Thomas Robey - Senior Vice President-Investor Relations Robert D. Marcus - Chairman & Chief Executive Officer William F. Osbourn, Jr. - Senior Vice President, Controller & Chief Accounting Officer and Acting Co-Chief Financial Officer Matthew Siegel - Senior Vice President & Treasurer and Acting Co-Chief Financial Officer Dinesh C.

Jain - Chief Operating Officer.

Craig Eder Moffett - MoffettNathanson LLC Benjamin Swinburne - Morgan Stanley & Co. LLC Amy Yong - Macquarie Capital (USA), Inc. Michael L. McCormack - Jefferies LLC John C. Hodulik - UBS Securities LLC Rich S. Greenfield - BTIG LLC Philip A. Cusick - JPMorgan Securities LLC Laura A. Martin - Needham & Co. LLC James M.

Ratcliffe - The Buckingham Research Group, Inc. David Carl Joyce - Evercore ISI Bryan Kraft - Deutsche Bank Securities, Inc. Thomas W. Eagan - Telsey Advisory Group LLC.

Hello and welcome to the Time Warner Cable Second Quarter 2015 Earnings Conference Call. Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now, I'll turn the call over to Mr. Tom Robey, Senior Vice President of Time Warner Cable Investor Relations. Thank you. You may begin..

Thanks, Candy, and good morning everyone. Welcome to Time Warner Cable's 2015 second quarter earnings conference call. This morning, we issued a press release detailing our 2015 second quarter results. Before we begin, there's several items I need to cover. First, we refer to certain non-GAAP measures.

Definitions and schedules setting out reconciliations of these historical non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our earnings release and trending schedules.

Second, today's conference call includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are based on management's current expectations and beliefs and are subject to uncertainty and changes in circumstances.

Actual results may vary materially from those expressed or implied by the statements herein, due to various factors which are discussed in detail in our SEC filings.

Time Warner Cable is under no obligation to, and in fact expressly disclaims any such obligation, to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.

Third, the quarterly growth rates disclosed in this conference call are on a year-over-year basis, unless otherwise noted as sequential. Fourth, today's press release, trending schedules, presentation slides and related reconciliation schedules are available on our website at twc.com/investors.

With that covered, I'll thank you and turn the call over to Rob.

Rob?.

Thanks, Tom, and good morning everyone. It was a very eventful quarter, or should I say another in a series of very eventful quarters, at Time Warner Cable. In the span of a little more than a month, we terminated the Comcast merger and entered into a second and even more attractive agreement with Charter.

As this is our first earnings call since the Charter announcement, let me start there. As I've said countless times over the last couple of years, we are and have always been committed to maximizing shareholder value. The Charter deal delivers on that commitment.

The combination of Charter, Time Warner Cable and Bright House will create a leading broadband services and technology company with almost 24 million customers in 41 states.

The increased scale of the new company should yield increased investment and greater efficiencies, resulting in better products and service and more competition, both for consumers and businesses.

The deal terms recognize Time Warner Cable's unique value and I believe strike the right balance between value certainty and upside opportunity for our shareholders. And we expect that the new company will continue to employ the vast majority of Time Warner Cable's employees.

So in short, this is a really good deal all the way around for our customers, our shareholders and our employees. We're well into the process of seeking regulatory approvals and planning for integration of our operations.

Through the drama, uncertainty and press coverage, our team impressively maintained its focus on operations, delivering yet another strong quarter. To the Time Warner Cable team, I want to extend my sincere thanks for continuing to exceed my lofty expectations.

Our second quarter results are the latest in a six quarter trend of significant and dramatic operational improvement. We added 66,000 residential customer relationships, the first positive second quarter net addition since 2008 and our best second quarter ever.

We added 233,000 triples and more than 0.25 million voice subs, both records for a second quarter, and posted our best video and broadband second quarter in years. Recall that when we disclosed our three-year operating plan 18 months ago, I said that we would add 1 million residential customer relationships over the course of the plan.

At the time, we made clear that it was a back-end loaded plan, and I think most of you probably thought it was a pretty ambitious target. Well, halfway through the plan period, we've added 421,000 residential CRs, which puts us well ahead of schedule.

And our subscriber momentum has continued into July, which adds to my confidence that we'll hit or exceed the 1 million customer bogey.

As for our financial performance in the quarter, top-line growth was solid at 3.5%, driven by another quarter of exceptionally strong growth in Business Services as well as organic Residential growth, which matched Q1 as the best in the last four years.

