Time Warner Cable Inc.’s (TWC) board of directors has decided to raise its share repurchase authorization to $4 billion immediately. This decision reflects management’s confidence on the company’s future growth. However, the timing of share repurchase will be based on suitable market condition. Time Warner cable currently has a Zacks Rank #3 (Hold).
In the U.S., cable operators are facing fierce competition from telecom service providers. Verizon Communications Inc. (VZ) and AT&T Inc. (T) are quickly gaining market share from cable MSOs by offering fiber-based TV and other high-speed broadband services. Online video streaming service providers, such as Netflix Inc. (NFLX), Hulu.com, YouTube etc., have become a big threat to cable TV operators.
We view the change in Time Warner Cable’s business model positively. As a surviving strategy, management has decided to adopt a four-edged approach: (1) rebrand itself as a major broadband service provider for residential customers, (2) aggressively penetrate the commercial business segment, (3) change in marketing strategy like product segmentation and (4) significant enhancement of shareholders’ wealth, such as systematic share repurchase and increase in dividend rate.
Time Warner Cable is concentrating on broadband and digital phone services, especially for the Business segment, which has become a major growth driver for the company. It has undertaken a massive "Ethernet Everywhere" strategy and is boosting cloud computing services including delivering IP-based Ethernet services over fiber, where the company has already laid its optical cables. The company also used high-speed DOCSIS 3.0 technologies over its extensive hybrid fiber/coax plant.
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