Time Warner Cable Bleeds Subs
Repeating a trend seen at Comcast Corp. (Nasdaq: CMCSA, CMCSK) during the quarter, Time Warner Cable lost 83,000 basic video customers, compared to about 50,000 expected by Sanford C. Bernstein & Co. Inc. . Time Warner Cable ended the quarter with 13.3 million basic video subs.
The bulk of those losses -- 66,000, or roughly 80 percent -- came from Dallas and Los Angeles. The Los Angeles system has been plagued by integration issues after Time Warner Cable and Comcast divvied up the systems that used to make up Adelphia Communications. Time Warner inherited the Dallas system from Comcast.
"But the playbook for cable system integration is, at this point, well understood, and one can reasonably predict a turnaround in L.A., in our view," said Sanford C. Bernstein analyst Craig Moffett, in a research note.
The situation in Dallas, thanks to "embedded service quality and reputation" issues may take much longer to fix, he suggested, noting that it's long been a "sub-par" system, and "years of neglect have left cable penetration in Dallas at the lowest levels of any major city in America."
Time Warner Cable fared better in other service categories. It added 522,000 revenue generating units, extending its total to 31.5 million. At the end of the quarter, about 6.9 million customers, or about 47 percent, subscribed to two more services. Fifteen percent took the MSO's "triple play" of video, voice, and data services.
The company added 128,000 digital video subs, giving it a total of 7.9 million. Thanks to record sign ups, Time Warner Cable ended the third quarter with 2.6 million digital phone customers, a penetration rate of 11 percent. The MSO added 224,000 cable modem customers, giving it a total of 7.4 million.
On the financial front, the MSO said net profit dropped to $248 million ($0.25 per share), versus $1.2 billion ($1.20 per share) a year ago, but the total was in line with analyst expectations. Revenues rose 25 percent to $4 billion. The operator also reaffirmed full-year 2007 revenues of $11.8 billion, and operating income before depreciation and amortization of $4.2 billion.
Speculation is also running rampant about the future of the MSO once Jeff Bewkes officially becomes the CEO of Time Warner Inc. (NYSE: TWX) in January. The going bet is the company will sell off a portion of the MSO. (See Bewkes Roundup .)
But not everyone is in that camp.
A "spin-off would seem ill-timed given all-time low valuations and sentiment; the market appears to have too little appetite to digest even the cable equity available today," wrote Moffett, who has a $46 price target on the stock. "An additional $20 [billion] cable float could cause severe indigestion."
Time Warner Cable Shares were up 20 cents (0.73%) to $27.75 each in early trading Wednesday.
— Jeff Baumgartner, Site Editor, Cable Digital News
Interested in learning more on this topic? Then come to The Future of Cable Business Services, a conference that will explore the swiftly expanding U.S. business services market. To be staged in New York City, December 6, admission is free for attendees meeting our prequalification criteria. For more information, or to register, click here.