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The Honolulu Advertiser
Posted on: Monday, January 18, 2010

For Time Warner, Isles are a gold mine


BY Rick Daysog
Advertiser Staff Writer

TIME WARNER OCEANIC CABLE'S O'AHU REVENUES

2006

$291.3M

2007

$318.3M

2008

$339.7M

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While consumers in most major cities on the Mainland have the choice of several television providers, local residents have few options when it comes to video programming.

Oceanic Time Warner Cable, which reaches about 90 percent of Hawai'i's households, remains the dominant player, and Hawai'i is one of the most lucrative markets for the nation's second- largest cable operator.

Alternative providers including other cable companies, fiber-optic or satellite companies either don't operate here or have made little headway.

Competitors such as DirecTV Inc. and Dish Network Corp. have rolled out aggressive promotional packages in recent months with steep price cuts. But Time Warner hasn't felt the need to responded with matching cuts, a testament to the company's strength.

"Hawai'i is in the position of not having many options," said Mark Cooper, director of research of Washington, D.C.-based Consumer Federation of America.

"They (Time Warner) are obviously making a lot of money in Hawai'i."

Nate Smith, Time Warner's local president, did not return calls seeking comment for this article.

But in filings with the state Cable Television Division, the company disclosed that its O'ahu operations generated $339.7 million in 2008, which was up 6.7 percent from the year-earlier period.

Those figures don't include Neighbor Island revenues.

Including Neighbor Island operations, Time Warner's Hawai'i cable operations generated more than $475 million in revenues in 2008.

People familiar with Time Warner's operations said the local cable operator is one of the most profitable units in the Time Warner cable empire.

The company's O'ahu cable operations generate $1,183 per subscriber per year, which is several hundred dollars more than Time Warner's 2008 corporate wide figure of about $810 per cable subscriber.

Comcast Corp., the nation's No. 1 cable operator, generated about $778 in revenues per cable subscriber during the same period.

HEAVY INVESTMENT

To be sure, Time Warner has invested heavily over the years in its local cable operations.

In 2008, the company spent about $78.5 million on capital projects, which was up about $72 million the year before.

The company's market dominance and profitability has prompted its competitors to roll out aggressive promotional plans in recent months.

Dish Network now has a one-year, $19.99 a month plan for first-time Hawai'i customers that offers over 100 television channels, according to the company's Web site.

DirecTV is offering 150 channels at $29.99 a month to local consumers.

Time Warner, meanwhile, is offering a standard local package that includes 76 channels at $47.95 per month, according to the company's Web site.

A digital upgrade that comes with 380 channels costs $67.53 a month.

Established in 1969, Time Warner has about 418,000 subscribers statewide, or more than 90 percent of the number of households in the state.

By contrast, DirecTV, one of the company's few local competitors, has about 12,000 customers statewide, according to Donavan Jones, DirectTV's operations manager for Hawai'i.

Jones noted that the company's growth has been steady over the years. But he noted that satellite television providers face some challenges in Hawai'i.

Many of Hawai'i's condominiums and townhouse associations don't allow satellite dishes on their properties, he said.

And because of Hawai'i's location, local satellite customers require larger and more expensive dishes than those required on the Mainland, Jones said.

Companies like DirecTV and Dish Network typically cover the cost of installation but require customers to sign long-term contracts. Those costs typically average about $1,500 per customer in Hawai'i, which is several times the cost to install service on the Mainland, according to Jones.

"On the Mainland, it takes three years before you see a return on your investment," he said. "Here, it's like seven or eight years."

One company that hopes to make a quick profit in the cable business is Hawaiian Telcom Inc.

TV BY PHONE LINE

The legacy telephone carrier, which filed for bankruptcy protection in December 2008, is looking to launch its much anticipated TV service in the next six to nine months.

That's the time frame in which the company expects the state Public Utilities Commission will approve its reorganization plan, allowing it to exit bankruptcy.

The TV service will be carried over telephone lines, many of which have been upgraded to fiber optic. For the past several months, Hawaiian Telcom has been testing its TV service in select homes.

Hawaiian Telcom has said that the new TV service will help the company return to profitability next year.

But until then, consumers are faced with the prospect of limited competition.

"We're one of the two alternatives," said DirecTV's Jones. "That's pretty much all of the choices in Hawai'i."