Time Warner Cable Subs Growth Slows in Q4

Time Warner Cable Inc. (NYSE: TWC) managed to add customers in most subscription categories in the fourth quarter of 2008, but, as expected, the rate of growth slowed, compared with last year, in the midst of a dim economy. (See TWC Reports Q4.)

On the financial front, Time Warner Cable posted a net loss of $8.2 billion, or $8.36 per share, on revenues of $4.4 billion in the fourth quarter.

The loss was caused by several items the company previously warned about: a $14.8 billion non-cash impairment charge of cable franchise rights; a $367 million non-cash impairment tied to the MSO's investment in Clearwire LLC (Nasdaq: CLWR); $14 million in costs linked to its separation from Time Warner Inc. (NYSE: TWX); and a $13 million non-cash loss on the sale of some cable systems. (See TWC Whacked With $15B in Charges, Time Warner Cable Leaving the Nest, and Cable Plays Clearwire Card.)

For the full year, cashflow jumped $713 million, to $1.8 billion. Thanks to higher purchases of customer premises gear (such as set-tops and cable modems), capital expenditures also rose in 2008 -- up $89 million to $3.5 billion.

In the fourth quarter, the MSO's revenue generating units (RGUs) hit 34.2 million at the end of 2008, a jump of 175,000, but down versus the 591,000 RGU increase reported in the year-ago period.

The MSO added 44,000 digital video subs in the quarter, extending its total to 8.62 million. But Time Warner Cable added 168,000 digital video customers in the year-ago quarter.

It also signed up 124,000 residential high-speed Internet subs, versus 214,000 adds a year earlier. In somewhat of a surprise, Time Warner Cable reported losing 11,000 commercial high-speed data subs, putting its total at 283,000.

Once again, residential digital phone services remained a strong growth area for Time Warner Cable, which added 130,000 new VoIP customers during the period, giving it a total of 3.74 million. However, those adds are down compared to the 285,000 new sign-ups reported a year earlier.

The MSO also continued to bleed basic subs, losing a higher than expected 119,000 customers in the category. Sanford C. Bernstein & Co. Inc. analyst Craig Moffett was expecting the MSO to lose about 27,000 basics, while analyst consensus expected it to lose about 46,000 during the quarter.

Despite slowness in the growth categories, "expectatons of ARPU compression -- the fear that subscribers would 'trade-down' by disconnecting discretionary services -- were not realized," Moffett wrote in a note this morning. Indeed, video ARPU was up 4.6 percent year-on-year, while high-speed Internet ARPU (average revenue per user), at $41.36, was 2 percent better than Moffett expected, and up versus last year and third quarter levels.

Although Time Warner Cable couldn't completely fend off a tough economy in the fourth quarter, it's confident that cable is better positioned than some other industries.

"While the much slower RGU growth late in the year demonstrated that our business is not immune to economic and competitive forces, we remain confident that our strong subscription relationships will enable us to weather these pressures better than many businesses," said MSO president and CEO Glenn Britt, in a statement. With an eye toward growing profitability and healthy cashflow, he said Time Warner Cable will manage its opex and capex this year "to fit the economic realities as the year progresses."

Britt is expected to discuss the fourth quarter and the outlook for 2009 in more detail during this morning's earnings call with reporters and analysts.

— Jeff Baumgartner, Site Editor, Cable Digital News

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