Time Warner Cable 2008 Annual Report Download - page 61

TWC principally offers three services – video, high-speed data and voice – over its broadband cable systems.
TWC markets its services separately and in “bundled” packages of multiple services and features. As of
December 31, 2008, 54% of TWC’s customers subscribed to two or more of its primary services, including
21% of its customers who subscribed to all three primary services. Historically, TWC has focused primarily on
residential customers, while also selling video, high-speed data and networking and transport services to com-
mercial customers. As part of an increased emphasis on its commercial business, TWC also began selling its
commercial Digital Phone service, Business Class Phone, to small- and medium-sized businesses during 2007.
During 2008, TWC generated nearly $800 million of revenues from its commercial services. TWC believes
providing commercial services will generate additional opportunities for growth. In addition, TWC sells advertising
to a variety of national, regional and local customers.
Video is TWC’s largest service in terms of revenues generated and, as of December 31, 2008, TWC had
approximately 13.1 million basic video subscribers, of which approximately 8.6 million subscribed to TWC’s
digital video service. Although providing video services is a competitive and highly penetrated business, TWC
expects to continue to increase video revenues through the offering of advanced digital video services, as well as
through price increases and digital video subscriber growth. TWC’s digital video subscribers provide a broad base
of potential customers for additional services. Video programming costs represent a major component of TWC’s
expenses and are expected to continue to increase, reflecting programming rate increases on existing services, costs
associated with retransmission consent agreements, subscriber growth and the expansion of service offerings (e.g.,
new network channels). TWC expects that its video service margins as a percentage of video revenues will continue
to decline over the next few years as increases in programming costs outpace growth in video revenues.
As of December 31, 2008, TWC had approximately 8.4 million residential high-speed data subscribers. TWC
expects continued growth in residential high-speed data subscribers and revenues for the foreseeable future;
however, the rate of growth of both subscribers and revenues is expected to continue to slow over time as high-speed
data services become increasingly penetrated. TWC also offers commercial high-speed data services and had
283,000 commercial high-speed data subscribers as of December 31, 2008.
As of December 31, 2008, TWC had approximately 3.7 million residential Digital Phone subscribers. TWC
expects increases in Digital Phone subscribers and revenues for the foreseeable future; however, the rate of growth
of both subscribers and revenues is expected to slow over time as Digital Phone services become increasingly
penetrated and as an increasing number of homes in the U.S. replace their traditional telephone service with wireless
phone service. TWC rolled out Business Class Phone to small- and medium-sized businesses during 2007 in the
majority of its operating areas and substantially completed the roll-out in the remainder of its operating areas during
2008. As of December 31, 2008, TWC had 30,000 commercial Digital Phone subscribers.
TWC faces intense competition from a variety of alternative information and entertainment delivery sources,
principally from direct-to-home satellite video providers and certain telephone companies, each of which offers a
broad range of services that provide features and functions comparable to those provided by TWC. The services are
also offered in bundles of video, high-speed data and voice services similar to TWC’s and, in certain cases, these
offerings include wireless services. The availability of these bundled service offerings and of wireless offerings,
whether as a single offering or as part of a bundle, has intensified competition. In addition, technological advances
and product innovations have increased and will likely continue to increase the number of alternatives available to
TWC’s customers from other providers and intensify the competitive environment. TWC expects that competition
will continue to intensify in the future, which may negatively affect the growth of revenue generating units. By
continuing to enhance its services with innovative offerings and continuing to focus on customer service, TWC
believes it will distinguish its services from those of its competitors.
The recent events affecting the U.S. and international financial markets have had a significant and adverse
impact on the global economy. These events have served to increase capital market volatility and reduce future
expectations for economic growth. Since the end of the third quarter of 2008, the Company has experienced a
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TIME WARNER CABLE INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION—(Continued)