Charter to restructure operations, go all-digital and increase capital spending

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New Charter Communications (Nasdaq: CHTR) CEO Tom Rutledge said he is centralizing network operations as part of a strategy focused on deploying cloud-based video products, faster broadband tiers and new pricing of its triple play.

Charter reported Tuesday that it lost 73,000 video subscribers during the third quarter, while gaining 69,000 high-speed Internet and 52,000 phone customers. The MSO spent $488 million on capital expenditures, most of which went toward new set-tops and other customer premise equipment. But Rutledge said Charter expects that it will eventually be able to reduce capital spending as it transistions to a network architecture focused on the delivery of IP video to connected TVs, tablet computers such as Apple's iPad and other consumer electronics devices that don't require a cable set-top. "You can see a world where [capital spending] continues to improve," Rutledge added.

Rutledge said that that Charter plans to convert to an all-digital platform, and reclaim analog channels. He said that launching a new cloud-based architecture would allow Charter to quickly launch new video products and other advanced services without having to rebuild its cable plant. "The cable business is becoming more capital efficient over time. It does not require another plant upgrade," Rutledge said. Charter will buy customer premise equipment from multiple vendors, and expects that prices on set-tops and other gear will continue to decrease, he noted. 

Rutledge said Charter is focused on delivering content to "devices in and outside the home, improving user interfaces on legacy and new devices," and creating cloud-based applications. "We will have more to announce as they are ready for broader rollout," he added.

Charter recently announced that it would move its headquarters to Stamford, Conn., which will accommodate former Cablevision (NYSE: CVC) COO and Connecticut resident Rutlege and several other executives that he has recruited for his leadership team. Rutledge told analysts Tuesday that Charter has centralized its sales and marketing operations. "Our regional teams will focus on operations, including installation, and service and maintain quality outside plant, and will focus exclusively on doing these critical responsibilities well," he said.

Also worth noting from Charter's third quarter earnings report and investor call:

  • Charter saw a 77 percent increase in the number of new subscribers that order its triple play of digital video, high-speed Internet and telephone service during the third quarter compared to the same period last year.
  • Rutledge said 17 percent of Charter's customer base has switched to its new pricing and packaging scheme, "which in a single quarter is ahead of where we expected to be."
  • Charter generated average revenue per residential customer of $105.39, which was down slightly compared to the $105.83 it reported during the third quarter of 2011. An increase of subscribers that only take its high-speed Internet product contributed to the decrease, Charter said.
  • Charter posted $168 million in revenue from its commercial business, up from $139 million last year.
  • Charter generated $1.88 billion in third quarter revenue, up 3.7 percent.  It reported a net loss of $87 million (87 cents per share), compared to $85 million (79 cents per share) in the third quarter of 2011.

For more:
- see the release

Special Report: Cable in the third quarter of 2012

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