Time Warner Cable’s summer was “horrible,” to quote one analyst, after three percent of customers left over programming disputes and increasing prices for broadband and telephone service, with more likely to follow as price promotions expire and rates increase further.

Cable analysts were shocked Time Warner Cable lost 308,000 customers in the last three months, most leaving over interruptions of CBS and Showtime over a contract dispute. But customers were also ready to leave over increasing modem rental fees, rate increases, and the company’s growing pullback on promotional pricing. Time Warner Cable’s poor results have ironically caused its stock price to increase this morning, but only because investors suspect a shareholder value-boosting merger with Charter Communications could come within months.

“Just horrible,” MoffetNathanson analyst Craig Moffett wrote in a note to investor clients this morning. “The CBS dispute apparently took a much larger toll than anyone would have imagined, and this colored all the results.”

Sources have told Reuters that cable billionaire John Malone has approached Time Warner Cable about a full takeover by Charter Communications, but has been rebuffed by Britt so far. But with Britt exiting and Time Warner Cable’s underperformance, shareholder pressure for a deal with Charter will only increase.

“This enhances Malone’s appeal to Time Warner Cable shareholders that they would be better off with another management team,” Brean Capital analyst Todd Mitchell told Reuters.

When promotional prices end, a growing percentage of TWC customers drop services or take their business elsewhere.

The subscriber losses pushed profits down 34 percent at the cable company, to $532 million. The triple play tragedy saw subscriber losses for all the company’s residential services. At a time when other cable companies cannot process High Speed Internet sign ups fast enough, at least 24,000 Time Warner Cable broadband customers left over rate hikes and equipment fees. Analysts had expected the company to pick up more than 46,000 broadband customers during the last three months, not lose them. The company’s phone service is also in decline. Only rate increases and customers upgrading to higher speed tiers delivered a slight revenue boost.

Outgoing CEO Glenn Britt set the stage for the current forced retreat on its revenue forecast for the year:

• Time Warner Cable executives made the decision at the end of 2012 to stop heavily discounting service and cut back on promotions. Their theory was the company would attract a larger base of stable customers willing to pay non-promotional rates and tolerate rate increases;
• Executives announced as Time Warner’s phone service was brought “in-house,” the company would stop aggressively pricing triple play bundles that included phone service. That turned out to be a bad decision for growth because customers, already prone to landline cord-cutting, downgraded their bundle or left when promotions expired and ditched the phone line;
• A year of broadband price increases and the introduction of a modem rental fee rubbed customers the wrong way. “We have raised prices recently in the form of modem rental fees, but it’s really just broadband price increase,” again admitted Britt this morning. Future rate increases on modem rentals will give broadband customers another push to shop around for a better deal. At least 24,000 did that over the summer and left, mostly for AT&T U-verse in the midwest and Verizon FiOS in the east.

The lengthy dispute between Time Warner and CBS did the most damage and not just to customers directly affected by channel losses. A major increase in call volumes from alienated customers overwhelmed national call centers, creating long hold times for everyone calling in.

Time Warner expects 40 percent of the cable company’s service area will be overlapped by major competitors AT&T U-verse (now 27%) and Verizon FiOS (now 13%). That represents one million more homes than last year.

Bye Bye: Time Warner Cable lost residential customers for all of its services during the third quarter.

Incoming CEO Robert Marcus said he was dissatisfied with subscriber results from current promotions and rates. New Time Warner Cable customers, Marcus noted, are paying higher prices for fewer or less robust services as part of current promotional packages. Although that has driven a “dramatic improvement in recurring revenue” among customers actually signing up, many choose the lower-priced competition instead.

Marcus also noted customers are taking fewer services and are resistant to upgrading to double or triple play packages, reducing the potential average revenue per customer (ARPU).

“To a great extent, these are expected outcomes of our pricing and packaging strategy and the trade-off between ARPU and volume, but I’m confident we can do better on volume without giving up the ARPU benefits we’ve been achieving,” Marcus told analysts on a morning conference call.

