Bundles, data drive Charter’s Q1 profit

Thu, 05/06/2010 - 8:40am
Mike Robuck

Charter Communications’ first-quarter earnings benefitted from the company’s emergence from bankruptcy last year, as well as from strong growth in its high-speed data service and from bundled subscribers and increased revenue-generating units.

In its earnings call this morning, Charter posted a profit of $24 million, or 24 cents per share, compared with a year-over-year loss of $205 million, or 54 cents per share. Charter’s first-quarter EBITDA grew 3.4 percent year-over-year to $637 million as revenue increased 4.4 percent to $1.74 billion.

“Building on the momentum from the fourth quarter, we continue to drive growth through the bundle led by our Internet product’s superiority,” said Charter President and CEO Mike Lovett. “We added approximately 240,000 revenue-generating units during the quarter, which was 100,000 more than last year.”

On the technology front, Charter plans on having DOCSIS 3.0 rolled out in 50 percent of its systems by year’s end. Charter also said it would have switched digital video in place in 60 percent of its footprint by the end of the year, but it’s also looking at analog-to-digital conversion in order to free up bandwidth for more HD offerings and other services. Charter has an all-digital trial underway in an unnamed market.

Charter served approximately 12.9 million revenue-generating units (RGUs) as of March 31, an increase of 401,300 RGUs, or about 3.2 percent, over the prior year's quarter and an increase of 243,000 from the fourth quarter of 2009. Approximately 58 percent of Charter's residential customers subscribe to a bundle.  

Charter's RPU for the first quarter of 2010 was $120.45, an increase of 9 percent compared with first-quarter 2009, primarily as a result of strong growth in triple-play and advanced services growth.  

Charter’s digital video customers increased by approximately 96,000 subscribers, but basic video customers decreased by 23,400 during the first quarter, which Charter said was consistent with last year’s losses.

Video RPU was $67.88 for the first quarter of 2010, up 4.3 percent year-over-year due to the sale of more advanced services and higher digital penetration. Charter’s on-demand orders were up 30 percent from a year ago.

Charter’s high-speed Internet customers grew by approximately 103,700 subscribers during the first quarter of 2010, a 44 percent increase over net additions in the first quarter of 2009. Lovett attributed the data gains to Charter’s superior Internet speeds – which were bumped up in March – versus its DSL competitors. Internet RPU of $42.31 increased approximately 2.6 percent compared with the same quarter a year ago.

First-quarter 2010 net gains of phone customers were approximately 66,900. Charter’s phone penetration stands at 15.7 percent as of March 31. Charter’s phone RPU of $41.69 decreased approximately 3.8 percent, but interim CFO Eloise Schmitz said the phone losses were partially offset by the increase in bundle subscribers.

At the end of the first quarter, Charter served approximately 5.3 million customers, and the company's 12.9 million RGUs comprise 4.8 million basic video, 3.3 million digital video, 3.2 million Internet and 1.6 million phone customers.

Charter’s commercial services revenue was up 10.3 percent year-over-year, and Lovett said Charter will “move up” to carrier, wholesale and carrier backhaul commercial service offerings, which will lead to some additional capital expenditures going forward.

“We see significant opportunities in our commercial business, and we are prioritizing our investments this segment to drive further commercial growth,” he said.

Charter’s advertising revenue returned to positive growth with an increase of 9 percent year-over-year, mainly due to more automotive and political ad spending. Charter generated $205 million in free cash flow.

Going forward, Charter still expects its full-year capex to be $1.2 billion.

On the competition front, Charter doesn’t expect AT&T to build out more of its U-verse video service in the company’s footprint, while Verizon only has a 2 percent to 3 percent overlap with Charter’s systems but hasn’t announced any additional deployments in those areas.

Yesterday, Charter announced that Marwan Fawaz was named executive vice president of operations in addition to his role as the company’s chief technical officer.

In his new role, Fawaz will oversee Charter's East and West Operating Groups, customer care, human resources and the Business Intelligence Group, in addition to continuing to lead Charter's network and technology organizations.

He joined Charter in March 2006 as chief technology officer and has more than 20 years of experience in the broadband communications industry, encompassing engineering, technical operations and business development. He began his career at Times Mirror Cable Television and has held technical and operations positions at Continental Cablevision, MediaOne, Vulcan Inc. and Adelphia Communications.

"Marwan brings to this position a great mix of strategic foresight, technical experience and passion for this industry," Lovett said. "He has played a critical role in Charter's success and will continue to do so in the future."

More Broadband Direct 5/06/10:
•  Bundles, data drive Charter's Q1 profit
•  Subscriber growth boosts Cablevision's Q1
•  Comcast Media Center serves up fiber delivery via Hits platform
•  DirecTV's Q1 profit almost triples as revenue rises
•  FCC announces Title II lite for net neutrality
•  Motorola adds flexibility to new edge QAM
•  Arris to expand CPE line with modems, EMTAs, gateways
•  A-L losses widen on component shortage
•  Sprint Nextel to revamp Virgin Mobile



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