As in Q1, we continued to prioritize improving the customer experience, both through investment in the capability and reliability of our network and customer premises equipment and by spending to enhance sales, technical operations and customer care. As a consequence, Q2 adjusted OIBDA, excluding pension expense, was essentially flat.

The investments we're making are already yielding results. We completed the TWC Maxx deployment in Austin, and we're on track to complete Maxx rollout in Dallas, San Antonio, Raleigh, Charlotte, Kansas City and Hawaii by year-end.

As we mentioned on last quarter's call, we'll start the Maxx process in San Diego this year and finish it up early next year. And we've now decided to accelerate into this year the start of the Maxx rollout in Wilmington and Greensboro, North Carolina. TWC Maxx is all about transforming the Time Warner Cable experience. And it's clearly working.

In TWC Maxx cities, customer satisfaction is up and churn is down. In fact in Q2 in areas with TWC Maxx, we saw a more than 35% reduction in voluntary disconnects for both video and broadband. We continued to post improvements in key customer service metrics.

In Q2, repair calls and repair-related truck rolls per customer relationship were down by 4% and 15%, respectively. Our on-time arrival rate within our industry-leading one hour appointment windows was 98%, an all-time record, and our first visit problem resolution rate also hit a new high.

Consistent with these statistical achievements, customer satisfaction scores for both tech ops and care are meaningfully higher than a year ago. I told you last quarter how critical it was that during the pendency of the Comcast merger, we continue to make investments and run the business as if we were going to run it forever.

That approach has certainly paid off and we have no intention of changing course now that we've agreed to merge with Charter. We're a much healthier company now than we were 24 months ago. And we plan to use the time between signing and closing of the Charter deal to further strengthen our operations.

In the interest of maintaining continuity and stability, we've put the brakes on some cost-cutting measures that just don't make sense in light of the merger, but, otherwise, we're going to stick to our game plan for running the company on a stand-alone basis.

If anything, we plan to do more, rather than less, investing this year to set us up well for next year and beyond. As a result of that increased investment and the fact that it doesn't look like we'll get additional distribution of the Dodgers' network this season, we now expect full-year adjusted OIBDA, ex pension costs, to be down slightly.

And by down slightly, I mean something less than 1%. We also expect that full-year CapEx will be around $4.45 billion, somewhat higher than our previous estimate, as we accelerate the TWC Maxx rollout and continue to upgrade and modernize our network and equipment.

This is all part of our overall plan to drive meaningful operating and financial growth in 2016. So to sum it up, I'm exceptionally pleased with the deal we were able to strike with Charter. And we're working diligently to bring that deal to closure. At the same time, we're continuing to drive our stand-alone business forward.

And our Q2 results are a clear indication that the plan is working. With that, I'll now turn it over to Bill Osbourn and Matt Siegel, our acting co-CFOs, who will tag team the review of our Q2 results.

For those of you who don't know them, Bill has been Time Warner Cable's Controller and Chief Accounting Officer since 2008 and Matt has served as our Treasurer also since 2008.

They're proven leaders with impressive track records and many years of experience in the industry and with the company, and I have great confidence that they'll do a terrific job leading our Finance team. Per the usual process, after Bill and then Matt comment on the quarter, the three of us, along with Dinni, will be available for Q&A.

Bill?.

voice, which grew 19.5%; and wholesale transport, which was up 23.7%. And second quarter bookings increased 18% sequentially, making Q2 our best bookings quarter ever. In short, Business Services is firing on all cylinders and we're right on track to reach our $5 billion annual revenue goal for Business Services in 2018.

Just as significant, we're continuing to run Business Services more efficiently. In the second quarter, Business Services' margin expanded 60 basis points year-over-year to 59.8% and Business Services' segment adjusted OIBDA grew 17.4%. Other Operations revenue declined 1.1% in Q2.

Media sales revenue was down $9 million from last year, primarily due to the $12 million year-over-year cyclical decline in political advertising. Second quarter Other revenue increased, primarily due to RSN affiliate fees from our Residential Services segment. These revenues are eliminated in the consolidation.

Next, Matt will cover expenses, cash flow and the balance sheet.

Matt?.

Thanks, Bill, and good morning. As noted, total company adjusted OIBDA declined 1.2% in Q2, and net of a $27 million increase in pension expense, was roughly flat with last year's second quarter.

As we've outlined in recent quarters, we're making aggressive investments in a number of areas, notably tech ops and customer care, which together increased $52 million, or 9%.

