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Charter narrows losses; announces cloud UI test

Tue, 11/05/2013 - 2:05pm
Brian Santo

Charter Communications’ lost 27,000 basic video customers, but with additions in broadband and voice subscribers, the company added a total of 44,000 revenue generating units.

The company said it is beginning to go all-digital in portions of California and Michigan, and expects to have most of its networks converted to all-digital by the end of 2014.

CEO Tom Rutledge said the company is currently working with ActiveVideo and Zodiac to provide cloud-based user interfaces on legacy boxes (set-tops that lack cable modems). The basic problem is that it is currently not possible to roll out a single UI to every single subscriber across an entire network because the most basic legacy boxes have neither the processing power nor the memory to handle a sophisticated new interface or the capabilities that UI provides access to. Companies like ActiveVideo are convinced that it is possible to address those boxes and do most of the processing and storage in the cloud.

Charter is definitely going to move to a cloud-based user interface (UI). The only question is how many of it subscribers will have access to it.

Comcast has proven that there are benefits, Rutledge said. Comcast recently said it’s VOD sales went up over 25 percent in areas where X1 (Comcast’s cloud UI) is available.

Rutledge said Charter will begin to field test the ActiveVideo / Zodiac UI in Fort Worth in the next few days. It will roll out with employees and then the general public.

If that cloud-based UI works as expected, Charter will do a commercial rollout later in the second quarter of next year, Rutledge said. He said indications are that it will work, but even if it doesn’t, a substantial portion of the company’s installed base of set-tops do incorporate cable modems, and are easily capable of hosting a cloud-based UI.

When asked about licensing X1, Rutledge said Comcast has built a nice application, but ultimately guides are an esthetic question, that customer expectations will change, and there’s value in being able to control that. The implication was that the company would prefer not to use someone else’s UI, but, Rutledge concluded, “Who knows what will happen?”

Rutledge said Charter is developing a TV app that will allow people to control their home TVs when away from home, that will allow users to stream to any device at any time. There are no technical constraints to where the signal can go, Rutledge said, explaining that what they can do for now will be to offer whatever they currently have rights to. As they secure more rights, the company might actually be able to sell a subscription-everywhere service, or adopt some other monetization model.

John Malone, whose Liberty Media is a key investor in Charter, has been agitating openly for industry consolidation, and he has openly discussed a possible deal with Time Warner Cable. TWC has thus far rebuffed Malone’s overtures, saying that the financials are not favorable for a merger.

Analyst Craig Moffett was complimentary about Charter’s Q3, and called TWC’s Q3 results “atrocious,” and that might argue for a deal. Responding to the question on the company’s conference call, Charter executives said they were comfortable with their own leverage ratios, growth, and cash flows.

The implication, oblique though it was, was that Charter is in a position to do a merger.

The company’s third-quarter loss narrowed, helped by contributions from an acquisition this summer and higher revenue from its cable TV business.

Revenue from the company's pay TV services rose 15 percent to $1.04 billion, while revenue from high-speed Internet subscribers jumped 23 percent to $575 million. Revenue from phone services fell 23 percent to $161 million.

Charter posted a loss of $70 million, or 68 cents per share, compared with a loss of $87 million, or 87 cents per share, in the same quarter of 2012.

Revenue rose 13 percent to $2.12 billion from $1.88 billion, with a big boost from the acquisition of Cablevision's Bresnan Broadband unit in July. Excluding the acquisition, revenue grew 5 percent.

Analysts, on average, expected profit of 8 cents per share on $2.11 billion in revenue, according to FactSet.

Dow $5.15, or 3.8 percent, to $130.62 in morning trading.

The Associated Press contributed to this report.

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