Charter Communications will be the first US cable company to venture into 5G. Eclipsing the news of video losses across its post-merger footprint in 2016, Charter CEO Tom Rutledge made that surprise announcement on today's fourth-quarter earnings call, saying the company is now launching experimental 5G field trials with the help of spectrum test licenses granted to it by the FCC.
The 5G news builds on expectations that cable companies will use their last-mile wired networks to help power advanced wireless services in the future. However, Charter Communications Inc. 's announcement is the most definitive statement of a US cable company so far regarding ambitions in the 5G market.
"We intend to use these field trials as learning opportunities to provide us with better insight into the capabilities of our wireline network when attaching radios with high frequency licensed and unlicensed spectrum," said Rutledge, adding that "we believe that our MVNO with Verizon is well suited for the short- and medium-term wireless goals we have. Over the long term, our goals in wireless and mobility, our wireless business plan will broaden, so our approach is flexible."
The 5G news may further fuel speculation of a potential merger deal between Charter and Verizon Communications Inc. (NYSE: VZ), as both are pursuing many of the same long-term goals. That rumor first started to circulate in January, with proponents citing the new -- and theoretically looser -- regulatory environment as a spur toward further industry consolidation. (See Cable Has One Thing Verizon Needs and Verizon & Charter: No Sweet Valentines.)
More specifically on why Charter itself is interested in 5G, Rutledge spoke about the opportunities for virtual and augmented reality applications.
"When you look at these high-capacity networks of the future, and they're a way out, there are new products that we think will be developed with those low-latency, high-capacity networks including virtual reality products, augmented reality products," said Rutledge.
He added, "My sense is many of those products will be not mobile products, they'll be fixed products in the dwelling or the office. They'll be how you learn and how you play. And so they're less about mobility than they are about capacity and low latency. And I think our network, our WiFi network and our distribution network sets up really well from a total capital cost perspective of creating those kind of products."
Rutledge also emphasized the potential for 5G fixed wireless connections in the business services market, pointing to sites like strip malls where a traditional wireline product might be less cost efficient. "If you had a high capacity network that you could use wirelessly to connect those business service areas," he noted, "I think there are opportunities [for] our network to expand its enterprise business through fixed wireless drops."
These 5G services are still relatively far out in the product development timeline, but in the meantime, Charter is also pursuing the launch of a near-term wireless service through its MVNO agreement with Verizon. (See Charter Will Activate Verizon MVNO Deal.)
Rutledge reiterated statements that Charter will be ready to launch an initial wireless service in 2018. He downplayed speculation that Verizon's re-introduction of unlimited data plans will hurt Charter's wireless earning potential.
Aside from the surprise 5G news, Charter reported overall customer increases in the fourth quarter and full year 2016. Those results, however, included a decline in residential video subscribers, with Charter reporting a loss of 51,000 video subs in Q4 across its merged footprint, and a loss of 226,000 video subs for the full year. The tally of total residential customer relationships climbed by 250,000 subs in Q4 and by just over 1 million subs in 2016 to end the year at 24.8 million. Customer relationships in the small and medium-sized business services market also grew, rising from 1.26 million at the end of 2015 to 1.4 million at the end of 2016.
On the revenue front, Charter beat Wall Street expectations with reported revenue of $10.28 billion in the quarter, compared to the Zacks consensus estimate of $10.25 billion. The company also surpassed the predicted earnings-per-share number of $1.06, turning in an EPS for the quarter of $1.67.
Charter offered little in the way of forecasting for 2017, but did say that it expects to complete the rollout of new Spectrum-branded pricing and packaging to all markets by the end of March. The company is also ready to restart its process of converting legacy Time Warner Cable and Bright House Networks systems to all-digital delivery. Charter expects that effort to wrap up in less than two years with a target of offering minimum speed tiers of 100 Mbit/s "in many markets."
In terms of capital expenditures, Charter reported spending across its entire merged footprint of $7.5 billion in 2016, or $7.1 billion excluding capital spent in the merger transition. Notably, the company declined to issue its projected capex for 2017.
— Mari Silbey, Senior Editor, Cable/Video, Light Reading