Time Warner Cable (NYSE:TWC) reported its 1Q 2013 earnings on April 25. While the focus was primarily on pay-TV and broadband business, it was interesting to note the reported drop in voice subscriptions. As expected, the broadband business showed robust growth driven by continued demand for high-speed data services. Following the trend in the cable industry, the pay-TV subscriptions continued to decline, and the company stated that it will move away from promoting its triple-play bundles and focus rather on its premium offerings that can translate into higher revenues.
Pay-TV Strategy Shifts As Subscriber Losses Continue
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Time Warner Cable’s pay-TV business continued to suffer due to the availability and use of alternate video platforms and increased competition from telcos and satellite companies. Unlike its rival Comcast (NASDAQ:CMCSA), Time Warner Cable hasn’t showed much promise of improvement and lost 118,000 pay-TV customers during the quarter. This decline can be attributed to the loss of customers who signed up in late 2011 and early 2012 under promotional pricing.  In addition to this, the delay in digital transition is also playing its part.
However, the company stated that it has changed its strategy and is now focusing on customer retention through personalization. In order to do so, Time Warner Cable will provide them with premium offerings such as faster Internet or premium television channels based on their interests rather than trying to push for bundled options with voice services.  We believe this is a good move for the company as it will not only help it retain customers but also aid its average revenue per user (ARPU) growth.
Broadband Business Remains Strong, Voice Subscriptions Decline
The demand for faster Internet and the decline of DSL Internet connections continued to drive Time Warner Cable’s broadband growth. The company reported a net addition of 131,000 broadband subscribers during the quarter along with broadband ARPU growth of 10%. 
However, the quarterly results in Time Warner Cable’s voice business came as a slight surprise. The company reported a decline of 35,000 voice subscribers and it appears that the higher cellphone usage is encouraging customers to reduce their reliance on wired phones. The company’s management hinted of price cuts to retain voice customers. However, given the measures being taken regarding moving away from triple play bundles, any bounce-back in voice subscriptions is unlikely.
We are currently in the process of updating our model for Time Warner Cable in the light of recent earnings and will have an update ready soon.
Our price estimate for Time Warner Cable stands at $91.50 is roughly in line with the market price.Notes:
- Time Warner Cable Management Discusses Q1 2013 Results – Earnings Call Transcript, Seeking Alpha, Apr 25, 2013 [↩] [↩]
- Time Warner Cable’s SEC Filings [↩]