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Time Warner Cable’s Q2 marked by seasonal disconnects

Thu, 08/02/2012 - 2:28pm
Brian Santo

Time Warner Cable reported an 8 percent increase in second-quarter net income, as acquisitions and new broadband customers boosted revenue, but cable TV subscribers left at a faster rate.

The company also announced that it would begin offering VOD on Apple iOS devices, Android devices, PCs and Apple Mac computers. TWC also promised to start rolling out new IP set-tops and other gateway devices next year.

Time Warner Cable lost a net 169,000 cable TV customers in the quarter, a record for the company. Cable TV subscriptions have been declining across the industry for years, as viewers shift to satellite and phone company TV services, and the second quarter is usually the one that shows the biggest losses, because college students cancel cable ahead of summer break.

But Time Warner Cable's results are a contrast to larger peer Comcast, which reported Wednesday that it lost fewer subscribers in the second quarter than it has in the last three years.

CEO Glenn Britt reiterated what he’s been saying for two years: Even though the company is doing well by many measures, the economy remains a key business inhibitor. For example, the company’s ARPU was actually down 2.6 percent.

“Competitive activity remains intense, unemployment is unfortunately stubbornly high and the housing market is still sluggish. Despite all that, we remain focused on meeting our customers' needs, both now and in the future, to continue the operational excellence and investment in our people, products, marketing and physical infrastructure,” Britt said. The comments come from a transcript of today’s conference call with analysts, provided by Seeking Alpha.

Responding to a question about cord-cutting, Britt reinforced the message, explaining the economy is important context for the bitterness of the battles between video distributors and programmers.

“We actually think a bigger issue in the market is that there's a group of customers that are in really serious financial shape. They've been out of work for a long time, we read about that from the press. And some of them can't afford the video package, even though they want it. And that's why we keep having these heated negotiations with programmers. I think that is a much more serious issue than cord-cutting, but we keep an eye on it,” Britt said.

COO Rob Marcus addressed the subscriber losses, noting that Verizon continues to aggressively promote FiOS, which overlaps about 12 percent of TWC’s footprint. He also said DirecTV had been advertising activity had increased.

Despite the loss in basic video subs, TWC has been focusing on triple-play customers and broadband subscribers and did well in both categories in its second quarter, backed by promotions for the triple play.

“The resulting second-quarter triple-play net adds of 54,000 were 40 percent better than last year. Our strong triple-play performance again drove better phone connects on a year-over-year basis, resulting in second-quarter residential voice net adds of 45,000, also a 40 percent jump from last year's second quarter,” Marcus said.

The company reported a net add of 59,000 broadband customers.

Time Warner Cable has been in the habit of discussing subscriber trends in between quarterly reports. Marcus said the company will cease doing so.

“Too often, these updates have elicited reactions that were out of proportion with the actual significance of the data we provided,” Marcus explained. “Subscriber activity can be extremely volatile over short time periods, and week-to-week trends are heavily influenced by routine events like when we reconnect the particular seasonal bulk account.”

Marcus reported that the company now has DOCSIS 3.0 installed across almost its entire footprint and has a new program guide. Both lay the groundwork for the new IP-based CPE the company will be introducing later this year.

Marcus said: “I think we'll have the first gateway device actually later this year. And we've talked about that before: The gateway is a pretty powerful DVR plus. It'll have six tuners, 1 terabyte of storage, it'll have the DOCSIS 3.0 modem, as well as the ability to transcode content from QAM-based video into IP so that it can be consumed by IP devices, including the IP set-tops that I described.”

The cable industry is slowly becoming more open to subscribers using retail devices to access cable services. TWC was asked about the peril of losing control of the user interface.

Britt answered: “There most certainly is a disagreement within the industry about the importance of controlling the user interface. And I'm perhaps at one extreme, where I think it is not the sole reason that people buy our service. And we think that allowing people to get the very best experience is key competitively. So if somebody wants to use the interface that comes with one device versus another, that's fine. We're always going to have ours, and hopefully it'll be good and people will want it. But if there's a better one, as long as they buy video from us, I don't really care. Again, there is disagreement about that from other companies, you're right.”

The New York-based company's stock fell 10 cents to $85.50 in premarket trading. On Wednesday, the shares hit $86.69, the highest level since the split from parent company Time Warner Inc. was finalized in 2009.

The company said net income was $452 million, or $1.43 per share, in the April-to-June period, up from $420 million, or $1.24 cents per share, a year earlier.

Time Warner Cable earned $1.48 per share after adjusting for one-time items. That was 10 cents more than the average estimate of analysts surveyed by FactSet.

Revenue rose 9 percent to $5.4 billion from $4.94 billion. That was slightly above expectations of $5.39 billion.

Excluding the acquisitions of a series of smaller cable companies in the last year, revenue would have risen 3.1 percent, chiefly because of increasing revenue from broadband. Time Warner Cable has both recruited new broadband subscribers and seen existing ones trade up to plans with faster speeds.

– The Associated Press contributed to this report

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