Growing Charter Communications Excites Wall Street, Eyes Washington
Charter Communications, in bankruptcy three years ago, is impressing Wall Street with a growing subscriber base and favorable positioning against competitors under its third CEO in two years. That’s setting up a revival that could enable it to expand its broadband network and boost its presence in Washington, D.C., industry and company officials told us. A question is whether Washington could help fuel growth for Charter through money from the FCC’s new USF for broadband fund, industry officials said.
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On the job since December, CEO Tom Rutledge’s short tenure has excited some on Wall Street who see the No. 4 U.S. cable operator that emerged from Chapter 11 bankruptcy in November 2009 as a good bet. “Charter is the kind of growth story that Wall Street likes,” said analyst Craig Moffett of Bernstein. Charter’s broadband penetration is weak compared to larger cable ISPs, giving it a large “runway” for growth, Moffett wrote investors in June. With a 4 percent infrastructure overlap with Verizon’s FiOS network, Charter has a “perfect setup” for a company with a little more than 5 million subscribers in 25 states, he said.
Results are starting to come in. The company reported 99,000 new subscribers Q1 for all services, more than triple subscriber growth in the year-ago quarter. Revenue rose 4 percent to $1.8 billion, and the net loss narrowed to $94 million from $110 million, the company said (http://xrl.us/bni53b). Miller Tabak had forecast higher revenue from subscriber growth. “Given the higher level of customer acquisition, we have an excellent opportunity to upgrade the level of service we provide those customers,” Rutledge said in May when Q1 results were reported. “In evaluating the key levers to drive further growth, my focus in the first three months has been on revising our pricing, packaging and selling structure and accelerating our path to an improved product set, particularly our video product.” The operator reports Q2 results Tuesday (http://xrl.us/bni529) and is opening up a New York office for executives including Rutledge. He led what analysts saw as an improvement at Cablevision before leaving that operator last year as chief operating officer, as that New York-area operator faced more competition from FiOS.
Cable operators may eventually collect broadband subsidies from the FCC Connect America Fund, and Charter could seek some of that money for operations that have a lower population density than its rivals, industry officials said. Charter’s main video competitor is satellite and it delivers broadband to 33 percent of homes its systems pass, which are mostly located in the South and Midwest, Moffett said. The FCC recently announced $115 million in CAF Phase 1 funding, all of which went to wireline carriers (CD July 31 p2). The FCC said that up to $15.5 billion could be shifted to the CAF in the coming decade.
The program’s goals should allow for cable operators to receive future CAF funding, said cable lawyer Dan Brenner of Hogan Lovells. Some of that funding would be awarded through a reverse auction where providers submit their bids based on cost-per-subscriber, with the lowest bids winning the subsidies, he said: The cost projections will determine whether cable operators purse CAF funding. Moffett said Wall Street isn’t factoring potential USF funding into its evaluation of cable operators like it does the rural telcos. Since Charter said it hired Rutledge, the stock rose 41 percent to close at $78.30 Thursday.
Charter gets E-rate funding for schools and participates in the Rural Health Care Program, a spokeswoman said. The company’s advocacy strategy will continue to support an operating strategy that is “evolving,” she said. Rutledge has an interest in policy issues and there’s anticipation that “we'll add to our presence there soon,” she said of the operator’s small Washington office. Charter is looking to fill what soon will be an open lobbying position in Washington, she said. The company’s had two lawyers who lobby the FCC in several years, with the most recent one, Patrick Webre, having left earlier this year, and Megan Delany, who he succeeded in 2010, now working for Alaska cable operator General Communication in its Washington office.
One issue Rutledge is working on is legacy set-top boxes, he said in May. Better Internet Protocol products within the network could address some of those issues, while working with the legacy equipment, he said. The set-top issue is one of the side effects from the limited investments the company could afford due to Chapter 11, Moffett said. “If they can sustain their growth trajectory, Wall Street will give them a reasonable amount of rope.”