Bloomberg recently reported that Time Warner Cable Inc. (TWC) is in talks with Harbinger Capital Partners-backed LightSquared venture to provide high-speed 4G LTE services.
LightSquared is currently deploying a nationwide wholesale LTE network.
Nokia Siemens Networks, a joint venture between Nokia Corp. (NOK) and Siemens AG (SI), will install a LTE mobile broadband network for LightSquared with around 40,000 base stations that will cover 92% of the U.S. population by 2015.
Since December 2009, Time Warner Cable has been offering another form of 4G network called WiMAX using the wholesale WiMAX network of Clearwire Corp. (CLWR). Under the brand name of “Road Runner Mobile”, Time Warner Cable’s WiMAX service provides its subscribers the convenience of mobility so that customers can enjoy the WiMAX services on their devices wherever they go within their service circle.
Road Runner Mobile broadband network supports Internet speeds of 6 Mbps. The company also sells WiFi hotspots called “IntelliGo” to its WiMAX subscribers. IntelliGo provides its users the convenience of mobility so that customers can enjoy the WiFi service wherever they go within the service circle.
However, the WiMAX venture of Time Warner Cable is underperforming. During the fourth quarter of 2010, the wireless segment generated $20 million of losses and for the full year 2010, total loss was $50 million. The company has guided that this segment will continue to run a loss in 2011. Currently, the company has only 15,000 WiMAX subscribers. So far management has failed to give the much-needed thrust to this business for its future growth.
We believe the decision to utilize LightSquared’s LTE network is an attempt by Time Warner Cable to make its wireless business profitable. In synergy with the recent trends in the cable industry, Time Warner Cable is quickly losing its core basic video subscribers to fiber-based services of telecom operators, satellite TV operators and newly developed Internet-based video streaming service providers.
Nevertheless, much of Time Warner Cable’s enthusiasm for LTE will depend on how quickly LightSquared will be able to install the wholesale network. The venture needs billions of dollars to build a nationwide 4G LTE network. It is still a long way away though management is hopeful to attain its targets. Meanwhile, we maintain our long-term Neutral recommendation for Time Warner Cable. Currently, it holds a Zacks #3 Rank (Hold) on the stock.
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