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The considerable annoyance among subscribers facing rate increases from Time Warner Cable notwithstanding, the Wall Street press is celebrating the company’s increased earnings power for 2010, with the stock now being rated as a “compelling bet” by Barron’s.
Despite producing “copious amounts of cash,” Time Warner Cable stock is rated underpriced, and set to move higher in the new year as the company improves its earnings with price increases for its 14.6 million subscribers nationwide.
Price increases could help to power a sharp recovery in Time Warner Cable’s earnings, which probably slumped 15% in 2009, to $1.1 billion, or $3.03 a share. This year, net income could rise 21%, to $1.3 billion, or $3.60 a share, due to higher revenue and improving operating margins. The company earned $1.2 billion, or $3.57 a share, in 2008, on revenue of $17 billion.
Subscriber growth has slowed at Time Warner and other cable concerns, mainly because of the housing recession. The company lost 84,000 basic-video subscribers in last year’s third quarter, reducing the total to just under 13 million, and analysts see basic subs dropping 2.5% this year, to around 12.5 million. Still, revenue rose 3.6% in the third quarter, to $4.5 billion, putting Time Warner Cable on track to generate $18 billion of revenue for the full year, and $19 billion in 2010. Analysts expect some recovery in advertising revenue, and additional growth from the further penetration of bundled residential high-speed data and digital phone products.
Barron’s points out Time Warner Cable’s capital spending has continued to decline dramatically, falling 13 percent in the third quarter. The company had free cash flow of $465 million in the period.
Despite the company’s falling broadband costs, falling capital spending, and increasing prices, some Time Warner Cable executives still approve of taking earnings to an even higher level with Internet Overcharging schemes that would change the “pricing model” for broadband service. Despite company claims such changes would save customers’ money, relentless price increases in many communities — even higher for those on Road Runner’s economy tiers, prove otherwise.
What is Time Warner Cable doing with all of the money? Paying down some debt and returning cash to shareholders, perhaps via an ordinary dividend or share buyback, according to Barron’s.
What allows for a company to increase pricing on broadband service and subject customers to a potential Internet Overcharging scheme down the road?
“At a time when demand for broadband is going through the roof, Time Warner is the only game in town in a lot of its footprint,” says Craig Moffett, an analyst at Bernstein Research.
Other stories of interest:
- First Take: Time Warner Cable Adds Broadband Customers, Sees Higher Revenue, Costs Plummet in 2nd Quarter
- It Begins: Wall Street Analyst Calls for Comcast & Time Warner Cable to Merge
- Time Warner Cable Reports Healthy Growth in Broadband in 1st Quarter 2009
- Time Warner Cable CEO Reports Basic Cable Suffers While Broadband Gains, Still Thinks ‘Usage Based Pricing’ is the Future
- Wall Street Smells Money – JP Morgan Bullish On Cable: Time Warner Cable & Comcast Ready To Earn More From Broadband
TWC is no longer the only game in town here, so they’re going to have to keep their unusually competitive pricing relatively static, at leats on their lower tiers of internet service. TV is different, but on phone service we have three cellular carriers (CricKet, WCW, Pocket) who are more than willing to sell unlimited service at a price comparable to TWC digital voice and a coverage area that’s a little larger than their cable service area.
The bottom line: TWC used to be the only game in town for internet above 2 Mbps here, and despite this hasn’t raised internet prices in quite awhile. Now that there is competition, I’m guessing that everyone would have to unilaterally raise rates in order to make internet service more expensive for customers in town, which nobody wants to do. We don’t have DOCSIS 3 or FTTH here yet, but it’s still a decent situation for customers in town.
TWC is the only game in town here, and because of that we are thinking of moving out of NC. Why such a drastic step. My wife and I both telecommute and use the net for research. We are heavy users and are willing to pay the price for a higher tier of service. However, we expect to receive what we pay to receive. The speed we receive now is unacceptable and is no where near the expected speed.
Most people focus on download/upload speed. But that is not the only measure that controls the speed at which the internet is accessed. There is also latency. This is the amount of time it takes a packet of data to move across a network connection. When a packet is being sent, there is “latent” time, when the computer that sent the packet waits for confirmation that the packet has been received. Latency and bandwidth are the two factors that determine your network connection speed.
A recent test of my Time Warner line showed these results
* Downstream Bandwidth: 7074 Kbps * Downstream Queue: 133 ms
* Upstream Bandwidth: 381 Kbps * Upstream Queue: 1179 ms
additional reading / reference sources:
http://en.wikipedia.org/wiki/Ideal_Web_response_time#Speed_issues
http://homepage.ntlworld.com/robin.d.h.walker/cmtips/surfboard.html#upid