Time Warner Settlement May Help Curry FCC’s Favor on Adelphia
Time Warner’s deal to pay $2.4 billion to settle shareholder litigation over claims of inflated revenue and improper accounting at AOL may help the company curry favor with the FCC, which is considering its proposal to buy Adelphia cable systems with Comcast, analysts said. The agreement in principle to settle the securities class action against the company was disclosed in Time Warner’s 2nd-quarter earnings report Wed. Some results fell short of analysts’ estimates. Broadband sales at the company’s cable unit were the bright spot.
Sign up for a free preview to unlock the rest of this article
Communications Daily is required reading for senior executives at top telecom corporations, law firms, lobbying organizations, associations and government agencies (including the FCC). Join them today!
The FCC is reviewing Time Warner and Comcast’s $17.6 billion deal to buy most of bankrupt Adelphia’s cable systems. DirecTV and EchoStar, among others, are pushing the Commission to limit the buyers’ ability to sign exclusive programming agreements. A campaign by media activists has netted about 14,000 e-mails opposing the deal on grounds it will stifle competition. Some analysts said the settlement is a gesture that will resound with FCC commissioners. “I don’t see any really substantive conditions being placed on it,” predicted attorney Ross Buntrock. Of the settlement, he said: “It’s definitely a chunk of change.”
The settlement demonstrates “a willingness to get things resolved and a willingness to enter into compromises,” said Precursor Group analyst Rudy Baca, a former FCC 8th-floor staffer: “That’s always helpful, when you have good faith in Washington. You want to present yourself as a trustworthy entity.” Another former FCC staffer, Stanford Washington Research Group analyst Paul Gallant, said the settlement is somewhat helpful, though the timing may be coincidental: “All things equal it’s better to be going in asking the FCC for permission to merge with an SEC action behind you. It’s been lingering for a long time.”
“By acting now to put these steps behind us, we avoid the cost and distraction of future litigation,” Time Warner CEO Richard Parsons said on a conference call with analysts: “Today’s settlement represents very substantial progress in closing this chapter.” Added to the $2.4 billion will be $150 million TW paid in a settlement with the DoJ and, the company hopes, the $300 million cost of an SEC settlement, TW said. The company said in Dec. that it was settling with the DoJ over accounting and disclosure practices at AOL, which led to some accounting adjustments.
Stock in Time Warner has fallen more than 1/2 since the Jan. 11, 2001, combination of Time Warner and AOL. The company’s AOL unit continued to lose subscribers2nd quarter, as consumers switch to broadband from dial-up Internet service. Time Warner posted a net loss of 7 cents a share, compared with net income of 17 cents a year earlier, partly on settlement expenses. Excluding those expenses -- and gains from selling almost $1 billion worth of Google stock -- the company earned 18 cents, a penny less than analysts’ consensus estimates. Overall, the quarter was “weak,” Prudential Equity Group analyst Katherine Styponias wrote in a client note. The company is banking on 4th-quarter results, buoyed by the release of the next Harry Potter movie, to meet 2005 estimates, CFO Wayne Pace said on the teleconference.
The company’s cable unit, with 10.9 million customers, had the most revenue growth of any division last quarter. Sales rose 11% to $2.36 billion, slightly more than the prediction of Banc of America Securities analyst Douglas Shapiro. Cash flow rose 10%. “We remain confident of being able to deliver double digit top line and bottom line growth for the foreseeable future,” said Don Logan, Media & Communications group chmn. Broadband service buoyed results at the unit, with a 201,000 subscriber increase to 4.3 million in the quarter.
Time Warner’s network sales rose 5% to $2.5 billion. Executives attributed the increase to increased growth at Turner Networks and HBO, which added subscribers. “I'm still very confident that the networks will achieve strong full-year growth as planned,” said Jeffrey Bewkes, chmn.- Entertainment & Networks group. The upfront ad sales season had “double-digit growth in dollars,” he said, “though it moved more slowly for the industry than it has.”