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Time Warner Cable's SMB Tilt Bugs the Telcos

Time Warner Cable Inc. (NYSE: TWC)'s business service ambitions have apparently graduated beyond the annoying gnat stage. Recent actions by the telcos suggest they view TWC's efforts as a bona-fide pest, and are starting to take aim at them with an industrial-sized can of Raid.

Labeling the commercial services game a "switcher's game," TWC COO Landel Hobbs said on the MSO's second-quarter earnings call that the fight for small- and mid-sized business (SMB) customers is "intensifying as the telcos become aware that cable companies are serious about gaining market share." (See Time Warner Cable Posts Q2.)

He said the telcos are responding with data and voice pricing that aim to undercut TWC's. "In the largest Time Warner Cable markets -- New York, L.A., and Dallas -- the telcos are offering discounts of 15 percent to 40 percent in exchange for multi-year contracts with small business customers," Hobbs said.

But TWC, which generally locks horns with AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ) depending on the market, says it has been able to build that part of the business despite those tactics, with commercial revenue growth accelerating to more than 20 percent in the quarter. TWC added 90,000 commercial digital phone subs in the period, up 12,000 year-on-year, and about 12,000 business-class phone subs, extending its total to 90,000 -- about double the amount it had a year ago.

TWC EVP and CFO Rob Marcus said cell tower backhaul revenues more than tripled compared to the second quarter of 2009. Hobbs later added that TWC is getting revenues for providing backhaul to about 4,600 cell sites, up by 1,000 from the first quarter of 2010. The MSO inked contracts covering another 400 towers during the second quarter.

Those numbers tie into TWC's overarching commercial services strategy. Not counting the backhaul opportunities, TWC estimates that there are between 2.5 million to 3 million businesses with fewer than 1,000 employees in its footprint.

And it has no plans now to go further up-market and compete at the large enterprise level -- a domain that Cablevision Systems Corp. (NYSE: CVC) currently goes after via its Optimum Lightpath division.

"That's something we may do later on down the road," Hobbs said, estimating that the commercial services opportunity for TWC, including enterprise, is about $25 billion. Comcast Corp. (Nasdaq: CMCSA, CMCSK), by the way, is also steering clear of large enterprise for now, but is staffing up to attack the sector's larger mid-section. (See Comcast Chases Big[ger] Business and Cable MSOs Approach $1B Jackpot .)

But the segment TWC's targeting doesn't come free as it expands operations and rolls out more Metro Ethernet products. The company spent $233 million in the first half of the year on commercial capex, up 60 percent from the first half of 2009.

Other tidbits from today's call:

  • The MSO has launched a whole-home DVR service in Charlotte, N.C., and plans to roll it out "broadly" in the second half of 2010. It's coupling that with a remote DVR Manager product that allows subs to schedule and modify DVR recordings from PCs, iPhones, and other mobile devices.

  • Marcus said close to 12 percent of TWC's residential high-speed subs take the MSO's premium "Turbo" Docsis 2.0 tier, with about 1,000 signing up for its wideband product in the quarter. About one third of TWC's systems have been upgraded to Docsis 3.0, following recent launches in Albany, N.Y, and Charlotte.

  • TWC, a big advocate of switched digital video (SDV), says it averages about 100 hi-def channels across its footprint, and expects to increase that to 150 HDs in NYC, where it's gone all-digital and deployed SDV.

  • TWC president and CEO Glenn Britt bristled at any characterization that the MSO is "sitting on" the Advanced Wireless Services (AWS) spectrum it bid for and won in 2006, but came short of saying how or when the MSO might actually use it. "Actually, there's been a lot of work going on," he said, noting that clearing the spectrum of previous occupants has been a "tedious process." (See SpectrumCo Gets Licenses .)

    — Jeff Baumgartner, Site Editor, Light Reading Cable

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