Analyst Downgrade Batters Time Warner Cable
FiOS Threat Leads to Abrupt 'Sell' Recommendation from Pali Research Analyst
By Mike Farrell -- Multichannel News, 7/21/2008 11:48:00 AM
Time Warner Cable stock was battered on Monday, losing more than 5% of its value after Pali Research media analyst Richard Greenfield slapped a “sell” rating on the shares.
TWC shares fell as low a $26.48 each (down $1.43 per share or 5.1%) on Monday—its lowest point in six months—before rebounding to close at $26.77 a share, down $1.14, or 4.1%.
Greenfield issued a report early Monday, reducing his rating on TWC from “neutral” to “sell,” adding that increased competition from Verizon Communications in the New York City area was the main reason for the downgrade.
Verizon received final approval on July 16 to offer its FiOS video, voice and data network in New York City. Greenfield, citing discussions with FiOS customer service reps, wrote that he believes the telco is already taking orders in the New York City area and could begin installing service as soon as Aug. 1.
In his note, Greenfield said that he feels TWC is unprepared for Verizon.
“TWC customer service reps in NYC did not always know what FIOS was (some simply said TWC broadband was faster than DSL and did not know about FIOS), with no specific offer for subscribers considering switching to Verizon (albeit, if you simply say you are considering switching to Verizon, you receive a discount of $7-$30/month), nor did they even appear to check whether FIOS TV was actually available at a location,” Greenfield wrote.
The Pali Research analyst believes that pricing will be a big issue in New York—he expects the telco to push its $69.99 (before taxes and other charges) six-month triple play offer, moving up to $99.99 per month for 18 months for customers agreeing to a two-year contract. Time Warner’s lowest price in the market is $119.95 per month before taxes.
“We believe TWC will need far more aggressive pricing, particularly as Verizon’s marketing campaign begins to heat up in NYC over the next 12 months,” Greenfield wrote.
But while Greenfield tried to sound the alarm on FiOS competition, another analyst wrote that all is not lost.
Sanford Bernstein cable and satellite analyst Craig Moffett issued his own research piece Monday, adding that despite the fear, only about 10% of TWC’s footprint is directly exposed to Verizon. Moffett and Greenfield both noted that while New York has higher average monthly revenue per unit for TWC, it also has higher costs—meaning that profit margins are lower.
But while Greenfield feared that FiOS could take a big chunk of the New York market from TWC, Moffett noted that the telco will pass about 30% of the city (primarily Staten Island) in its first year. Following more slowly will be the boroughs of Manhattan, Brooklyn, Queens and the Bronx.
“Verizon will not complete the build-out of New York City until 2014, although they have made provisions in their franchise agreement to ask for an extension should they not be finished by then,” Moffett wrote.
Moffett also noted that at least initially, only about one-third of homes passed by FiOS will be marketable—the telco still needs to negotiate building access rights with co-op and condo boards and design the necessary engineering solutions to provide service to small apartments.
Moffett doesn’t believe that FiOS will be a bust in New York City—in fact he thinks the opposite. But the analyst pointed out that even with 20% of the market, the FiOS impact on TWC’s revenue will be about 0.15%.
“Obviously, this is just a one-year impact,” Moffett wrote. “Impact over time will grow.”
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FIOS will be a tough competitor but neither analyst mentions TWC's "start over" which I thought had been announced for NYC. It seems to me that start over is a sleeper like DVR was and once people have that they won't switch. I don't have start over since I am not even in a TWC area but wish that I did.
Gus Lieske - 7/22/2008 8:16:00 AM EDT
Big Apple, Big Bandwidth
09/25/2009TWC Takes A Beating After 'Sell’
07/27/2008FiOS-ians Shuffle Through Grand Central
07/27/2008Greenfield Raises Time Warner Cable Rating
10/13/2008
