Topsy-Turvy Quarter for TWC, Charter

Nov. 13, 2013
Time Warner Cable's (NYSE:TWC) third quarter financials served as a vehicle for retiring CEO Glenn Britt to begin his goodbyes, demonstrated the effects of the company's programming disputes earlier this year, and fueled the speculation that there could be a mer...
Time Warner Cable's (NYSE:TWC) third quarter financials served as a vehicle for retiring CEO Glenn Britt to begin his goodbyes, demonstrated the effects of the company's programming disputes earlier this year, and fueled the speculation that there could be a merger between the second-largest U.S. cable operator and Charter Communications (NASDAQ:CHTR), which released its own 3Q report a few days later.Specifically, it was a Reuters' news article that suggested that TWC's marked loss of both TV and Internet subscribers during this most recent quarter might be giving Charter renewed hope of lighting a consolidation fire. But TWC in its earnings call explained away the hits to subscriber volume, by pointing to the recent blackouts of CBS, Showtime and Journal Broadcasting."We estimate that these blackouts elevated customer relationship disconnects by a couple of percent and also drove a roughly 10% increase in doubles and triples dropping video," said Robert Marcus, TWC president and COO.Marcus, who will take over as CEO when Britt retires, noted that the blackouts also reduced the number of new customer connects, increased call center traffic, and resulted in the loss of "some" double-play and triple-play customers. "The CBS and Journal disputes clearly resulted in short-term pain for us. But as I've said before, the issues at stake had long-term, far-reaching implications for our business."Britt addressed the notion that he has been anti-consolidation and that his retirement will open doors. "If you think about it, that is obviously absurd," he said. "We have demonstrated repeatedly that our job is to make money for our owners. An in M&A, we are open to deals that do exactly that."While the concept of consolidation is good in theory, "the terms really matter," Britt said. "To state the obvious, win-win deals are good deals."As for the leadership transition and what the industry can expect from TWC in the coming year, Marcus said the company will focus on subscriber results and unit growth. For starters, there will be a holiday promotion offering a Samsung tablet loaded with TWC apps, for customers selecting higher-end packages.The operator also will actively target DSL customers, of which there are 4.5 million in its footprint. Marcus has challenged his team to convert at least a half-million DSL subs to TWC's broadband service in 18 months. To aid this endeavor, the company will promote an HSD tier at $14.95."Over time, as these customers' speed and capacity needs increase, we'll be well-positioned to sell them higher-end products," Marcus said.Finally, over the next several years, TWC will designate certain Max Markets. These regions will go all-digital. The company will replace SD and old HD set-top boxes, roll out new DVRs and "better UIs" and exchange legacy modems with DOCSIS 3.0 modems and advanced wireless gateways in order to "meaningfully increase speeds," Marcus said."And by the way, we're not talking about tweaks here, but rather quantum changes to our speed tiers," Marcus said.Highlights from Charter's financial report included the announcement of a new Charter TV app. With it, customers can stream more than 100 live channels in the home. The plan is to add VOD content that will be available to subscribers anywhere.The company also is testing a cloud-based UI for new and existing boxes. Specifically, Charter is working with ActiveVideo Networks to test the concept of bringing a cloud-based guide to legacy boxes using MPEG and is building software with Zodiac Interactive that would work with set-top boxes that have the DOCSIS modem inside, said Thomas Rutledge, Charter president and CEO."We're going to test that beginning in Ft. Worth in the next few days," Rutledge said. "We'll start those tests in our employee homes. By the end of the year, they'll be in customer homes, and assuming that our theory works, we'll begin to test and deploy that sometime in the ... late second quarter of '14."Monta Monaco Hernon is a free-lance writer. She can be reached at [email protected].