Charter’s Q4 2017 business revenues jump 6%, but ARPU pressure continues from TWC, Bright House transition

Spectrum Business
Charter reported that business services revenues rose 6% to $1.5 billion during the fourth quarter. (Charter)

Charter Communications’ Spectrum Business division is chipping away at the telco’s long-standing hold on the market, but the cable MSO’s ongoing migration of Time Warner Cable (TWC) and Bright House business customers to common pricing for small to medium business and enterprise remains a near-term drag.

Christopher Winfrey, CFO of Charter, told investors during the company's fourth-quarter earnings call that it expects to grow business revenues after it completes this process.

Charter CFO
Christopher Winfrey

“Our revenue growth in the TWC and Bright House markets hasn't yet followed the unit growth, and it won't until we get through the transition to more competitive pricing of both our SMB and Enterprise products,” Winfrey said during the earnings call, according to a Seeking Alpha earnings transcript. “We expect that ARPU offset will continue through 2018, but the revenue growth will ultimately follow the unit growth.”

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Still, it’s hard not to notice Charter’s business service revenue growth during the quarter. Total commercial revenue in SMB and enterprise combined grew by 6% to $1.5 billion. Within Charter’s commercial sector, SMB revenues rose 4.5% year over year to $931 million, while Enterprise grew 8.3% to $570 million. Charter Communications’ share in large business services is far smaller than that of large telcos such as AT&T and Verizon, but the cable MSO is making progress penetrating larger business accounts.

“Excluding cell backhaul and NaviSite, Enterprise grew by over 12%,” Winfrey said. “Sales are up in both SMB and Enterprise with 32% higher SMB and PSU net adds at TWC and Bright House in the fourth quarter versus last year.”

However, Winfrey said that the trade-off with the business service customer net additions is average revenue per unit (ARPU) pressure.

“Like the residential with migration that's been taking place, the key difference in SMB and … Enterprise is the pricing differential is greater and the time period for it to occur is longer,” Winfrey said. “So, the SMB migration takes a longer period of time as does Enterprise.”

Winfrey added that Charter expects to see similar ARPU pressure throughout the rest of the year but also positive unit growth.

“We'll have positive revenue growth, but it's just going to be depressed through 2018 relative to the unit growth until we can get a little bit further on in that migration path and get over the 50% point similar to what we've been talking about on residential,” Winfrey said.

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