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TWC: ’08 loss, layoffs, Clear launch

Wed, 02/04/2009 - 7:30am
Brian Santo

Time Warner Cable said the recession and competition are taking their toll on its financial and operational results, but it intends to respond by redirecting resources in 2009 to its commercial services business (its best-growing segment) and by beginning to rollout wireless services, specifically the launch of Clear WiMAX in at least one of its markets.

In 2008, Time Warner Cable reported record cash flow, and the company increased its revenue in every service category, though growth rates decelerated as the year progressed, the recession worsened and competition ramped up. The company ended up experiencing operational losses in Q4 that wiped out financial gains from earlier in the year, leading to a fiscal-year loss of $7.3 billion.

During the frank and free-ranging Time Warner Cable Q4/FY 2008 conference call, TWC executives announced that they will be reducing headcount by 1,250 employees. CFO Rob Marcus said the company will be taking charges of $50 million to $100 million in 2009 associated with the separations.

That follows the layoff of 500 employees in 2008, associated with the restructuring of the company into six regional operating units. The company announced a further restructuring of those six units, consistent with the company’s new focus on commercial services.

TWC said it will reorganize the management of each of its six units so that each will be headed by three executives: one in charge of residential services, one for commercial services, and one to manage the plant and network operations. Having a single person in charge of infrastructure for both residential and commercial services should make it easier to standardize on infrastructure to serve both, explained CEO Glenn Britt.

Subscriber Performance

Source: Time Warner Cable

Britt said his takeaway from 2008 is that “we’re not immune to economic forces.” Nonetheless, he said, cable continues to grow as many other industries contract, and TWC continues to generate healthy free cash flow.

Britt asserted that cable remains a fundamentally strong business, based as it is on strong customer relationships. But that doesn’t mean it’s an easy business, or that it will get any easier.

Britt noted that competition from the phone companies is increasing. Telco competition has not grown any more intense, he said, but has expanded to a more significant fraction of TWC’s operating area. Verizon now overlaps TWC in 21 percent of the MSO’s footprint (it was 18 percent at the end of the third quarter and 6 percent at the end of 2007). U-verse overlap is now approximately double that of Verizon’s FiOS, Britt said. TWC lost very few basic subscribers to satellite competitors, he added.

In addition to the weak economy and increasing competition (largely from Verizon), TWC became one of the first MSOs to report having been affected by wireless substitution – subscribers canceling landline service in favor of wireless service.

Britt said it was hard to qualify the impact of wireless substitution, but said that customers looking to save money most often cited digital voice as the service they’re looking to cancel.

Looking ahead to 2009, the company said the market is not improving. Fewer consumers are moving, and there is less RGU growth, the TWC executives reported.

One response to wireless substitution is to provide a “meaningful” cellular product, Britt said. TWC plans to offer a product with Clearwire in at least one city in 2009.

He noted that commercial revenues grew at three times the rate of residential revenues, so TWC will focus on that.

He also said TWC expects to start seeing significant results from its participation in Canoe Ventures.

The company reported its switched digital video (SDV) rollout will be complete in 2009, with only some Motorola systems yet to be converted.

Britt said the company remains bullish on DOCSIS 3.0, but he called high speeds “a marketing ploy,” given that few subscribers need the speeds, and few people have PCs able to handle such high bandwidth. When it comes to DOCSIS 3.0, it’s needed largely to counter competitors offering high speeds. “We will play that game where we need to,” Britt said.

TWC has rolled out a new program guide, but TWC already has a new generation in development now, Britt said. Program guides won’t be static, he said, opining that subscribers may end up with a choice of guides to use.

Initial indications are that the DTV transition might not provide that big of a bonanza for cable. Britt said TWC has experience with two transitions. It has partial coverage in the Wilmington, N.C., market, and it received perhaps 5 percent of off-the-air consumers switching to TWC cable. TWC is also in Hawaii, which also transitioned early (story here). In Hawaii, TWC got a smaller percentage of people signing up, but Britt said the market is atypical, as TWC already has a high penetration there.

Britt said TWC expects to increase the number of markets with bandwidth caps.

Britt also addressed the challenge of content owners putting more and more video on the Web. “The impact of that, over time, will be to reduce customers,” he said flatly.

He noted that young people are especially willing to cut the cord when it comes to TV, in favor of getting free content via broadband. Free wins, he said, and there is a real danger that subscription revenue could erode. On the other hand, in order to get “free” content, consumers will still need broadband, and TWC has what Britt referred to as a nice broadband business.

“I think cable TV business will suffer mightily if the trend continues,” Britt said. 

Also, CFO Rob Glaser said the company is considering a reverse stock split.

Separately, Time Warner Cable redesigned its Web site. It sports a cool blue background, several new features and new self-service tools.

The site includes an Online Knowledge Base, as well as Click-to-Talk and Click-to-Chat capabilities. In an upcoming enhancement, new support tools, including the “MyServices” section of the site, provide customers with the ability to access self care and account management options.

More Broadband Direct 02/04/09:
•  Shaw jumps to 100 Mbps with DOCSIS 3.0
•  Canadian cable executives share thoughts at Summit session
•  TWC: '08 loss, layoffs, Clear launch
•  Bright House debuts IPG, adds Start Over
•  Windstream Q4 profit falls on charges
•  Group focuses on white spaces
•  Alcatel-Lucent posts another loss in Q4
•  Japan's Panasonic to cut 15,000 jobs, shut plants
•  Broadband Briefs for 02/04/09

 

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