Cable Operators

Back-To-Basics Growth For Time Warner Cable

4/29/2009 2:09 PM Eastern

Time Warner Cable, in its initial reporting period after fully separating from parent Time Warner Inc., trounced analysts' expectations for the first quarter, gaining 36,000 basic subscribers and staying ahead of consensus estimates in other key metrics.

Most analysts had expected the second-largest cable operator to lose basic video customers in the first quarter - consensus estimates were a loss of 77,000 subscribers. While that was behind the 55,000 basic additions in the first quarter last year and subscriber growth in digital, high-speed data and phone slowed in the most recent period, it well outpaced consensus estimates.

"That will be taken as an enormously encouraging, and reassuring, sign," wrote Sanford Bernstein cable and satellite analyst Craig Moffett in a research note, adding that the growth was especially noteworthy given the economic climate and growing fears of "cord cutters," or people who have severed the video relationship with their cable operator and watch programming for free online.

On a conference call with analysts, Time Warner cable chairman and CEO Glenn Britt said the basic-customer growth was mainly tied to the digital transition, which began in part on Feb. 17. Britt added that the company could see another bump in basic subscribers as the transition winds down in June.
Chief operating officer Landel Hobbs said that the digital transition accounted for about 80,000 subscriber additions in the quarter and could bring roughly that same amount in the second quarter. He added that while many of those customers took promotional lower priced basic video offering, one-third took additional services as well.
"There was some halo effect," Hobbs said of the digital transition.
Time Warner Cable added 121,000 digital video customers in the period -- ahead of estimates of 100,000 adds -- and 174,000 phone customers, down from last year's 290,000, but ahead of the 143,000 estimate. The company also added 225,000 high-speed data customers, down from the 304,000 in the same period last year but significantly ahead of consensus expectations of 147,000 additions.
In his report, Moffett said that TWC's show of strength in broadband additions should squelch fears of a telco rebound in market share. Both Verizon Communications and AT&T reported their best quarters ever in terms of video customer growth - Verizon gained 299,000 video subscribers in the first quarter and AT&T added 284,000 video subscribers.
Financial metrics were also strong - revenue increased 4.9% to $4.4 billion and cash flow rose 7.5% to $1.5 billion. Chief financial officer Robert Marcus said that the company is on track to meet its full year revenue and cash flow growth guidance.

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