Pre-gaming Charter's big investor event

Charter Communications' vision under new President and CEO Chris Winfrey is about to become quite a bit clearer.

Winfrey, who succeeded former Charter CEO Tom Rutledge effective December 1, and other Charter execs will be holding court today at an investor conference set to start at 4 p.m. ET. According to the company, Jessica Fischer, chief financial officer, and Rich DiGeronimo, president, product and technology, will also participate in the event.

There's no formal agenda, but the general sense is that, in addition to a broad financial update, Charter will offer more color around its network upgrade and buildout plans and provide some key, new details about its broadband and wireless businesses. Light Reading will have a recap following the event, but here's a review of what could be on tap.

Network evolution

One aspect of Charter's talk will likely focus on the direction of the company's network evolution.

While fiber-to-the-premises (FTTP) is a clear given in any new-build situation, we'll be interested to hear about Charter's plan for its widely deployed hybrid fiber/coax (HFC) network.

We'll soon find out how deep into the technology weeds Charter will get today. But, as Light Reading reported in October, Charter appears to be going in a direction centered on a virtual cable modem termination system (CMTS) paired with remote PHY – effectively following the general approach Comcast has taken for its distributed access architecture (DAA).

However, Charter appears to be going in a different direction for DOCSIS 4.0. Rather than using the Full Duplex DOCSIS (FDX) option that Comcast is using, Charter's been focused on the Extended Spectrum DOCSIS (ESD) flavor. At the SCTE Cable-Tec Expo event in October, Charter demonstrated an ESD-based version of DOCSIS 4.0 running on a six-amplifier cascade. It's possible that Charter could make a formal choice for DOCSIS 4.0.

Analysts pin down 'key controversies'

As part of their pre-game for the Charter event, the analysts at New Street Research shared what they expect to come of it. Notably, they'll zero in on a handful of "key controversies" surrounding Charter's business:

While Charter will no doubt dive into the financial (this is an investor meeting, after all), the rate of broadband growth will continue to be a key metric used to govern the health of Charter's business.

Charter, like its cable peers, has seen broadband subscriber growth slow – it managed to add 75,000 high-speed Internet subs (including 61,000 residential subs) in Q3 2022, off from an addition of 243,000 in the year-ago quarter.

Charter management, New Street said, "may give some context on how broadband subscribers are trending in 4Q22."

New Street Research doesn't buy Charter's excuse that the slowdown in broadband subscriber growth is attributed to a depressed housing moves and switching. "FWB [fixed wireless broadband] is the problem," the analyst argue. "Cable adds will recover when FWB adds recede ... While FWB adds will likely dip sequentially in 4Q22, it's not clear that we are past the peak."

The analysts are also worried that fiber and fixed wireless access (FWA) will dampen Charter's ARPU (average revenue per user) growth. Charter did execute a $5 per month broadband price increase in November, but relegated the bump to broadband-only customers or subs that use one of Charter's Spectrum TV streaming options.

New Street Research estimates that the pricing move impacts just 33% of Charter's broadband subscriber base. Looking ahead, the analysts estimate Charter to post broadband ARPU growth of 3.5% in Q4 2022 and 4.8% in Q1 2023.

What's next for mobile and wireless?

Charter is also expected to provide some updates on its wireless/mobile strategy.

Mobile, a service Charter offers to broadband subs, has been a nice growth story from a subscriber standpoint – Charter added a record 396,000 mobile lines in Q3 2022, for a grand total of 4.67 million.

And that subscriber growth came ahead of Charter's new SpectrumOne promotion that helps customers package the company's home broadband and mobile offerings. Charter might use today's event to discuss the initial effectiveness of SpectrumOne, a promo that is expected to accelerate Charter's mobile line growth.

But New Street Research wonders if mobile will merely serve as a way to drive higher broadband penetration or if it can be a "meaningful contributor" to free cash flow in its own right.

Seeking network upgrade cost guidance

Turning to capex, the analysts wonder if it will increase materially next year and, if so, where it will be spent. In particular, they'll be eager to see if Charter provides more color on the cost required for its "high-split" upstream upgrade and Charter's future move to DOCSIS 4.0.

Comcast, which is going with a "mid-split" upstream upgrade and the FDX flavor of DOCSIS 4.0, recently estimated that the network part of the upgrade will run about $200 per household passed. So, a bar has effectively been set.

The analysts will also be keeping a close eye on Charter spending on market expansions, including build activity coming out of its Rural Digital Opportunity Fund (RDOF) commitments.

"The company could very well accelerate RDOF spending. They are committed to spending $5BN over 6 years; it's conceivable that they cut the timing in half," the New Street Research analysts speculated.

Charter, they added, is "very likely to spend more under the BEAD [Broadband Equity, Access, and Deployment] program, though it may be too soon to quantify this."

Light Reading will have a detailed breakdown following Charter's event.

Related posts:

— Jeff Baumgartner, Senior Editor, Light Reading