With over a year at the helm of Charter Communications, Tom Rutledge’s vision for the nation’s fourth-largest cable operator is firming up across multiple fronts.
Rutledge said on this morning’s first quarter earnings call that Charter’s all-digital conversion project and cloud-based user interface (UI) were two of the company’s biggest objectives this year.
“We’re making good progress on developing a cloud-based user interface and search service that will move key product functionally out of the box into the network and available across various devices and platforms,” said Rutledge, the former Cablevision COO who was named as Charter’s CEO and president early last year.
Rutledge said that one advantage of the cloud-based UI is that it takes the intelligence out of the box in a customer’s home and puts it into the cloud. The end result is a thinner client in the box, which also means a less expensive DVR or set-top box. It also gives Charter a state-of-the art UI to compete with over-the-top (OTT) competitors.
The new UI works with older legacy boxes, and is a significant step up from using a remote control on a grid guide to find content. Comcast has already deployed its new UI on the company’s X1 platform, while Time Warner Cable is also working on its own cloud-based implementation.
“It’s a significant opportunity, but the beauty is it makes every box you have state of the art,” Rutledge said.
While the cloud-based UI brings new devices into the fold, Rutledge said the recent CableCard waiver from the Federal Communications Commission further reduced the costs associated with advanced set-top boxes. The waiver also works in tandem with Charter’s all digital initiative, which is slated to be completed by the end of next year.
“The waiver furthers our goal to end up with a network and product infrastructure that allows boxes from multiple vendors and smart TVs to connect to our network with downloadable security software,” Rutledge said.
Unlike Comcast, Mediacom Communications and other cable operators, Charter’s all digital project doesn’t include the use of digital terminal adapters (DTAs.) Charter’s all digital effort got out of the starting block in Texas on a hub-by-hub basis. The reclaimed bandwidth is being used for additional HD channels and more DOCSISI 3.0-based data tiers.
“Our plan is working and we’ll continue to roll that out across our footprint this year and next,” Rutledge said.
Rutledge said another major objective at Charter this year was improve the company’s operational performance in order to drive deeper penetration of its triple play services. Charter passes 12 million homes its footprint and while it currently serves about 5 million customers, Rutledge said Charter needed to drive deeper product penetration and customer satisfaction in order to sell its products and services to the remaining 7 million homes passed.
In regards to mergers and acquisitions, Rutledge said Charter had a lot of runway left to win over additional customers in its current footprint so it wasn't on the hunt for new systems, but wouldn’t rule out another deal such as company’s $1.63 billion purchase of the former Bresnan systems from Cablevision. The deal with Cablevision is still slated to close in the third quarter.
On the capital expenditures front, Charter is in the process of upgrading its plant via a deferred maintenance program, and bringing more of its labor in-house, the latter of which has led to the purchase of additional testing equipment and new trucks.
Other highlights from this morning’s conference call included:
• Aereo; Rutledge was asked if he could foresee Charter mimicking Aereo’s business model by partnering with a company such as Netflix in order to offer a low cost video service. While such a model would be an end run around the ever-increasing retransmission fees, Rutledge didn’t see it happening.
“I really don’t see it as a game changer regardless of whether its legal or not,” Rutledge said of Aereo.
• Liberty Media: Last week Charter and John Malone’s Liberty Media announced that they had completed Liberty Media’s $2.6 billion investment in Charter, which gave Liberty Media a 27.3 percent stake in Charter and three members, including Malone, on its board of directors. Rutledge said Charter was happy to have Liberty Media as shareholders and members of its board. Liberty Media brings “a level of expertise that is unmatched” to Charter, according to Rutledge.
Charter by the numbers
In the first quarter, Charter reported a loss of $42 million, or 42 cents a share, compared to a loss of $94 million, or 95 cents a share, in the same quarter a year ago. Charter’s revenue grew 5 percent to $1.9 billion.
Charter’s total operating expense increased 6.1 percent. Programming costs continued to climb for Charter, while the maintenance programming was also an added expense.
Rutledge said Charter’s residential customer relationships increased by 56,000 and it added 4,000 expanded video subscribers in the quarter. Charter lost 28,000 limited basic video subscribers in the quarter, which Rutledge said Charter no longer actively markets.
Charter added 99,000 new data customers in the quarter, but that was off from the 141,000 that came on board a year ago. During the first quarter, Charter added 59,000 residential telephone customers versus a gain of 31,000 during the first quarter of 2012.
Charter’s commercial revenues rose to $183 million, an increase of 20 percent over the prior-year period and driven by higher sales to small and medium businesses and carrier customers.
“I’m pleased with our first quarter 2013 results,” Rutledge said. “They demonstrate that the strategy that we’ve been implementing the last year is starting to have an impact.”