Instead of getting more aggressive on pricing, the company plans to trot out free gifts and pitch discounted slow speed Internet to attract price-resistant DSL customers.

“Next week, we’ll launch our holiday offer, which includes a free Samsung tablet loaded with all of our apps, including TWC TV, with the purchase of higher-end packages,” Marcus said. “I think this will generate lots of interest and really highlight TWC TV and the value it adds to our service offerings.”

Marcus called it inconceivable and unacceptable that at least 4.5 million people are still subscribed to telephone company DSL in Time Warner Cable service areas. The company plans an advertising blitz to steal customers away from companies like AT&T, Verizon, Frontier, CenturyLink, Windstream and FairPoint.

At the center of that effort is the recently announced 2/1Mbps Lite package, which will sell at the everyday price of $14.95 a month. Marcus wants at least 500,000 DSL customers switched to Time Warner over the next 18 months.

“Over time, as these customers’ speed and capacity needs increase, we’ll be well positioned to sell them higher-end product,” Marcus said.

Or they will switch back to the phone company if Time Warner increases the price.

FiOS Have’s and Have-Nots

Despite complaints earlier this month from Boston Mayor Thomas Menino that Verizon’s latest ad for FiOS was filmed in Boston — a city that lacks the fiber optic service, not every Massachusetts community is so unlucky.

Stop the Cap! reader John C. wrote to alert us that the town of Raynham will get Verizon FiOS service despite Verizon’s long-standing intention not to further expand the fiber service outside of areas already committed.

It turns out Verizon’s partial buildout of fiber optics in the area was reason enough for Verizon to complete wiring Raynham with fiber and seek a formal franchise agreement from the town’s board of selectman. Phil Santoro, a Verizon spokesman, noted the company did the same thing a year earlier in Medford.

Raynham residents will be able to buy voice, data, and television service from Verizon, in direct competition with Comcast.

Verizon plans to offer residents FiOS TV service, FiOS Internet service and the FiOS Digital Voice unlimited calling plan starting at $89.99 a month, with a two-year contract.

Meanwhile, the city council of Quincy is desperately seeking cable television competition after hearing complaints from senior citizens they can no longer afford Comcast’s prices.

The city council has repeatedly reached out to Verizon in hopes the company will bring FiOS to town, but to no avail.

Comcast is in the seventh year of its 10-year franchise agreement in Quincy and is unlikely to change much when it requests a renewal.

City Solicitor James Timmins believes the reason Verizon isn’t interested is the fact “it costs the company about $1,500 to hook up each home.” Timmins also claimed “Verizon knows that in a few years FiOS (TV) is going to be obsolete.”

New York regulators have turned down Time Warner Cable’s request to shut off past due phone customers late at night or on weekends to protect consumers.

The Public Service Commission today reaffirmed long-standing rules that allow phone providers to only disconnect customers for non-payment between the hours of 8:00am – 7:30pm Monday through Thursday and 9:00am to 3:00pm on Friday.

“We are saying ‘no’ to Time Warner’s request to waive our rules regarding when it would be authorized for suspensions and terminations of its telephone customers,” said Commission chair Audrey Zibelman. “The Commission’s rules applicable to Time Warner are consistent with the hours of operation of the Commission’s consumer call center which receives consumer complaints’ and requests for assistance. To ensure telephone consumers’ rights are protected, especially core customers such as the elderly and disabled, it is essential customers are afforded the opportunity to contact our call center if their telephone service is threatened with a potential suspension or termination.”

But Time Warner Cable was granted approval of most of its other regulatory reform requests:

• Time Warner Cable can now apply partial payments first to basic local telephone charges, then non-basic services;
• The cable company will not have to distribute White Page directories except on request in print or CD-ROM format;
• After six months of providing monthly service quality figures, the cable company can limit future reports to only reflect standards for “core customers,” if the PSC finds Time Warner is providing adequate service.

