IP Democracy: Time Warner Cable Claims It Has Turned the Corner

Time Warner Cable issued its Q4 07 earnings report this morning (PDF here) showing the usual continued healthy gains in revenue and cash flow alongside the usual continued loss in basic cable subscribers. Revenues for the nation's second largest cable company rose 12% year-over-year to $4.1 billion, while cash flow (OIBDA) jumped 19% to $1.56 billion.

But, Time Warner lost 57,000 basic cable customers during the quarter, more than twice the number lost during Q4 06, but down by a third from the 83,000 core video customers lost during Q3 07. By quarter's end, Time Warner had 13.25 million basic cable customers, keeping the company, however precariously, from slipping below the 50% penetration of homes passed threshold.

During the company's earnings call, CEO Glenn Britt reiterated what the company has said in the past. Most (75%) of the customers lost were of the low-paying variety, typically those who purchased only the "basic-basic" service tier, which costs around $12 to $13 per month.

COO Landel Hobbs said that the two problematic divisions, Los Angeles and Dallas, which Time Warner only recently acquired in a system swap and which accounted for most of the losses, have been quickly rehabilitated. "We've turned the corner" in those two markets, Hobbs said, which should slow down losses for 2008. Churn was down across the board, Hobbs said, with all products showing fewer defections during the quarter.

Time Warner continued to post gains in every other product category, albeit at slower growth rates than it has experienced in the past. The company added 162,000 net new digital customers during the quarter (in comparison to 245,000 during the year-ago quarter), wrapping up 2007 with eight million digital subscribers, reflecting 61% of all basic subscribers.

Time Warner Cable added 208,000 net new high-speed customers (down from the 246,000 net new high-speed customers gained in Q4 06), ending 2007 with 7.6 million high-speed subscribers, representing 29% of homes capable of buying the service. One particularly attractive new option for TWC is its Turbo Plus broadband service, a 15 Mbps/download offering aimed at countering Verizon's FiOS service.

Despite the fact that Turbo Plus costs $10 more per month than the standard high-speed service, Time Warner Cable added 229,000 net new Turbo Plus customers during 2007. The product was launched in October 2007. "Demand for Turbo has far exceeded our expectations," Britt said. "There is a real and substantial market for premium speed tiers."

The unambiguous bright spot for Time Warner Cable is its digital voice product. During the quarter, the company added 285,000 net new digital voice customers, about one-third more than it added during the year-ago quarter. In fact, Time Warner has posted accelerating gains in digital voice for every quarter since 3Q 06. By year-end Time Warner counted 2.9 million voice customers representing 12% of homes passed.

During the earnings call, Hobbs said that Time Warner's program to move to a switched-digital architecture, which increases cable system capacity by vast amounts, will help the company counter satellite rival DirecTV's big advantage in offering greater numbers of high-definition channels. "Switching works and it will allow us to launch relevant HD content," he said, noting that Time Warner has deals to add 53 HD channels and deals to add 20 more HD channels in markets where switched digital is being deployed. That's on top of the 25 HD regional channels that Time Warner offers today.

Time Warner still seems to be searching for a mobile voice and video strategy. When asked whether the operator plans to add wireless service to compete with the telcos' quadruple-play bundle, Britt confirmed, again, that Time Warner's test of just such a service with Sprint was something of a bust. "To date we've seen less than incredible demand for that (the co-branded Sprint Pivot Service.)"

Posted by Cynthia Brumfield on February 6, 2008 9:50 AM to IP Democracy