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Cable Technology Feature Article

January 26, 2010

AT&T Not a 'Phone' Company; Time Warner Cable Not a 'Video' Company?

By Gary Kim, Contributing Editor

To give you some idea of how things have changed over at Time Warner (News - Alert) Cable, consider a recent analysis by analysts at Trefis. Time Warner Cable used to make nearly all its money selling video entertainment services.
These days, the single biggest contributor to the company's stock price is broadband access, representing 35 percent of value. Digital cable is important, representing another 35 percent of value. On-demand video represents an additional nine percent of value.
Advertising and franchise fees represent 5.4 percent of value while basic cable contributes 2.6 percent of total value. That low basic cable contribution explains the recent contentiousness of negotiations between cable operators and programmers. There simply is not as much room for cost increases in that product segment, as it contributes very little to overall revenue prospects.
Overall, video still collectively is the largest revenue driver, at least 47 percent of revenues. One might add the ancillary five percent of revenue attributable to advertising and “other” sources as possible because of the video business, to reach something like 52 percent of value from video sources.
Phone services now represent about 12.5 percent of value, basically the same contribution made by landline voice at AT&T (News - Alert), which gets 12 percent of its stock price value from landline voice.
By way of comparison, consider AT&T. Formerly a company whose performance was driven by landline services, about 51.4 percent of AT&T's stock price now is driven by mobile services. Internet and TV services represent 16 percent of the stock price while services for enterprise customers represent 12 percent.
The landline phone business now accounts for just 12 percent of AT&T's stock price, while advertising and publishing amount to eight percent. If you want to know why AT&T sometimes appears to care most about wireless, and does, and might be seen as under-investing in broadband access, it might be.
It might not be considered rational to spend too much scarce capital on the landline broadband network that drives 16 percent of value, compared to the wireless business that drives 51 percent of value.
Basically, Time Warner Cable's equity value is driven by broadband access and digital cable, representing 60 percent of total.
The most-surprising observation, for many, will be the low contribution from consumer landline voice at AT&T, whose fortunes now are tied to wireless services.

Gary Kim (News - Alert) is a contributing editor for TMCnet. To read more of Gary’s articles, please visit his columnist page.

Edited by Kelly McGuire