Charter Communications CEO Tom Rutledge expressed optimism that the operator will be able to bounce back to subscriber growth as market conditions normalize, after the company revealed it shed 21,000 internet customers in Q2. Its report came a day after rival Comcast posted flat broadband net additions.
During the quarter, Charter gained 21,000 business broadband customers but lost 42,000 residential subscribers, leaving it with the overall loss. On an earnings call, CFO Jessica Fischer noted the slide included the disconnection of 59,000 customers who rolled off the government’s Affordable Connectivity Program (ACP), which offers a monthly subsidy for broadband service. Absent the impact of those disconnects, she said Charter would have added 38,000 broadband customers.
Fischer previously warned in June Charter expected to lose as many as 70,000 ACP subscribers, but said at the time it expected to achieve positive subscriber growth in Q2. On the call, she said Charter didn’t see a “large deterioration in market conditions or performance in June” that resulted in the swing to a loss, but instead experienced “small changes” that yielded its negative result.
Rutledge added fiber competition in the quarter was typical and insisted that fixed wireless was a “factor” in its results but not a significant driver. Instead, he pointed to lower market activity levels, particularly moves and household formations.
“We’re pretty optimistic relatively speaking that as the post pandemic market activity levels return and normalize, that our share of broadband growth will rise,” Rutledge said.
Charter COO Chris Winfrey said the long-term prospects for the business remain positive. Though it could in theory simply wait out the headwinds it is currently facing, he noted it is instead pushing to accelerate its rural builds and upgrade its network to symmetrical multi-gigabit speeds in order to boost its competitive position and accelerate growth.
It’s also eyeing opportunities to improve its execution, with Rutledge stating the pandemic created labor and operational issues that have impacted its ability to generate orders. “We’re aggressively trying to improve our ability to execute,” he said. Winfrey added a key part of that initiative is the digitization of its service platform to improve the customer experience and reduce its cost to serve customers.
Analysis
Analysts at MoffettNathanson noted Q2 “has historically been the seasonally weakest of the year” and said they “do not expect losses over the remainder of the year.” That said, they pointed out “growth is inarguably slower than previously anticipated. Trends in the back half of the year will be critical in determining the annualized trajectory of broadband.”
New Street Research warned " There are clouds on the horizon with expanding fiber and fixed wireless broadband competition” and said it doesn’t see “broadband trends improving much in 2H22.”
On a more positive note, MoffettNathanson said it doesn’t expect Charter to have to cut prices to effectively compete in the market, and noted its low pricing give it “more room for faster future ARPU growth rates.” Average revenue per residential user excluding mobile stood at $116 as of the end of Q2.
Metrics
Consolidated revenue rose 6.2% year on year to $13.6 billion, driven by a 39.8% increase in mobile revenue, 4.5% growth in residential revenue and 4.2% rise in commercial revenue. Net income jumped 44.2% year on year to $1.5 billion.