These functions are instrumental in driving a better customer experience, and investments in these areas go hand-in-glove with our network reliability improvements and TWC Maxx deployments. Furthermore, we raised sales and marketing expense in the second quarter by a similar amount, $52 million, or 9.6%.

Roughly two-thirds of the incremental sales and marketing investment was in the Residential segment, where we've been raising the staffing levels across all sales channels. For example, we've increased Residential direct sales head count by 33% over the last year.

As Bill mentioned, the increased staffing is translating into marked improvements across our sales channels. Similarly, we have continued to hire sales professionals in Business Services to drive continuing strong revenue growth.

Together, these investments are at the core of our efforts to dramatically improve operating performance this year, which we believe will in turn drive significantly stronger financial performance next year. The biggest drag on adjusted OIBDA continues to be programming and content costs, which grew $148 million, or 11% year-over-year.

The biggest driver was contractual rate increases of roughly $100 million, followed by an increase of around $30 million in Dodgers rights fees and Pay-Per-View cost growth of $16 million. In the Residential segment, average programming cost per video sub was $42.73, up $4.44, or 11.6%, from last year.

Excluding the programming costs from the fight, the growth rate was just over 9%. As we noted last quarter and a couple times already this morning, pension expense increased $27 million in Q2 and $53 million in the first half of the year.

We expect full-year pension expense to be approximately $190 million, a roughly $110 million increase over last year, due almost entirely to the decline of interest rates.

We continue to exercise strong cost discipline in our shared functions, which include operating costs associated with broad corporate functions like accounting and finance, IT, executive management, legal and HR. Expenses increased just 2.6% to $739 million in the quarter.

As anticipated, adjusted OIBDA for first half is pretty much flat versus last year. Due to the timing of certain expenses, third quarter adjusted OIBDA, excluding pension expense, could be as much as $100 million lower from last year's third quarter, but as Rob indicated, we expect full-year adjusted OIBDA ex pension to be down only slightly.

Moving down the income statement, second quarter adjusted diluted EPS was $1.54, down $0.35 from a year ago. One of the biggest drivers of lower EPS in Q2 was depreciation expense, which again is a clear reflection of the large capital investment we're making to improve the operations and future prospects of the company.

Note that Q2 as reported EPS reflects a $120 million gain related to our agency agreement with Verizon Wireless, which was excluded from adjusted EPS. And I would remind you that with the suspension of our share repurchase program when we announced the Comcast transaction, average shares outstanding were actually up over 3 million year-over-year.

This compares to the prior two years when shares outstanding were declining. CapEx of $1.3 billion in the second quarter was our highest ever, eclipsing the $1.2 billion invested in last year's second quarter. As in recent quarters, this reflects strong subscriber growth as well as improvements of the plant.

Also, our aggressive investments in CPE as we've continued to deploy new set-tops, DTAs and modems in Maxx markets and our accelerated replacement of older, less reliable set-tops across the footprint.

We also continued to invest in the future growth of Business Services, where we connected 32,000 commercial buildings to our network in the first half of the year. As Rob indicated, we have raised our planned 2015 CapEx to $4.45 billion.

Free cash flow was $440 million in the second quarter, down $19 million year-over-year, primarily due to higher capital investments. At the end of Q2, net debt stood at $22.6 billion, down $439 million from year-end 2014.

Significantly, the Charter merger agreement permits us to continue paying our $3 per share annual dividend between signing and closing. We just paid our dividend last week and fully expect to continue paying out $0.75 per share each quarter until we close.

As I mentioned, we suspended our buyback program in conjunction with our announcement of the Comcast deal. And with the announcement of the Charter transaction, we don't intend to restart it now. So to summarize, halfway through our three-year plan, we're very pleased with our position.

Our disciplined execution is paying off in significantly stronger operating metrics. We anticipate that our more intensive investment this year will drive stronger operating and financial results in 2016 and beyond. With that, let me turn it back over to Tom for the Q&A portion of the call..

Thank, Matt. Candy, we're ready to begin the Q&A portion of the call. We would ask each caller to ask a single question, so that we can accommodate as many callers as time permits. First question, please..

Thank you. Our first question comes from Craig Moffett with MoffettNathanson..

Hi. Thank you. Rob, I wonder if you could just talk a little bit more about the priorities that you've set for the business now, given the transaction change.

What are you doing differently and how do you think differently about 2015 and 2016 in light of the transaction? I think about some of the longer-term initiatives like WiFi, like Enterprise, and what have you.

Could you just describe how you think about those longer-term initiatives in the context of your merger?.

