Cablevision 2011 Annual Report Download - page 48

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systems. Programming costs are the most significant part of our operating expenses and are expected to
continue to increase primarily as a result of contractual rate increases and additional service offerings.
Additionally, we currently anticipate an increase in our operating expenses as we make additional
investments designed to enhance our products and services with a focus on retention and acquisition of
subscribers.
In 2011, in our New York metropolitan service area, we began offering a free Optimum App for the iPad,
iPod Touch and iPhone, which allows our cable television customers to experience iO TV digital service
on their device in the home. While most programmers have not objected to the inclusion of their
programming in the in-home application, certain programmers have asserted that the application is a
material breach of their affiliation agreements and a copyright violation yielding statutory damages. The
Company has reached satisfactory resolutions of the issues with certain of these programmers. Other
programmers continue to have concerns, but the Company believes it has a strong legal position.
Our cable television service, which accounted for 54% of our consolidated revenues, net of inter-segment
eliminations, for the year ended December 31, 2011, faces competition from video service provided by
incumbent telephone companies, DBS service providers and others. As discussed in greater detail below,
we face intense competition in our New York metropolitan service area from two incumbent telephone
companies Verizon and AT&T, which offer video programming in addition to their voice and high-speed
Internet access services. To the extent the incumbent telephone companies, who have financial resources
that exceed ours, continue to offer promotional packages at prices lower than ours, our ability to maintain
or increase our existing customers and revenue may continue to be negatively impacted. There are two
major providers of DBS service in the United States, DISH Network and DirecTV, each with significantly
higher numbers of subscribers than we have. We compete in our service areas with these DBS
competitors by "bundling" our service offerings with products that the DBS companies cannot efficiently
provide at this time, such as high-speed data service, voice service and interactive services carried over
the cable distribution plant. Historically, we have made substantial investments in the development of
new and innovative programming options and other service offerings for our customers as a way of
differentiating ourselves from our competitors. We currently anticipate a significant increase in our level
of capital expenditures to enhance our product and service offerings.
Verizon and AT&T offer video programming as well as voice and high-speed Internet access services to
residential customers in our New York metropolitan service area. Verizon has constructed fiber to the
home network plant that passes a significant number of households in our New York metropolitan service
area (while difficult to assess, our estimates indicate that Verizon passes more than 45% of these
households, based on currently available information). Verizon has obtained authority to provide video
service for a majority of these homes passed, on a statewide basis in New Jersey, in numerous local
franchises in New York State, including all of New York City, and in a small portion of Connecticut.
AT&T offers video service in competition with us in most of our Connecticut service area. This
competition impacts our video revenue in these areas and may continue to do so in the future.
Our high-speed data services business, which accounted for 20% of our consolidated revenues, net of
inter-segment eliminations, for the year ended December 31, 2011, faces intense competition from other
providers of high-speed Internet access, including Verizon and AT&T in our New York metropolitan
service area and CenturyLink in our Optimum West service area. Due to our high penetration in our New
York metropolitan service area (54.9% of serviceable passings at December 31, 2011) and the impact of
intense competition, our ability to maintain or increase our existing customers and revenue in the future
may continue to be negatively impacted.
Our VoIP offering, which accounted for 13% of our consolidated revenues, net of inter-segment
eliminations, for the year ended December 31, 2011, faces intense competition from other providers of
voice services, including carriers such as Verizon and AT&T in the New York metropolitan service area
and CenturyLink in our Optimum West service area. We compete primarily on the basis of pricing,
where unlimited United States and Canada (including Puerto Rico in the New York metropolitan service