Time Warner Cable Inc. , the second largest cable TV operator in the U.S. has extended its customer care and billing contract with CSG Systems International Inc. (CSGS - Free Report) through March 2017. For the last 30 years, CSG Systems is acting as the leading vendor for Time Warner Cable to automate and streamlined its business solutions so that the cable MSO can maximize revenue and customer support.
We view the recent changes in Time Warner Cable’s business model as positive. The U.S. pay-TV industry is at present facing significant challenges from several fronts. Economic volatility in the U.S., growing competitive threat from fiber-based TV services of telecom operators, and availability of cheaper substitutes, such as online video streaming services, have imposed mounting pressure on the traditional pay-TV operators, and Time Warner Cable is no exception.
As a surviving strategy, management has decided to adopt a four-edged approach: (1) rebrand itself as a major broadband service provider for residential customers, (2) aggressively penetrate the commercial business segment, (3) change in marketing strategy like product segmentation and (4) significant enhancement of shareholders’ wealth, such as systematic share repurchase and increase in dividend rate.
From 1980s, CSG Systems has been an integral part of Time Warner Cable to provide software and business support solutions for all strategic changes of the cable MSO. Currently, Time Warner Cable generates more than 10% of the total annual revenue of CSG Systems. CSG International offers an extensive portfolio of licensed and Software-as-a-Service (SaaS)-based products and solutions to help its clients streamline service delivery and monetization process.
We maintain our long-term Neutral recommendation on Time Warner Cable. Currently it enjoys a short-term Zacks #3 Rank (Hold) on the stock.