Cable Television Cable division operating cash flow was $143.7 million in 2000, up only 2 percent from $140.2 million in 1999. Revenue increased to $358.9 million, up 7 percent from $336.3 million in 1999. Basic cable programming expense continued its steady rise to $66.3 million, up 12 percent in 2000. The other major reason for sluggish growth was the second and third quarter launch of free Cable ONE Digital® to half of Cable ONE’s customer base. Access to 149 new additional digital channels is being offered free for the first 12 months to any basic cable customer who agrees to self-install a digital receiver. The free 12-month offer has a dampening impact on 2000 and 2001 cash flows. However, this offer is a bold, fresh strategy to leap past industry penetration expectations for digital video. The average annual digital video penetration growth of other cable companies has been less than 10 percent, accompanied by high monthly churn. If successful, Cable ONE’s strategy will yield digital penetration of 30 percent or more by the end of 2001 and equally strong digital cash flow growth in 2002 and 2003. The first five systems launched already had reached an average penetration of 12 percent by the end of 2000, just four months after launch. Cable ONE Digital® will be offered to 97 percent of all Cable ONE customers by the end of 2001. Cash flow growth also was hindered by start-up costs for CableONE.net® . This new high-speed cable modem service was launched to 45 percent of Cable ONE’s customer base in the third and fourth quarters. Cable ONE’s approach to high-speed access is different from any other major cable company. The service is operated entirely by Cable ONE without any revenue sharing or operational reliance on a partner such as @Home or RoadRunner. All customers have been asked to buy, self-install, and provision their own modems from day one. These differences will allow Cable ONE to compete more cost effectively. High-speed Cable ONE.net® will be available to 86 percent of all customers by the end of 2001. Capital spending hit an all-time high of $96 million in 2000 to support the large-scale launch of free Cable ONE Digital® and the continuing upgrade of cable systems. Spending will be even higher in 2001 if digital penetration reaches 30 percent as planned. Plant upgrade spending is declining since most system upgrades have been completed. Cable ONE.net® capital spending was modest in 2000 since customers purchased their own modems at retail. However, some spending to subsidize cable modem purchases may be necessary in 2001 due to competitive high-speed offers from telephone-based DSL operators. The division completed a major system trade with AT&T Broadband in March 2001, giving up its three systems in California and Indiana for 70 percent of all cable customers in Idaho. Most of the Idaho customers are located in five systems that are ideally suited for Cable ONE’s focus on large, but non-metropolitan, systems. The Idaho trade, along with 19 other deals completed since 1996, concentrates 75 percent of all Cable ONE’s customers in just five states: Mississippi, Idaho, Texas, Oklahoma, and Arizona. The average system size has grown from 7,000 to 17,000 customers, which is important to the economics of new service roll-outs. The net subscriber gain from the 20 deals is 240,000 customers at an average price of only $1,360, 11.4 times cash flow multiple. Video competition from DBS hindered any internal subscriber growth in 2000 as average basic subscribers were up only slightly to 735,000. The broad launch of Cable ONE Digital® and CableONE.net® in the last few months of 2000 will change the subscriber equation significantly and will help the division hold and expand market share. Cable ONE’s intensive focus on customer satisfaction paid off in 2000 when a J. D. Power and Associates survey of cable and satellite DBS customers showed that Cable ONE had the highest customer satisfaction on the cable side of the industry. Since rebranding the service to Cable ONE in 1997, associates throughout the cable division have trained and worked hard to provide the best cable service in the country.