Unlike many US cable operators, Charter Communications is still counting on big gains from conventional pay-TV services.
Charter Communications Inc. , the fourth-largest US MSO with nearly 4.2 million video subscribers, reported a small but still significant increase in video subscribers in the fourth quarter as it wound up the upgrades of all its cable systems to all-digital transmission. At a time when most MSOs are shedding video subs each quarter, Charter added 3,000 pay-TV customers in the fall period, in part due to some bulk video upgrades.
Just as notably, Charter boosted its video revenue and cash flow at a healthy clip in the fourth quarter, thanks to a combination of digital upgrades, greater uptake of other advanced services and price hikes. Video revenue rose to more than $1.1 billion, up 8.1% on a year-over-year basis, and average monthly revenue per video sub climbed to nearly $91, up 8.6% from a year ago.
On their earnings call with analysts late last week, Charter executives boasted that they are also gaining pay-TV market share in their regions, primarily by taking away customers from the two big satellite TV providers, DirecTV Group Inc. (NYSE: DTV) and Dish Network LLC (Nasdaq: DISH). They said they will keep their annual pay-TV price hikes on the low end to boost video market share as they continue to improve Charter's video offerings.
"In the long run, pricing power comes from having superior products," said Charter President & CEO Tom Rutledge. "How and when you take it [a price hike] is part of the market strategy."
With its all-digital migration completed at the end of last year, Charter is now focused on rolling out its new Charter Spectrum brand for advanced products throughout its territories. Rutledge said more than 80% of the MSO's customers now take at least one Spectrum digital video or broadband service. (See Charter Completes Digital Transition.)
In line with that, Charter is also starting to roll out its new Spectrum Guide across the nation. Rutledge said the MSO aims to offer the cloud-based user interface, which can run on all two-way interactive set-tops regardless of their age, brand or processing power, to about 1.5 million subscribers this year. That amounts to about half of the customers that Charter plans to keep once its pending cable system swaps with Comcast Corp. (Nasdaq: CMCSA, CMCSK) and Time Warner Cable Inc. (NYSE: TWC) go through later this year. ActiveVideo and Zodiac Interactive are supplying the technology behind the cloud-based UI.
On the broadband services front, Charter enjoyed another strong quarter as it continues to boost data speeds in its mainly small and midsized markets, which haven't seen many speed wars between competitive providers yet. The MSO picked up 104,000 residential data subscribers in the fourth quarter, lifting its total sub count to nearly 4.8 million, or about 600,000 more than its video customer total.
Rutledge said Charter is continuing to make strides against AT&T Inc. (NYSE: T), its main telco rival, in the regions where the two providers compete. Despite AT&T's efforts to raise U-verse's data speeds, he claimed that the average U-verse Internet customer now gets just 6 Mbit/s downstream, while Charter's baseline download speeds is at least 60 Mbit/s.
"Maybe our marketing strategy today should be: 'AT&T doesn't sell broadband,'" he cracked. "But we haven't decided to do that."
Unlike some of his MSO counterparts, Rutledge has not yet revealed any gigabit service plans for Charter. But he indicated that Charter will be boosting its fledgling WiFi efforts for both residential and commercial customers over the next few months.
— Alan Breznick, Cable/Video Practice Leader, Light Reading