Charter Communications reported solid subscriber metrics for the fourth quarter, adding 329,000 broadband customers while managing to keep its rate of video subscriber decline below that of the industry at large.
With the completion of Charter’s all-digital transition, DOCSIS 3.1 rollout and integration of legacy Time Warner Cable and Bright House systems, the cable operator expects significantly less capital spending this year. Charter disclosed capex guidance of $7 billion (excluding mobile) for 2019, surprising analysts.
“The most eye-popping number in Charter’s results is their guidance on capital intensity,” MoffettNathanson’s Craig Moffett wrote in a research note Thursday. “We all knew that capital intensity would be lower in 2019. But no one imagined it would be this much lower.”
The figure was a full 10 percent below the firm’s forecast and nearly $2 billion less than what Charter spent in 2018, Moffett noted.
“Most models didn’t see capital spending getting as low as $7B for another three years, if at all,” Moffett wrote. “Falling capital intensity has been a foundational plank of our bullish thesis on Cable, but even we didn’t expect anything like this.”
Charter attributed the guidance to lower spend on CPE since going all-digital, lower spend on scalable infrastructure related to the DOCSIS 3.1 rollout, and less support capital spend since wrapping up its acquisition integrations.
Broadband and video
Charter’s total customer relations grew by 248,000. The 329,000 broadband additions include 289,000 residential subscribers, which beat expectations and is up from 263,000 additions a year ago. Comparatively, AT&T yesterday reported losing 32,000 broadband customers in Q4, while Comcast added 323,000 residential broadband subs.
The company ended 2018 with 23.6 million residential internet subscribers, with more than 80 percent of those customers taking speed tiers of 100 Mbps or more.
Charter is still losing video subscribers, with 36,000 pay TV subscribers dropping off in Q4. The cable operator ended the year with 16.1 million residential pay TV customers. Moffett pointed out that while Charter’s video subscriber base is shrinking at a rate of 1.4 percent year over year, it is far better than the declines pay TV is seeing overall at between 3.5 and 4 percent per year.
The video losses don’t seem to be hurting Charter too badly as residential video average revenue per user (ARPU) rose 5.1 percent. Moffett noted that as customers subscribing to low-cost basic TV tiers drop off, the portion of subscribers taking higher value bundles is greater.
“This uplift continues to underscore Charter’s argument that the economic impact of the subscribers they are losing is negligible… or even positive,” Moffett wrote.
Video revenue for the quarter increased 3.4 percent to $4.36 billion, while internet revenue climbed 7.1 percent to $3.89 billion.
Total residential revenue rose 3.9 percent year over year, while commercial revenue was up 4.5 percent to $1.57 billion.
Overall, total revenue climbed 5.9 percent from a year prior to $11.23 billion and consolidated EBITDA was $41.6 billion.
Advertising sales spiked 34 percent compared to the year ago period, hitting $562 million in the fourth quarter, driven by political ad spending.
Mobile
Charter’s fledgling MVNO wireless service Spectrum Mobile, which officially rolled out nationally in September, added 113,000 subscribers during the fourth quarter for a total of 134,000 lines. In the three-month period, Charter reported $106 million in mobile-related capital expenditures, and wireless EBITDA loss of $122 million.
Like Charter, Comcast offers wireless service powered by an MNVO deal with Verizon and in the fourth quarter added 227,000 net lines. Comcast launched its service less than two years ago and ended 2018 with 1.2 million subscribers. More on that here.
“We performed well in 2018, growing our Internet customer base by 1.3 million, cable revenue by 4.7%, and cable Adjusted EBITDA by 6.5% — very strong operating and financial performance, particularly in the midst of what we believe is the largest cable integration ever,” said Tom Rutledge, Chairman and CEO of Charter Communications. “In 2019, we expect the operating and cash flow performance of our cable business will further demonstrate the superiority of our network, the returns of our recent investments, and the long-term value creation driven by our consumer-focused operating strategy.”
