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Time Warner Cable posts weak Internet numbers, sparks deal talk

The Time Warner Cable office is shown in Carlsbad, California November 5, 2012. REUTERS/Mike Blake
The Time Warner Cable office is shown in Carlsbad, California November 5, 2012. REUTERS/Mike Blake

By Liana B. Baker

(Reuters) - Time Warner Cable Inc reported quarterly revenue below analysts' estimates as it added less than half the number of subscribers for high-speed data services that analysts had expected.

Shares still rose 3.2 percent on Thursday as analysts said the cable company's management did not necessarily rule out a merger or takeover during a conference call.

Time Warner Cable, which ranks second to Comcast Corp in the U.S. cable market with about 12 million customers, has attracted takeover interest from John Malone's Liberty Media Corp.

Malone, whose media holding company has an investment in cable provider Charter Communications Inc, recently made an offer for Time Warner Cable but it was rejected, Reuters previously reported.

On Thursday, Chief Executive Glenn Britt, who will be retiring at the end of the year, said the speculation swirling over Time Warner Cable "is really an endorsement of the value of our assets." Britt will be replaced by Time Warner Cable's second in command, Rob Marcus.

Britt said that building value "for the cable industry as a whole through consolidation is a worthwhile endeavor, but our objective is-and will continue to be-to build value for our shareholders."

While Britt's comments are in line with what Time Warner Cable's management has said about consolidation, ISI analyst Vijay Jayant said that executives "seemed open to any M&A opportunity that creates value for Time Warner Cable shareholders" and that the "tone of the call sounds like they are amenable."

Time Warner Cable's new finance chief Artie Minson also stressed that the company did not want to change its investment grade rating or increase its debt leverage.

Moffett Research analyst Craig Moffett said Minson's comments means that Time Warner Cable may not want to borrow more cash to buy back shares. The possibility that TWC might do so has been widely discussed as a possible defensive strategy to fend off a merger.

WEAK NUMBERS Cable operators in the United States are increasingly depending on internet customers for growth as they continue to lose cable TV subscribers and face rising programming costs.

Time Warner Cable said on Thursday it added only 21,000 high-speed internet customers on a net basis in the second quarter. Analysts had expected 55,400, according to research firm StreetAccount.

Moffett called those Internet numbers a "truly awful result."

In contrast, larger rival Comcast said on Wednesday it added 187,000 high-speed Internet customers. Earlier this week, Time Warner Cable said it was raising its monthly rates customers pay to rent modems.

Cable operators are also facing stiff competition from video services offered by satellite TV and phone companies as well as internet-based services such as Netflix Inc.

Time Warner Cable lost about 189,000 video subscribers in the quarter, more than the 174,700 analysts had estimated.

CBS DISPUTE

Marcus, the future CEO, said he had no update on negotiations with CBS, the broadcaster it is locked in a battle with over programming fees. Time Warner Cable blacked out CBS briefly this week in markets such as New York and Los Angeles after talks broke down. The signal was restored but the new deadline for an agreement is Friday at 5 p.m. EDT.

Marcus said only that the company was focused on obtaining reasonable pricing for programming, which will "continue to guide our negotiation."

Net income attributable to the company rose to $481 million, or $1.64 per share, for the second quarter from $452 million, or $1.43 per share, a year earlier.

Excluding items, the company earned $1.69 per share.

Revenue rose about 2.7 percent to $5.55 billion.

Analysts on average had expected a profit of $1.64 per share on revenue of $5.58 billion, according to Thomson Reuters I/B/E/S.

Time Warner shares were up $3.77 or 3.3 percent at $117.68 per share. Shares are up nearly 20 percent this year.

(Reporting by Liana B. Baker in New York, additional reporting by Aurindom Mukherjee in Bangalore; Editing by Joyjeet Das and Andrew Hay)

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