So I thought to myself - maybe Time Warner's telling the truth - they ARE about to be consumed by the huge cost of internet bandwidth.  The sky IS falling.  So let's look at their corporate filing (nice and hot off the presses from Feb 2009) and take their projected costs and revenues from internet traffic and see where they go.  I got a big surprise.  Far from the doom and gloom and tales of woe that Mr. Hobb's gave us the 10-K was actually quite rosy when it came to internet bandwidth.  Be sure you read the disclaimer that past performance is no estimate of future progress, and remember I'm only looking at the internet provision portion of their P/L

So I thought to myself - let's take a little journey through the 10-K filing.  Let's look for evidence of this perfidy that us bandwidth hogs are placing on the company.  We'll start with the simple stuff - the actual numbers.  I create the table below in a little known tool called a spreadsheet.  Mr. Hobbs (the COO) might want to get one of these newfangled things.  The cool thing about exponential - is that it works in both directions.  Exponential growth in REVENUE , which is followed by exponential decrease in EXPENSES would seem to indicate that you would get an exponential growth in PROFIT.  And sure enough that is what we find in the 10-K:

So TWC has been it's own entity for only 2 years.  But in that 2 years their revenue has grown 10% and their cost of doing business (in Digital Internet services) has shrunk by about 11.5%.  So if we assume that revenue growth does not accelerate any more than 10% and expenses continue to go down (As all the other studies we've read indicate they will, and as you will find out later - so do the statements of the CEO) we get the above numbers projected out through 2012.  Profit per subscriber stays relatively flat (assuming the same subscriber growth as the last 2 years) but profit goes through the roof.  By 2010 when the whole internet is going to suffer from Brownouts the gentlemen at Time Warner will be raking in 5.5 BILLION DOLLARS in profit.  I don't know about you but that's a pretty nice paycheck in my book.  That's a margin of 97% ladies and genlemen.  Revenues - expense over Revenus.  But our good friend Mr. Hobbs.  Poor Poor Mr. Hobbs.  He cannot afford to upgrade his internet connection bandwidth - he's going to go broke.  The SKY IS FALLING folks - and we'd better be prepared to pony up to be sure he doesn't have "brownouts in connectivity".  I have an idea - devote a tiny fraction of what you make - say 1% to bandwidth and other improvements, you'll still have plenty left over - trust me, I run a business.  I know how to use a spreadsheet.

Well maybe he negotiated some lousy contracts and he's going to need to pay more for bandwidth in the future.  Well, no it turns out that's not an issue either.  Contracts for existing lines extend all the way out to 2013 and he projects his expenses for bandwidth itself as follows:

Nope - projected data connectivity cost is going to stay flat all the way through 2011 and go down in 2012 and beyond.  So it can't be that their cost for their data connectivity contract is going up either.  Maybe it's the fees they pay for pole rentals  nope those go up a measly $8M  year - about even with their subscriber penetration growth.Well maybe they're actually predicting some huge threat or disaster that will reduce their projected 97% profit in data services to something less gross.  Let's examine the language of the statement and the SWOT summary at the beginning of the document:Well they did spend $500M for a share of Clearwire - perhaps because they saw that it might threaten their market and they wanted to be sure it didn't cannibalize their data market:

"In November 2008, TWC and several other companies collectively invested $3.2 billion in Clearwire Corporation, a wireless broadband communications company (“Clearwire Corp”), and one of its operating subsidiaries, Clearwire Communications LLC (“Clearwire LLC,” and, collectively with Clearwire Corp, “Clearwire”). "Well the company claims to be continously improving it's network.  So that must be costly right?Continuous Technical Improvement —Focusing on continuous improvement in network performance through technology and operational enhancements, including deploying redundant fiber networks, high capacity optical transport and IP elements, next generation DOCSIS services and support for two-way customer premise equipment. Operationally, advanced work force management and remote network surveillance and restoration tools provide for increased efficiencies in dispatching TWC’s technicians and resolving customer-reported issues quickly;

And they're about to suffer from some pretty serious competition according to this.  Unless of course they have a virtual monopoly?

Local telephone companies.   TWC’s video, high-speed data and Digital Phone services face competition from the video, DSL, wireless broadband and traditional and wireless phone offerings of AT&T Inc. (“AT&T”) and Verizon Communications Inc. (“Verizon”). In a number of TWC’s operating areas, AT&T and Verizon have upgraded portions of their networks to carry two-way video, high-speed data and IP-based telephony services, each of which is similar to the corresponding service offered by TWC. Moreover, AT&T and Verizon market and sell service bundles of video, high-speed data and voice services plus wireless services, and they market cross-platform features with their wireless services, such as remote DVR control from a wireless handset. TWC also faces competition from the DSL, wireless broadband and phone offerings of smaller incumbent local telephone companies, such as Frontier Communications Corporation and Cincinnati Bell, Inc.

Note that they're pretty dismissive of DSL, and particularly Frontier as competition.  Seems like they'd want to keep the "small competitor" around as long as possible so a big one like Verizon Fiber doesn't just move in and eat their lunch.  Sounds like an interesting strategy.  And while we're at it we can increase our rates so that the "making money" dials go to 11.  Just keep feeding Frontier just enough business to keep them alive, but not enough to make them really competitive.

Also note that they're dismissive of the FCC tellling them that taking away cable-card ready video channels using SVD for bandwidth is actually illegal.  That's cool because I receive about 10 of the 40 or so channels they broadcast in hd due to my resistance to paying for yet another box I MUST rent from the cable company..

