Cable May Have Cure for Churn

Aug 8, 2005  •  Post A Comment

Time Warner Cable, the nation’s second-largest multiple system operator, reported results last week for the second quarter that provide solid evidence that bundling may be the cure for churn.

The supposition for quite a while has been that when wired cable systems offer a bundle of products that includes video, high-speed data and traditional telephone services, it becomes less likely that customers will be lured to alternative providers such as satellite TV.

Cable operators have been rolling out a slew of new products in recent months, mainly as a way to increase revenue and profitability. The products range from digital video recorder service to security systems to high-definition TV services. But based on the Time Warner results, the key element is proving to be voice over Internet protocol, which is the cable companies’ answer to the telephone companies’ wired-line voice service.

The VOIP product is available to various degrees in all 31 markets Time Warner services, making it the only MSO with such an expansive rollout of voice services. VOIP availability appeared to help the company report only 5,000 basic-cable subscriber losses in the second quarter, versus 21,000 a year ago, when VOIP wasn’t in every market. It’s a number that analysts call significant, not only in comparison with the size of other cable operators’ basic sub losses but also because it took place during the seasonally weak second quarter, when many snowbirds and college students disconnect their service for the summer.

Time Warner Cable reported a 12 percent surge in operating income to $495 million and an 11 percent rise in revenue to $2.4 billion, driven largely by subscriber growth in high-speed data and telephony and by higher revenues from advanced digital cable services.

To be sure, it is probably too early to call Time Warner’s experience the start of a full-fledged trend. But its results appear to mirror those of Cablevision Systems, which first offered VOIP in late 2003 and has used it as the backbone of its triple-play product offering of video, high-speed data and voice.

Because the telephone service relies on a cable operator’s high-speed data network, an increase in high-speed data subscriptions is not surprising. But what is making some analysts take note is the halo effect that VOIP seems to have on the basic-cable service.

What is it about the cable voice product that helps retain customers in other areas? The service is generally being offered by MSOs for $29.99 a month to $39.99 a month and includes long distance as well as an array of other features that wired-line phone companies have charged extra for, including caller ID, call waiting and three-way conferencing.

“For price-sensitive customers, the ‘everyday low prices’ offered on digital voice service can more than offset a price disadvantage in broadband Internet access relative to [the phone companies’ digital subscriber line service] and in video relative to [satellite company] EchoStar,” said Craig Moffett, a cable and satellite analyst at Bernstein Research.

The success of the bundle comes at a crucial time for wired cable. In recent months, satellite services DirecTV and EchoStar have continued to make gains in market share versus wired cable. However, satellite providers cannot offer a competitive voice product.

It also comes at a time when the big telephone companies such as Verizon, SBC and BellSouth are poised to make an expensive assault on the wired-cable industry, offering their own versions of the triple-threat bundle to their already sizable customer bases. The phone companies are rushing into offering video content services for the same reason MSOs are offering voice services: Customers appear to like having a single provider as long as the overall pricing scheme is competitive.

Three other large multiple system operators also reported results last week, but none has yet rolled out voice service in enough of its service areas to see a major impact. All three are expected to do so, however.


The nation’s largest MSO reported last week that its second-quarter profit surged 64 percent to $430 million, from a year-earlier figure of $262 million. Revenue climbed 10.5 percent to $5.6 billion. The gains came as Comcast reported increases in digital cable, high-speed data and telephone customers. Comcast said it added 284,000 digital cable subs while losing 77,000 basic cable customers, which the company said was about flat from a year ago. On the high-speed data front, Comcast added 297,000 customers and added 15,000 telephone customers during the period.


The cable operator controlled by Microsoft co-founder Paul Allen reported a second-quarter loss of $356 million versus a loss of $415 million a year ago. Revenue advanced 7 percent to $1.3 billion. The improvement came as Charter saw its high-speed-data revenue surge 25 percent, thanks in large part to nearly 311,000 net new high-speed data customers in the quarter. The company’s video revenue rose 2 percent.

The video subscriber numbers proved to be a mixed bag for Charter. The company said it lost 41,700 basic cable subs, far fewer than many analysts had expected. However, analysts’ predictions that the company would gain digital cable subscribers proved off the mark, since Charter lost 9,000 digital customers.


The cable operator based in Middletown, N.Y., swung to a loss in the second quarter amid higher expenses related to the deployment of advanced cable set-top boxes. The company reported a loss of nearly $6 million, compared with a profit of $30.1 million a year ago. Revenue rose nearly 4 percent to $277.3 million.

The results came as Mediacom’s subscription numbers beat several analysts’ projections. The company lost 15,000 basic-cable subscribers but gained 25,000 digital cable subs and added 19,000 high-speed data subscribers.