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Charter ended Q1 with nearly 6 million mobile lines. Charter likes how its 'Spectrum One' convergence package is performing, but said the bulk of mobile line adds are still coming from existing broadband customers.
Charter Communications set a new record on mobile line additions in the first quarter of 2023. It's also seeing rapid improvements in the amount of mobile data being offloaded onto a Spectrum Mobile Network that, for now, is being added by Charter's "advanced" Wi-Fi platform. Those data offload improvements, which help to offset MVNO costs, are surfacing even before Charter starts to fully deploy CBRS spectrum.
Charter added 686,000 mobile lines (666,000 residential and 20,000 with small and midsized businesses) in the first quarter of 2023, walloping a previous record of +615,000 mobile lines set in Q4 2022. Charter ended Q1 with 5.97 million lines, well ahead of the 5.66 million that Comcast had at the end of the period.
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Charter's Q1 mobile result pummeled estimates that the company would add 542,000 mobile lines in the quarter. Charter's mobile revenues in Q1 hit $497 million, up from $387 million in the year-ago quarter.
Charter said the surge in mobile line counts was partly aided by Spectrum One, the operator's relatively new home broadband/mobile convergence promotional package that, in some cases, bundles in a free line of mobile. Charter has affixed 12-month promotional pricing to Spectrum One that starts at $49.99 per month.
However, the "majority of new [mobile] lines continue to come from existing Internet customers," Charter President and CEO Chris Winfrey said on today's earnings call.
"Charter is executing the convergence strategy better than anyone else in Cable," Craig Moffett, analyst with MoffettNathanson (a unit of SVB Securities), said in a research note issued after Charter's earnings call.
Wireless profits still elusive as net adds surge
The staggering pace of Charter's mobile subscriber is accelerating line counts. But that's also causing customer acquisition costs to cut into margins. Charter's wireless EBIDTA for Q1 was -$97 million, widened from -$70 million in the year-ago quarter.
"Charter's wireless loss in Q1 was once again larger than the loss a year ago, and predictably so given the near doubling in net additions," Moffett explained. "Still, the lack of progress towards breakeven is frustrating, as it leaves investors with no clear evidence that wireless will, or even can, contribute to profitability, much less replace the net profits contributed by the declining video segment."
But cable's recent success in driving up mobile line counts is being noticed by competitors. Speaking on T-Mobile's call yesterday, company CEO Mike Sievert said he expected Charter to turn in a "blockbuster" quarter with mobile. But Sievert downplayed it, characterizing the dropping in of free lines as "kind of low calorie net adds."
"There's just new adds being printed that don't appear to be coming from any of the incumbent players," Sievert argued.
Winfrey countered that Charter believes that Spectrum One will not only help to grow the mobile base, but establish a base that will remain stable when the promotional period rolls off. "Our expectation is that it all sticks," he said. "This is not a moment in time."
And Winfrey also delivered a bit of a comeback to Sievert's commentary when asked about it on today's call. "We'll do our own IR [investor relations], thank you."
Mobile data offload benefits on the rise
One area that will help Charter improve wireless margins and eventual profitability is data offload.
Charter also added some color on improvements it is seeing in a mobile data offloading strategy that enables the operator to cut down its MVNO costs to Verizon. Charter is offloading the bulk of mobile traffic on its evolving Spectrum Mobile Network that today uses the company's "advanced" Wi-Fi platform and, later on, will also support CBRS spectrum.
Winfrey said about 40% of Charter's residential base supports advanced Wi-Fi, which allows for more optimization and control, and has begun to make it available to small and midsized businesses as well. He also estimated that 70% of Charter's mobile customers now use the Spectrum Mobile Network outside of their homes.
Charter had previously estimated that about 85% of traffic for Spectrum Mobile was running on its own network. That figure has climbed to 87% "just in a matter of months," Winfrey said.
"And that's prior to us fully deploying CBRS, which we intend to do," he added. "It [data offloading] is attractive today and it will continue to be more attractive. The profitability and the cash flow today [for Spectrum Mobile] is really tied up in the subscriber acquisition costs."
Charter completed the buildout of its mobile core network in the first quarter of 2022.
Charter intends to deploy CBRS to support dense, high-traffic areas. Winfrey reiterated that Charter is live with CBRS in one "large market," but didn't elaborate on the timing of future rollouts.
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— Jeff Baumgartner, Senior Editor, Light Reading
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