Time Warner Cable Braces for Bad Economy
Britt discussed his firm's third quarter numbers and the MSO's decision to reduce its 2008 earnings outlook today. Earnings for the full year are now expected to be in the range of $1.04 to $1.07 per share, versus earlier guidance of $1.07 to $1.11 a share. (See TWC Posts Q3 and TWC Updates '08 Outlook.)
"If people continue to lose their homes and jobs, I would be naïve to assume that there would be no impact on our business," Britt said. "As we moved into the fourth quarter, we saw a significant slowdown in subscriber growth compared to last year, particularly for our video and voice services."
On the voice front, the MSO signed on 207,000 subs, 25 percent less than a year ago and about 15 percent lower than analyst expectations.
The MSO lost 31,000 basic video subs, better than the 83,000 basics it lost in the year-ago quarter, ending the quarter with 13.3 million total. About 70 percent of those losses came by way of the operator's lowest tier-video package, which runs about $13 per month. The operator also signed on 124,000 new digital video subs, just under the 128,000 it added a year ago.
But Time Warner Cable also warned that it has seen orders for premium video services, including pay-per-view, video on demand (VOD), and digital video recorders (DVRs), slow down. The MSO added 150,000 DVR subs in the period, off from a year-ago gain of 211,000.
By the same token, Time Warner Cable remained strong with high-speed data, adding 222,000 in the quarter, handily beating Sanford C. Bernstein & Co. Inc. 's expectation of 172,000 new adds.
"This provided further evidence that customers value the speed and reliability of cable over DSL," Britt said. Time Warner Cable did not provide an update on its plans to introduce Docsis 3.0 on a "surgical" basis. (See Britt: Docsis 3.0 Coming to NYC and 'Surgical' Strikes .)
Across the board, the MSO added 522,000 revenue-generating units (RGUs), down from 544,000 RGU adds a year ago
Another bright spot was commercial services, which brought in more than $200 million in revenues in the third quarter -- a first. It's a service category that's growing more than two times the rate of residential revenues, Britt said. (See TWC Bows Biz-Class Ethernet.)
For the third quarter, Time Warner Cable revenues rose 8 percent, or $339 million, to $4.3 billion. Net income for the quarter reached $301 million (31 cents per share), up from $248 million (25 cents per share).
DTV transition bump?
Like other operators, Time Warner Cable hopes to enjoy a windfall of new video subs before and after the February 2009 broadcast digital TV transition. (See DTV Transition Could Catalyze Cable.)
The MSO, following up on a similar strategy underway at Comcast Corp. (Nasdaq: CMCSA, CMCSK), is offering its basic video package for $7.95 per month for 12 months. It's also throwing in a year of free basic cable to new subs who also bundle in the MSO's entry-level cable modem service or digital phone "local" service for $24.95 per month. (See Free Cable! )
Time Warner Cable COO Landel Hobbs noted that the MSO did gain some new subs in Wilmington, N.C., which flipped the switch early. (See Wilmington Flips the Digital Switch .) However, the MSO didn't necessarily see a "big pop" when the cutover occurred on Sept. 8, so it expects to sign on new customers gradually as the nationwide cutover approaches.
— Jeff Baumgartner, Site Editor, Cable Digital News