Charter raises broadband prices. Will others follow?Charter raises broadband prices. Will others follow?
Faced with rising operating costs, some broadband service providers are 'concluding that higher prices are unavoidable,' but that doesn't indicate a bona fide price war is brewing, says a top industry analyst.
November 1, 2022
Charter Communications confirmed that it is raising prices for certain high-speed Internet customers by $5 per month starting today. The move raises the specter that other broadband service providers, including cable operators and telcos, could be forced to do something similar in the face of inflationary headwinds.
Charter's pricing move, taking effect November 1 in most of the operator's markets, is limited to broadband-only customers or those that use one of Charter's Spectrum TV streaming options. It does not affect customers who take Charter's TV Select or above plan, its Mi Plan Latino or Lifestyle TV packages. Customers already on promotional pricing for broadband will stay there until the end of the promotional period.
Figure 1: (Source: Charter Communications)
For impacted customers, pricing will rise by $5 per month starting today. Among examples, Charter's 300 Mbit/s tier will rise to $79.99 per month, the 500 Mbit/s tier will hit $99.99 and 1-Gig service will climb to $119.00, according to details about customer notifications posted on Reddit.
The broadband rate increase is the first for Charter since December 2020. The company's broadband service is currently uncapped and not subject to usage-based policies. The ban on Charter's use of data caps, a moratorium linked to the conditions of its acquisitions of Time Warner Cable and Bright House Networks, is not set to expire until May 2023.
'Spectrum One' takes hold
Charter is trying to soften the blow for customers with the wide launch of Spectrum One, a new, no-contract home broadband/Wi-Fi/mobile package that touts 12-month promotional pricing. With a focus on fixed/mobile service convergence, new customers can get that package, which includes one free line of Charter's unlimited Spectrum Mobile service, at the introductory price of $49.99 per month.
Charter has also lowered the "everyday price" of its unlimited mobile option to $29.99 per month for the first and every line taken – that's down from the previous $45 per month Charter offered for a single line of unlimited mobile service. Existing Charter Internet and advanced Wi-Fi customers can get the Spectrum One deal by adding a line of unlimited Spectrum Mobile.
Charter expects Spectrum One to accelerate mobile line growth and perhaps contribute some to home broadband subscriber growth – a service category where growth has been slowing.
Higher prices 'unavoidable'
Charter's revised pricing for a subset of broadband customers takes shape as it and other cable operators see broadband subscriber growth slow due to a blend of lower move activity and an increase in broadband competition from fiber and fixed wireless access (FWA) service providers. Charter managed to add 75,000 broadband subs in Q3, better than the +38,000 expected by Wall Street but off from year-ago adds of +265,000.
Besides the Spectrum One promo, Charter is approaching this dilemma with updated pricing and ongoing footprint expansion via edge-outs adjacent to existing plants and new-builds fueled by government subsidy programs such as the Rural Digital Opportunity Fund (RDOF). But it's not yet clear how Charter's peers will react.
Comcast, as one example, is already telling financial analysts that it views ARPU (average revenue per user) as its key broadband growth metric while broadband subscriber growth remains subdued.
Meanwhile, some industry watchers don't believe Charter's limited pricing move necessarily means that a bona fide price war is at hand as operators adjust to rising operating costs.
"The investment community has talked itself into believing we're on the brink of a broadband price war. But the operators aren't buying it. They're all looking at higher operating costs and concluding that higher prices are unavoidable," Craig Moffett, an analyst with MoffettNathanson, a division of SVB Securities, told Light Reading via email. "That's especially true for fiber overbuilders, who aren't just facing higher labor and equipment expenses, but also a dramatically higher cost of capital. They're not raising their penetration assumptions, so the only lever they can pull is to raise prices."
Charter Chairman and CEO Tom Rutledge made note of the coming broadband price increase last week on the company's third quarter 2022 earnings call, blaming it largely on "cost issues." Charter has long passed through video price increases and is now doing it for broadband – "a result of the inflationary pressures that we've seen," Rutledge explained.
Focus on ARPU
The analysts at New Street Research estimate that about 9.5 million Charter subscribers could see the new price increase (Charter ended Q3 with 29.94 million residential broadband subs), which should boost annual broadband ARPU by 2.6%. That compares to Charter's ARPU growth of 2.2% in Q3, down from recent quarters.
Figure 2: Click here for a larger version of this image.
(Source: MoffettNathanson, a division of SVB Securities. Used with permission.)
Charter's broadband ARPU in Q3, at $65.64, "is already meaningfully lower than Comcast's $68.55," Moffett pointed out in a separate research note.
"[T]here is the unavoidable contrast between Comcast's strong broadband ARPU growth and Charter's clear deceleration," he wrote. "This will inevitably feed the debate as to whether Charter has been forced to resort to greater promotionality in order to compete."
— Jeff Baumgartner, Senior Editor, Light Reading
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