We initiate coverage for Time Warner Cable Inc. (TWC) with Neutral recommendation. Despite the deep recession, Time Warner Cable sharpened its focus on business telecom services to make up for sagging revenues from residential subscribers. The company has hiked its capital spending on commercial-related plant and equipment upgrades while cutting its residential capital expenditure budget.
The company is emphasizing on providing IP-Ethernet services everywhere and booting up cloud computing services. Next-generation WiMAX service is another major venture. Under the brand name of “Road Runner Mobile”, this super-fast mobile broadband network will provide its subscribers the convenience of mobility so that customers can enjoy the WiMAX services on their devices anywhere within their service circle.
Time Warner Cable will utilize the nationwide WiMAX network infrastructure being set up by Clearwire Corp. (CLWR). Time Warner Cable is aggressively rolling out next-generation DOCSIS 3.0 (also called Wideband) service. The company has decided to continue to roll out switched digital video (SDV) in three major markets of Los Angeles, New York City, and Dallas.
Deployment of SDV will free up bandwidth that can be used by Time Warner Cable to offer 100 high-definition TV channels (HDTV), HD video-on-demand programs, and DOCSIS 3.0. The company will offer DOCSIS 3.0 services to both the residential and business customers.
However, Time Warner Cable is a pure-play in TV and Internet distribution. The company is suffering significantly from the lack of any effective media asset. As a result, Time Warner Cable is highly dependent on TV content providers who are quickly increasing their programming fees.
The company’s closest competitor Comcast Corp. (CMCSA) recently decided to acquire a majority stake in NBC Universal. Management has warned that a more competitive environment may negatively affect the growth of revenue generating unit coupled with average monthly subscription revenues per revenue generating unit.
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