RGUs Slide At Time Warner Cable


Despite reporting financial growth metrics that were in line with most analysts' estimates, Time Warner Cable said Thursday that the economy is taking its toll on subscriber growth, adding that the sluggishness in high-speed data and phone customer growth could bleed into the fourth quarter.

Third-quarter revenue rose 4% to $4.5 billion and adjusted operating income before depreciation and amortization increased 4% to $1.6 billion for the second largest cable operator in the country. Free cash flow increased 19% in the period to $1.5 billion.

And though basic subscriber losses were in line with analysts estimates - the company shed 84,000 basic customers in the period, versus analyst consensus of 80,000 losses - more surprising was the apparent weakness in new services growth. For the period, Time Warner Cable added just 8,000 digital-cable subscribers (compared to a consensus of 56,000 additions) and 62,000 phone customers (consensus was 107,000 additions). High-speed data increases of 117,000 customers beat consensus estimates of 110,000 additions.

Overall revenue generating units rose by 117,000 in the period, compared to a gain of 522,000 RGUs in the same period in 2008.

Although analysts were disappointed in the RGU slowdown, most were unconcerned because the financial metrics appeared strong and the subscriber growth decline was focused on phone and digital.

"While TWC RGUs disappointed especially when compared to Comcast's significant beat yesterday, the company is clearly containing costs which helped the bottom line," Wells Fargo media analyst Marci Ryvicker wrote in a research note. "Furthermore, the miss in RGUs was more a result of digital video and voice versus basic subs and HSD - the latter of which are really viewed as the ‘core business.' "

Investors appeared to feel the same way. TWC stock was up 26 cents each (0.7%) to $40.31 per share in morning trading Thursday.

In a conference call with analysts, chairman and CEO Glenn Britt said that the housing slump - he added that housing vacancies are at their lowest point since 1966 - has had an effect on subscriber metrics.

While Britt added that there has been a "small glimmer of positive news" on the advertising front, the "macroeconomic factors that are most relevant to our residential subscription business remain sluggish at best."
Chief financial officer Robert Marcus said while high-speed data additions appear to be holding their own in the fourth quarter, digital and phone additions are trending slower.

"It's still a little early, but with the exception of high-speed data, the other categories are somewhat down, in spite of a weak fourth quarter last year," Marcus said.