Charter Bets Bigger on Broadband

For Charter, connectivity -- not content -- is definitely king right now.

Continuing to ride the broadband wave through the spring, Charter racked up another strong quarter of broadband subscriber and revenue gains in the period ending June 30. Shrugging off higher video subscriber losses, the No. 2 US cable operator and broadband provider picked up 258,000 high-speed Internet subscribers (221,000 residential and 37,000 commercial) in the second quarter, down just a touch from last year's haul of 267,000 subs because of lower commercial adds. The latest gains lifted its grand total to nearly 26 million high-speed data customers, with residential accounting for the lion's share (24.24 million) of them.

Primarily as a result, broadband business drove much of the revenue growth in Charter's residential unit. The residential broadband segment’s revenue surged to $4.1 billion, up 8.8% year-over-year, putting it within spitting distance of the company's once-dominant but now largely stagnant residential video business. If present trends hold, residential broadband revenue could pass residential video revenue by year's end.

On its quarterly earnings call Friday morning, Charter executives stressed their expectation of accelerating broadband sub gains over the second half of the year, a typical historic trend. Generally, the second quarter is the toughest of the year for cable operators because of seasonal disconnects by college students going home and families moving over the summer.

"The back half [of the year] will be better,"said Charter CFO Chris Winfrey on the call. "The broadband business has the potential and ability to grow at a healthy rate for a really long time."

With DOCSIS 3.1 now rolled out entirely throughout its 51 million-home footprint and 1 Gig service universally available to its data customers, Charter reported nearly 85% of its base now subscribes to speed tiers of 100 Mbit/s or more. Currently, 100 Mbit/s is the slowest speed offered to new Internet customers in 99% of the company's regions. Plus, the cableco has doubled minimum Internet speeds to 200 Mbit/s in a number of markets without raising prices.

Yet, even with such seemingly stellar results, Wall Street thinks Charter could score even better with broadband. In a fresh research note issued this morning, for example, MoffettNathanson principal analyst Craig Moffett chided the company for not meeting the Street's bullish consensus estimate of 279,000 mew subs. He also faulted Charter for falling a bit short of expectations on such other key metrics as business services revenue and profit margins.

"On every one of the most important metrics (save capital intensity, where the 790 bps decline YoY was better than expected), Charter missed, either by a little or a lot," Moffett wrote. "In a vacuum, these results would likely be viewed as very good. Unfortunately, we don’t live in a vacuum."

That could help explain why in trading on the Nasdaq Stock Exchange so far today, Charter's share price has dipped 2.81% to $394.10 as of 2:40 p.m. ET. For more on Charter's second-quarter earnings, please turn to our sister site, Light Reading. (See Charter Shifts Mobile Into Higher Gear.)

Related posts:

• D3.1 Delivers the Gigs – but Does Anyone Want Them?
• Charter's Stock Pops As 2019 Cable Capex is Poised to Plummet
• Charter Chief Puts Faith in Full Duplex DOCSIS

— Alan Breznick, Cable/Video Practice Leader, Light Reading