An Ignoble Experiment

2. Verizon adds 57,000 FiOS video, 98,000 Internet subs in first quarter

Time Warner Cable (NYSE: TWC) put a positive spin on the loss of 34,000 video subscribers in the first quarter, noting the loss was "the least in five years." The MSO had no need to put any spin on the fact that it added 269,000 residential high-speed subscribers in the quarter, the most since the first quarter of 2008.

For the most part, though, TWC executives tread a fine line between what they will be around to achieve in the future--and what they've accomplished in the present--and what will be out of their hands if Comcast (NASDAQ: CMCSA) is successful in its $45.2 billion bid to acquire the nation's second largest MSO.

CEO Rob Marcus said as much in a company press release where he noted first quarter results "underscore our commitment to deliver on our financial and operating plan as we prepare for our merger with Comcast."

The first quarter produced $5.58 billion in revenue, a 2 percent increase over the $5.48 billion Time Warner announced a year earlier. Those results were negatively impacted by video revenues which fell 6.6 percent to $2.49 billion compared to $2.67 billion in 2013. Voice revenues, too, saw a 4.4 percent drop from $519 million to $496 million.

Internet was positive: up 10.8 percent to $1.56 billion, compared to $1.41 billion in 2013.

Marcus preferred to address the positive aspects of the results, noting that the MSO is making "great progress" towards its announced goal of revitalizing its residential business.

"We added 148,000 residential customer relationships in Q1," Marcus emphasized during prepared comments on a call with analysts. This, he said, is on track with the company's goal of adding a million residential customers by the end of 2016.

Of course that is all relative since, if things go the way Time Warner Cable and Comcast expect, TWC will just be a part of Comcast.

"Time Warner Cable is playing for pride now," MoffettNathanson analyst Craig Moffett wrote about the results. "We may never know what TWC's new management team might have achieved on its own. Long before their turnaround strategies have run their course, TWC will be operating under Comcast's umbrella. If it all works, Comcast will get the credit. If it doesn't it is TWC's legacy that takes the blame."

For the present, Marcus credited his existing team.

"The foundational work we did last year to enhance our subscriber acquisition and retention capabilities is bearing fruit," he said.

Going forward, Marcus promised that TWC would continue efforts to differentiate its product "in ways that matter to our customers."

Among the differentiators is a cloud-based guide, which was added to 1 million set-top boxes in the quarter to bring the total number of boxes with cloud-based technology to 4.3 million. The company expects to have it on 6 million boxes "in coming months," Marcus said.

Also part of the new differentiation strategy is TWC's IP video experience, including a deal to put the TWCTV app on the Fan TV platform.

Finally, joining nearly every MSO, Marcus pointed to the future potential of higher speed data and Wi-Fi.

"Hotspot 2.0 will make our ever-expanding Wi-Fi network more secure and even easier to use," said Marcus. "And I'm very excited about TWC Max, which is off and running in New York City and Los Angeles. Some customers in those cities are already enjoying HSD speed increases to 50 Mbps for standard tier customers and as much as 300 Mbps for higher end subscribers."

For more:
- see this earnings release

Read more about: subscriber losses
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By Jim Barthold

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3. Reported net neutrality changes roil consumer advocates, send Wheeler into defensive mode

Verizon Communications (NYSE: VZ) continued to add subscribers to its FiOS TV and Internet ranks, but at a slower pace that reflects the carrier's policy of selling the service only in existing markets.

In the first quarter, Verizon said it added 57,000 FiOS video customers and 98,000 FiOS Internet subscribers. This was down compared to the fourth quarter of last year when the carrier added 92,000 video subs and 126,000 more for Internet.

The numbers reflected two Verizon priorities: growing revenue, and moving subscribers from existing copper-based facilities. Overall, Verizon revenues of $30.8 billion were 4.8 percent higher year-over-year and "the company's highest quarterly growth rate in the past five years," a Verizon press release stated. In addition, 78,000 customers were migrated from copper to FiOS-capable networks.

