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TheStreet Open House

Competition Pinches Time Warner Cable

Video competition squeezes another cable giant as Time Warner Cable (TWC) sees higher-than-expected customer defections and misses its third quarter profit target.

In the third quarter, Time Warner Cable says it saw its basic video subscriber numbers decrease by 83,000, with 66,000 of that decline coming from the Dallas and Los Angeles markets, where competition from rivals has heated up. Analysts and investors were expecting user losses of about 50,000.

Failure of cable companies to convert basic video customers into subscribers of multiple digital services like phone and Net access has been exposed as a big vulnerability as players duke it out with so-called triple play offers.

A good measure of how effective cable companies are at selling more services is the revenue generating units number. In the third quarter, Time Warner Cable added 522,000 RGUs, which is down sequentially from the 546,000 mark in the second quarter.

Strong promotion of high-definition programming by satellite broadcasters DirecTV (DTV) and EchoStar (DISH) along with the entry of phone companies like AT&T (T) and Verizon (VZ) in the video market has helped lure customers away from cable players like Comcast (CMCSA), Cablevision (CVC) and now Time Warner Cable.

The slowdown was reflected in Time Warner Cable's financials.

Time Warner Cable posted an adjusted profit of 25 cents a share on $4 billion in sales. Analysts were expecting pro forma earnings of 27 cents a share on $4.04 billion in revenue, according to Yahoo Finance.

Looking ahead, the company reaffirmed its 2007 sales target calling for about $16 billion in total revenue. That happens to be in-line with analysts' expectations.

We're planning for a strong finish this year, and we remain firmly on track to generate attractive free cash flow and achieve our ambitious operational goals for the year," CEO Glenn Britt said in a press release Wednesday.

Time Warner Cable shares rose 22 cents early Wednesday to $27.77.

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