AOL, Newhouse Restructure Cable Deal

AOL Time Warner’s cable division and Advance/Newhouse Communications have restructured their cable partnership in a deal that will switch about 2.1 million cable subscribers into the Newhouse fold and reduce TWC’s cable base by about 16 percent.

The consolidation, which the industry has expected for some time, also calls for Time Warner Cable to take over the Syracuse, N.Y.-based Newhouse’s stake in Road Runner, AOL’s high speed cable modem Internet service provider.

As a result of the changes, Time Warner Cable will be serving about 10.8 million cable subscribers but will have also consolidated its interest in Road Runner, the provider of high-speed Internet access over cable lines, which counts an estimated 2 million subscribers. The flagship AOL dial-up service counts about 34 million subscribers.

TWC will still hold on to its position as the second-largest cable provider behind the estimated 22 million that AT&T Broadband and Comcast Corp. will net when the two complete their merger.

Advance/Newhouse’s 2.1 million cable customers in the deal are based in Florida, Alabama, Indianapolis, California and Michigan.

Time Warner Cable said it would still maintain some oversight of all the cable partnership’s systems, including supporting multiple ISPs, AOL High Speed Broadband, Road Runner and EarthLink services. New services are still in the works too, such as video-on-demand (VOD), subscription VOD, digital video recording and home networking.

The companies said no layoffs would occur as a result of the consolidation. Nor is the the transaction expected to have a material impact on the operating metrics, such as subscriber penetration and average revenue per subscriber Time Warner Cable’s systems, the companies said.

Because of the consolidation, AOL Time Warner said its cable segment will see reduced revenues of $350 million and reduced EBITDA of about $160 million during the first quarter of 2002. For the full-year 2001, the impact of deconsolidating the Advance/Newhouse-managed systems would have reduced the revenues and EBITDA of AOL Time Warner’s Cable segment by approximately $1.25 billion and $570 million respectively. The deal reduces AOL Time Warner’s net debt by about $800 million.

The impact of consolidating Road Runner will boost Time Warner Cable’s revenues by about $25 million while EBITDA will decline by $30 million during the first quarter.

Time Warner Cable and Advance/Newhouse teamed up in 1995 in order to pool their resources to create stronger cable clusters, with TWC chipping in 3 million and Newhouse 1.5 million subscribers. The partnership currently serves about 7 million subscribers.