TWC’s CFO expects RGUs to decline in 2009

Tue, 12/02/2008 - 7:50am
Traci Patterson

Time Warner Cable is expecting a decline in video, high-speed Internet and telephony subscribers in 2009 due to the worsening economy, TWC CFO Rob Marcus said at the Reuters Media Summit in New York on Monday.

"In 2008, we're on track to deliver less than 2.5 million additional revenue-generating units," Reuters quoted Marcus as saying. That number is higher than TWC originally expected.

TWC, the second-largest U.S. cable operator, has added about 2.1 million RGUs in the first three quarters of 2008, and the MSO expects to add about 400,000 RGUs in the fourth quarter.

According to Reuters, Marcus said that it has become extremely difficult to forecast the rate of growth next year due to the economic downturn. "I don't think anything we've seen before is instructive of what we're seeing right now."

Time Warner Cable is currently separating from its parent company, Time Warner Inc., and has raised more than $9 billion in the corporate bond market toward paying a one-time dividend to existing shareholders.

Marcus told Reuters that TWC will focus on spending its free cash flow on paying back the debt over the next two years to return its leverage ratio to its preferred level of around 3.25, rather than making major acquisitions in 2009.

"You shouldn't expect us to be very aggressive on the M&A front," he told Reuters.

But according to industry analysts, TWC is the most likely buyer for Charter Communications, the nation’s fourth-largest cable company.

"Charter is an example of a situation when you really have to look at more than the stock price," Marcus told Reuters when asked about rumors that TWC may buy Charter. “Even today at the level they're trading – at pennies essentially – [Charter] is still trading at an enterprise value that is probably double the enterprise value of Comcast or Time Warner Cable. So that tells me it's not cheap at all."

Marcus also told Reuters that any potential acquirer of Charter would also have to take on the company’s large debt load.

"One of the issues, the thing that's really precluded in any transaction in spite of the fact that they've been rumored to be looking for a buyer for several years, is that they've got debt leverage levels that actually exceed what the top-tier cable companies are trading at on an enterprise value basis," he said.

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