Video services

Time Warner Perks Up

Time Warner Cable Inc. (NYSE: TWC) posted higher subscriber growth almost across the board in the fourth quarter, powering its parent company to robust revenue and income gains that pretty much matched Wall Street's bullish expectations.

In its fourth-quarter earnings release earlier today, Time Warner Inc. (NYSE: TWX) reported that its huge cable division netted more than 200,000 subscribers apiece in the digital cable, high-speed data, and VOIP categories from its long-held cable systems. Largely as a result, the cable division added 675,000 new revenue generating units (RGUs), boosting its revenues and profits.

"Time Warner Cable's legacy systems continue to perform exceptionally well," Time Warner Inc. chairman and CEO Dick Parsons boasted on the company's call with financial analysts this morning.

Time Warner's digital video and VOIP products, particularly, rebounded from poor summer performances. In VOIP, for instance, the MSO signed up 211,000 subscribers, up 11 percent from 187,000 new customers in the third quarter, although still down from 232,000 new subscribers in the year-ago period.

With this gain, Time Warner ended 2006 with 1.86 million "Digital Phone" subscribers, up from about 1 million at the close of 2005. It thus retained its ranking as the largest cable VOIP provider in the land, although that could change as early as tomorrow morning when Comcast Corp. (Nasdaq: CMCSA, CMCSK) announces its own year-end earnings results.

As they did in the past two quarters, analysts questioned the lower year-to-year growth in phone subscribers, asking whether the MSO planned to scale back its ambitious phone penetration targets.

But Time Warner executives said they're still confident of reaching 20 or even 30 percent phone penetration in their cable base, as they have in a few of their early VOIP systems. They noted that they're now offering second phone-line service in 11 divisions and plan to roll out that product throughout the rest of the country this year.

"It's competitive, no question about it," Parsons said. "But that's not a surprise to us. It's not as though we thought everybody was just going to sort of lay down their arms and say, 'Here, take my subs.' "

Time Warner also reported that the cable systems it acquired from Comcast and the former Adelphia Communications over the summer began contributing to its subscriber gains in the fall quarter, if only modestly. The nation's second largest MSO gained 59,000 digital video, 40,000 cable modem, and 3,000 VOIP subscribers from these newer systems, despite losing a whopping 52,000 basic cable customers at the same time, mainly in the Dallas and Los Angeles markets.

Company officials said they expect to keep losing cable subscribers in Dallas and Los Angeles in the first half of the year as they integrate the old Adelphia and Comcast systems into their operations and upgrade the plant in both markets. But they're aiming to "stabilize" the losses in both markets, especially Los Angeles, by the second half of the year.

In addition, Time Warner reported that its cable product bundles continued to score with consumers. The MSO ended December with 6.2 million of its customers subscribing to at least two cable services. It also ended the year with 1.5 million subscribers taking three services.

Due to these steady subscriber increases and the addition of the Adelphia and Comcast systems, Time Warner Cable's revenues soared to $3.7 billion in the fourth quarter, up 58 percent from $2.3 billion in the year-ago period. Likewise, the cable division's adjusted operating income before depreciation and amortization, a key financial metric, jumped 46 percent to $1.3 billion.

Time Warner Inc.'s revenues for the fourth quarter climbed to $12.5 billion, up 8 percent from $11.5 billion in the year-earlier period. The parent company's quarterly net income jumped to $1.75 billion, up 35 percent from $1.3 billion the year before.

Looking ahead, Time Warner executives said they will introduce several new cable products this year. The list includes commercial phone service targeted at small and medium-sized businesses, "advanced advertising," and various wireless services.

— Alan Breznick, Site Editor, Cable Digital News

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