Time Warner Cable has added two new lobbying firms, despite running up nearly $4 million in lobbying expenses during the first half of 2013, to advocate a hands-off policy on broadband and changes in how television stations get compensated from cable providers after a month-long dispute with CBS helped fuel subscriber losses.

The Legal Times blog reports Time Warner Cable has hired Dentons and Edwards Wildman Palmer to advocate the company’s positions on broadband deployment, copyright reform, privacy matters, retransmission consent, and the reauthorization of the Satellite TV Extension and Localism Act. Provisions of that legislation have given television stations and broadcast networks leverage to persuade pay television providers to meet their terms on higher compensation in return for permission to carry those signals on the cable or satellite lineup.

Nelson

In reviewing disclosures released by the clerk of the House of Representatives obtained by Stop the Cap!, Time Warner Cable will benefit from Washington’s revolving door, using lobbyists that either used to work inside offices of members of Congress or have been directly involved in writing or influencing legislation for paying clients:

Valerie Nelson, a senior managing director at Dentons, served as director of Member Services for Majority Leader Eric Cantor (R-Va.) in the U.S. House of Representatives.

Todd Bertoson, also a senior managing director at Dentons, spent nearly six years on the U.S. Senate Committee on Commerce, Science, and Transportation, working on all aspects of the committee’s agenda, including issues involving the Federal Communications Commission (FCC).

Bertoson

Seth A. Davidson, a lobbyist from Edwards Wildman Palmer, has played an active role, including drafting legislation and witness testimony, in most legislative matters affecting the communications industry over the past three decades, including the 1984 and 1992 Cable Acts, the Digital Performance Right in Sound Recordings Act of 1995, the 1996 Telecommunications Act, the Digital Millennium Copyright Act, and the Satellite Home Viewer Act of 1989 and each of its subsequent renewals. His involvement in legislative matters of interest to his clients is so pervasive, he was singled out by the chairman of the Senate Judiciary Committee in 2004 for his contributions (on behalf of his clients) in the drafting of the Satellite Home Viewer Extension and Reauthorization Act.

The Legal Times notes Time Warner Cable has spent $3.8 million on federal lobbying during the first half of this year, according to congressional records. For its advocacy efforts, the company used its own staffers, as well as lobbyists from firms that included Capitol Tax Partners; Fierce, Isakowitz & Blalock; and The Raben Group.

Waxman

An e-mail message from a lobbyist employed by Time Warner Cable has dragged the cable company into the middle of the partisan dispute over the merits of the Patient Protection and Affordable Care Act, better known as “Obamacare.”

Rep. Henry Waxman (D-Calif.), the ranking member of the House Energy and Commerce Committee obtained a copy of an e-mail message sent by the cable lobbyist to House and Senate Republicans:

“Next time you think about helping the broadcasters – particularly the networks – read this. . . .”

The e-mail contained a link to an article in the conservative Weekly Standard titled, “NBC Launches Week of Programming to ‘Help’ Obamacare Succeed.”

The incident did not amuse Waxman, who promptly fired a letter off to Time Warner Cable CEO Glenn Britt:

Mr. Glenn A. Britt
Chairman and Chief Executive Officer
Time Warner Cable
60 Columbus Circle
New York, NY 10023

Dear Mr. Britt:

I recently obtained an email that one of Time Warner Cable’s lobbyists sent to Republican staff in the House and Senate.  The email says, “next time you think about helping the broadcasters – particularly the networks – read this. . . .”  Immediately below his message, your lobbyist pasted a link to an article in The Weekly Standard titled “NBC Launches Week of Programming to ‘Help’ Obamacare Succeed.”   I have attached a copy of the email.

Could you please explain why this email was sent and what purpose it serves?

A broadcaster has a public service obligation and should be informing viewers about the new options for health coverage under the Affordable Care Act.

On the other hand, a cable company should not be pandering to the worst instincts of the reckless Republican extremists that seem to be running the House of Representatives.

Sincerely,

Henry A. Waxman
Ranking Member