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Time Warner Cable Phasing Out Sprint VoIP

3/11/2010 3:29 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, Time Warner Cable spokesman Justin Venech said. "It makes economic sense for us to bring this in-house," he said.

Time Warner Cable logoThe 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 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 Clearwire-provided Road Runner Mobile service in Charlotte, Greensboro and Raleigh, N.C.; Dallas and 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. According to Moffett, that line item is essentially all related to the Sprint VoIP contract.

TWC projects its VoIP contract obligations to drop to $631 million for the two-year period of 2011-12, and to $151 million for 2013-14. By 2015, those obligations will be gone.

 

 

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