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Despite growing its voice over IP (VoIP) revenues, Time Warner Cable (NYSE:TWC) continues to lose share in the growing US VoIP market, where it competes with other cable providers like Comcast (NASDAQ:CMCSA), telecom companies like AT&T (NYSE:T) and Verizon (NYSE:VZ), and pure play services like Skype and Vonage.

Although we expect these losses to taper off in coming years, prolonged share declines could depress Time Warner Cable’s stock price by about 4%.

On the other hand, management recently reported that Time Warner Cable’s digital subscriber rolls grew in the second quarter of 2010. Meanwhile, capital expenditure declined, as did sales, general and administrative expenses (SG&A). Based on all these trends, we have raised the Trefis price estimate for Time Warner Cable’s stock from $37 to $48.37. Our analysis follows below.

VoIP Competition

The VoIP market is crowded and fiercely competitive. The major telecom providers are using new fiber-optic networks to gain VoIP subscribers via bundled offerings. Meanwhile, dedicated VoIP services like Skype have grown tremendously in popularity. Additionally, Time Warner Cable lags behind chief rival Comcast in terms of geographic reach, thereby limiting its ability to leverage growing VoIP demand in the US.

Downside Potential

We currently expect Time Warner Cable’s VoIP market share to decline from an estimated 17.1% in 2009 to 15.7% by the end of 2010. You can drag the trend-line in the chart below to create your own VoIP market share estimate for Time Warner Cable and see how it impacts the company’s stock price.

We expect Time Warner Cable’s VoIP market share to decline more slowly going forward and reach stable levels by the end of 2012. But if we’re wrong and Time Warner Cable can’t keep up with the fast-growing VoIP market, it is possible that its share could decline to 13% over the course of our forecast period. This scenario yields a potential downside of 4% to the company’s share value.

Disclosure: No positions