Time Warner Inc. chairman and CEO Richard Parsons reiterated his support of the cable business at an industry conference Tuesday, likening the looming threat of regional Bell operating companies on the video business to the unfounded fears of overbuilders a few years ago.
Parsons, speaking at the Bear Stearns Cos. Inc. Media Conference in Palm Beach, Fla., said that despite investor fears about diminishing growth prospects in the cable business, Time Warner sees much potential.
He pointed to Time Warner Cable’s voice product -- the MSO ended the year with about 220,000 customers, and the product is available throughout its footprint -- adding that the RBOCs are at a competitive disadvantage with their video product.
“On the telco side, you’ve got to be really prepared to accept the notion that the market is going to tolerate irrational competition for a significant period of time to let them do what they say they’re going to do,” Parsons said.
“It’s not the first time cable plants have been threatened with overbuilders -- that’s all we’re talking about here, people are going to come in and overbuild and then compete on price,” he added. “Well, it’s an expensive proposition, and it takes a long time, and the markets will have to say, ‘We’re just going to sit back and let them burn through a bunch of capital because we like what the business looks like down the road at the end of this irrational competition.’ I’m not sure that’s going to happen.”
Parsons also made a case for continued acquisitions on the cable MSO side.
While he wouldn’t directly address Time Warner’s participation in the Adelphia Communications Corp. auction -- Time Warner has reportedly made a joint $17 billion bid for the bankrupt MSO with Comcast Corp. -- he said that conceptually, adding to its cable scale is a good move for Time Warner.
”Conceptually, cable is a scale business,” Parsons said. “There are a lot of synergies built into cable. You can take subscribers and move them into your pricing construct and you can pretty much evaluate right up front what the effective cost saves are.”
He added that if the cable systems being added are not fully deploying advanced services like high-speed data, video-on-demand and telephony, the advantages grow even larger.
“If you can roll out a suite of products onto new footprint more rapidly, you can create real value by putting two cable companies together,” Parsons said.
Added scale would also bolster Time Warner’s content assets, he added.
“I guarantee you that the content side of my house would be very much disadvantaged if someone else controlled all distribution, if we didn’t have a seat at that table,” Parsons said.