Despite Sub Losses, Charter Increases Revenue

Charter Communications Inc. lost 76,600 basic video customers during the second quarter, continuing a trend seen by other major US MSOs, but the company still managed to increase revenues by 4.9 percent thanks to growth in other categories, including high-speed Internet, digital video, and voice.

Charter, which is looking to drive revenue from advanced services by upgrading more systems to switched digital video (SDV) and Docsis 3.0, blamed basic subscriber losses on heavy marketing from rivals DirecTV Group Inc. (NYSE: DTV) and Dish Network LLC (Nasdaq: DISH). The good news for Charter is that “essentially all” of the subscriber losses were from customers that subscribed only to video, CEO Mike Lovett said on today's earnings call. (See Charter Posts Q2.)

“We have seen a fairly significant increase in competitive advertising from the satellite players particularly in this quarter,” Lovett said. “I think you can tie that to the single product losses -- the video and household losses that we saw in the quarter."

Charter, which hopes to be trading its Class A common stock on Nasdaq in the "coming weeks," posted second-quarter revenues of $1.77 billion, up 4.9 percent compared to this time last year, with video accounting for about 50 percent of the pie. The MSO added 22,000 cable modem customers, and increased average monthly revenue from Internet customers by 1.9 percent, to $42.20. It added 35,200 phone customers, raising phone penetration to 15.9 percent, but average revenue from phone customers decreased 4.2 percent, to $41.74.

Charter is stepping up its rollout of Docsis 3.0, hoping to squeeze more revenue from customers that buy its $100 monthly 60-Mbit/s high-speed Internet service, which is branded “Ultra 60.” Lovett said Docsis 3.0 is available on one third of Charter’s footprint, and the rollout will expand to half of Charter’s footprint during the second half of 2010. Charter recently added a new business-class D3 tier that offer downstream bursts of 75-Mbit/s. (See Charter Revs Up Wideband, SDV Rollouts , Charter Passes 1M Homes With Docsis 3.0, and Charter Means Business With 75-Meg Wideband .)

In order to expand channel capacity, Charter is rolling out SDV, which is now available on 25 percent of its footprint. The company will expand switched digital video to 50 percent of its footprint by the end of the year, Lovett said.

Charter CTO Marwan Farwaz said Charter has added up to 60 linear channels to systems that have added SDV, and that the technology is poised to clear enough capacity to add as many as 100 linear channels.

Lovett also said that Charter is looking to strike deals that could help it improve its balance sheet. He said the MSO could acquire or divest systems to improve its clustering strategy. Asked by an analyst if Charter would look to acquire fiber or CLEC assets, Lovett said, “We are evaluating all of the opportunities to accelerate that business.”

Also worth noting from Charter’s second-quarter earnings:

  • Charter digital video penetration rate hit 71 percent, up from 64 percent this time last year.

  • The number of Charter customers ordering high-definition set-tops or DVRs grew by 30 percent.

  • Local advertising revenue on Charter systems jumped 16.1 percent, driven primarily by political, automotive, and furniture categories.

  • About 59.3 percent of Charter’s residential customers subscribe to a bundle, compared to 54.4 percent this time last year.

  • Charter counted 12.9 million revenue-generating units (RGUs) at the end of the quarter, an increase of 429,000, or 3.4 percent compared to the second quarter of 2009.

  • One item that didn't come up in the call was Charter's recent launch of a "TV Everywhere" trial. A spokeswoman confirmed to Light Reading Cable that the pilot involves up 10,000 customers across Charter's footprint who opt in to an email invitation. Synacor Inc. is handling authentication for the trial.

— Steve Donohue, Special to Light Reading Cable

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