Charter pushes HFC upgrade timeline to 2026 as rural builds accelerate

The completion of Charter Communications' hybrid fiber/coax (HFC) network upgrade has been pushed to 2026 due in part to a lengthier certification process for distributed access architecture (DAA) technology.

Charter had warned earlier that some of its HFC-related upgrade activity could be pushed out by about six months as the operator prioritized opportunities to build fiber in rural areas.

Charter's original plan was to complete its HFC upgrades by the end of 2025. Charter's HFC evolution plan consists of three steps:

Charter's step one plan is well underway. Speaking on today's Q4 2023 earnings call, Charter CEO Chris Winfrey said the operator has launched symmetrical speed tiers in two markets (Reno and Rochester, Minnesota, an official confirmed), with deployments in six additional markets underway that, once completed, will fulfill the phase one plan. Charter expects to start DAA deployments in its phase two markets later this year, Winfrey said.

Related:Charter warns of possible broadband sub loss in Q4

Winfrey said the HFC timing shift has less to do with the prioritization of line extensions and more to do with the certification of DAA equipment. DAA certifications are "taking a bit longer, which is pushing out the timeline for the rollout," he said.

But he allowed that Charter could still pull capital forward to speed up its HFC network upgrade timeline.

Charter is holding fast to an estimated cost of $100 per household passed for its HFC upgrade project. The operator expects to spend about $1.6 billion on its network evolution project in 2024.

Subsidized rural network expansions to accelerate in 2024

Though Charter's HFC upgrades have hit a speed bump, the operator is pressing ahead with its subsidized rural buildouts.

Charter added 105,000 subsidized rural passings in Q4 2024 and 295,000 passings for all of 2023, ending the year with 435,000. Service penetrations in those areas have grown to more than 50% in cohorts that have reached or passed the 12-month mark, CFO Jessica Fischer said.

Related:Study weighs the risk Charter faces from ACP's possible demise

Charter added 142,000 broadband subs via its rural subsidy program in Q4, for a total of 420,000, and an overall penetration rate of 33.8% – up from 27.2% in the year-ago quarter. The company posted $74 million in rural revenues, up from $39 million a year earlier. Charter pulled in subsidy revenues of $29 million in Q4. Total capex for the project in Q4 was $426 million, down from $567 million in the year-ago quarter.

Charter expects to pick up the pace further by activating 450,000 new subsidized rural passings in 2024. With all programs rolled up, Charter has committed to build 1.75 million subsidized rural passings.

Charter expects to complete its Rural Digital Opportunity Fund (RDOF) builds by the end of 2026 – two years ahead of schedule. Charter also intends to participate in the much larger $42.45 billion Broadband Equity Access and Deployment (BEAD) program.  

'Dispiriting' broadband loss

Charter continued to rake in mobile lines in Q4, albeit at a slower pace, along with subscriber declines in broadband and video.

Starting with broadband, Charter lost 61,000 subs (-62,000 residential and +1,000 business) for a total of 30.58 million (24.54 residential and 2.05 business). That compared to a year-ago gain of +105,000. Charter warned in December that it could swing to a broadband subscriber loss in the quarter.

A blend of low churn, a slow housing move market, competition and some carry over from Charter's programming dispute with Disney contributed to slower growth in broadband.

"We continue to believe the impact from fixed wireless is temporary," Winfrey said. "We expect to return to normalized Internet growth over time."

Charter's Q3 broadband subscriber result was a surprise in that analysts were expecting a small gain (+20,000 was the consensus) or a smaller loss (-20,000 expected by New Street Research).

Overall, it was a "dispiriting result" given that Charter's homes passed growth accelerated to 2.5% year-over-year, Craig Moffett said in a research note issued after Charter's call.

Update: Charter shares were down $60.13 (-15.73%) to $322.21 each in mid-day trading Friday.

Charter posted residential broadband average revenue per user (ARPU) of $67.72, down from an expected $68.02, and growth of 2.2%. Without the impact of Charter's Spectrum One bundle/promotion, ARPU growth would have been 3.4%, according to Moffett.

Charter is also bracing for the possibility that the Affordable Connectivity Program (ACP) is not refunded and gets shut down this spring. Charter hopes to remedy that in part with its own low-cost programs.

If ACP is not refunded, "we'll work very hard to keep customers connected," Winfrey said.

Charter has more than 5 million ACP recipients, the highest in the industry. The majority of them were Charter broadband subscribers before the program began.

CBRS expansion

Charter added 546,000 mobile lines in Q4, down from a gain of +615,000 in the year-ago quarter and +594,000 in the prior quarter. Analysts were expecting Charter to add 594,000 mobile lines in the quarter.

Charter added 2.5 million lines for full 2023, up from 1.7 million in full 2022, ending 2023 with 7.76 million mobile lines.

Charter is also expanding its deployment of CBRS spectrum to help the company offload MVNO costs in high-usage areas.

Winfrey said "thousands" of CBRS units have been deployed in one "large" market (believed to be Charlotte, North Carolina). Charter expects to roll CBRS to an additional market later this year, he said.

Pay-TV losses paired with Xumo momentum

Charter shed another 257,000 video subscribers in Q4, widened from a year-ago loss of -144,000. Charter ended the year with 14.12 million video customers.

Charter is approaching 1 million deployed Xumo boxes since the launch of the streaming box last October. The Xumo box – a product of the national Comcast-Charter streaming joint venture – is now the lead product for new Charter video subs.

Financial snapshot

Charter posted Q4 revenues of $13.71 billion, up from $13.67 billion in the year-ago period.

Internet revenues climbed to $5.8 billion, versus $5.63 billion, and video revenues dropped to $3.9 billion versus $4.25 billion. Mobile revenues hit $626 million, up from $461 million.

Business service revenues rose 1.4%, to $1.78 billion.