Market Insight

Time Warner Cable prepares for its business future

October 07, 2013

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Time Warner Cable has moved to acquire fibre optic provider DukeNet Communications from partners Duke Energy and Alinda Capital. The deal is valued at $600 million and includes outlays of cash and assumption of debt.

DukeNet is a key fiber player in the Carolinas (North and South), and has presences in five other southern states. According to TWC, the acquisition is a key move, increasing data capacity for existing and future business services. Thanks to the acquisition, TWC will add 8,700 miles of fibre optic lines to its existing infrastructure.

DukeNet currently counts among its customers more than 3,500 cell sites as well as other businesses. The transaction is expected to receive regulatory approval and close by Q1 2014.

TWC and other cable operators are in the unenviable position of seeing their primary product, pay TV video, declining. Coupled with encroachment from IPTV, and potential upstart OTT technologies, cable operators are pushing to grow other business lines.

In the case of TWC, negative growth in video subscribers has been offset by growth in high-speed data and voice at the residential level. By moving into business services the company is securing new sources of revenue. From the first quarter of 2011 through the second quarter of 2013, the company grew revenues at an average quarterly growth rate of 6.8%, from $312 million to $564 million.

The move to buy DukeNet was especially insightful as it is growing its business services. During the same period Q12011 to Q2 2013 residential services grew 0.9% as subscribers defected to IPTV and OTT. At the same time, business segment revenues grew from 7 to 11% of total revenue. The purchase of DukeNet is likely to have a positive impact on revenue.

Staying ahead of the technological curve is a problem for all pay TV operators, and cable more than IPTV, with Satellite experiencing the worst of it. IHS believes that while the replacement of lost video revenue from defecting residential customers is being offset by high-speed data for residential and business, effort should be made to retain existing video subscribers. As the company continues to shed residential video subscribers, it will continue to be profitable, thanks in part to growth in business services.

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