Charter Sets Course for Docsis 3.0, All-Digital

Charter Communications Inc. (Nasdaq: CHTR) is the latest MSO to telegraph that it will introduce Docsis 3.0-powered cable modem services in 2008.

Following Cablevision Systems Corp. (NYSE: CVC)'s lead last week, Charter president and CEO Neil Smit said during this morning's earnings call that his company will launch Docsis 3.0 "later in the year."

Today, Charter's top-end 16 Mbit/s service is available to about 80 percent of its Docsis footprint. Docsis 3.0 uses channel bonding techniques to produce shared speeds in excess of 100 Mbit/s.

"We are rolling [Docsis 3.0] out in the second half of the year, [but] we haven't yet announced which markets," Smit said, noting that Charter has already rolled those dollars into its overall capex number for 2008, estimated to reach $1.2 billion.

Charter is also moving ahead with a bandwidth management plan that will involve both switched digital video (SDV) and analog reclamation to make room for high-definition television (HDTV) and Docsis 3.0 services.

Charter is already testing SDV in Los Angeles using the BigBand Networks Inc. (Nasdaq: BBND) platform and expects to begin broader deployments later this year. (See Charter Charts First SDV Course .)

Smit said the MSO also expects to migrate to all-digital in markets with the highest digital penetration. Comcast Corp. (Nasdaq: CMCSA, CMCSK), by way of example, expects to enlist its all-digital strategy in 20 percent of its markets by year's end. Comcast is using simple digital terminal adapters (DTAs) to help with the strategy. (See DTAs on Parade .)

Smit said Charter will use "low-cost set-tops" to aid its all-digital effort, but he did not specify whether it will use DTAs.

Basic losses mount
As usual for its second quarter, Charter lost basic subscribers -- 45,000 of them, leaving a total of 5.16 million. (See Charter Reports Q2.)

However, Charter, like other cable operators, could recapture a sizable chunk later this year and into early next year as consumers sign up for paid TV services ahead of the February 2009 digital TV transition. (See DTV Transition Could Catalyze Cable.)

Charter COO Mike Lovett said roughly 10 to 15 percent of the MSO's homes passed don't take a paid TV service today, estimating that about 500,000 homes might need "some handholding" during the transition.

But, unlike some of its peers, Charter was unable to completely offset basic losses with digital video subscriber additions. In the second quarter, the MSO added 33,900 digital video customers, giving it a total of 3.05 million.

But Charter managed better numbers on the voice front, adding 90,500 new phone customers. It also added 19,300 high-speed Internet subs, extending its base to 1.17 million. Overall, Charter added a net 98,900 revenue generating units (RGUs).

That wasn't enough to avoid a quarterly loss of $276 million (74 cents per share), narrowed from a loss of $360 million (98 cents per share) a year earlier. Charter also posted revenues of $1.62 billion, up 8.3 percent from the previous year but just missing Wall Street expectations of $1.63 billion.

— Jeff Baumgartner, Site Editor, Cable Digital News