News

Levin Makes Open-Access Pledge to Analysts

7/23/2000 8:00 PM Eastern

Time Warner Inc. chairman Gerald Levin told a group of analysts that the company's pending merger with America Online Inc. should accelerate open access to its Road Runner high-speed Internet service.

His remarks came against a backdrop of continued pressure by The Walt Disney Co., among others, to force AOL Time Warner Inc. to divest assets, to separate content from conduit and to ensure access to the platform by rival content and service providers.

Speaking to a group of analysts regarding Time Warner's second-quarter financial results, Levin said the company is beginning the process of restructuring its Road Runner partnership, and it is currently discussing that restructuring with cable operators. He added that Time Warner and AOL are also making progress on an affiliation agreement.

"What this means is that it substantially and significantly speeds up the ability of customers to choose from multiple ISPs [Internet-service providers]," he added.

The restructuring will likely center around eliminating the exclusivity period for Road Runner affiliates, which was not set to expire for another 18 months.

"We are working with our cable partners to effect this restructuring," Levin said. "We are talking to multiple ISPs."

According to a filing last Monday with the Federal Communications Commission, Time Warner and AOL are conducting an open-access trial at the Time Warner Cable system in Columbus, Ohio. The filing-which was in response to FCC questions about the AOL-Time Warner merger-also stated that AOL is participating in a similar trial in the Denver area with AT & T Corp.

Levin said Time Warner was committed to growing its high-speed-data offering, which was backed up by its second-quarter results.

High-speed-data subscribers rose 74 percent in the period, to 573,000 customers. Time Warner also added 272,000 digital-cable subscribers in the quarter, ending the period with 890,000 digital customers.

Internal subscriber growth was flat at 1.4 percent for the period. Time Warner finished the quarter with 12.6 million subscribers and more than 20.8 million homes passed.

Overall, Time Warner reported a 9 percent increase in revenue to $7.1 billion and a 12 percent increase in cash flow to $1.4 billion, fueled largely by gains at its cable operations.

Cable-network normalized cash flow-earnings before interest, taxes and amortization-increased 15 percent in the period to $422 million. At its cable-system operations, EBITA rose 13 percent to $462 million.

Those results helped to offset sluggish 3 percent cash-flow growth at Time Warner's filmed-entertainment unit.

For the six-month period, the cable networks' cash flow was up 16 percent, to $786 million from $675 million, fueled by subscription growth at its Home Box Office and Cinemax premium services and its Turner Broadcasting System Inc. cable networks.

The Turner networks grew by 16 percent in the quarter, and HBO was up 15 percent, Levin said. The cable-network segment could have been even stronger if not for lower results at its World Championship Wrestling unit.

Advertising revenue at the cable networks was up 18 percent, led by Turner Network Television, Cable News Network, TBS Superstation and Cartoon Network.

At the cable systems, cash flow was up 13 percent to $919 million from $816 million. Time Warner said the growth was due mainly to increases in digital and high-speed Internet-service deployment, as well as to growth in basic cable and advertising.

Levin also reiterated projections for combined revenue and cash flow at the combined AOL Time Warner. He said 2001 revenue should reach $40 billion-indicating growth of between 12 percent and 15 percent-with cash flow of about $11 billion.

September