In a record third quarter for Time Warner Cable, the company's story of success hinged on high-volume customer gains and the investments it has made into its advanced TWC Maxx residential triple-play service. However, an underlying current in the business is the potentially dramatic impact that Time Warner Cable could experience as it transitions to all-IP video delivery.

Time Warner Cable Inc. (NYSE: TWC) CEO Rob Marcus shared details on now-confirmed reports from last week that TWC has started a beta trial of an IP-only TV service in New York City. The new product is not a skinny bundle like the Spectrum TV Stream service that Charter Communications Inc. has introduced, nor like Comcast Corp. (Nasdaq: CMCSA, CMCSK)'s soon-to-launch Stream offering. (See Charter Skinnies Down With New TV Bundle and Comcast 'Stream' Joins OTT Flood.)

Instead, TWC wants the New York trial to be the first step in a transition to all-IP, set-top-free cable.

"The way I would characterize the NYC trial is really the next step in the evolution of TWC TV," said Marcus, referring to Time Warner Cable's IP TV app. "The goal there was to create an offering that was complementary to our traditional video product; to add additional screens on additional IP-enabled devices for customers to consume video."

Marcus added that what TWC is trailing in beta in NYC will move toward becoming a full video offering that could be substituted for its traditional set-top box-based video product. "And where we're headed is the ability of customers to access the complete video product without having to rent a set-top box from us, whether they use a Roku or they use ultimately another IP-enabled device," he said.

If Time Warner Cable does make the transition to a set-top-free service, there would be potentially huge implications for capital spending. However, as Marcus noted, decreasing cost outlays on the set-top side would also be countered by the need to support greater bandwidth demand from streaming video. Marcus was careful to note that Time Warner Cable, like other cable companies, is not taking an OTT approach to delivering video over IP. Instead of using the web, TWC is still relying on its own managed networks to stream video to subscriber homes.

In the NYC trial, Time Warner Cable is currently delivering every channel as a unicast video stream to each customer. Marcus explained that learning how to scale that model is one of the reasons why TWC is testing IP video service, rather than rolling it out to the company's entire footprint. He did add, however, that he feels confident in being able to support an all-IP TV service eventually, even if everything stays in a unicast format.

Of note, Marcus said that Time Warner Cable is not against the idea of skinny bundles, even though that's not what's being trialed in New York City. But while saying that TWC is a big fan of customer segmentation and offering consumers choices, he also noted that the company is currently trying to simplify its product offerings, and that, for the moment, TWC is still doing well with larger channel bundles.

On consumer migration to skinny bundles, Marcus said, "I still believe that the headlines are way ahead of the reality on this."

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While Time Warner Cable is making moves in the direction of all-IP video, the company is also progressing more smoothly than expected in its effort to turn around a business that was floundering just a year ago. (See TWC Broadband Subs Soar, Video Slumps and TWC: Maxxing Out Too Late?)

Revenue for the third quarter was up 3.6% year-over-year to $5.92 billion, thanks to a record number of residential customers gained. TWC added 147,000 total residential subscribers, its best third quarter ever, and 218,000 residential triple-play customers, its best number since 2007.

Video subs were down slightly by 7,000, but Time Warner Cable gained 232,000 high-speed data customers and 237,000 voice customers. The positive numbers are partly a result of lower customer churn, which Marcus said has improved significantly, particularly in areas like Los Angeles where the company has deployed TWC Maxx.

The commercial services business was also a high point for Time Warner Cable in the quarter, with revenue up 15.5% year over year to $836 million. Marcus said the company is still targeting at least a $5 billion annual revenue rate for commercial services by 2018.

Overall, profits were down for TWC in the quarter because of ongoing investments. The company reported operating income before depreciation and amortization (OIBDA) of just under $2 billion, a 3.6% year-over-year decrease. However, those numbers still beat analyst estimates and are seen as a sign that Time Warner Cable is making necessary and smart investments to improve its business.

Interestingly, Marcus did make one reference to the topic of mobility, which has been heating up in recent cable industry discussions. (See Comcast Confirms It Will Activate MVNO Deal.)

He stated categorically that TWC will not participate in an upcoming spectrum auction, despite the fact that Comcast is still considering that as an option. Marcus said TWC will continue to focus on its WiFi hotspots, and, though there might be a need to add cellular to the mix in the future, he's not convinced that it's a guarantee.

Finally, there was little discussion of the pending acquisition of Time Warner Cable by Charter in today's earnings call, mostly because Marcus noted that everything the company has to say on the subject has already been included in regulatory filings. However, Marcus did admit that getting the deal done by the end of the year now feels ambitious.

He also ended the earnings call with a somewhat acerbic remark. In relaying that the fourth-quarter earnings report will take place on January 28, Marcus added, "Of course, assuming we're still around."

— Mari Silbey, Senior Editor, Cable/Video, Light Reading