Charter Communications scaled back its forecast for broadband net addition growth in the full year 2021 after posting a significant slowdown in subscriber gains in Q3.
On an earnings call, Charter COO Chris Winfrey noted “residential customer activity, particularly churn, has taken longer than we expected to return to normal levels,” leaving the company with fewer sales opportunities. He added the start of Q4 thus far has resembled Q3 and as a result Charter now expects its full year net add tally in 2021 to come in closer to its 2018 total rather mirroring 2019 as previously expected.
The company added a total of 1.4 million residential and business internet customers in 2019 and nearly 1.3 million in 2018. Charter gained 265,000 internet customers across the two segments in Q3 2021, raising its year-to-date total to 1.02 million. The Q3 figure marked a significant year on year drop from 537,000 in Q3 2020 and sequential slide from 400,000 net adds in Q2. It was also short of the 343,000 net additions analysts had expected.
As Comcast did earlier in the week, Charter executives attributed the dropoff to substantially lower levels of move activity and new household formation. Charter CEO Tom Rutledge indicated the competitive environment wasn’t a factor, stating it “doesn’t appear to be significantly different than it has been…and the effects of lower activity are throughout the marketplace regardless of what the infrastructure we’re competing against is.”
In a note to investors, analysts at MoffettNathanson explained why move activity is so important for operators. “It is important to remember that new household formation has accounted for as much as a third of total broadband market growth in recent years. When new household formation is zero, of course broadband growth will slow,” they wrote. The analysts added Charter’s revised broadband net add target implies it expects Q4 subscriber gains to come in around 251,000.
Heading for a high-split
Rutledge also used the call to highlight Charter’s network roadmap, reiterating its plans to use a high-split architecture to add capacity and dismissing the idea that it might overbuild its existing cable network with fiber.
“We can upgrade our network at way less than it costs to build a fiber platform overtop,” he said. “Fiber works for us on the increment in RDOF, it works for us in certain kinds of MDU environments, certain kinds of greenfield construction environments. But in terms of taking existing infrastructure that we’ve already deployed – three-quarters of a million miles of infrastructure essentially – that we can upgrade at very low costs, orders of magnitude less than it costs to build fiber, and get equal performance and do it quickly.”
The CEO said Charter is already deploying high-splits in some of its markets to assess real-world performance. He added the “beauty of it is it’s pretty much an electronic drop in and it could be done quite rapidly and cover huge swaths of geography in a very short period of time.” In addition to replacing the need to do node splits, Rutledge noted the shift to a high-split “gives you greater capacity in terms of what products you can deploy in a market and what marketing claims you can make.”
Charter’s consolidated revenue increased 9.2% year on year to $13.1 billion in Q3, with net income jumping from $814 million to $1.2 billion. Internet sales grew 13.6% to $5.4 billion, while video revenue was up 6.7% to $4.5 billion, commercial revenue increased 7.1% to $1.7 billion and mobile revenue grew 45.4% to $535 million. Voice revenue fell 8.8% to $409 million and advertising sales dropped 15.1% to $391 million.
The company’s internet additions included 243,00 residential customers and 22,000 business customers. It added 244,000 mobile lines in the quarter, but lost 121,000 video subscribers and 216,000 voice customers.