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TWC: Charter's Got Nothing on Us

Alan Breznick
1/30/2014
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In case there were any doubt, Time Warner Cable made it clear Thursday that it's determined to remain independent.

Executives at Time Warner Cable Inc. (NYSE: TWC), which is desperately fighting for its life, came out swinging Thursday morning and defiantly laid out an ambitious three-year plan to restore it to its glory days and keep it free from the clutches of Charter Communications Inc.

In a 90-minute earnings call with analysts, company officials spelled out their strategy for boosting TWC's revenue and profit margins by rolling out new video products, hiking broadband speeds, accelerating business services growth, increasing capital spending, improving customer service, and cutting operational expenses.

"We feel very good about our ability to run this business" and create value for shareholders, said Rob Marcus, who took over as chairman and CEO a month ago. "I'm confident that our best days are ahead of us."

To buttress their position, TWC executives made the case that they have already started turning around the second-largest US MSO after a disastrous third quarter in which it shed more than 300,000 video subscribers, more than 100,000 voice subscribers, and 24,000 broadband subscribers. Though TWC reported losing 217,000 video subscribers in the fourth quarter, it also that said the losses lessened each month, and that the trend has continued this year. Executives also said the company has started adding broadband and voice customers again, leading to renewed gains in customer relationships. (See TW Cable Hemorrhages Subs.)

"Net-net, I'm very pleased with our subscriber trends," said CFO Artie Minson. The company has added 25,000 customer relationships, reversing last January's loss of 28,000. "Last year's subscriber trends were dismal," but "we've made significant progress."

Marcus said he has challenged his management team to add 1 million residential service customers by the end of 2016, "starting with positive customer adds this year." Last year, TWC shed 825,000 video and 167,000 voice customers while picking up 211,000 broadband subscribers. It closed out the year with 14.4 million customer relationships, including 11.2 million video, 11.1 million broadband, and 4.8 million VoIP subscribers.

The turnaround plan
TWC's three-year revival plan is strikingly similar to what Charter has proposed to do if its takeover bid succeeds. First, as Marcus declared in a third-quarter earnings call in late October, TWC aims to sign up 500,000 cable modem subscribers over the next 12-18 months by targeting DSL markets with low-priced "lite" broadband offerings. In these markets, it is rolling out a 2 Mbit/s downstream, 1 Mbit/s upstream service to price-sensitive consumers for about $15 a month.

The MSO plans to boost maximum download speeds to 50 Mbit/s on its standard broadband tier and 100 Mbit/s on its turbo tier. Taking a page out of Comcast Corp. (Nasdaq: CMCSA, CMCSK)'s book, it intends to introduce an ultra tier with download speeds as high as 300 Mbit/s.

TWC hopes to spur video subscriber growth by upgrading and re-branding TV products in various ways. Plans call for upgrading Los Angeles and other markets to all-digital service; New York and a few other markets have already been upgraded. The company also intends to install new DVR tuners and offer more HD channels and video-on-demand programming.

Over the next year, TW Cable will roll out its new cloud-based programming guide and user interface to more digital set-tops. It now offers the guide on 2.8 million set-tops, and it plans to raise that figure to 6 million by next January.

The the TWC Max initiative, the MSO plans to transform its cable systems into customer service showcases. It will carry out all the digital, IP video, and broadband upgrades on a market-by-market basis, starting with New York City and Los Angeles this year. Marcus said TWC Max will be rolled out to 75% of the company's footprint by the end of 2016.

If all that's not enough, TW Cable intends to rebrand its residential services offerings, just as Comcast and Cablevision Systems Corp. (NYSE: CVC) have done. Officials said they will introduce the new brand name this year.

On the business services side, where it continues to enjoy strong growth, TW Cable is not looking to fix anything. It's counting on spurring growth by investing heavily in fiber and coax connections to commercial buildings and cell towers. It now has links to 860,000 buildings and 14,000 cell towers in its footprint.

Phil Meeks, COO and executive vice president of Time Warner Cable Business Class, has set a target of $5 billion of annual revenue by 2018 for the commercial services unit. The division's revenue grew 21.6% last year to $2.3 billion, including a record $616 million in the fourth quarter. (See Meeks Sees Business Boom at TWC.)

— Alan Breznick, Cable/Video Practice Leader, Light Reading

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DOShea
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DOShea,
User Rank: Blogger
2/1/2014 | 2:40:51 PM
CBS
That whole CBS battle must have had some affect on their quarterly numbers, right? Maybe things actually are better than they look, at least until the next big retransmission battle.
DOShea
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DOShea,
User Rank: Blogger
2/1/2014 | 11:01:41 AM
Re: Disappointed
Maybe you'll get your wish, Alan. There are some reports this morning that Charter is going to come back with a higher bid.
albreznick
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albreznick,
User Rank: Blogger
1/30/2014 | 11:09:41 PM
Re: Disappointed
Nah, Dan. Let's keep talking about this one. It's much morefun and dramatic.

 

 
DOShea
50%
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DOShea,
User Rank: Blogger
1/30/2014 | 8:53:57 PM
Disappointed
So much tongue-wagging went into this would-be deal before Charter even made a move, what are we all going to talk about now? Lenovo-Googorola?
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