As Charter Communications charts out its mobile future, evolving into a full-scale, facilities-based mobile operator likely won't be part of it.
"We've looked at it every way, and we've not found any economic case that would suggest we need to go down that path," Charter CFO Chris Winfrey told Credit Suisse's Doug Mitchelson this week when asked if the cable op would consider such an option.
Charter's MVNO with Verizon, which provides umbrella coverage from macro cell tower traffic, and the cable operator's opportunistic deployment of small cells to help offload traffic and improve the overall mobile/wireless economics remain the "much more attractive way to go," Winfrey said during his talk at Credit Suisse's 2nd Annual Virtual Communications Conference.
Charter, he points out, already offloads 75%-plus of its wireless traffic onto its Wi-Fi network.
"We haven't found a scenario that really has a very positive relevant relative payback of going out and trying to own that macro cell tower network where, frankly, most of the traffic doesn't take place," he said.
That fits in with an ongoing "inside-out" mobile/wireless strategy at Charter, which combines its cable infrastructure and in-home connectivity with the macro coverage it gets through Verizon.
Beyond Wi-Fi, Charter is also pursuing its exploration of 3.5GHz CBRS spectrum to help offload mobile traffic and extend the reach of its wireline network. Charter is among the entities that have registered to bid for licensed spectrum in the CBRS band.
Fixed 5G seen as another 'overbuild'
Charter, which is using its Spectrum Mobile service to drive broadband customers and accelerate its overarching "connectivity" business, added about 290,000 mobile lines in the first quarter of 2020, ending the period with 1.4 million.
Charter has recently added 5G support to Spectrum Mobile through its partnership with Verizon. Addressing whether 5G is a threat to Charter's residential broadband business, given what Verizon is starting to do with its 5G Home service, Winfrey said Charter views Verizon's fixed-wireless gambit as another competitive overbuilder, similar to what the cable operator has seen for many years on the wireline side.
The use of 5G millimeter wave service as a fixed wireless replacement to wireline broadband does work in some, but not all, cases, he said.
"I think about it as another overbuild, but it has a wireless drop which is going to make it less reliable than the network that we have," Winfrey said. "Does that mean that we shouldn't be concerned about it? No. Verizon has a big balance sheet. It will take a long time, and they will spend a lot of money doing it, but all else equal, you need to be careful with it."
Video relegated to an 'application' in broader connectivity strategy
Analysts also asked Winfrey to dig into Charter's pay-TV trends. Although video losses are continuing for Charter and other cable operators (Charter's pay-TV sub losses actually improved to -70,000 in Q1 2020), the pay-TV category has been relegated to the status of an "application" or an add-on that can be used to help Charter gain and retain broadband customers.
"As strange as that sounds for a cable company, we don't sell video," Winfrey said. "We sell a product suite and a package of services that are tied to connectivity. And video is really the application."
About 5% of Charter's video sales are for a video single-play, with the rest being sold with other services, primarily broadband. "And in the majority of those cases, the customers are not coming to us to a video [customer] and saying, 'Oh, by the way, let me take broadband.' Chances are, they're probably taking our broadband and saying, 'Well, you know what? I'd like to have your video product paired together with that.' "
The "real driver" for video is to add value to Charter's overall connectivity services suite, Winfrey said. "And the video product isn't what we're selling at point of acquisition. It's an attractive add-on to the product."
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— Jeff Baumgartner, Senior Editor, Light Reading