Time Warner Cable Inc missed Wall Street forecasts, sending the cable company's shares down as much 10 percent, as it lost more video customers than expected and lost phone customers for the first time.

The No. 2 U.S. cable operator said on Thursday its third-quarter profit missed analysts' expectations due to mounting programing costs and a drop in premium video subscriptions.

The company and its cable industry rivals have been losing video customers to phone and satellite providers even as a tough economy and weak housing market shrinks growth in the overall pay-TV market. Some customers have also been using Internet-based services like Netflix Inc and Hulu to supplement or replace their premium video services.

Time Warner Cable lost 128,000 video subscribers in its residential services in the quarter. However, it added 89,000 subscribers for its broadband services during the period. It also lost 8,000 phone customers, the first quarter it has done so since it started selling voice services.

Chief Financial Officer Irene Esteves reiterated full-year operating profit outlook of double digit growth over a year ago, but warned advertising revenue would be lower.

Time Warner Cable dropped by $6.05 in mid-morning trade to $64.58 on the New York Stock Exchange.

The results were mixed but the fundamentals improved. The market might be reacting to the lower ad revenue forecast, said Collins Stewart analyst Thomas Eagan.

The company said it benefited from higher prices for video customers during the quarter, but a decline in video subscribers offset those increases.

Chief Operating Officer Rob Marcus told analysts on a conference call the company would be making a renewed push to win high speed Internet subscribers from rival phone companies like Verizon Communications and AT&T Inc.

Weak results in video and phone leave broadband as the growth engine that, more than ever, is carrying the company, said Bernstein Research analyst Craig Moffett in a client note. Happily, broadband has broad shoulders. If broadband is to be asked to carry the company, it seems more than capable of doing so.

The company posted revenue of $4.91 billion -- slightly below the $4.95 billion pegged by Wall Street analysts, according to Thomson Reuters I/B/E/S.

Profit for the three-month period ended September 30 fell to $356 million, or $1.08 a share, compared with $360 million or $1.00 a share last year.

Analysts on average were looking for $1.13 a share in profit for the quarter.

The company, which competes with Comcast Corp and Cablevision Systems Corp , said operating expenses during the quarter rose primarily due to higher employee costs and video programing expenses.

(Reporting by Yinka Adegoke in New York and Himank Sharma in Bangalore; Editing by Saumyadeb Chakrabarty)

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