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Charter CEO Rutledge: We're a wireless company

The bright spot for cable companies these days continues to be their ability to sell smartphones and wireless service plans to customers – especially if those mobile customers aren't currently buying any cable-fed services.

That's certainly the tune at Charter, which reported Friday morning that it served a total of 4.3 million mobile lines for residences and small businesses as of June 30. It added 344,000 mobile lines during the quarter and sounded upbeat about its prospects as it continues to add more mobile customers.

Charter does business in 41 US states and uses the Spectrum brand for its TV, mobile and voice services.

During its earnings call on Friday morning, Charter CEO Tom Rutledge said Charter's got plenty of room to grow, and its wireless service is the engine driving that growth. "Our share of household connectivity spend, including mobile and fixed broadband, is still very low. In fact, we capture less than 30% of household spend on wireline and mobile connectivity within our footprint," he said. "So there's a large opportunity for us to increase market share by saving customers money. And through our latest offerings, we can do that, which, in turn, raises connects, reduces churn and drives overall customer relationship growth."

That, if done well, will lead to increased earnings, even if other parts of the business aren't growing quickly. Rutledge said his company's "mobile business will drive meaningful EBITDA for Charter, even at our existing and very attractive mobile price points, giving us EBITDA growth simply by growing our mobile customer base. We're underpenetrated, and our opportunity is large."

Singing from the same hymnal, Charter COO Christopher Winfrey noted Charter's mobile service is "an attractive product, and we're growing it fast," while noting that most business analysis "grossly underestimates our margin that's inherent inside that business and what we can do with it to drive the business overall, including broadband net additions. So it's powerful. I don't think it's very well understood, and that's okay for now."

Rutledge amplified those comments by adding, "we are a wireless company." He then pointed out that Charter has 450 million wireless devices of various sorts connected to its network.

A little broadband growth

Charter said it now has a total of 30.3 million residential and small business Internet customers. The company reported that its second quarter residential Internet customers decreased by 42,000, compared to an increase of 365,000 customers during the year-ago quarter.

The company said that it had 59,000 customer disconnects related to the discontinuation of the Emergency Broadband Benefit program and additional requirements of the Affordable Connectivity Program. "Excluding that headwind, we organically grew 38,000 Internet customers in the quarter," said Charter CFO Jessica Fischer. Included in that were 17,000 residential broadband subscribers, the company reported.

Other government rule changes are causing Charter to keep accounts going that it normally would have dropped by now. In the fine print of the company's filings it said it had "approximately 73,500 residential customers that would have been disconnected under our normal collection policies, but were not due to certain state mandates in place."

What isn't dropping off is the amount of data customers are consuming. Charter CEO Tom Rutledge said evenings are still a peak usage time for the company's high-speed network. "During the second quarter, Internet customers who do not buy traditional video from us used over 650 gigabytes per month, he said, according to the Atom Finance transcript of the earnings call. "Nearly 25% of those customers now use a terabyte or more of data per month."

DOCSIS 4ever

Like Comcast, Charter dismissed fixed wireless access (FWA) as a competitive difference maker in most of its markets (so far). The FWA competition is "actually relatively small," Rutledge said. "It's not the major component of our quarterly performance, but it is a factor. If you look at the numbers that the fixed wireless competitors say they're taking from cable and proportionately look at that across our footprint, if you do the math, it's not the major driver of the change in second quarter [of 20]19 versus [the] second quarter of 2022."

The update on DOCSIS 4.0 is that Charter will upgrade when it makes sense. "In terms of DOCSIS 4.0, it hasn't been deployed," Rutledge said. "Our footprint right now is DOCSIS 3.1 fully. So we have 1-gig everywhere. The DOCSIS 3.1 upgrade opportunity is still significant, meaning we haven't gotten everything out of DOCSIS 3.1 by any means in terms of its full capacity. It can give us multi-gigabit speeds downstream and gigabit symmetrical speeds upstream. And so it's a quite robust infrastructure that's already been deployed."

Earnings and leavings

Charter reported that it earned $8.80 per share on revenues of $13.60 billion for the quarter ended June 30. Wall Street analysts expected Charter to report earnings of around $6.85 a share on revenues of $13.42 billion.

Charter's revenue has been between $13.15 billion and $13.21 billion for the last three quarters. Last quarter's reported gross profit of $5.89 billion was the lowest the company had delivered in a calendar year.

Charter lost 240,000 video customers and 265,000 residential wireline voice customers during the quarter. As of June 30, Charter had 14.9 million residential video customers and 8.2 million residential wireline voice customers.

Forgery, negligence and murder

Charter shares fell by about 9% on Thursday following Comcast's earnings. The company's stock is down more than 30% year-to-date but hardly any of that movement came when, earlier this week, a jury in Dallas found the company liable for $7 billion in punitive damages relating to a case where a cable installer robbed and murdered a customer.

In that trial, Charter was found partially liable for failing to do employee background checks and ignoring signs that the employee was disturbed and could be a danger to customers. The installer – Roy Holden – used a company truck to arrive at Betty Thomas's house, and he also used a company key card and customer data to discover that she had made a service request. The jury found that Holden intended to rob her on his day off and that he used company assets, customer knowledge and a company-supplied knife to kill her. The plaintiff's attorneys also said Charter forged documents to try and cover the whole thing up.

"Charter Spectrum attorneys used a forged document to try to force the lawsuit into a closed-door arbitration where the results would have been secret and damages for the murder would have been limited to the amount of Ms. Thomas’s final bill," the law firm of Hamilton Wingo said in a statement this week. "The jury found that Charter Spectrum committed forgery beyond a reasonable doubt, conduct that constitutes a first–degree felony under Texas law."

Charter didn't mention the trial at all on its earnings call. Earlier, the company disputed everything about the case and said it would appeal the verdict.

[Ed. note: The story has been changed to reflect that Charter's stock price drop on Thursday was likely caused by its cable peer Comcast's reported earnings surprise the day earlier.]

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Phil Harvey, Editor-in-Chief, Light Reading

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