Charter Sees High Capex Peaking
After spending heavily to upgrade its cable plant over the past few years, Charter Communications is starting to see the light at the end of the tunnel.
Charter Communications Inc. , the second-largest cable and broadband provider in the US, disclosed late last week that it expects its capex to decline a bit as a percentage of revenue in 2018 after soaring last year, especially over the second half of the year. It then expects a much bigger drop in 2019 as the company's various big plant and equipment upgrade projects near conclusions.
Such a development will likely be welcome news to Charter investors, who have seen the cableco invest heavily in capital improvements as it frantically plays catchup ball with both its cable peers and major telco rivals. In the fourth quarter alone, the MSO lavished $2.6 billion on capital improvements, up from $1.9 billion a year earlier, as it spent substantially more on its new IP set-top boxes, cloud-based programming guide, DOCSIS 3.1 cable modems, wireless home gateways and related "scalable infrastructure."
For the entire year, Charter spent a total of nearly $8.7 billion on capital upgrades, up dramatically from $5.3 billion on an actual basis and $7.5 billion on a pro forma basis, as it prepared many of its legacy cable systems for WorldBox set-top, Spectrum Guide and D3.1 rollouts. It also re-launched its all-digital upgrade drive after halting the project while it brought the former Time Warner Cable and Bright House Network systems into the fold.
Speaking on Charter's fourth-quarter earnings call Friday, CFO Christopher Winfrey said the company's 2018 capex "should be driven by many of the same factors as last year, including customer growth, Spectrum migration, all-digital, and in-sourcing and integration." But in total, he said, "we expect cable capital intensity or capital expenditures as a percentage of revenue to be a bit lower than 2017."
Then, Winfrey said, "next year, 2019 that is, should deliver a meaningful decline in capital intensity and dollars" as Charter wraps up the all-digital drive and starts winding up its integration of the former TWC and Bright House systems, Spectrum Guide rollouts and DOCSIS 3.1 upgrades. "And even with video unit growth," he noted, "the dollars of video CPE should also dramatically drop with a fully deployed base of modern two-way set-top boxes with the DOCSIS modem inside."
Th capex news comes as Charter is in the midst of a flurry of activity -- speeding up the deployment of the hybrid QAM/IP WorldBox platform, its cloud-based Spectrum Guide and DOCSIS 3.1 multi-gigabit service. In addition, the MSO is prepping to launch a mobile product under its Verizon MVNO agreement by the middle of this year, as well as testing a more futuristic 5G wireless service that it refers to as "6G." (See Don't Laugh, Charter Is Testing '6G' Wireless.)
Also speaking on the company's Q4 earnings call, Charter Chairman & CEO Tom Rutledge said the cableco has deployed about 2 million WorldBox set-tops so far, roughly double the number that it had deployed at the end of the third quarter. Besides supporting IP and QAM transport, WorldBox also supports a cloud-based guide and a downloadable security platform that will allow the set-top to work throughout Charter’s footprint, including the former Time Warner Cable and Bright House properties.
Rutledge said Charter also aims to make its new Spectrum Guide platform available to virtually all its 16.5 million video customers by the end of this year, including in such “mixed markets” as Los Angeles where Charter's legacy systems are contiguous with former TWC systems. In tandem with that nationwide guide rollout, Charter will also offer its larger VOD library (about 50,000 HD titles) to video subscribers.
In addition, Rutledge reiterated plans to integrate popular OTT video services such as Netflix into Spectrum Guide, "making our set-top box a hub for accessing content that originates from us or from somewhere else." He said those third-party apps will first show up on Worldbox and then appear on the cableco's older set-tops over time.
Turning to broadband, Rutledge said Charter intends to deploy DOCSIS 3.1 across its footprint and offer 1 Gig service to all 50 million homes passed by the end of the year. The MSO, which closed out 2017 with 22.5 million broadband subscribers, has rolled out D3.1 to eight markets so far. We'll have more on Charter's broadband strategy in a later story on our sister site, Broadband World News.
— Alan Breznick, Cable/Video Practice Leader, Light Reading