Strategic Move by Time Warner Cable to Consolidate Core Basic Cable Segment

Dec.10.10 | About: Charter Communications, (CHTR)

Time Warner Cable Inc. (TWC), the second largest cable MSO (multiple system operator) in the U.S., has taken a new strategic move to consolidate its core basic Cable TV segment. For the first time, the company is into some product segmentation, offering different cable services to different customers depending on their financial condition. This is a major departure from its normal practice of flat cable service offerings.

Last month, the company launched cheaper cable TV packages called “TV Essentials” for viewers, who are facing financial constraints due to the ongoing global economic downturn. The price band of those packages falls within the range of $30-$50 per month. However, yesterday, Time Warner Cable launched a premium cable TV package called “SignatureHome” for $199 per month. This is a comprehensive triple-play bundled product targeting financially sound people. SignatureHome will provide digital cable TV, Internet connectivity, and digital home phone.

Cable MSOs are quickly losing market share in their core basic video market to giant telecom carriers, satellite TV service providers, and newly developed online Internet video streaming companies. During the third quarter of 2010, the cable industry as a whole lost almost 741,000 basic video subscribers and Time Warner Cable alone lost 155,000 subscribers. Besides, the company also lost 46,000 digital video subscribers in the same quarter.

We believe Time Warner Cable is trying hard to reduce the churn rate of its low-cost customers through product differentiation. These customers are very much vulnerable to cheaper offerings of satellite TV operator like DIRECTV (DTV) and newly emerged online video streaming company like Netflix (NASDAQ:NFLX).

Time Warner Cable is aggressively rolling out next-generation DOCSIS 3.0 (also called Wideband) networks. The company has decided to continue to roll out switched digital video (SDV) in major U.S. markets. Deployment of SDV will free up bandwidth that can be used by Time Warner Cable to offer 100 high-definition TV channels (HDTV), HD video-on-demand programs, and DOCSIS 3.0. The company will offer DOCSIS 3.0 services to both the residential and business customers.