Sure, Craig. I think the reality is that the policy we've been following since the announcement of the Comcast deal has essentially been continue on the same course we would've been on had none of the deals been announced.

And that same policy is going to guide us during the pendency of the Charter transaction and that includes making investments both for here-and-now benefits of improving customer experience, but also for longer-term benefits of growing the business.

So we're certainly, in addition to rolling out Maxx, which is having benefits in real-time, we're continuing to invest for growth. We're investing in residential line extensions, continuing to connect commercial establishments to our network.

We're rolling out WiFi as we have been and we're continuing to evolve our products, including video, high-speed data and phone. So the reality is we're thinking like long-term managers in spite of the pendency of the transaction..

Your strategy of bringing in customers at the $90 price point and then moving them up over time is strikingly similar to Charter's own.

Is that a coincidence and it's just the way you would've done it anyway or is there any sort of intent to say this is a sensible thing to do, in light of the fact that we're going to be one company down the road?.

Yeah, the decision regarding our pricing and packaging is wholly our own and independent of the transaction. Until the deal closes or until we get regulatory approval, we have no choice but to run the business independently.

And the decisions we've made on the $90 triple play is completely an independent decision that we think is best for the business..

And it started in Q4 of 2014..

Okay. Thank you, guys..

Thanks, Craig. Next question, please..

Thank you. Next question is Ben Swinburne with Morgan Stanley..

Thank you. Good morning. I wanted to ask about the outlook for Rob or Dinni, or both of you. When you look at the rest of this year, I think your guidance implies a nice improvement in the fourth quarter on OIBDA growth, or a lower decline at least versus Q3, but you face political comps.

So maybe you could just talk about what's going to happen in Q4 that gives you confidence that you're going to see some, I think, top-line improvement is probably what's implied in your guidance. And then, broadening that out, you guys didn't, at least in your published documents this morning, have any 2016 commentary, the $9 billion of EBITDA.

I was wondering if you could just talk about whether that number is still the right number to be thinking about and then if the CapEx outlook for next year is different than it was before, because your CapEx for this year is obviously coming in higher? Thanks..

All right, Ben. Let me start with 2016 and then I'm going to turn it over to Matt Siegel and Bill Osbourn to talk about the remainder of 2015. So, as hopefully came through throughout our prepared remarks, we feel great about the trajectory of the business.

And we are very confident that the subscriber growth we're achieving this year, as well as the investments we're making this year, will yield significant financial growth next year, but given the pendency of the merger and the changes on the horizon, we just felt it was inappropriate to give 2016 guidance.

But I will reiterate that that's not in any way a reflection of concerns or any less enthusiasm we have about the path we're on, but more a function of the circumstances we find ourselves in. And that goes not only for our OIBDA guidance for 2016, but also for CapEx. We're just going to hold off for now on giving forward guidance.

So, Bill, you want to take 2015?.

Yeah. As far as the remainder of 2015, there are a number of factors going on. In particular, as far as on the expense side, there are some timing issues with relative to Q3 versus Q4 in the programming, bad debt, marketing and other cost areas that impact Q3 more than Q4.

And then the expectation is that there would be some revenue generation also as a result of the stronger subscriber metrics this year that would be picking up in the latter half of the year, but a lot of it, most of it, is really due to the timing of certain expenses..

Ben, you're right in that the comparables on the advertising sales side in Qs 3 and 4 are challenging, given last year being a political year, but, as Bill said, we think the revenue ramp on the residential front, given subscriber performance all year, is going to more than offset that in Q4..

Thanks for the color, guys..

Thanks, Ben. Candy, next question, please..

Thank you. Next question is Amy Yong with Macquarie..

Thanks. Two really quick questions for me, can you just update us on the regulatory process and perhaps areas of focus for the FCC as they review the pending merger and then, any early thoughts on competition from AT&T and DIRECTV and how that might change? Thank you..

All right. I'll take the regulatory update and then Dinni will do the competition. So we're working towards a year-end closing of the transaction, but I think if there's anything that we've all learned over the last couple of years, it's that we don't really control the timing of this process. So we'll have to see exactly when it gets done.

In terms of status, I think most of you saw that the FCC issued a Public Notice on Monday of this week stating that it had accepted our application, which is the first step, really, in the formal part of the process.

They also indicated that they would issue another Public Notice as soon as they work through and voted upon the Protective Order that will govern the treatment of confidential information during the process. So we're hopeful that that's imminent. And that will start the 180 day clock ticking.

As for the DOJ, we received our second request last week and we're in the process of responding to that. And as far as the state and local process, we filed all of our applications for transfers of franchises and so on with the state PUCs that require it and the local franchises that require it. So that's where we are in the process, as we sit today.

