Charter says set of issues is driving RDOF costs up

Charter Communications is generally happy with the way its Rural Opportunity Digital Fund (RDOF) buildout is going, but admits that it's also seeing costs go up due to a blend of supply chain constraints, labor challenges and broader inflation.

"We've have had higher costs than we anticipated," Tom Rutledge, Charter's CEO, said Friday on the company's third quarter 2022 earnings call, citing elements such as supply chain constraints, difficulty attracting labor and general "inflationary pressure."

(Source: Kristoffer Tripplaar/Alamy Stock Photo)
(Source: Kristoffer Tripplaar/Alamy Stock Photo)

"We're having issues ourselves with supply chain and the developmental workforce. How we do the work and in what order we do the work is being impacted by the labor market and the supply market," Rutledge added. "The cost of the money and the cost of labor, the cost of everything, will affect our competitors' ability to build as well."

Charter was a big winner during Phase I of the RDOF auction, originally qualifying to get about $1.2 billion to deploy fiber to just north of 1 million locations.

The initial results of those builds are promising, despite some of those higher costs. "We've also had more success than we anticipated in terms of both penetration and the number of passings we can develop off of the RDOF projects that we've built," Rutledge said.

Charter isn't saying precisely how RDOF is contributing to the broadband subscriber count – the number of residential broadband subs Charter added in the third quarter of 2022 slowed to just 61,000.

RDOF is "not the entire growth in broadband ... but we are doing very well in the markets that we build out," Jessica Fischer, Charter's CFO, said.

Fischer said Charter could provide more detailed information about the rural buildout by the time the company reports Q4 2022 results.

Rural builds are bulking up capex

The RDOF buildout is showing up in Charter's capital expenditures. Total capex for Q3 reached $2.4 billion, up from $1.9 billion in the year-ago quarter. Most of that increase was driven by $525 million of spend on rural construction in Q3, up $170 million sequentially. That total compares to $1.8 billion in "core" cable capex that excludes capital tied to rural builds and Charter's mobile product, Spectrum Mobile.

For all of 2022, Charter expects to spend about $1.5 billion on the rural construction initiative, but is not yet providing rural-related capex guidance for 2023.

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— Jeff Baumgartner, Senior Editor, Light Reading

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