http://www.reuters.com/newsArticle.jhtml;jsessionid=EMQCY2O55QGLOCRBAEKSFEY?type=topNews&storyID=8271216
All Systems Go for Time Warner Cable Upgrade
Fri Apr 22, 2005 10:54 PM ET
By Georg Szalai
NEW YORK (Hollywood Reporter) - Once it completes the planned takeover of parts of bankrupt Adelphia Communications and asset swaps with Comcast Corp., Time Warner Cable hopes to bring the performance of the newly acquired cable systems up to its standards.
And according to TWC chairman and CEO Glenn Britt, there is enough room for improvements, including in such areas as penetration of advanced services, average revenue per subscriber and profit margins.
"In our due diligence, we found some recently upgraded Adelphia systems in terrific condition, but some earlier upgrades need some work" to bring up to TWC standards, Britt said in a conference call upon the deal's unveiling Thursday. Britt said Comcast systems that TWC will take over, like the one in Dallas, also will need attention.
Overall, TWC estimates it will need about $650 million in capital expenditures over the next few years to bring all acquired cable systems up to speed and push the penetration of advanced cable products, such a high-speed Internet, video-on-demand and digital video recording services. But this will allow the firm to reap important financial benefits over time.
In a presentation to Wall Street analysts, Britt said last week that TWC's broadband user reach among its households stands at 21 percent, well ahead of the 13 percent in the systems it will acquire in the Adelphia transaction. This makes for a good revenue growth opportunity, he said.
Similarly, video-on-demand is available to 100 percent of TWC's homes but to only 30 percent in the new systems, Britt estimated. And the 5 percent of digital cable users in the Adelphia and Comcast markets that subscribe to DVR services is far short of the 18 percent that TWC records. Said Britt: "TWC has been more aggressive with DVRs so far."
Britt also said that TWC will bring the cable-based telephone services it launched late last year to the newly acquired markets and "aggressively launch" them there.
All this should help bring the acquired systems' average monthly revenue per user from $65 to the $76 that TWC currently is recording, according to brass.
The combination of higher revenue and reduced costs also will boost profit margins from 27 percent closer to TWC's 39 percent over the coming years, Britt predicted.
Some easy cost cuts should come in the areas of overhead and programing expenses, where Adelphia's contracts often are less favorable than TWC's, according to the company. Britt predicted $200 million in cost savings for the year after the Adelphia deal closes and said that the figure should rise from there.
He declined last week to provide a target for programing cost cuts. However, pointing to the success Comcast had in this area after the acquisition of AT&T Broadband, some observers have suggested the benefits could be sizable.
Reuters/Hollywood Reporter
All Systems Go for Time Warner Cable Upgrade
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