Megamergers Don't Scare TWT

Is Time Warner Telecom Inc. (Nasdaq: TWTC) getting nervous about the looming industry mergers?

Not one bit.

In its third-quarter earnings call Tuesday, CEO Larissa Herda said that the mergers -- Verizon Communications Inc. (NYSE: VZ) with MCI Inc. (Nasdaq: MCIP) and SBC Communications Inc. (NYSE: SBC) with AT&T Corp. (NYSE: T), both slated to close this year -- will put Time Warner in a unique position to capitalize on the convergence of IP-based services.

"Over the last quarter, our team has told me that they are getting more opportunities to bid on large customer applications due to concerns regarding industry consolidation," Herda said.

Consolidation has seemed to spark some anxiety about pricing and competition, she said, which has prompted some larger customers looking for diverse networks to reach out to Time Warner for the first time.

This could help bolster the company's already strong enterprise business, which grew 19 percent from the year-ago quarter to $15.8 million.

Time Warner reported total quarterly revenue of $177.8 million, an 11 percent increase from last year's $160.6 million. Officials attributed the upswing to a 31 percent increase in data and Internet revenues.

Time Warner has been pushing hard all year to lure more enterprise customers by: offering Ethernet and LAN services; launching a business-class VOIP service; and touting the higher security and lower costs of VPNs. (See Time Warner Telecom Touts Wins and Time Warner Wins Ethernet Deal.)

Fiber, of course, will also play a huge role in the company's future. Herda said that recent decisions handed down by the U.S. Department of Justice and the Federal Communications Commission (FCC) on the telecom mergers could help strengthen the company’s fiber position.

"Over 70 percent of our revenues today are served by our own fiber networks, so we don't have the kind of exposure [to regulation] some of our competitors do," Herda said.

The Justice Department ordered divestment of fiber-based buildings from AT&T and MCI, essentially absorbing them into local exchange carriers. When the process is completed, Time Warner believes it will be the country's largest fiber-based carrier, in terms of buildings connected. It says it has increased the number of buildings connected by 19 percent this quarter, for a total of 5,752.

Time Warner Telecom still isn't close to turning a profit: It posted a third-quarter loss of $23.4 million, or $0.20 per share -- which is an improvement over the year-ago quarter, when it reported a loss of $30.9 million, or $0.27 per share.

Analysts' consensus estimates had forecast a loss of $0.23 per share on revenues of $177.5 million, so TWT slightly beat expectations. This was the carrier's fourth consecutive quarter reporting overall revenue growth.

Time Warner Telecom stock gained $0.20 (2.4%) to reach $8.50 in trading on Tuesday.

— Joe Tuzzo, Special to Light Reading

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