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CEO: Consumers liking bundled telecom services

Time Warner chief credits gains in cable business to selling a "triple play" of TV, broadband and telephony.

Cable operators' strategy of bundling services to win and retain customers is working, Time Warner's CEO said during a Wednesday conference call to discuss the company's first-quarter results.

Time Warner, which owns the AOL Internet service and portal, Warner Brothers movie studios, Time magazine publishing and HBO cable network, said overall revenue was up 1 percent to $10.5 billion, boosting earnings to $1.5 billion, or 32 cents per share, from $915 million, or 19 cents per share, during the same quarter a year ago.

The big growth engine for the company was its cable products. Revenue on cable increased 15 percent during the quarter to $2.6 billion. Richard Parsons, chairman and CEO of the company, attributed the strong growth to the company's strategy of selling products as a bundled service offering. Time Warner's package includes high-speed Internet access, TV and now telephone service.

During the quarter, Time Warner added 241,000 digital video customers, 346,000 high-speed Internet subscribers and 270,000 digital phone subscribers, its biggest gain ever.

"The obvious conclusion is that the triple-play bundle is working," Parsons said during the conference call. "This ability to offer a bundled package gives us the opportunity to go back and resell services to customers who didn't buy from us the first time."

Cable operators started taking on the phone companies head-to-head last year when they began offering telephone service. Now, as cable companies, such as Time Warner, ramp sales of their phone services, they are finding that customers are more willing to buy other services from them as well, including high-speed Internet access and TV service. Parsons also said the bundle is helping the company retain customers, making each of the services more "sticky."

Comcast, the largest cable provider in the U.S., also noted this trend during its first-quarter conference call last week. Comcast added 211,000 new phone customers during the quarter, more than it had signed up for all of 2005. And in regions where Comcast sells phone service, the company said it added more new high-speed Internet access customers than in other parts of the country where the option to buy a package wasn't available.

The phone companies, most notably AT&T and Verizon Communications, are fighting the cable companies by upgrading their networks to offer television service. But the process for the phone companies has been slow. In order to offer TV, they need to increase capacity on their networks, which means digging up streets and adding fiber-optic cabling. Verizon is spending billions of dollars on its Fios network, which extends fiber directly to people's homes. AT&T has opted for a less expensive solution, called Project Light Speed, that puts fiber deeper into neighborhoods.

"We continue to face tough competition," Parsons said. "But we know how to compete. While the phone companies are only starting to dig up your yard, cable is in your home."

Even though the cable companies have a big head start in terms of offering the triple-play bundle, Verizon said it is already seeing the bundle work in the seven states where it offers TV service. During its quarterly conference call on Tuedsay, Verizon said that 80 percent of its video subscribers were also buying broadband and telephony service from Verizon.