Deadbeats Deflate TWT's Revenue

Time Warner Telecom's financial performance in the first quarter of this year could have been better — and could have been worse.

For 1Q 2002, the CLEC posted revenue of $168.7 million, a 3% drop compared with the first quarter of 2001. But thanks to lower spending, earnings before interest, taxes, depreciation and amortization hit $38.6 million, a 14% improvement over the EBITDA logged in 1Q 2001.

"The quarter's results reflect our ongoing struggle with the effects of the economy," said CEO Larissa Herda during an investor call following this morning's release of the results.

TWT's Achilles' heel is "the ongoing painful result of disconnects." Herda told investors. "We have churned through a lot of carrier business," she said. TWT's monthly recurring revenue from customers in bankruptcy remained at about 4%, similar to the last quarter.

"Recently we have focused more heavily on retail customers," Herda said. In the first quarter, Time Warner Telecom netted 250 new retail customers, including Procter & Gamble, Fidelity Investments and ReMax.

"We scrutinize new carrier sales more closely," Herda said. "We're not willing to take risks on every carrier opportunity."

TWT's top line also was hit by reductions in intercarrier reciprocal compensation. The CLEC posted only $16.8 million in reciprocal compensation revenues for 1Q 2002, down 30% from the first quarter of last year and 22% from 4Q 2001. That decline was caused by rate reductions mandated by the FCC and other regulatory bodies, said CFO Dave Rayner. "We expect this trend to continue," he added.

The increase in EBITDA can be attributed in part to TWT's efforts to control costs. In 1Q, the CLEC finished the shutdown of its Vancouver network-operations center and integrated it into its Denver NOC. That move resulted in 200 job cuts. TWT laid off another 140 workers in April.

TWT slashed its capital expenditures to $36.9 million in 1Q 2002, compared with the $95.6 million in spent in the first quarter of last year. The company's net loss grew, however, from $28.7 million in 1Q 2001 to $43.1 million in 1Q 2002.

Copyright © 2002 Ziff Davis Media Inc. All Rights Reserved. Originally appearing in The Net Economy.