Adelphia Integration Costs Time Warner Customers
Integrating Adelphia and Comcast L.A. and Dallas systems drove off about 52,000 basic cable subscribers Q4, Time Warner Cable (TWC) said in an earnings release that reported otherwise solid results. The disaffection arose from channel lineup changes and disruption of broadband service, Pres. Jeff Bewkes said in a teleconference with investors: “We're in the middle of resolving it and we believe we'll be able to straighten out L.A. mostly during this year.” The problems prompted L.A.-area subscribers who stuck with the service to bring a class action suit. Separately, Chmn. Richard Parsons assured investors that Time Warner Cable will begin trading on public markets as soon as possible.
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Upgrading Adelphia systems for advanced services will cost less than expected, Bewkes said: “The cap-ex required for the upgrade of the acquired systems is in a range of $450-$550 [million] which is a little bit lower than what we thought when we signed up.” TWC expects to keep losing subscribers in acquired markets for the first half. By the end of 2007, it expects to have the systems under control and to begin adding customers, Bewkes said, saying TWC has a track record of buying subpar cable systems, bringing them up to TWC standards and winning new customers.
L.A.-area customers have complained of customer service problems beyond the new channel lineups and spotty broadband service, said Alexander Rufus-Isaacs, an attorney representing former Adelphia and Comcast customers in the class-action suit against TWC filed in Nov. “We have been besieged with complaints,” he said: “I am still getting between 5 and 15 e-mails a day from people complaining about the fact that they're getting screwed over.” Some customers’ e-mail storage shrank dramatically; others couldn’t receive e-mail at all; and some discovered VoIP services such as Vonage suddenly stopped working, according to Rufus-Isaacs. “We believe these people massively underinvested in the transition,” he said. Rufus-Isaacs may expand the class to include Dallas-area subscribers, but settlement talks with TWC are taking place, he said. “The day after we served Time Warner Cable, we heard from their attorneys suggesting we sit down and discuss settlement.”
TWC added 29,000 basic video customers in its legacy systems offsetting some Tex. and Cal. losses. Analysts largely looked past those subscriber losses, accepting management’s promise to right the ship this year. “Reported cable revenue and EBITDA were above our estimates and operating trends were generally encouraging,” Merrill Lynch analyst Jessica Reif Cohen wrote. TWC revenue rose 57% from last year to $3.5 billion. Sales at Time Warner’s programming networks rose 10% from last year to $2.67 billion. Its profit grew 38% from last year to $1.7 billion.
Meanwhile, Time Warner is moving to take its cable unit public despite challenges by some Adelphia creditors in bankruptcy court, Parsons said. TWC stock could begin trading through a standard initial public offering or by distribution of its stock to Adelphia creditors, Parsons said: “We're committed to proceeding on both paths, so that Time Warner Cable may become a public company as expeditiously as possible.” A hearing on whether the creditors appealing will have to put up a $1.3 billion bond during the appeal is set for Feb. 6. “How quickly things evolve after that ruling is very difficult to gauge at this juncture,” wrote Prudential analyst Katherine Styponias.