Cable Leads With Speed


Speed sells.

That was the message from
first quarter results of the top
two MSOs last week. Strong advanced-
services growth — especially
in ultra high-speed Internet
tiers — fueled big gains at Comcast
and Time Warner Cable in
the first quarter.

Comcast, the largest cable operator
in the U.S., said revenue
and cash-flow growth was in line
with expectations at 3.4% and
3.5%, respectively. But the Philadelphia-
based operator floored
analysts with 399,000 high-speed
data additions (its biggest gain
since the first quarter of 2008)
and 273,000 additional digital
phone customers.

At Time Warner Cable, the story
was the same: an additional
212,000 residential high-speed
data customers (outpacing consensus
estimates of 173,000 additions)
and phone subscribers up
by 86,000.

The gains come after several
quarters of slower growth in the
segment. But analysts who once
feared the demise of high-speed
Internet are singing a different
tune now.

“Cable is — once again —
unmistakably taking share in
the broadband market,” Sanford
Bernstein cable and satellite
analyst Craig Moffett wrote in
a research note. Later, he noted
that Comcast and Time Warner
Cable’s high-speed Internet
additions combined in the period
were almost twice that of their
chief telco competitors, Verizon
Communications and AT&T.
And they managed to do it without
cutting prices.

“Expectations of falling broadband
prices, once a staple of sellside
cable models, are now largely
forgotten,” Moffett wrote.

Investors were smitten too,
pushing Time Warner and Comcast
shares to new 52-week highs
last week. Time Warner Cable
shares rose as high as $57.58
per share, setting a new 52-week
high compared to the old mark of
$55.57 per share. The stock finished
the day up $4.02 (7.6%) to
$57.15 each.

Comcast also set a new 52-week
high of $20.09 per share (besting
the old mark of $19.20 each)
and ended April 29 up 6.3% ($1.19
each) to $20 per share.

The strong results helped to
lift other cable companies —
Cablevision Systems closed up
$1 per share (3.8%) to $27.45 on
April 29 and Mediacom Communications
finished the day at $7.20
(up 16 cents, or 2.3% each). Mediacom
also set a new 52-week high
of $7.30 earlier in the day.

The primary driver of the data
surge for both MSOs appears to
be tied to their respective rollouts
of higher tiers of broadband service.
Time Warner Cable said that
about 77,000 of its high-speed Internet
additions in the period
were new subscribers to its Road Runner Turbo service (which offers
speeds up to 50 Megabits per
second). At Comcast, which has
DOCSIS 3.0 service availability
across about 80% of its footprint
(growing to 100% by the end of the
year), the cause was the same.

“Speed is a real factor and I
think that’s what is driving the
numbers,” said Comcast cable
president Neil Smit on a conference
call with analysts.

That new-services growth, coupled
with a 20% decline in capital
expenditures, helped to drive
other metrics at the nation’s largest
operator — free cash flow was
up 38% to $1.9 billion. And advertising
sales, down 23% in the
fourth quarter, rose 24% in the
most recent period, signaling the
beginnings of a rebound.

Video also saw some gains at
Time Warner Cable — revenue
rose 2.5%, mainly due to rate increases.
And the MSO is working
hard on growing the video
base by increasing the number of
day-and-date movies available
on demand (about two-thirds of
movies on demand are day-anddate)
and boosting its HD capacity.
Time Warner Cable systems
now average about 100 HD channels
each (in New York City, that
number is 124 HD channels).

TWC chief operating officer
Landel Hobbs said the MSO also
is beefing up its ethnic packages
and DOCSIS 3.0, which is
available in New York City, Dallas,
Cincinnati, Buffalo and Syracuse,
N.Y., will expand soon to
Charlotte, N.C.

Business services also continued
to show promise, with commercial
revenue up 19% at Time
Warner Cable and up 49% at
Comcast. Comcast chief operating
officer Steve Burke said the
MSO is expanding its commercial
reach to include mediumsized
businesses. While he did
not estimate the potential size of
the market in Comcast’s territory,
he said it was “a substantial opportunity.”
He added the company
has begun hiring a sales force
to sell to the segment.

Time Warner Cable continues
to focus on the small business
market, but has the network and
the capacity to address larger customers
as well.

“Right now, we’ve got the products
we need,” Hobbs said.


Time Warner Cable said that of its 212,000 new high-speed Internet
customers in the first quarter, 77,000 signed on to its premium
tier Turbo service and 1,000 to its DOCSIS 3.0 offering (only
recently available in New York City). And for the second straight
quarter, the percentage of new customers taking its basic and
“Lite” high-speed service declined.

SOURCE: Time Warner Cable