Highlighting an ongoing surge in video streaming, nearly a fifth of Charter Communications' broadband customers who don't take the operator's pay-TV service consume at least 1 terabyte per month, CEO Tom Rutledge said on Friday's Q1 2021 earnings call.

The average non-video broadband customer used about 700 gigabytes per month in the first part of the quarter, Rutledge said. He cited such factors as the growth of IP video services, including video conferencing and gaming, and the rise in the number of IP devices connected to Charter's network, which now totals nearly 450 million devices.

Charter does not currently implement usage-based data policies or monthly data caps. Charter had petitioned the FCC to sunset a condition tied to its 2016 deal for Time Warner Cable and Bright House Networks, but later pulled that request. That condition banned Charter from using data caps or inking paid peering deals for a period of seven years. Charter had sought to sunset the ban on May 18, 2021. Unless the FCC tries to extend it, the current and original ban on Charter using data caps and usage-based broadband policies will expire on May 18, 2023.

As was the case on yesterday's Comcast Q1 2021 call, Charter was pressed about plans or intentions to upgrade its network in a way that allows for symmetrical data speeds. Rutledge said traffic remains relatively asymmetric and downstream-heavy, despite the spikes in upstream usage seen during the pandemic.

"We don't have any immediate need to expand the capacity of the plant ... Today, we should continue to operate our network with more capacity downstream than upstream," he said. "But we do have the capability from a technical perspective to upgrade our network based on changing market dynamics, however they may develop in terms of how products develop."

However, he did make note of Charter's deployment of DOCSIS 3.1 and a "cost-effective approach" that would allow Charter to expand overall network capacity to 1.2GHz and enable multi-gig speeds in the downstream and at least 1 Gbit/s in the upstream. DOCSIS 4.0, now in development by suppliers, will put cable operators in position to deliver multi-gig speeds in both directions on their hybrid fiber/coax (HFC) networks.

Rutledge didn't talk about any upstream capacity plans specifically. But, generally speaking, there's been a rise in activity and plans pertaining to "mid-split" and "high-split" upgrades that expand the amount of spectrum dedicated to the upstream in tandem with a move to 1.2GHz.

Still, Charter did see an uptick in capital spending – $1.86 billion in Q1 2021, versus $1.46 billion a year earlier. The biggest gain originated with the "scalable infrastructure" line item, which tallied $411 million in the period, compared to $170 million in the year-ago period.

CFO Chris Winfrey acknowledged that ongoing elevated network data usage has impacted the amount of headroom Charter plans for in terms of capacity and network augmentation. But he said this blip does not alter Charter's outlook that cable capital intensity will decline over time.

Charter has already earmarked $5 billion for network expansions that will cover more than 1 million new customer locations in rural areas over the coming years. That's partially offset by the $1.2 billion Charter is getting via phase I of the Rural Digital Opportunity Fund (RDOF).

Winfrey noted that construction projects in rural areas cost more per passing than traditional builds and have a longer payback – likely ten years or more. But Charter likes the solid rate of return anticipated by those projects, along with potential opportunities to expand the network along the edges.

He also reiterated that the economics of this buildout activity have similarities to those of system acquisitions. "It's actually not that different from cable M&A at a point in time where there just hasn't been, unfortunately, as much cable M&A that we would've liked to have done," Winfrey explained.

Broadband and wireless gains counteract video losses

Charter continued to tack on broadband customers in Q1, though not at nearly the rate seen in the year-ago period. Charter added 355,000 total broadband subs (residential and business) in the period, versus a gain of 582,000 a year earlier, ending the quarter with 29.23 million.

Mobile also stayed strong, as Charter added 300,000 mobile lines in the quarter, up from 290,000 a year earlier, pushing its total past 2.67 million.

Pay-TV was a sore spot as there was a lot less pull-through of video customers coming from broadband subscriber additions. Charter lost 138,000 video subscribers, versus 70,000 in the year-ago quarter, ending Q1 2021 with 16.06 million.

"The video business is under a lot of challenge and is undergoing a transformation," Rutledge said, noting that more than 10 million Charter customers now get its video service via an app rather than from a traditional set-top box.

Meanwhile, Charter has been busy crafting new deals for traditional programming and OTT video bundles, along with "consignment-like" agreements with direct-to-consumer streaming services. "We have every business model you can imagine going on simultaneously, which I think over the long term creates opportunities for us," Rutledge said. "Right now, it's quite disruptive."

With all services rolled up, Charter added 302,000 "customer relationships," up 5.8% year-over-year, and ending the period with 31.4 million.

Charter ended the quarter with a single-play service penetration of 45.2%, compared to 36.6% for double-play customers, and 22.2% taking some form of a triple-play. The operator's percentage of non-video customer relationships ended Q1 at 47.3%, up from 44% a year earlier.

Financial snapshot

Charter's total revenues rose 6.7%, to $12.52 billion, with Internet-related revenues rising to $5.08 billion from $4.7 billion a year ago. Mobile revenues surged 90.7%, to $492 million.

Commercial service revenue growth remained sluggish – $1.65 billion in Q1 versus $1.61 billion a year ago. However, Winfrey said the enterprise business has been improving, despite a pandemic that has curtailed in-person meetings with CIOs.

"That's a difficult sell to make when you're not in person to have a complex fiber sale ... yet our sales are increasing and accelerating despite the fact that we can't be on location to make the sale. So, I'm optimistic about the enterprise retail side," he said.

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— Jeff Baumgartner, Senior Editor, Light Reading