As far as competition from AT&T and DIRECT, Dinni, you want to handle it?.

Yeah. Amy, I think it's just too premature to say what we predict will happen as part of that. It's just all too new. I think that both companies are companies that put a lot of money in the market in terms of marketing, so that's something that could change.

On the other hand, we all know that one of the things that AT&T was most interested in was the NFL games. So it's just too early for us to see how all that's going to play out..

The only thing I'd add to that is that from an industry structure perspective, in roughly a quarter of our footprint, the deal results in two competitors becoming one. And, generally speaking, that's a positive for all the players in the industry..

Great. Thank you..

Thanks, Amy. Next question, please..

Thank you. Next question is Mike McCormack with Jefferies..

Hey, guys. Thanks. Rob, maybe just a quick comment on the CapEx side, thinking about longer-term run rate CapEx intensity, where should that go? And I guess part of that is your set-top box investment clearly has been elevated.

I'm guessing that over time you're expecting that to come down as we move into more of a BYOD world, so maybe a comment around that. And then, just secondly on the competitive landscape in the quarter, AT&T clearly pulling back, Verizon FiOS not overly successfully in the quarter either.

Was this just a really good time to be out there hunting for subs?.

All right. On CapEx, again, we're not going to give specific guidance, I think, until we're complete on the rollout of TWC Maxx. And until we've retired all of, sort of what I would refer to as, last-generation consumer premises equipment, I would expect that CapEx is going to continue at a somewhat elevated rate.

But I think on a longer time horizon, your point is well taken, which is that as we deliver our video product in IP, it enables customers to use any of their customer-owned IP-enabled devices to consume the video product. And that in time will result in fewer customers leasing boxes that we have to spend capital on and more bringing their own device.

So I do think that that, in theory, promises to reduce CPE capital, but I think that's a multi-year kind of event. And at this point in time, we're anticipating that we're going to continue to provide the best possible equipment for our customers that we deliver. You know, we do offer customers an opportunity to bring their own modems.

And I think it's roughly 12% of our base is bringing their own modems, but that means the vast majority of modems are still being purchased by Time Warner Cable. As far as competitiveness in the quarter, I would only say that our connects were up in both FiOS and U-verse markets.

And in fact our connects in U-verse markets did better year-over-year than in any other part of the footprint. And on the disconnect side, disconnects were down in both FiOS and U-verse markets and, in fact, were down most in FiOS markets.

So I think the simple characterization of the quarter is that we did well against all competitors and that gave rise to the really outstanding subscriber results that we reported..

Hey, Rob, just on the connects in the U-verse areas, were you seeing a significant delta between the speeds being offered between AT&T and yourselves?.

I'm not sure I understand the question..

Meaning your offering in those U-verse markets, is it meaningfully faster speeds for high-speed than you're seeing from AT&T?.

Look, U-verse historically has offered a pretty competitive product and they certainly have offered speeds that are faster than in traditional DSL markets. So I think it's maybe in part based on product superiority, but I think it has a lot to do with just pure execution on our side..

Great. Thanks, guys..

Thanks, Mike. Next question, please..

Thank you. Next question is John Hodulik with UBS..

Great, thanks. Maybe just a couple questions about the Maxx rollout. Rob, I think you guys had previously said that, based on the spending, you'd pass about 40% to 50% of homes with Maxx.

Now that you're going faster, is there a revision to that number for year-end? And then could you remind us, are you guys, as you go all-digital and increase speeds and improve the products, are you putting full set-top boxes in front of every TV in these markets? I'm just trying to get a sense for how the CapEx is going to scale post-merger.

And then lastly, you talked about the 35% decline in voluntary disconnects. Is there a way that you could sort of help us scale that number, maybe in terms of voluntary churn versus voluntary churn or sort of just help us contextualize that number? Thanks..

Okay. So as far as year-end Maxx completion, while we're accelerating the start of the rollout in Wilmington and Greensboro, we're not going to complete Maxx in those markets this year, so we won't get to speed increases.

We'll probably start the process of going all digital, which frees up the bandwidth, and then we'll follow that up with speed increases next year.

So the projection of 40% to 50% by year-end is still a good number to work with, but it will mean that earlier next year than had been anticipated, customers in Greensboro and Wilmington will start to get the benefits of Maxx.

As far as our all-digital play, we put DTAs on outlets that previously had no CPE unless a customer chooses to take a full set-top box, but we don't mandate it. So that's that one. The last question, refresh my memory..

