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TWC to ‘Go It Alone’ on VoIP

3/15/2010 12:38 PM Eastern

Time Warner Cable over
the next four years will wind
down its deal with Sprint Nextel
for voice-over-IP transport,
switching and interconnection
services — estimated to be worth
more than $500 million per year
— in an initiative the cable operator
is calling internally “Go It
Alone.”

The transition will occur in
many phases over the next several
years, TWC spokesman
Justin Venech said. “It makes
economic sense for us to bring
this in-house,” he said.

The end of Time Warner Cable’s
VoIP business could cut
Sprint’s annual wireline profits
by $250 million, or 25% of earnings
before income tax, depreciation
and amortization, according
to Sanford Bernstein senior analyst
Craig Moffett. That, combined
with Sprint’s struggle to add wireless
subscribers and its declining
margins, prompted Moffett to cut
his target price for Sprint from $3
to $2.50 per share.

“It would be hard to concoct
a less-hospitable backdrop for
Sprint’s attempts to right the
ship,” Moffett wrote in a research
note last Wednesday. He maintains
an “underperform” rating
on Sprint.

Asked to comment, Sprint
spokeswoman Stephanie Greenwood
said, “It is worth noting that
any potential changes to our TWC
relationship would not be material
to 2010 financial results. And
Time Warner Cable remains a
valued, key strategic partner of
Sprint in several areas, including
4G.”

Separately, TWC is an investor
in Clearwire, the broadband wireless
provider majority-owned by
Sprint. To date, Time Warner Cable
has launched the Clearwireprovided
Road Runner Mobile
service in Charlotte, Greensboro
and Raleigh, N.C.; Dallas; San Antonio;
and Honolulu and Maui.

In Time Warner Cable’s 10-K
filing for 2009, the company disclosed
that its 2010 minimum
contractual obligation for “digital
phone connectivity” was $536
million.

September