Time Warner Cable (NYSE:TWC) will report its first quarter earnings on April 30th. We expect the com...

1. High Speed Internet Will Lead Growth -- Trefis
Time Warner Cable (NYSE:TWC) will report its first quarter earnings on April 30th. We expect the
company's pay-TV subscriber base to continue to shrink in this quarter and beyond. In contrast, we
expect steady growth in the high speed internet operations driven by rising residential and business
demand for high-speed data services. In the recent past, the company has seen rapid growth in its
business services segment with revenue growth of approximately 23% for the year 2014. [] We
expect this uptrend to continue in the near term, driven by higher demand of bundled packages
especially for small and medium sized enterprises.
Comcast (NASDAQ:CMCSA) recently called off its proposed merger with Time Warner Cable. []
Since the announcement, there have been rumors of merger talks with Charter Communications
(NASDAQ:CHTR) and Cox Communications. [] [] It will be interesting to see whether the Time
Warner Cable management elaborates on any future merger plans in the earnings call.
Our price estimate for Time Warner Cable is $158, which is roughly in line with the market price.
See our complete analysis for Time Warner Cable
Pay-TV Segment Will Continue Losing Subscribers
We estimate that the pay-TV operations contribute around 30% to Time Warner Cable's stock value.
The cable company has been losing pay-TV subscribers for
http://www.ebay.com/sch/i.html?_nkw=voip+phone years now. The overall subscriber base has come
down from 13.3 million in 2007 to 10.79 million at the end of 2014. [] This can be largely attributed
to a combination of market saturation, fierce competition, delays in the transition to a digital
platform and the increased focus of providers on acquiring higher-value subscribers. The company
has frequently been blacked out by networks in the past in the midst of pricing disputes and it has
paid the price by losing subscribers in numbers. Time Warner Cable's resistance to content
providers' steep price increases is warranted to a degree. Still, the high demand for popular

2. programming gives the content owners the upper hand.
But the company was able to slow the pace of the decline somewhat in 2014. The company's
subscriber base declined by 408,000 in 2014, which is significantly less than the 833,000
subscribers the company lost a year before. [] We believe Time Warner Cable will continue to lose
pay-TV subscribers in the near term, albeit at a slower pace. Contrastingly, pay-TV average revenue
per user (ARPU) for the full year 2014 improved to $75.85 from $74.90 in the prior year. We
estimate that the company's pay-TV subscriber base will be around 10.5 million for the year 2015,
translating into pay-TV revenues of $8.6 billion. This forecast takes into account 2% growth in ARPU.
Note that our revenue estimates do not take into account revenue generated from advanced services
such as HD/DVR and advertising and franchise fees. We estimate these revenue streams as separate
drivers.
High Speed Data Segment Will Continue Its Strong Growth
We estimate that the high speed data business accounts for more than 47% of Time Warner Cable's
stock value. The company has seen rapid growth in this segment in recent years and its subscriber
base stood at 12.25 million at year-end 2014, as compared to less than 8 million in 2007. [] The
company added around 650,000 high speed data subscribers last year. During the same period, the
company's average monthly subscription fees also grew by around 7%. [] We expect 2015 revenue
for the high speed data segment to grow by 13% and come in at around $8.8 billion, fuelled by
continued growth in the subscriber base as well as the average monthly subscription fees.
High speed internet has remained the leading growth factor for the cable companies for quite some
time now. There is a boom in demand in the U.S. due to a growing need for speed and connectivity.
The use of multiple devices and higher penetration of smartphones is aiding the overall demand for
high-speed Internet. Smartphone penetration has seen rapid growth from 54% in December 2012
to 75% in December 2014. Internet video, video-on-demand and online gaming account for the
majority of Internet traffic in the U.S. Video streaming, for instance, requires high data volumes
which explains why the reliance on fixed networks is far greater than that on mobile carriers. We
expect Time Warner Cable to continue to gain high speed data subscribers in the near term, in part
driven by its triple play bundles.
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