You talked about better voluntary disconnects as you got in the markets where you've rolled out Maxx. I think you said 35% decline. If you could sort of help us, maybe give us a sense for, I know you haven't in the past, but maybe overall churn, or the voluntary churn versus involuntary churn, that kind of thing..

We're not going to provide any more granularity. We've always shied away from giving specifics, churn stats, but suffice it to say that voluntary churn, when you take voluntary churn and non-paid churn, those are the ones that really are a reflection of the kind of experience that customers are having. And those are the ones we target the most.

So success on voluntary churn is a big deal for us..

Got it. Thanks..

Thanks, John. Next question, please, Candy..

Thank you. Next question is Rich Greenfield with BTIG..

Hi. Just a quick question, Time Warner's been pretty out front, along with Comcast, in trying to set the bar for getting paid for peering and interconnection and even experimenting historically with usage-based pricing and tiering.

Just wondering how you think about the importance of those levers for growth over time, especially as we're seeing OTT video, whether it's Netflix, or we're starting to see things like Sony Vue and Sling in terms of virtual MVPDs and maybe even an Apple launch.

How do you think about the opportunities for both of those items as you think forward into 2016?.

The two items being peering and usage-based pricing, Rich?.

Yeah. Caps, usage-based pricing, however you look at usage-based pricing. I assume you need a cap for usage-based pricing..

All right. I actually view the two topics almost entirely separately. So let's start with usage-based pricing, which we've been implementing for some time for explicit tiers of service. That has, from our perspective, never been about managing over-the-top video consumption or discouraging customers from using other people's video product.

It's been 100% about matching price and value. So the goal of usage-based pricing was to offer customers who use less bandwidth, who maybe just do e-mail, an opportunity to pay less and have an Internet offering that better meets their demands for both usage and price. So it's all about customer segmentation and customer choice.

With respect to peering, we have both settlement-free peering relationships and paid peering relationships and to the extent that there is an exchange of money, either from us or to us in our peering relationships, those are really designed not to generate an independent revenue stream, to create another business, but rather to make sure that there's an alignment of interest between us and the counterparty in how efficiently we utilize available capacity.

So that's really the way we think about those two areas..

And are you surprised that Charter is willing to do without both items as part of their consent decree to acquire you?.

Look, different providers have had different philosophies on these things.

When I mentioned usage-based pricing, I don't want to minimize the fact that we have been completely committed to delivering an unlimited broadband offering in connection with whatever else we do, because we know customers do place a value on the peace of mind that comes with unlimited plans.

So we never had any intention of substituting the availability of unlimited with exclusively usage-based programs. And let's not forget that the vast majority of our customers do, in fact, take those unlimited plans. So I guess I'm not surprised to hear Charter having a different point of view about that.

Look, I'm not going to comment specifically about the new Charter peering policy from a substance point of view, but I will say that the fact that it addresses a specific concern that's been raised by some opponents of the merger and, at least in theory, takes that issue off the table, that's a net positive for getting our deal done, so we're pleased with it..

Thank you very much..

Thanks, Rich. Next question, please..

Thank you. Next question is Phil Cusick with JPMorgan..

Hey, guys. Thanks. I think people are a little confused with the ARPU trajectory, especially given the strength of the Mayweather fight.

Can you remind us, is this really just because growth is so strong and a lot of people coming in at the $90-plus sort of triple play level, or is there any sort of down-shifting in the legacy base in terms of what customers have to spend? Thanks..

I think there's really two things driving it, Phil, and you hit on one of them. And I think Bill covered it in his prepared remarks, and that is this inflow of new connects at promotional pricing. And when you do better on the connect side, inherently, although the overall connect revenue goes up, there is some dilution of ARPU.

The second thing we shouldn't lose track of is remember that we've moved now to a unified price increase, meaning we increase prices and add fees one time a year per customer.

We did that in Q1 this year and we did it in Q2 last year, so that it's not a surprise to us that ARPU growth in Q2 was not quite as strong as it was in Q1, because we've lapped last year's increase. So I think that's essentially what's going on. I don't know, guys, if you want to add anything to that..

Yeah. I mean, just as I said in the prepared remarks, it's really just a factor of us driving volume, promotional discounts on triple plays and adding those to the base at a lower amount, tempering the ARPU growth..

And if I could follow up, how have you been treating retention? Have you been any more or less aggressive in terms of letting customers keep their discount as they roll off one year?.

