stable during 2007. Fitch believes that generally, ratings will become stronger within a given MSO's rating category. The primary risks to individual cable MSO credit profiles include intensifying the level of shareholder friendly initiatives to the point of limiting financial flexibility at a given rating category, a change in the balance achieved between subscriber growth and ARPU due to competitive pressures, and issues surrounding the integration of major system acquisitions. Event risks are primarily related to the Cablevision Systems Corporation (CVC) privatization proposal submitted by controlling shareholders. If the buyout is successful, Fitch may downgrade the IDR for CVC and CSC by at least two notches. The uncertainty surrounding the long term existence of Insight Communications Company, Inc.'s partnership with Comcast presents event, business, and refinancing risk to investors. Insight would emerge from the dissolution of the Insight Midwest partnership as a much smaller MSO operating with approximately 1.2 million RGUs and without the operating cost advantages afforded to Insight through its partnership with Comcast, which could negatively affect ratings.

From a recovery ratings perspective, which applies generally only to speculative-grade issuers, 2007 could experience some variability. Asset values have remained strong due to improved subscriber clustering from acquisition activity, solid operating results, good growth prospects and continued investment in infrastructure and customer premise equipment. However, there has been an increased usage of secured bank debt that is changing the mix of secured to unsecured obligations. It is likely that this trend will continue in 2007 due to the aggressive nature of bank lending and relatively inexpensive cost of this financing.

-- Cablevision Systems Corp. ('B+', Rating Watch Negative)

-- Charter Communications, Inc. ('CCC', Stable Outlook)

-- Comcast Corp. ('BBB+', Stable Outlook)

-- Cox Communications, Inc. ('BBB-', Stable Outlook)

-- DIRECTV Holdings, LLC ('BB', Positive Outlook)

-- Echostar Communications Corp. ('BB-', Stable Outlook)

-- Insight Communications Company, Inc. ('B+', Stable Outlook)

-- Intelsat, Ltd. ('B', Stable Outlook)

-- Mediacom Communications Corp. ('B', Stable Outlook)

-- Rogers Communications, Inc. ('BB', Positive Outlook)

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.