Charter’s Rutledge: Our Long-Term Broadband Penetration, Position has Been Enhanced

Charter sees another quarter of rapid broadband growth. Cable MSO sets sights on deepening penetration in existing markets and taking aim at underserved rural areas. 

  • Charter Communications

Charter continues to take a lead in the broadband subscriber race, reporting subscriber gains for the fourth quarter and the entire year of 2020.

The cable MSO grew its residential internet subscriber base by 216,000 in the fourth quarter and 2.1 million in 2020.

While Charter’s fourth quarter broadband subscriber gain for 2020 was lower than the 313,000 it added in 2019, it noted that the difference was due to lower sales activity caused by adding 1.9 million residential Internet customers in the prior three quarters as well as lower market churn, resulting in fewer selling opportunities in the fourth quarter.

Growth in Internet customers during the last year, promotional rate step-ups and rate adjustments drove up Charter’s internet revenue grew by 11.9 percent year-over-year to $4.9 billion.

Thomas Rutledge, CEO of Charter, told investors during its fourth-quarter earnings call that it has plenty of runway to expand broadband growth in 2021.

“Despite the outsized growth and some pull-forward of demand into 2020, which will drive continued benefits to our revenue and EBITDA going forward, our expectation and plan for 2021 is to revert to the trend we were on pre-COVID and meet or exceed the customer relationship and Internet net adds that we achieved in 2019,” he said. “We believe our long-term broadband penetration and market position has actually been enhanced.”

Enhancing Speeds, Wi-Fi Coverage

As it looks to capture more broadband subscribers in 2021, Charter is working to enhance its speed tiers and the in-home Wi-Fi experience via Wi-Fi6.

Higher speed tiers are resonating with new and existing subscribers. At the end of 2020, over 85 percent of Charter’s residential internet customers subscribed to tiers that provided 100 Mbps or more of speed, and over 50 percent subscribed to tiers that provided 200 Mbps or higher.

In the fourth quarter, Charter doubled its starting download speed to 200 Mbps in 17 markets. Currently, 200 Mbps is the slowest speed offered to new Spectrum Internet® customers in nearly 75 percent of Charter's footprint, with 100 Mbps the slowest speed offered in the remainder of its footprint.

Charter also offers Spectrum Internet Gig (940 Mbps) across its entire footprint. Additionally, Charter's Advanced In-Home Wi-Fi service, which provides customers the ability to optimize their home networks while providing greater control of their connected devices, has now been launched across more than 65 percent of Charter's footprint for new Internet connects.

Chris Winfrey, CFO of Charter, said that it can accommodate high-speed bandwidth requirements with DOCSIS 3.1 and the emerging DOCSIS 4.0 standards.

“In the near-term, we have a large opportunity to improve data throughput and latency on our network by using our DOCSIS 3.1 technology, which still offers us a long runway to improve our product set,” he said. “We'll also continue to invest in DOCSIS 4.0 with key vendors in the rest of the industry for even greater capacity and functionality down the road.”

Inside the home, Charter is focused on improving the quality of its Wi-Fi routers and indoor reception by offering Wi-Fi extenders and offering Wi-Fi 6 routers.

“We're improving the quality of our Wi-Fi routers and Wi-Fi reception in the home,” Rutledge said. “We recently launched our new Wi-Fi 6 router in our first market, and we will have Wi-Fi 6 router available in nearly all markets by mid-2021. And we now offer companion Wi-Fi Pods to improve Wi-Fi reception in the home.”

Additionally, Charter is ramping up the availability of its managed Wi-Fi service option for broadband customers.  

“Our Advanced In-Home Wi-Fi service, which is a managed Wi-Fi service that provides customers the ability to optimize their networks while providing greater control of their connected devices, has now been launched across more than 65 percent of our footprint for new connects and we will continue to expand that footprint this year,” Rutledge said.

Setting an Aggressive Rural Pace

Charter has set an aggressive plan to extend services into rural areas this year. It was among the biggest winners for the FCC’s Rural Digital Opportunity Fund (RDOF) reverse auction.

The cable MSO was awarded $1.22 billion in the auction. Charter secured funding for 24 states, which was the most in the auction, and will provide its service to more than 1 million locations. Charter expects to invest about $5 billion to support its buildout initiative--offset by $1.2 billion in support won from the RDOF auction--expanding Charter's network to lower-density, mostly rural communities that do not have access to broadband service of at least 25/3 Mbps.

The new rural broadband initiative will complement Charter's existing network expansion plans, including numerous state broadband grant projects, as well as its previously planned privately funded expansions. The network Charter will build in these rural areas will offer 1 Gbps broadband access to all new customer locations with initial speeds of 200 Mbps.

These new customer locations also will benefit from Charter's high-value Spectrum pricing and packaging structure, including its Spectrum Mobile, Spectrum TV and Spectrum Voice offerings. It will continue to apply its customer-friendly policies in newly served regions, including no data caps, modem fees or annual contracts, combined with high-quality service provided by U.S.-based, insourced employees. 

“Our plans to expand our footprint in rural areas will increase broadband access and help connect well over a million homes, which have gone unserved until now,” Rutledge said. “And that doesn't even include our regular build out to lower density areas, which accelerated in 2020. We continue to offer our Spectrum Internet assist program to millions of lower-income houses -- households at affordable prices.”

He added, “as we look forward to the rest of 2021, we remain focused on driving customer growth by offering high quality services and products under an operating strategy which works well in various market conditions.”

Charter said in a release announcing the plan it sees the initiative as an attractive long-term investment opportunity, as it will drive additional customer growth via an expanded footprint in unserved areas. Additionally, the presence of Charter's modern communications network in these rural areas may result in economic development and more homes and businesses for Charter to serve in these communities and additional buildout to adjacent communities, producing greater investment returns over time. Charter looks forward to participating in additional public-private partnerships to expand broadband access.

Preparation for the RDOF Phase I broadband buildout has already begun and will include Charter expanding its existing construction organization to focus on deployment of this new fiber optic network. Charter expects to hire more than 2,000 employees and contractors to support the RDOF and future rural buildout initiatives. In addition to Charter's ongoing network expansion, the RDOF program alone will drive a 15 percent increase in the Company's network mileage coverage while expanding service to more than 1 million previously unserved homes and businesses across 24 states as estimated by the FCC.

RDOF represents a $20 billion, 10-year opportunity for service providers and their vendor partners to build and connect faster broadband speeds in rural and unserved areas across the U.S. 

However, the main challenge Charter faces in executing its rural broadband plan will be securing utility pole permits and navigating the "make-ready" processes for each pole. Unlike the higher density markets it serves, rural markets require broadband providers to access multiple poles for every new home served. As a result, pole applications, pole replacement rules and their affiliated issue resolution processes are all factors that can have a significant impact on the length of time it takes to build into these rural areas.

"The more cooperation we have with the pole owners and utility companies, the faster we can connect these communities with high-speed internet services,” Rutledge said in a release announcing its rural broadband plans. “We look forward to working with local municipalities, electric cooperatives, and investor-owned utilities to ensure that permits are obtained in a timely, fair and cost-effective fashion."

(To keep up with the Q4 broadband earnings, make sure to check out our new report From AT&T to Verizon: Sizing up Q4 Broadband 2020 Earnings)

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