Mixed Q2 for Time Warner Cable

Revenue Up 3% But Video Subscriber Losses, HSD Gains Miss Consensus
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Time Warner Cable, deep in the approval process for its pending merger with Comcast, reported in a mixed second quarter Thursday, with basic video subscriber and high-speed data customer additions beating year-over-year marks, but missing analysts’ consensus estimates.

TWC lost 147,000 basic video customers in the quarter, a 22% improvement over the same period last year, but far short of analysts’ consensus estimates of a loss of 99,000 video customers. The second largest cable operator in the country added 86,000 high-speed data customers in the period, a significant improvement over last year’s 21,000 additions, but again short of consensus estimates of 105,000 additions.

Revenue for the period was up 3.2% to $5.7 billion and adjusted operating income before depreciation and amortization increased 1% to $2.1 billion.

Basic video improvement – TWC said it was its best second quarter showing in four years – were fueled in part by satellite and telco video customers in the Los Angeles market switching to TWC service to  SportsNetLA, the regional sports network that carries Los Angeles Dodgers Major League Baseball games. The LA region was Time Warner Cable’s best performing market in terms of video customers, chairman and CEO Rob Marcus said on a call with analysts. But he urged analysts not to read too much into the RSN’s role in that improvement, adding that  that reduced churn and customer retention efforts also helped drive video performance.

“I would hesitate to be too firm about that connection,” Marcus said about SportsNetLA’s role in the video subscriber improvement.

Since its launch earlier this year, SportNet LA has not signed on any additional affiliates besides TWC, Bright House and several small operators in the region. At the urging of Congress, Time Warner Cable has agreed to submit to binding arbitration with other distributors in the market, including DirecTV, Charter Communications and Cox Communications, but so far he said none of the other distributors have agreed to arbitration.

Marcus balked at predicting what structure the arbitration might take.

“It’s a little premature to speculate,” Marcus said. “We only first got the request from various members  of Congress to submit to arbitration earlier this week. We’ve simply agreed to the concept of getting Dodgers games to fans as soon as possible. The actual process, the details of who would arbitrate and what elements  of the contract would be arbitrated remains to be seen. The key point is that it takes two parties to have an arbitration and so far none of the other parties,”  have agreed to that.

Marcus said that the company’s TWC Maxx network upgrade initiative, which involves boosting Internet speeds to as much as 300 Megabits per second, has been successful in New York and Los Angeles and is expanding to  Austin – it has already made TWC Maxx speeds available to tens of thousands of customers in that area.  Marcus said that TWC plans to make the Maxx service available in seven additional markets in 2015 – Charlotte, N.C.; Dallas; Hawaii; Kansas City, Mo.;  Raleigh, N.C.; San Antonio, Texas, and San Diego. By next year Maxx will be available to about 6 million customers, Marcus said.

Also on the tech front, TWC has deployed its cloud-based guide to about 6 million set-top boxes, or about 40% of its total base, and  Marcus said those customers are using VOD more than with the legacy interface. TWC’s expansion of its WiFi offerings also are paying off – unique users and data consumption in June were more than triple that of a year earlier. Its TWC TV app was used more than 9 million times in June, a 70% increase from a year earlier, Marcus said.