Charter Overhauls Business After Losing 233,000 Internet Customers, Completes Cox Deal

Subscriber Losses Trigger a Reset

Charter Communications said home internet and cable TV counts fell, and it is rolling out a broad redesign to trim expenses and recapture internet subscribers. Including the newly combined Cox operations, residential internet accounts fell by 233,000 and cable TV dropped by 77,000. In early Friday New York trading, the shares were off by 4.9%.

Charter has now finished combining with Cox, pairing an operation that continues to pursue video with another that had largely retreated from it. Cox has concentrated on home internet for 7 million customers, a job that has gotten tougher.

Inside the Overhaul

Charter called the plan a "fundamental redesign," with a goal of 2 billion dollars in annual run-rate cost reductions in the coming 18 months, along with in excess of 1 billion dollars tied to the Cox transaction. Chief Executive Officer Chris Winfrey said the effort will start by upgrading the home internet product, then "layer in" mobile lines and video packages.

He added that the company will work to add internet customers and cut churn by investing in customer service, network upgrades, and "smarter pricing." "Customer satisfaction is not where it needs to be," Winfrey said, calling the change "a significant shift with greater urgency and sharper focus." He also said Charter will reduce complexity, speed up decisions, and direct resources to activities that most directly drive growth and performance, while not targeting front-line service and sales roles for cuts. Those teams should "benefit from simpler offerings, faster responsiveness to the market and continued technology deployment," he said.

Stamford, Connecticut-based Charter has had success bundling streaming and wireless lines with other services, but it now faces pressure from low priced home internet sold by major wireless carriers using excess 5G capacity. Winfrey declined to say when the company expects to return to net customer growth.

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The Numbers and Wall Street Read

Revenue rose 9.1% to 14.9 billion dollars, helped by the Cox deal, exceeding the 13.9 billion dollars average analyst estimate. Per-share results were a loss of 20.50 dollars, versus a profit of 8.50 dollars in the prior year period.

Citi Research's Michael Rollins put it this way: "A key question for Charter is whether or not revenue and financial performance needs to take another step back before it can potentially achieve its target of taking two steps forward." KeyBanc's Brandon Nispel wrote Friday, "We see a lot of words and promises, and a long path ahead."

Comcast, Charter's main peer, posted steep broadband losses last month. With competition heating up and both managing shrinking bases, some analysts are watching for a potential Comcast and Charter tie-up. TD Cowen said Thursday, "The next catalyst could be a Comcast/Charter tie-up, which may need to occur sooner rather than later given the midterm election results as a broader regulatory signal." They also noted Democrats are set to regain control of Congress in January, which could make action more attractive before potentially less business friendly policy moves arrive.

What It Means for Your Portfolio

Charter is trying to steady its internet base while integrating Cox and pulling out sizable costs. If the 2 billion dollars in annualized savings and the additional 1 billion plus from the transaction land on schedule, margins and cash needs could look different over the next 18 months.

The competitive backdrop matters just as much. Wireless 5G home internet is pressuring pricing power, and both Charter and Comcast are losing broadband customers. Watch three things: whether subscriber declines slow as "smarter pricing" and service upgrades roll out, how revenue trends hold after the 14.9 billion dollar quarter, and whether deal chatter around Comcast and Charter turns into something real.

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