Time Warner Cable came out with both guns blazing Thursday morning, unveiling a three-year plan to bring the cable giant back to positive customer growth through a mixture of better customer service, better products and more efficient operations.
In a 90-minute presentation to analysts Jan. 30 that also included its official fourth quarter and year-end results, TWC chairman and CEO Rob Marcus said that he has challenged his team to add 1 million residential customer relationships in the next three years.
Marcus and a handful of TWC execs spent the next hour-and-a-half detailing some of its initiatives – including more than doubling commercial services revenue to $5 billion by 2018, reducing truck rolls and service calls significantly, boosting shareholder returns and improving the overall customer experience.
The strategy builds on some past initiatives – TWC had said in the third quarter that it planned to aggressively target DSL customers, adding 500,000 DSL subscribers to its broadband service in the next 18 months – and some new – introducing one-hour service appointment windows, rebranding its video offering and rolling out its new IP-based program guide to 6 million set-tops by the end of this year.
TWC said it is on the way to achieving that goal. Despite losing 214,000 basic video customers in the quarter, chief financial officer Artie Minson said the cable giant began to see improvements in the latter months of the quarter. And this month, Minson said TWC added 25,000 customer relationships – compared to a loss of 28,000 in January 2013 – pushing PSUs up by more than 100,000 year over year in the month of January, making it the best January performance for the company in five years.
“What has caused this momentum shift and why am I confident it will continue?” Minson asked on the call. “The initiatives we invested in last year are beginning to take hold.”
While the presentation seemed obviously geared toward beating back Charter Communications’ recent advances – and in some ways TWC’s turnaround plan is very similar – some analysts saw it as a way to show that the Stamford, Conn-based cable operator's supposed radical approach to improve TWC isn’t so radical at all.
In a research note, MoffettNathanson principal and senior analyst Craig Moffett wrote that TWC’s “self-help program” includes several important pieces – a higher dividend (up 15% to $3 annually), evidence of subscriber metric improvements and a plan to accelerate its all-digital initiatives.
“But there is even a more important subtext to Time Warner Cable’s plan,” Moffett wrote. “’What is it, precisely, that Charter can do that we can’t do for ourselves?’ they seem to be asking.”
Investors seem to have taken both sides. Time Warner shares were up $1.44 each (1.1%) to $133.58 in afternoon trading Jan. 30, while Charter shares rose 68 cents (0.7%) to $138.92 each.
Marcus said that the three-year plan is something the company has been working on for “quite awhile” and presented to its board of directors last month.
“Our success going forward is dependent on some very basic elements – great people, a winning culture, a solid operating plan and a relentless focus on execution,” Marcus said.
To that aim, TWC has beefed up its management team, adding former Cox Business Services chief Phil Meeks to head up its commercial services unit about seven months ago, former AOL chief operating officer Minson as CFO in May and on Jan. 13, naming former Insight Communications chief operating officer Dinni Jain to the same position with TWC.
Jain kept his presentation short on details, but added that most of what he intends to do its build on the programs already in place.
Marcus said TWC is aggressively moving to improve product quality and service – its TWCMaxx initiative is underway in New York City and Los Angeles and will spread across 75% of the footprint in 2015 and 2016; and is beefing up broadband speeds across the board. The company also plans to increase the availability of one-hour service appointment windows, and with a goal toward offering fixed appointment times 20% of customer contacts in 2014.
All of this will come under a new brand, which the company hopes to officially unveil later this year.
The new initiatives are expected to result in a $500 million increase in capital expenditures to between $3.7 billion to $3.8 billion annually over the next three years, but should result in even greater financial gains. In the presentation, Minson said the company expects to boost total revenue from $23.1 billion in 2014 to $25.7 billion by 2016, a 5.4% compound annual growth rate. Adjusted operating income before depreciation and amortization (AOIBDA) is expected to rise at a 5.7% annual clip from $8.4 billion in 2014 to $9.4 billion by 2016.
While the underlying message of the presentation was to show that existing management is on top of the situation and is leading the company to growth, its purpose also is to show that the Charter offer, representing about 7 times forward-looking cash flow, significantly undervalues the company. TWC has said it would accept a $160 per share offer, consisting of $100 per share in cash, $60 in Charter stock, and a 20% symmetrical collar to protect both sides in the case of a significant drop in either’s stock price.
“We are in the business of maximizing shareholder value, “Marcus said. “If in fact an offer were presented that exceeds the value that we think can create by operating the company pursuant to our operating plan ourselves, we would be willing to engage.”
But the TWC chief did try to drive home the case for maintaining the current status quo.
“The residential business turnaround is well under way,” Marcus said. “We are committed to enhance the customer experience which will drive significant subscriber growth which in turn will accelerate our residential revenue. The robust and profitable revenue growth in business services will continue for years to come. We will cont to invest in this opportunity and we will make this a very large, profitable business. Even with the investment required to refuel the revitalization of residential and the continued strong growth in business services, we still have the firepower to engage in opportunistic M&A and return very significant amounts of capital to our shareholders. …I am confident our best days are ahead of us”