Shaking off the effects of the recession and a weak advertising market, Time Warner Cable increased revenue by 5 percent to $4.4 billion in its first quarter of 2009, compared with the similar period a year ago. Subscriber figures were up in virtually every category, save basic video customers.
“We’re growing at a time when other industries are shrinking,” said CEO Glenn Britt, presiding over the company’s first quarterly financial report as a completely independent company.
The company’s profit was down due to an accounting change and some charges associated with the separation from Time Warner Inc. Net income attributable to TWC was $164 million, compared with net income attributable to TWC of $242 million for the first quarter of 2008.
Commercial services was the company’s biggest growth area, up 17 percent year-over-year. The company broke out commercial data and phone subscriber numbers for the first time (see table below).
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Source: Time Warner Cable
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Despite the company’s success thus far, the TWC management team several times said it expects more from the unit in the future. “I’m not satisfied,” Britt said, explaining that there is plenty of room for growth. “We can and should do better. We have only tiny penetration.”
The company is in fact shifting some of its diminishing capex (down $77 million from the immediately prior Q4 to $769 million) to bolster its commercial operations.
On the HFC side, the company is spending less on consumer premises equipment (TWC increased its inventory of DVR boxes), but is still spending on bandwidth optimization and switched digital video (SDV).
COO Landel Hobbs said the company has SDV in all of its Scientific Atlanta (Cisco) systems and has introduced the capability in some of its smaller Motorola systems. Once the solution deployed there proves scalable, the company will roll out SDV in other Motorola-based markets, including Los Angeles, Dallas and Cleveland, Hobbs said.
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Source: Time Warner Cable
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Hobbs said TWC is preparing to roll out DOCSIS 3.0 in New York City. New CMTSs have been installed in Manhattan and have demonstrated downstream speeds of 138 Mbps and upstream speeds of 18 Mbps. The full commercial rollout will begin in the summer.
Hobbs said it is unlikely the company will offer such speeds, but the capability is definitely there. Later during the company’s conference call, Britt said TWC sees little demand for the maximum speeds afforded by DOCSIS 3.0, and so expects to roll out the technology gradually on a market-by-market basis.
Also on the schedule is the introduction of WiMAX service, through TWC’s relationship with Clearwire. TWC is likely to introduce the service either late this year or early next year in one or two markets.
The first wave in the DTV transition did in fact provide a bit of a windfall for the company. Hobbs said the company created an entry-level tier specifically to attract those viewers. TWC picked up about 80,000 subscribers from among those who had previously been strictly over-the-air (OTA) viewers, or about 5 percent of OTA viewers in the areas within TWC’s footprint that went through with the transition. About one-third of those 80,000, Hobbs said, took a package of two or three services.
The final deadline for the digital transition is in June, and the company expects to attract a similar number of new subscribers.
Asked about consumers forcing the company to back off from testing consumption billing, Britt resorted to analogy. In the mid-‘90s, cable offered an innovative new service: HSD. “At the time, some people thought it was stupid and wouldn’t work,” he said. TWC will “keep trying things,” he concluded.
The implication being that TWC is not dropping the issue, but may try to find another way to introduce consumption-based billing.
One other test coming up, Britt said, was a trial with several programmers later this year to examine the attractiveness of offering content via the data channel on a subscription basis. He did not offer any details.
As for expectations of performance in the future, the TWC management team said it’s hard to predict. February was the strongest month in the first quarter, and additions in the last few weeks of March were clearly weaker. The execs were asked during the company’s conference call this morning if that signifies a trend, but they said there’s no way to tell. The economic indicators (unemployment, foreclosure rates, consumer confidence) are all “lousy,” CFO Rob Marcus said.
Advertising will probably represent a headwind for several quarters to come, Britt said.
The company introduced a new metric for counting its subscribers. TWC is now counting primary service units (PSUs), which it defines as the total of all video, high-speed data and voice subscribers. The contrast is with revenue-generating units (RGU), which makes a distinction between basic video subscribers and digital video subscribers.
The company said PSUs reached 26 million with net additions of 435,000 during the first quarter of 2009. RGUs totaled 34.8 million, reflecting net additions of 556,000 during the first quarter of 2009. Triple-play subscribers exceeded 3.2 million (or 22 percent of total customer relationships), benefiting from 146,000 net additions during the first quarter of 2009. And more than 55 percent of customers received bundled services as of March 31, the company reported.
