January 31, 2019
Charter added 113,000 mobile lines for Spectrum Mobile in Q4 2018 as the service starts to take a more prominent role in how the operator markets and sells a triple-play bundle complemented by broadband and video.
Notably, Charter Communications Inc. 's wireline voice product is starting to be relegated to value-add/sell-in status, as the purchase price on that product was dropped to $9.99 per month last September.
"With wireline voice as a $9.99 value-added service going forward, mobile is now positioned to be the triple-play value driver for connectivity sales, similar to what wireline voice did for cable over the last decade," Charter CFO Chris Winfrey said on Thursday morning's earnings call.
Charter's updated view of wireline voice is that it's a "bolt-on product to a triple-play with mobile," added Tom Rutledge, Charter's chairman and CEO.
That change in selling strategy also comes as Charter's wireline voice product is in decline. Charter lost 83,000 residential wireline voice subs in Q4 and lost 289,000 for the full year, ending 2018 with 10.13 million wireline voice subs.
Via its MVNO deal with Verizon Wireless, Charter launched Spectrum Mobile across its markets last September. It ended 2018 with 134,000 mobile lines in service, with a general mix of those customers taking the MSO's unlimited and By-the-Gig options. (See Charter's Spectrum Mobile goes full market.)
Those Q4 mobile adds were below the 125,000 lines BTIG Research analyst Walter Piecyk anticipated. Factoring in the lines that Comcast Corp. (Nasdaq: CMCSA, CMCSK)'s Xfinity Mobile service added, US cable ops added about 340,000 mobile lines in Q4.
"Spectrum Mobile is ramping up," Rutledge said, noting that Charter began to allow customers to transfer their existing handsets to Charter's service in December at some of the MSO's retail stores. Charter expects to expand its bring-your-own-device program to include a larger group of devices and enable customers to conduct that process without having to visit a Charter retail outlet, the exec added.
During this ongoing ramp-up stage for Spectrum Mobile, Charter said mobile-related expenses (which include costs tied to a joint venture with Comcast) were $211 million, and that its mobile business had an EBIDTA loss of $122 million in the quarter. (See Comcast, Charter Launch Mobile Platform Partnership.)
In his note, Piecyk reiterated that Charter expects its mobile business to reach break-even when it eclipses 2 million subs. He expects Charter to reach that in the first half of 2021.
Cable capex set to plummet
A big focus of today's call was Charter's falling intensity in cable capital spending.
Though it usually doesn't provide such guidance, Charter said it expects total cable capex to be $7 billion in 2019, down from $8.9 billion in 2018. The expected drop in capex, which doesn't include Charter's mobile efforts, comes after Charter completes its DOCSIS 3.1 upgrades and an all-digital transition of the systems acquired from Time Warner Cable and Bright House Networks. (See Cable & Wireless: A Tale of Two Capex Scenarios in 2019.)
The capex decline is also coming into focus as Charter spends less on set-tops and other consumer premises equipment, and as the MSO enables its video service to be accessed on a wide range of retail devices, including recent support for Apple TV boxes and new "zero sign-in" experience. (See Charter Launches App For Apple TV.)
Though Charter will continue to provide its own boxes, the MSO is embracing the retail device market. Charter, Rutledge said, "will change through time and allow it to change as the market dictates."
Charter has been rolling out its new cloud-based Spectrum Guide on its own devices, as well a version tailored for retail streaming devices.
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But that hasn't translated into pay-TV growth of late. Charter lost 36,000 residential video subs in Q4, and shed 296,000 for the full year, ending 2018 with 16.10 million residential pay-TV customers.
Broadband growth was solid, as Charter added 289,000 residential high-speed Internet subs in Q4 and 1.1 million for the year, ending 2018 with 23.62 million.
Using 5G for fixed wireless broadband is "not very efficient from a capital expenditure perspective in our view," Rutledge said. "You essentially need to spend an awful lot of capital to get close enough to the home to actually make 5G work effectively." (See AT&T CEO: mmWave 5G Will Be Fixed Broadband Alternative in '3 to 5 Years'.)
He said DOCSIS 3.1 already surpasses what 5G can deliver in speed and capacity and touted Charter's plans for "10G," the brand given to a new versions of DOCSIS that's gunning for symmetrical speeds of 10 Gbit/s. (See CES 2019: Cable's 10G Tech 'Will Work' and Charter Nears Gigabit Finish Line.)
"We're going to 10G," Rutledge said, but didn't point to a timeframe (the cable industry expects field trials of 10G tech to be underway in 2020). "We're comfortable with our network and its capability. We can provide a better broadband experience at less cost than alternatives.
Charter said overall Q4 revenues rose 5.9%, to $11.2 billion, driven in part by business service revenue growth of 4.5%.
— Jeff Baumgartner, Senior Editor, Light Reading
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