Charter embraces dumb pipe cable business model

With Charter Communications (Nasdaq: CHTR) reporting that 15 percent of its customers don't subscribe to a pay TV package, the cable MSO is beginning to emphasize its high-speed Internet access service as the company's primary business.

Pointing to increased growth in cable modem subscriptions, and declining interest in its pay TV products, Charter CEO Mike Lovett said Tuesday that the MSO is positioning itself as an Internet service provider.

"Certainly the video business has its challenges. It's still a significant part of our business so we are not abandoning it by any means," Lovett said on Charter's third-quarter earings call. "We do see ourselves and we are--a bit of a mantra within the company is to think of ourselves as an ISP. But I think that not only drives the strength of our superior broadband product and we are leading with that strength, but it supports the video business and other products and services over time particularly as the infrastructure evolves to all IP," he added.

Charter said Tuesday that it lost 64,500 video subscribers during the quarter while gaining 53,200 high-speed Internet customers.

With rising programming costs and increased competition from satellite TV and telephone providers making it more difficult for cable operators to generate significant profit margins by selling subscription video programming packages, some distributors are beginning to discuss the possibility of operators transitioning to a "dumb pipe" business model. In such a model, a cable operator would focus more on selling high-speed access services that would deliver subscription content marketed by over-the-top video providers such as Netflix (Nasdaq: NFLX) or Amazon (Nasdaq: AMZN). It's also possible that a larger cable MSO with programming assets such as Comcast (Nasdaq: CMCSA) could distribute pay TV programming through the Web to subscribers outside its footprint, including Charter homes.

Lovett appears to be embracing the dumb-pipe model by noting that Charter will make selling high-speed Internet access the company's key focus.

For more:
- see transcript from Charter's Q3 earnings call
- Multichannel News has this story

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