Operating income results were even more impressive at $7.2 billion, a 15.1 percent year-over-year increase driven by "effective cost management," the carrier said.

In the wireline space, Verizon listed consumer revenues of $3.8 billion, 6.2 percent higher than the first quarter of 2013, and ARPU (average revenue per user) of $120.17, which is 11.3 percent higher year-over-year. FiOS consumer revenues grew 14.6 percent year-over-year and total FiOS revenues grew 15.5 percent, the company said, allowing total quarter FiOS revenue to surpass $3 billion for the first time.

The results reflected Verizon's decision to sell FiOS only in existing markets and not to expand the FiOS footprint--even to adjoining communities. Internet penetration was 39.7 percent, up from 38.2 percent a year ago, and video penetration was 35 percent compared to 34.1 percent in 2013. FiOS now passes 18.9 million premises with 6.2 million subscribed to Internet and 5.3 million to video.

Verizon also noted that 51 percent of Internet subscribers take FiOS Quantum service which delivers 50 to 500 Mbps. This is up from 46 percent in 2013.

As has been the case in recent quarters, Verizon was more focused on its wireless business which, in the first quarter, reflected the impact of Verizon's acquisition of Vodafone's share of the business.

"With the wireless transaction now behind us, we have great confidence in our ability to sustain these strong results," Verizon Chairman-CEO Lowell McAdam said in a press release.

For more:
- see the earnings release

Read more about: Verizon FiOS
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By Jim Barthold

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4. Cities in N.C. expect AT&T 1 Gbps service, while Minneapolis subs tap USI Wireless fiber

The FCC could be about to add a toll lane to the information superhighway for those willing to pay a fee to cut through the traffic.

Multiple reports, started by a piece in the Wall Street Journal, indicate that the feds are hammering out the details of new rules that would let companies with the resources to do so pay ISPs a little--or a lot--extra to go faster on unclogged broadband networks.

Consumer advocates were not thrilled by the news.

"With this proposal the FCC is aiding and abetting the largest ISPs in their efforts to destroy the open Internet," Free Press President Craig Aaron said in a Washington Post story.

"If the FCC embraces this reported reversal in its stance toward net neutrality barriers to innovation will rise, the marketplace of ideas on the Internet will be constrained and consumers will ultimately pay the price," ACLU policy advisor Gabe Rothman said in the same story.

FCC Chairman Tom Wheeler attempted to defuse the controversy by noting that "reports that the FCC is gutting the open Internet rule … are flat out wrong. There is no 'turnaround' in policy."

What there is, exactly, was not immediately clear since a spokeswoman for Wheeler would not comment specifically on the plan to the Post, saying only that it is "consistent with the framework laid out in February" when an appeals court overturned FCC rules intended to guarantee a free and open Internet.

An FCC official speaking off the record to the Post said the proposal would require broadband providers to offer "a baseline level of service to their subscribers" but would also allow them to enter individual negotiations with content providers … in a commercially reasonable manner subject to review on a case-by-case basis."

That didn't assuage the fears of net neutrality advocates like Todd O'Boyle, program director of Common Cause's Media and Democracy Reform Initiative, who told The New York Times that the proposal, if it goes through, represents "Washington at its worst. Americans were promised, and deserve, an Internet that is free of toll roads, fast lanes and censorship--corporate or governmental."

The changes come at the same time that Comcast's (NASDAQ: CMCSA) proposed $45.2 billion acquisition of Time Warner Cable (NYSE: TWC) is drawing fire for creating a company with too much power in both broadband and content. That deal would be impacted by a portion of the rules that would require ISPs to disclose whether they have favored affiliated content companies.

For more:
- The Wall Street Journal has this story (sub. req.)
- The Washington Post has this story
- The New York Times has this story
- GigaOM has this commentary
- FCC has this blog post

By Jim Barthold

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