Now the second-largest cable company in America, Charter is intent on executing a rigorous transition strategy to improve the performance of the legacy Time Warner Cable and Bright House Networks properties it officially acquired on May 18. Combined with Charter's own legacy footprint, the company believes it has the scale necessary to expand profits, enter new markets and compete more effectively against its largest rivals.
Charter posted pro forma revenues in the second quarter of $9.99 billion, up 6.6% year-over-year, and adjusted EBITDA of $3.54 billion, up 9% year-over-year. Subscriber trends were generally positive, with legacy Charter losing only 7,000 residential video subs in the quarter and gaining 90,000 residential Internet subscribers at the same time. Legacy Time Warner Cable also had a standout quarter in the residential Internet services market, gaining 183,000 new data customers. But both TWC and Bright House lost more than 70,000 video subs, and Bright House also saw its Internet subscriber numbers dip by 87,000.
On the voice side, legacy Charter gained 120,000 residential voice customers, while legacy TWC added 19,000 and Bright House lost 56,000.
In total, new Charter reaped gains across both Internet and voice services, bringing in 236,000 and 83,000 new customers respectively. The company lost 152,000 residential video subscribers in the quarter.
The market reacted favorably, with Charter's stock price rising as much as 6% to $260.19 following the release of the second quarter earnings report.
CEO Tom Rutledge spent much of the Charter earnings call focused on the company's plans to adjust the pricing and packaging of its cable products. Rutledge said the company will reshape current offers on the market put forward by Time Warner Cable and Bright House in order to align them with Charter's own sales strategies. He expects those changes will make the services less confusing to customers and employees alike.
"I would say that the pricing and packaging and the variability of offers is the most interesting opportunity to fix quickly," said Rutledge, adding that "there's a lot more complexity there than even I thought was there, all of which means there's more upside."
In terms of service upgrades, Rutledge specified that Charter's advanced Spectrum guide will be available in most of its own legacy markets by the end of the year, with larger TWC markets gaining access by the middle of 2017. He also said he expects the company's all-digital transition to be complete by 2018. Currently about 40% of the Time Warner Cable footprint and 50% of Bright House are still supporting analog video delivery. (See Rutledge Sets Stage for New Charter.)
Among other noteworthy moments in the earnings presentation, Rutledge alluded to the company's future potential in the wireless market, but acknowledged that as far as TWC's MVNO agreement with Verizon Communications Inc. (NYSE: VZ) (which Charter inherited) is concerned, Charter has "not fully exercised that right yet." (See Meet the New Charter.)
Rutledge also made note of the advantages that additional scale will bring Charter with regard to advertising and the commercial services market. The cable company's expanded footprint and clustered markets should make it easier to sell to larger customers in both areas.
And finally, Rutledge referenced current programming disputes, which have cropped up as Charter has switched over to lower content licensing rates originally negotiated by Time Warner Cable. Rutledge said he considers litigation to be a standard part of the negotiation process now, and added that, in terms of Charter's relationships with its programming partners, "it's going about what we thought it would go."
— Mari Silbey, Senior Editor, Cable/Video, Light Reading