Telcos put the squeeze on TWC

Verizon may be outdoing AT&T in television subscriber take up, but it is AT&T’s U-Verse service that is giving Time Warner Cable a run for its money. The cable company, which reported its fourth-quarter earnings today, said that telco TV has encroached on 21% of its footprint, with U-Verse available in roughly twice as many of TWC’s regions as FiOS TV in the quarter. But this just might be beginner’s luck, according to TWC Chief Executive Officer Glenn Britt.

“Telco competition has expanded to a more significant fraction of our footprint,” Britt said on today’s earnings conference call. “As they enter new areas, they have initial gains in net subscribers. You’ll remember we benefited from the same phenomenon as we rolled out digital phones two years ago.”

Telcos’ expansion into TWC’s markets grew 3% sequentially in the quarter and 15% since the beginning of the year, when they populated only 6% of TWC markets, according to Chief Operating Officer Landel Hobbs. Still, while admitting that AT&T has had a more significant impact than Verizon, both Hobbs and Britt emphasized that this traction is common for the launch phase of a new product.

Verizon and AT&T may not define themselves as still in the launch phase, however. Both telcos just came off their best quarters ever in terms of TV net adds. AT&T signed up 264,000 new U-Verse subs but decided to push its target of passing 30 million homes from 2010 to 2011 due to the cost of these consumer additions. Verizon, too, more than doubled its TV subscriber base in 2008, adding 975,000 customers and increasing penetration by 500 basis points, according to Chief Financial Officer Doreen Toben.

Several TV initiatives drove TWC’s competitive positioning in 2008. Its Start Over time-shifting service, much like AT&T’s recently introduced service, was available to 3.2 million digital subscribers across 22 cities by the end of the year. In total, Hobbs said it delivered more than 60 million Start Over streams during the year. Two thirds of TWC’s TV subscribers are also using caller ID on the TV, delivering more than one-half billion alerts to TVs in December alone. In terms of high-definition, an increasing consumer priority, TWC offers an average of 57 HD channels to its footprint, with some key markets – including New York – having more than 100 available. More than any initiative, Hobbs said it was the bundling and price-lock guarantee, which more than 1 million consumers took advantage of, that served as the lynchpins of TWC’s strategy for the year.

Telcos’ traditional domain, residential digital phone service, was also one of TWC’s strong suits in 2008. It added 130,000 new customers to its voice-over IP service, down from the 285,000 added in the same quarter last year but bringing its total to 3.74 million. To date, TWC offers three tiers of digital phone service, out of which the unlimited tier attracted 70% of the fourth quarter’s net adds. Outside of these subscribers, Hobbs said the company saw an increased percentage of new subs attracted to lower price, in-state and local calling plans. He also noted that it’s hard to quantify the impact of wireless substitution now that economy-related cord-cutting is far more prevalent than “some technological notion of going wireless.”