Negative Sub Traction

A Time Warner Cable
executive’s prediction his company
could lose video, voice and
data subscribers in the third
quarter did more than dent
TWC’s stock.

It also sent analysts back to
their spreadsheets to refigure
their estimates for the country’s
largest MSO, Comcast.

TWC chief financial officer
Rob Marcus said at the Bank of
America Merrill Lynch Media,
Communications & Entertainment
conference on Sept. 15 that
the weak economy continues to
weigh on subscriber growth. Basic-
video losses were outpacing
the losses of the same period last
year, he said.

High unemployment, high
home-vacancy rates and anemic
new housing formation could
send primary service units (PSUs)
— a combination of video, voice
and data customers — into negative
territory in the period, he


“Video in particular has been
challenged,” Marcus said. “Video
net losses are pacing ahead
of where they were in last year’s
Q3, voice growth is slower than
it was last year and HSD [highspeed
data], while the strongest
performer, is still lower than last
year. The net-net of all of that is
that we may actually see a PSU
loss for Q3.”

Time Warner Cable’s stock
closed Sept. 15 down nearly 5%
($2.47), to $52.43.

Other publicly traded cable
companies weren’t troubled that
day. Comcast was up 25 cents, to
$18.04; Cablevision Systems fell
10 cents, to $27.10; Mediacom
Communications lost 5 cents, to
$6.49; and Charter Communications,
newly returned to NASDAQ,
dipped 75 cents, to $34.75.

The next day, though, two analysts
revised subscriber loss
estimates for Comcast. Pivotal
Research principal and media
and communications analyst Jeff
Wlodarczak said he expects Comcast
to gain about 150,000 PSUs
(not including digital customers)
in the third quarter, less than half
the consensus estimate of a gain
of 300,000 to 400,000 PSUs. He
forecast slightly negative PSU activity
for Time Warner Cable.

Wlodarczak wrote in a research
note that Time Warner Cable “historically
has often
been a good
proxy for Comcast

Collins Stewart
media analyst
Tom Eagan said
he now believes
Comcast will lose
about 177,000 basic
customers in
the quarter (versus
his previous
estimate of a loss
of 157,000 basics).

Eagan also said
he believes Time
Warner Cable
will lose 129,000
basic customers
in the period (instead
of 75,000)
and believes
PSU growth will
be flat.

Both analysts expected a rebound
in PSUs in the seasonally
stronger fourth quarter.

Marcus did not estimate how
big a video loss Time Warner Cable
is anticipating. TWC lost about
84,000 video customers in the
third quarter of 2009. PSUs in the
year-ago period rose by 109,000,
according to company financial

Financially, Marcus said, Time
Warner Cable should outperform,
with operating income before depreciation
and amortization (OIBDA),
less capital expenditures,
growing about 20% this year.

He was optimistic regarding
commercial-services growth,
seeing revenue in that segment
rising more than 20% in 2010.

Despite efforts by incumbent
phone companies to cut pricing
as much as 40% to counter Time
Warner Cable’s commercial offerings,
Marcus said he felt comfortable
with the cable company’s

Time Warner Cable launched
its first segmented bundle product
— a high-end premium
package for its biggest-spending
customers — complete with a
“white-glove customer-service offering”
in Charlotte, N.C., recently,
Marcus also said. It’s expected to
be the fi rst of several segmented
packages rolled out this year.

Marcus also indirectly addressed
speculation that Time
Warner Cable is on the acquisition
hunt: a Reuters report earlier
this week claimed Time Warner
Cable was in early talks with Cox
Communications regarding system
swaps and possibly a broader


Marcus did not directly respond
to the Cox speculation — and he
wasn’t directly asked — but said
that right now no deals are on
the horizon. “But we look at almost
everything,” he said.

Comcast chief financial officer
Mike Angelakis, who spoke at
the Bank of America conference
earlier on Sept. 15, did not make
subscriber predictions. Instead,
he said Comcast saw big opportunities
in commercial services.
He called it a potential $20 billion
to $30 billion market. Comcast
has been concentrating on
small-business customers (with
20 employees or less), a market
expected to generate about $1.2
billion in revenue this year.