Let's take a closer look at what went wrong for Charter in , and whether or not it can right the ship this year. Charter's biggest challenge is its ongoing losses of residential video subscribers. It shed a whopping , video subscribers during the third quarter, compared to a loss of 47, subscribers in the prior year quarter. Charter's own pre-deal residential video subscribers stayed roughly flat. Unfortunately, Charter's growth on those fronts is mixed.
Charter must expand its own network and pay $12 million to fund more broadband.
On the surface, Charter's SMB small to medium-sized business looked healthier, with the addition of 15, video subscribers, 36, internet subscribers, and 34, voice subscribers last quarter. Total SMB revenues also rose 7. However, its monthly revenues per SMB customer fell 3.
It reported similar issues with its Enterprise business, which saw its revenue grow 8. That softness will likely continue over the next few quarters as cord cutting accelerates. Charter will handle the plans and customer service. However, it's doubtful that Charter's wireless service, which will launch this year, can grow large enough to offset its other problems. Despite these headwinds, Charter still grew its total customer relationships by 4. Charter is the second largest cable company in the United States, offering television, Internet and telephone services to 27m customers through a large cable infrastructure.
Charter benefits from first-mover technological advantage and limited competition, creating pricing power and a long trajectory of growth in an Internet-hungry world. The company has an economic moat that, to compete with, requires enormous up-front investment with limited levers to persuade customers to switch other than price. Charter is a toll-road on the internet with high-margins and free cash flow generation.
While video revenue as a percentage of total revenue has been coming down over the past 3 years pro-forma for the two large acquisitions completed in , broadband has continued growing in the residential segment. Although Charter does not disclose profit on a segment basis, we believe that margins for broadband are much higher than that of video due to high programming expenses and carriage fees to content producers.
The evolution of revenue is shown below:.
Charter offers internet packages to residential and business customers through their extensive fibre-powered cable network. Broadband internet offered via cable offers superior speed and reliability than other technologies. As broadband grows with increased data usage across households, we expect this high margin business to be a driver of earnings overall. Charter plans to roll out the gigabit service to the remaining footprint over the next year.
Cable as a connector to internet is dominant in the U. Cable connection speed continues to improve at a more rapid rate than inferior connectors. Charter offers subscription-based video services, including high definition television, video recorder services and video on demand. Video on demand is a new offering that can be streamed through a computer, phone or smart TV where users can view 35, titles, including movies and shows, or live TV, which includes local television and sports.
Netflix — this product is like Apple TV and will be deployed across the Charter footprint in onwards.
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This is a good thing for Charter, users that end their video cable agreement typically use 2x more internet data due to streaming, gaming etc. The benefit to the customer is they are paying less per service. A bundled service is also typically contracted for at least 2 years.
The remainder of Charter is made up of telephone landlines, services sold to small businesses, which includes broadband and voice, the sale of local advertising on the cable platform and management of 16 local news channels. Cable companies negotiate directly with local municipal governments to use public rights-of-way to lay core cable infrastructure. Charter is pursuing this volume strategy, which will increase profitability per passing. Charter focuses on penetration rather than price increases by keeping product prices low and therefore incentivizing more customers to sign up.
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The cost to license this content has grown exponentially over the years due to growing demands from content providers to receive a bigger piece of the pie. The growth and profitability in broadband is eclipsing the video segment. Broadband customers are more profitable, utilize more data and do not come with the cost impost of having to pay the ever-growing programming fees for content.
The same drivers that are pressuring cable TV such as Netflix, Hulu, etc. Cord cutting is a blessing in disguise for Charter. Charter will be able to slowly move away from the low margin business of video distribution and focus on the high margin business of broadband. Enhanced video quality across more screens within a household will only increase the amount of broadband that households require. Using Netflix as an example, watching an ultra-high definition UHD show will use 22 times more data per hour per screen to stream versus the standard definition quality.
http://dorianandthegrays.vinylextras.com/sitemap9.xml Another positive side effect of cord cutting is as customers become more engaged by streaming services, then stickiness to their former content provider i. Capital expenditures for cable will begin to taper in , with both capital intensity and dollars declining.
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Management have not confirmed the percentage, yet have guided for capex to be materially lower going forward. The all-digital capital expenditure program for the legacy Charter initially began in and took approximately 2 years.
Charter Communications Inc Quotes
This initiative was rebooted in after the TWC and BH acquisition to convert these networks to all-digital. To summarize, the all-digital transformation created a new product suite of video with HD channels and enhanced broadband speeds to minimum offered internet speeds of megabits across a majority of the footprint.
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This will also allow for a larger suite of products to these customers, making them more profitable. The offer for TWC implied a trailing valuation of 9. The combination also resulted in opex and capex synergies across purchasing, product development, engineering and IT. Charter plans to fully digitize these services and deploy fully functioning 2-way digital set top boxes within the remaining footprint that have not been converted. This will increase internet speeds, opening the door for better packages and pricing across this footprint.
Avenir is in good company in owning the stock alongside long-term oriented, activist investors. Liberty Broadband is headed by John Malone who serves as a director on the board of Charter.