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Time Warner Cable: Hold on Charter Deal & SMB Prospects

On Sep 29, Zacks Investment Research upgraded Time Warner Cable Inc.TWC to a Zacks Rank #3 (Hold) from a Zacks Rank #5 (Strong Sell).

In Apr 2015, Comcast Corp. CMCSA ended its 14-month long negotiations to take over Time Warner Cable owing to strong reservations expressed by the Federal Communications Commission (FCC). However, in May, Charter Communications, Inc. CHTR reached an agreement to buy Time Warner Cable for $78.7 billion, including debt.

Recently, the shareholders of both Charter Communications and Time Warner Cable approved all proposals associated with the pending merger, casting more than 99% votes in favor of the transaction. Both the companies are now waiting for an approval from the FCC.

Meanwhile, the Business Services segment is a major growth driver for Time Warner Cable. In the second quarter of 2015, business service revenues totaled $803 million, up 16.2% year over year. The company intends to double revenues at this segment over the next 4 to 5 years.

Adding to the positives, the company's average revenue per user (ARPU) is steadily improving on the back of factors like the launch of innovative services and the success of the TWC TV app. In addition, Time Warner Cable's increased traction in the small and mid-sized Business (SMB) segment should garner significant revenues in the near future. Meanwhile, the company already boasts a huge base of large enterprise customers.

However, the U.S. cable TV industry has been witnessing considerable downturn over the last six years. The bundled triple-play services of telecom operators pose a significant threat to traditional video service providers.

Moreover, Time Warner Cable, together with most of the cable TV operators in the U.S., is getting marginalized gradually by the fiber-based video offerings of telecom giants and the online video streaming services of low-cost operators.

Recently, U.S. telecom behemoth AT&T, Inc. T scaled up to the highest position in the U.S. pay-TV market with the acquisition of DIRECTV.

Thus, stiff competition from cable and telecom players coupled with mounting programming expenses and a highly leveraged balance sheet may continue to impede growth at Time Warner Cable. Nonetheless, we believe that the Charter Communications deal is set to resolve a few of these pressing issues.

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AT&T INC (T): Free Stock Analysis Report

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TIME WARNER CAB (TWC): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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