Switched digital video.   The deployment of SDV allows TWC to save bandwidth by transmitting particular programming services only to groups of homes or nodes where subscribers are viewing the programming at a particular time, rather than broadcasting it to all subscriber homes. The Enforcement Bureau of the FCC has issued preliminary decisions finding that TWC’s notice of its deployment of SDV technology violates FCC rules. These staff-level decisions do not constitute final agency action on the substantive legal issues, and are the subject of a pending appeal. However, if these decisions are upheld, they could impose significant costs upon TWC and/or impede its ability to make additional capacity available for new services through the use of SDV.

So they must be stating that costs for data transmission are going up somewhere right?  They say it's a big problem:

High-speed data costs consist of the direct costs associated with the delivery of high-speed data services, including network connectivity costs. High-speed data costs decreased primarily due to a decrease in per-subscriber connectivity costs, partially offset by growth in subscribers and usage per subscriber.

Nope, not there - that paragraph is pretty clear.  Per subscriber data service cost is going DOWN not up.  Ah, but these are all legal and technical issues - hardly a concern for someone making over 90% margins on their investment in this business division.  These paragraphs here are the meat of the article:

TWC faces risks relating to competition for the leisure and entertainment time of audiences, which has intensified in part due to advances in technology. 

In addition to the various competitive factors discussed above, TWC’s business is subject to risks relating to increasing competition for the leisure and entertainment time of consumers. TWC’s business competes with all other sources of entertainment and information delivery, including broadcast television, movies, live events, radio broadcasts, home video products, console games, sports, print media and the Internet. Technological advancements, such as VOD, new video formats, and Internet streaming and downloading, many of which have been beneficial to TWC’s business, have nonetheless increased the number of entertainment and information delivery choices available to consumers and intensified the challenges posed by audience fragmentation. Increasingly, content owners are delivering their content directly to consumers over the Internet, often without charging any fee for access to the content. Furthermore, due to consumer electronics innovations, consumers are more readily able to watch such Internet-delivered content on television sets. The increasing number of choices available to audiences could negatively impact not only consumer demand for TWC’s products and services, but also advertisers’ willingness to purchase advertising from TWC. If TWC does not respond appropriately to further increases in the leisure and entertainment choices available to consumers, TWC’s competitive position could deteriorate, and TWC’s financial results could suffer

The internet is threatening to cannibalize cable television.  So how do you fix that - why you charge the same for internet access as you do for your current cable television offering of course. That works out to..... wonder of wonders $150/month/household.  Amazing that.  Just amazing.  What a coincidence.

The rising popularity of bandwidth-intensive Internet-based services poses special risks for TWC’s high-speed data services. Examples of such services include peer-to-peer file sharing services, gaming services and the delivery of video via streaming technology and by download. If heavy usage of bandwidth-intensive services grows beyond TWC’s current expectations, TWC may need to invest more capital than currently anticipated to expand the bandwidth capacity of its systems or TWC’s customers may have a suboptimal experience when using TWC’s high-speed data service. In order to continue to provide quality service at attractive prices, TWC needs the continued flexibility to develop and refine business models that respond to changing consumer uses and demands and to manage bandwidth usage efficiently. TWC’s ability to do these things could be restricted by legislative efforts to impose so-called “net neutrality” requirements on cable operators. See “—Risks Related to Government Regulation—‘Net neutrality’ legislation or regulation could limit TWC’s ability to operate its high-speed data business profitably and to manage its broadband facilities efficiently to respond to growing bandwidth usage by TWC’s high-speed data customers.”

Yes, that 97% profit that we're currently enjoying might be cut by oh, 4 or 5% to upgrade.  Worry hard folks.  They're especially worried about the FCC telling them that Net Neutrality must be honored.   They could rise to the challenge and offer packages competitive with others, sacrificing a small amount of their data margin to the gods of upgrades - but that isn't the old fashioned we must charge for everything and bundle it cable way of doing things.  They could unbundle everything they do and just let people subscribe for a buck a channel to whatever channels they want over the internet - thus reducing bandwidth requirements, and saving their income stream.  We might lose a channel or two (say Home Shopping Network).  No great loss.  If those are really money makers - offer them for free.

So lets face it folks.  This isn't about the idea of it costing them an "arm and a leg" for this bandwidth.  The $44M a year they pay contracturally for bandwidth is trivial.  The additional 5% of their data services costs could soak up a whole lot of hit before even looking at eating into the margins they're making there compared to margins for other products.  No, this is about cable television and it's demise.  They see the writing on the wall.  So - if we don't have the choice of moving to something like Verizon FiOS be prepared to pay $100 or more for your internet connection when the cable tv industry vanishes down the drain - because that's all they'll have left.  Hobb's your arguments hold no water. 

I'm not sure why - if you'd told the truth you might have gotten more sympathy (though not much at a 97% profit margin), but you didn't tell the truth.  Instead you tried to cast your users - and in fact your former best advocates - as villains depriving others of phantom bandwidth and for that - you should be ashamed, held accountable and universally villified.Feel free to correct my math.  I may be wrong here and there (even spreadsheets aren't perfect) but this is the numbers from your own SEC report.  If you tell me the numbers are wrong - why I think you'll need to take that up with the Attorney General and the SEC.  If not - then you have no excuse.  Abandon this folly now.