It’s going on three years since Charter completed its $55 billion acquisition of Time Warner Cable and during that time the company has been busy integrating the cable network's systems.
Charter CFO Chris Winfrey, speaking Tuesday at a Morgan Stanley investor conference, said that while the integration process has unfolded, every area of Charter’s product development has been “intentionally stunted.” But that period of scaled-back video and broadband product development may be coming to a close soon for Charter, even though there’s still more that needs to be done to complete the integration.
“If you look at our capital expenditure plans for this year, there’s as much if not more new product development that’s built into those plans,” said Winfrey. “We can start turning on the gas.”
Charter is projecting about $7 billion (excluding mobile capex) in capital spending guidance for 2019, which analyst firm MoffettNathanson pointed out is $1 billion less than consensus and $2 billion less than what Charter spent in 2018.
“Charter has long signaled that 2019 will be the year that the challenges of integration will finally be behind them, when the re-pricing headwinds in the legacy TWC footprint will begin to fade, and when we finally get to see what the combined platform can do,” wrote Craig Moffett. “This was—will be—the year that Charter will either put up or shut up.”
In Charter’s defense, Winfrey pointed out the advances the company has made recently with its video products including portfolio-wide standardization, the rollout of the Spectrum TV app and the expanded availability of the updated Spectrum Guide. He also pointed toward the introduction of the Charter Stream and Choice video products for broadband-only subscribers.
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Winfrey offered up some insights on Charter’s announcement last week that it will be selling a $15 per month package of entertainment channels to its broadband subscribers. He said Charter’s goal remains to sell its traditional expanded basic cable video product to subscribers but introducing products like Stream, Choice and now Essentials serves as a way to reach customers who aren’t going for the full TV bundle.
“Our view is that by finding some video content that’s appropriate for that broadband customer and combining that together, you have a better chance at selling and retaining broadband customers and connectivity services along the way,” Winfrey said.
He said that a product like Essentials still retains some profit margin but he called it “nothing to write home about.”
Despite the lower cost of Charter’s skinny bundles, the company is continuing to expand its residential video ARPU. Moffett said that for Charter, the loss of low value broadcast-basic subscribers is pushing a mix of higher value bundles.
‘This continues to underscore Charter’s argument that the economic impact of the subscribers they are losing is negligible…or even positive,” Moffett wrote.