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Cable Strong: Charter, TWC Power Through Q1

5/02/2016 8:00 AM Eastern

After it agreed to be purchased by Charter Communications for $78.7 billion nearly a year ago, Time Warner Cable’s chairman and CEO, Rob Marcus, pledged to hand over a company that was in vastly better shape to its new owners. Last week he did just that — in spades.


As the approval process drew to a close, both companies reported first-quarter results which showed their separate efforts to drive subscriber and financial growth worked in a manner some analysts called nothing short of remarkable.


It’s no secret that the combined Charter-Time Warner Cable-Bright House Networks will be a formidable No. 2 cable competitor, with a combined 17.3 million video customers, 19.5 million high-speed data customers (making it the second largest broadband provider in the country behind Comcast) and 9.5 million voice subscribers.


The combined company would be a financial powerhouse as well, with $35.7 billion in annual revenue and $12.9 billion in cash flow per year. In addition, Charter-TWC will pass 48 million homes across the country, have a combined 24 million customer relationships and operate in nine of the top 25 DMAs.


Any doubts that either side would lose focus as the companies wound through a sometimes contentious approval process were quashed last week when both released first-quarter results.


Both Charter and TWC not only built on the subscriber growth momentum of the past few marking periods, but also substantially improved financial results. With 7.2% revenue growth and 8.2% cash-flow growth at Time Warner Cable and 7.1% revenue and 10.4% cash-flow growth at Charter, there can be no question that subscriber increases were done the old-fashioned way — providing a better product, rather than just deeply discounting service.


On a conference call with analysts last week, Charter CEO Tom Rutledge, who will be steering the bigger Charter-TWC ship for the foreseeable future, said the financial growth was a product of “taking transactions out of the business,” a mantra for the Stamford, Conn.-based MSO since he took the helm in 2012.


In the first quarter, that laser focus continued — Charter reduced billing and service calls by 15% and service truck rolls were down 19% in the period. The MSO also increased its in-sourced truck rolls from 50% in 2012 to 80% in the quarter; and call centers are now 90% in-house.


In a research note, MoffettNathanson principal and senior analyst Craig Moffett wrote that during the two-year period in which TWC was the target of first Charter, then Comcast and finally Charter again, it would have been easy to just give up. Instead, Marcus, his team and the rest of TWC’s employees steered the company to its best operational results in years.


“We noted last quarter that the turnaround at TWC was entering the final phase,” Moffett wrote. “Today they can close the book saying that the turnaround is effectively complete. Charter is inheriting a much stronger company than it purchased more than a year ago.”

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