Telewest Turns Q3 Profit

When ntl group ltd. (Nasdaq: NTLI) reported its Q3 figures last week it said Telewest Global Inc. (Nasdaq: TLWT) was further ahead in turning around its operations, and that was confirmed yesterday when the U.K. cable company reported a third-quarter profit. (See Telewest Posts Q3 Results and NTL Losses Drop in Q3.)

Telewest, which is in the process of merging with NTL, reported a net income of £5 million ($8.7 million) during the quarter, compared with a net loss of £29 million ($50.6 million) in the same quarter last year. Revenues of £404 million ($704.4 million) were up from £328 million ($571.9 million) in the third quarter of 2004 and beat UBS AG's estimate of £397.6 million ($692 million).

In a research note, UBS Investment Research analyst Aryeh Bourkoff wrote that "better-than-expected financials [were] driven by data and video adds and better ARPU, bucking industry trends and demonstrating the potential of the model with proper execution."

Telewest added 11,000 net residential customers during the quarter for a total of 1.77 million, which it attributed to success in promoting double- and triple-play services.

The percentage of customers taking a triple-play package increased 10.6 percent from 24.4 percent last year to 35 percent, putting the company ahead of its forecast that it would reach 40 percent by the end of 2007, and prompting it to bring that target forward to the end of 2006. The cable operator also said its rollout of video-on-demand (VOD) services is also ahead of schedule, by three months.

In a conference call with analysts, Telewest president Eric Tveter said the company is managing average revenue per user (ARPU) through “smart bundling” as the market shifts from pricing-led to product-led marketing, focusing on creating new product bundles rather than cheap introductory offers. It plans to offer personal video recording and high-definition (HD) TV services next year -- in time for the soccer World Cup being held in Germany next summer, noted Tveter -- and will also begin trialing VOIP.

Telewest added 67,000 net broadband customers during the quarter and reported that 94 percent of its broadband subscribers sign up to at least one other service. Despite those net adds, it saw a higher-than-expected customer turnover rate of 1.4 percent, which it attributed to seasonal moves, such as students finishing university during the quarter. Students made up a higher proportion of net adds following Telewest's launch of an entry-level broadband package, which is also expected to bring down ARPU along with other price promotions.

During the call, executives echoed NTL's view that Sky's purchase of will not be a significant threat to cable. In response to an analyst's comment that (NYSE: BT; London: BTA) is "obsessed" about NTL and Telewest being the main losers when Sky enters the market, Tveter said he felt "the Freeview/BT approach is not a robust product proposition," thanks to its more limited range of TV products.

He added that Sky will be targeting its own TV customers, which are more likely to subscribe to DSL than cable broadband.

In the business division, Tveter said revenues had stabilized in what is a highly competitive market, up one percent to £64 million ($111.6 million) -- "many of our competitors reported revenue declines."

Telewest's share price closed Thursday up $0.03 (0.13%) at $22.34.

— Nicole Willing, Reporter, Light Reading

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