You know, our whole view of retention hasn't really changed since the middle part of 2014. I think that what we're doing is getting better at executing it. So our view is that we will always rather save the customer than lose the customer, but I think we're pretty disciplined about not giving away the farm in doing that..

Good. Thank you..

Thanks, Phil. Next question, please..

Thank you. Next question is Laura Martin with Needham & Company..

Hi, there.

Can you hear me okay?.

Laura, we're not really hearing you too well..

Okay.

Is that better?.

Little bit..

Okay. So I want to talk about OTT. It looks like these content guys are going to continue to roll out over-the-top services. We've got Lifetime launching. And now Bob Iger has said that over the long-term, ESPN probably will go direct.

I'm really interested in your point of view about how that affects sort of your core bundle and how you think this plays out over the next five years..

Let me start with something that I've said many times before, which is that at the highest level, we embrace over-the-top video to the extent that customers choose to avail themselves of video over-the-top. It highlights the value of the high-speed data offering that we deliver, we think, better than anybody else.

So we think it would be foolish to resist what might otherwise be an attractive behavioral trend. To the extent that we want to make sure that on the video side we don't lose customers to over-the-top, the way to do that is to compete aggressively and ensure that our video product is the best that's out there.

And for what we deliver, I continue to believe that it is the best that's out there. The breadth of content is far better than anything that's delivered over-the-top. Quality of the picture is better, and availability of on-demand choice is better. So I feel like we can compete on that front. And to the extent we don't, shame on us.

As far as the impact that more and more direct-to-consumer offerings have on our ability to sell, well, look, as long as the playing field is even and costs are comparable, I think we'll be able to compete effectively.

To the extent that programmers begin to offer, on a direct basis, their offerings at prices which are either lower than they offer them to us on a wholesale basis at or in some other way on a more attractive packaging basis, in other words, with more flexibility to package the way they want, well, then I think it's going to undercut our ability to sell.

And that's going to be a negative for us, but maybe more significantly, it's going to be a negative for the primary distribution channel for all of those video providers. So we'll have to see how it plays out. I think we all have to proceed with our eyes wide open as to what the impact might be..

Thank you..

Thanks, Laura. Next question, please..

Thank you. Next question is James Ratcliffe with Buckingham Research Group..

Good morning. Thanks for taking the question.

Two, if I could, first of all, continued very strong telephony growth in triple play, can you give us color about whether that's mainly, the telephony growth, that you're selling a lot more triple play or are these still a lot of double play, triple play upgrades and what sort of ARPU delta you're seeing between the triple play customers and double play customers? And secondly, any thoughts on Verizon's Custom TV and, particularly, do you have the ability to offer skinnier bundles within your existing programming contracts, particularly the ones that might exclude some of the high-priced sports content? Thanks..

Dinni, you want to take the first one?.

Yeah. So in terms of your question about phone growth, yes. I would say that most of that phone growth is coming from triple play. You know, we have very high triple play sell-in rates right now, the highest that we've ever seen. And I think that that is clearly driving it.

We are getting some upgrades from double to triple as well, but I think the vast majority of it is coming from new customers taking the triple play.

In terms of the other part of your question about ARPU, can you just ask that part again, James?.

Sure.

Just for customers who are upgrading or for the new customers who are taking triple play instead of a double play, what sort of ARPU uplift are you seeing by selling those customers voice as well?.

Okay. So that's roughly $10..

Got it..

On skinny bundles, James, look, I've been intrigued for a long time about the idea of giving customers more choice about the video products that they take. And, in fact, we've experimented with some of the same things that you're seeing other players in the industry experiment with now. We'll continue to watch it.

We're fans of giving customers flexibility. That said, I will point out, and it sometimes gets lost in all of the headlines about skinny bundles, 80% of our video base now takes what people refer to as the full bundle. We call it our Preferred video product. And 82% of video connects took that offering.

And the reason they do is because it's a great value. So I think choice is great. Experimenting with skinny bundles is great. And we'll do it to the extent that we see stuff working in the marketplace and it's consistent with our agreements with programmers, but we shouldn't lose track of the value of the bundle we offer as well..

Thank you..

Thanks, James. Next question, please..

Thank you. Next question is Vijay Jayant, Evercore ISI..

Thank you. It's David Joyce for Vijay. Could you please talk about the Business Services side? Growth was decelerated below the 20% range for the past two quarters. Just wondering if that was law of large numbers, given the opportunity set in your footprint, or if competition from new telcos is stepping up.

And along those lines, what are your thoughts about the potential for the industry working together in confederation to have a more nationwide kind of commercial offering? Thank you..

