As the market value of its cable subscribers soared in 1999, so did the cost of the subscribers the division had been happily buying in years past for less than $2,000 per subscriber. As a result, acquisitions slowed to only 10,000 new subscribers last year, which accounted for all the division's growth, from 733,000 at the end of 1998 to 739,000 at the end of 1999. Cable ONE's 72 percent basic penetration makes it the most highly penetrated cable operator of significant size, and unfortunately also limits its opportunity for internal subscriber growth.

Cable ONE has continued its three-year-old intensive focus on customer satisfaction with good results. Based on 1,000 monthly customer surveys, satisfaction remains high and many underlying components of customer satisfaction have risen significantly since the division was rebranded Cable ONE in 1997.

Even though DBS competition intensified in 1999, Cable ONE patiently continued preparations for a 2000 launch of new digital video and high-speed cable modem services. Significant technical, economic, and marketing advantages are being gained by waiting.

Cable One will launch digital video with over 200 channels - including broad pay-per-view sports offerings - using refined fourth generation digital boxes with substantial performance enhancements. By delaying the introduction of cable modems a short while, the service can be launched exclusively with Cable Labs-approved standard DOCSIS modems, which cost much less than earlier proprietary models and avoid significant legacy interoperability issues. Cable modems will be sold at retail rather than leased.

The division does offer traditional dial-up Internet access to 70 percent of its customer base under the brand name CableONE.net, which has allowed it to develop a full set of ISP skills and gain market share prior to the important high-speed cable modem launch. At the end of 1999, CableONE.net served 12,000 dial-up Internet customers and was adding more than 1,000 new Net customers per month.

Aggressive capital spending on rebuilding and headend interconnects accounted for most of the $62.6 million in capital spending in 1999. With 84 percent of the plant upgraded, mostly to 550Mhz, rebuild capital will begin to slow down after 2000.

With the current limited acquisition opportunities mentioned above and significant digital video and cable modem start-up expenses in 2000, cash flow growth in 2000 may slow to single digits, but then resume a healthier pace once the base of new service revenues grows.