|
 Its stock price increased more than five fold and it returned more
than $9 billion to its shareholders in dividends and stock buybacks,
on top of a $10.9 billion dividend at the time of the split.
But in the process of rewarding its investors, the nation's
second-largest cable operator may have become one of the industry's
weakest performers. Leichtman Research Group estimates that over the
past two years, the company lagged rivals by losing nearly 10
percent of nearly 13 million video customers.
In New York, its largest market, it's lost about 45 percent of its
customers to Verizon's<VZ.N> three-year old video offering,
according to MoffettNathanson research.
The result is the opportunity for cable billionaire John Malone to
pursue a takeover, arguing new managers such as Charter
Communications Chief Executive Tom Rutledge could do a better job
running the company.
"They under-invested in their core video product and were super
aggressive in capital returns which has done great things for their
stock price but has left them in a poor competitive position," said
Brean Capital analyst Todd Mitchell.
Malone, whose Liberty Media owns 27 percent-owned Charter
Communications <CHTR.O>, the country's fourth largest cable
operator, is expected to make a bid to buy Time Warner Cable in the
coming weeks. Comcast <CMCSA.O>, the nation's largest cable
operator, is mulling a bid as well.
How did Time Warner Cable, one of the industry's best performers
only a few years ago, fall so far so fast?
Analysts, competitors and former Time Warner executives paint a
picture of a company that was eager to please its shareholders, but
was timid about spending heavily to take on competitors. It was slow
to roll out new digital services just as satellite TV and telecom
competitors were offering slick new video technology and super-fast
internet speeds.
Its image was also hurt by picking high profile fights that denied
its customers must-see programming on No. 1 network CBS.
THE FIOS CHALLENGE
One of Time Warner's biggest mistakes, analysts said, was not
reacting quick enough to the mounting threat from Verizon's FiOS
video service, which in 2008 entered New York, one of the cable
operator's largest markets.
According to one former executive, the company's chief operating
officer and incoming CEO Rob Marcus rejected imposing a two-year
guaranteed freeze on prices in that market, worried that it would
send a signal to investors that the company was powerless to raise
prices in the future.
"Time Warner Cable's results in its New York systems have been
shockingly bad since the roll out of FiOS," said cable analyst Craig
Moffett of MoffettNathanson Research, who estimates it lost a
staggering 45 percent of its New York subscribers to Verizon. "And
they haven't improved much since."
A Time Warner Cable spokeswoman said Verizon's pricing has made the
"company reevaluate our customer value proposition" and it is
introducing faster Internet in New York City. It has also introduced
a new program to win back subscribers from FiOS that she said has
slowed the rate of defections in areas where FiOS has made its
biggest gains.
[to top of second column] |
Time Warner Cable also moved slowly to roll out digital technology
and hasn't yet converted its entire system to a digital signal,
analysts said. A digital signal allows cable companies to offer more
advanced features, including faster broadband Internet speeds, a
business with higher margins than video service.
Its larger competitor, Comcast, spent heavily starting in 2008 on
updating its systems and now provides digital service to all its
customers, while Time Warner Cable chose the cheaper route of using
"digital switch," a technology that allows the company to ration out
digital services and hold onto some of its analog signals.
Comcast unveiled its first cloud-based guide and infrastructure two
years ago, and a second version with features such as voice control.
Time Warner Cable is still working on getting its first cloud-based
guide to its subscribers.
A Time Warner Cable spokeswoman said the company has brought digital
service to its entire New York market, and is speeding up the
release of its cloud-based guide to 6 million cable boxes by the end
of 2014.
CUSTOMER COMPLAINTS
Many customers still complain about Time Warner Cable's clunky
technology and spotty internet speeds. While customers from all
cable companies complain about their service, Time Warner Cable is
dead last in customer satisfaction surveys in three of the country's
four regions, according to J.D. Power. In the fourth region, the
West, it ranks seventh of nine subscription TV providers surveyed.
Tom Lino is one of those eager to jump to Verizon because he says
Time Warner Cable charges too much for Internet service that's too
slow and customer service too sluggish. "We chase the Verizon truck
every time it goes down the street," said Lino, 53, a Brooklyn audio
technician. "It's the talk of the neighborhood: when is FiOS
coming?"
Time Warner Cable said it plans to improve customer service, and
plans for technicians to arrive within a 1-hour window for service
calls in most areas.
The company also says it is contemplating a name change starting in
its biggest markets for its top tier of services and then spreading
to all of subscribers eventually. Comcast changed the name of its
customer brand to Xfinity in 2010 to dramatize its new services.
Time Warner Cable CEO Glenn Britt rejected the idea of changing the
company name to "Streem" back in 2010, say former executives, after
he was told it would have cost $200 million to rebrand the company.
Even so, a revamp of its name might not be enough for Time Warner
Cable to escape the clutches of a potential suitor, says Brean
Capital analyst Mitchell.
"If they operated better," he said, "they would be trading at a
better multiple and would now be a buyer and not a seller."
(Reporting by Liana B. Baker in New York
and Ronald Grover in Los Angeles; editing by Tim Dobbyn)
[© 2013 Thomson Reuters. All rights
reserved.] Copyright 2013 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed. |