So, David, yes, law of large numbers. Don't forget, this is, again, I think Bill mentioned it, but the 16th consecutive quarter of north of $100 million year-over-year revenue growth. So we're pretty pleased with the absolute growth we're seeing. And as the base gets bigger, naturally, percentages' growth go down somewhat.

I'd also remind you that 2014 growth benefited from the acquisition of DukeNet at the beginning of 2014.

Obviously, we didn't have a comparable acquisition in 2015, so that also has an impact on growth rates, but we're completely pleased with the growth we're seeing and, even more so, the OIBDA contribution that's coming from the business now that it's scaling and that margins are going up.

Did you have another question?.

Thoughts about how the cable industry could work together in confederation to have more of a nationwide commercial offering, to be more....

Look, it's an opportunity we've all talked about.

There are certainly Enterprise customers today who are interested in one-stop shopping and that tend to go to one of the big telcos that, in theory, would be anxious to work with cable if we could figure out a way to ensure that they had end-to-end visibility across the network and common pricing and all of the things you get when you deal with one provider.

So I think it's an intriguing opportunity, but it's complex, to say the least, when you have to work with a network that's owned by multiple providers..

Great. Thank you..

Thanks, David. Candy, next question, please..

Thank you. Next question is Bryan Kraft with Deutsche Bank..

Morning. Thanks. I had two quick questions, was wondering, first, if you could talk about the mix of DTAs versus fully-featured set-top boxes that you're deploying as part of the transition to all-digital.

And then secondly, I was just wondering if you know yet or have any idea what the impact from Title II reclassification will have on the high-speed data taxes and fees? Thank you..

Why don't I do the second one first and then Dinni can do the first one. The answer is not yet..

No indication at all from the FCC or...?.

I'm sorry, Bryan?.

No, no.

I was just saying no indication at all from the FCC as to what they're thinking at this point or...?.

No..

Okay..

Yeah. In terms of the Maxx rollout, Bryan, I think that, as Rob said earlier, for customers who are direct connected, they're all taking DTAs. We're not really seeing an increase of people taking normal set-top boxes, due to the going all-digital process..

And I think, on average, when we go all-digital, we're basically, on average, it's about two DTAs per customer, thereabouts..

Okay. All right.

And are you seeing any uplift in the Maxx markets on DVR penetration as you're rolling that out?.

No, nothing significant..

Okay. All right. Thank you..

Thanks, Bryan. Next question, please..

Thank you. Next question is Tom Eagan with Telsey Advisory Group..

Great. Thank you very much. A follow-up question on the programmer OTT services, I guess what is the impact on the negotiating leverage between the operator and the programmer, do you think? And then also, have you seen the programmers' threat to block the data subscribers' access to their site? Great. Thanks..

Admittedly, since the announcement of the Comcast deal, which dates back to February of 2014, we haven't had the pace of programming renegotiations that we might ordinarily have. So I'm not sure that the recent events yet have filtered into our programming negotiations, so I'd be basing it on theory as opposed to on actual experience.

In theory, though, I think it's fair to say that if customers can get programming outside of our video offering, that that, in a sense, diminishes the leverage of the programmers as they negotiate with us, because if we don't have the video product, customers can still get it.

And, therefore, they don't have to switch from us to some other video provider in order to get that particular programming. So that's the theoretical answer to the question. I think we'll see how it plays out in practice. Give me the second one. Sorry..

Well, it was just I think that that makes sense unless the programmer blocks the access from the data....

Ah, Yes. Well, look, that has happened in programming disputes before.

We think that it's the flip side of open Internet and something that we've urged regulators to ensure that they provide protection against, because I think it really works against the consumer when they buy Internet product, but can't necessarily get everything that they think they otherwise would have had access to because it's available for free.

So whether or not programmers will go down that path, I don't know. Some have in the past. And if they do, we'll certainly challenge that kind of behavior with regulators..

Does the FCC seem to have an ear on this? Or I know in the past the Chairman, for example, he has understood that problem. I'm not sure if the current one does..

I think they do understand it and I think that it's a kind of a natural corollary of their interest in open Internet..

Right. Thank you..

Thanks, Tom..

And thanks everyone for joining us. I think that's all we have time for this morning. Just to give you a little advanced notice, Time Warner Cable's next quarterly conference call, which will reflect our third quarter 2015 results, will be held on Thursday, October 29, 2015 at 8:30 a.m. Eastern time. Thanks for joining us..

Thank you for your participation. That does conclude today's conference. You may disconnect at this time..