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TWC Basics Boosted by Digital Transition

Jeff Baumgartner
4/29/2009

In its first report as a stand-alone cable MSO, Time Warner Cable Inc. (NYSE: TWC) turned in a solid first quarter, highlighted by a 5 percent revenue jump and an increase in basic video subs in the face of a recession, fears of "cord-cutting," and solid video growth from telco TV competitors. (See TWC Separates From Time Warner, Time Warner Cable Posts Q1, and 'Cord-Cutting' No Threat.)

Table 1: Time Warner Cable Earnings Snapshot

Q109 Q108 Change (%)
Revenues ($B) 4.3000 4.1000 5%
EPS ($) 0.4800 0.7400 35%
Net Income ($B) 0.1640 0.2420 32%
Source: Company reports, Thomson Reuters




In a bit of a surprise, TWC cable added 36,000 basic video subs in the period, extending its total to 13.1 million. Sanford C. Bernstein & Co. Inc. analyst Craig Moffett noted that analysts expected the MSO to lose 77,000 basic subs in the period. TWC also added 121,000 digital video subs, giving it 8.62 million, and a penetration rate of 66.8 percent.

Chief operating officer Landel Hobbs said the broadcast digital TV transition brought in roughly 80,000 subscriber adds in the first quarter, with the same expected for the second quarter. The DTV transition is scheduled to wrap up June 12. (See Broadcasters Rally 'Round June 12 .)

Hobbs estimated that the MSO faces telco TV competition in about 22 percent of its footprint, with 15 percent coming way of AT&T Inc. (NYSE: T) U-verse and roughly 7 percent from Verizon Communications Inc. (NYSE: VZ) FiOS.

In other service categories, TWC added 174,000 phone subs, down from last year, but ahead of expectations that it would add just 143,000. The MSO also signed up 225,000 new high-speed Internet subs, down versus the year-ago quarter, but a number that also bested analyst expectations.

"TWC's strength in broadband should help quiet fears of a TelCo rebound in market share," noted Moffett, who has set a 12-month target price of $39. TWC shares were up $1.83 (6.72%) to $29.08 each in early trading Wednesday.

Docsis 3.0 update
Hobbs would only say on this morning's conference call that TWC expects to launch speedier Docsis 3.0 services in New York City "soon," noting that the company has already installed new cable modem termination systems (CMTSs) in Manhattan.

"We'll start the rollout this summer, and we plan to complete it by year-end," he said, noting that TWC has tested speeds as high as 138 Mbit/s downstream and 18 Mbit/s upstream. "We don't expect to offer speeds this fast initially, but this demonstrates that we'll be fully capable of meeting our customers' need for speed for the foreseeable future."

Time Warner Cable has previously indicated that it will start off with a $99 wideband tier that offers speed bursts of 50 Mbit/s downstream and 5 Mbit/s upstream. By comparison, Cablevision Systems Corp. (NYSE: CVC), another New York-area MSO, is starting off with a 101-Mbit/s (downstream) tier for $99.95 per month. (See TWC Dons Larger Consumption Caps and Cablevision Debuts 101-Mbit/s Wideband Service.)

— Jeff Baumgartner, Site Editor, Cable Digital News

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