Integration Issues Drag Charter Q4

Residential video subs dip by 51K in period, driven by legacy TWC losses
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Sharp declines at legacy Time Warner Cable systems helped drag down overall subscriber growth at Charter Communications in the fourth quarter, leading the second largest cable operator in the country to shed 51,000 basic video customers in the period. That compared to a gain of 118,000 basic video customers in the prior year.

Charter said all those losses could be traced to legacy TWC systems -- over the past 12 months legacy Charter properties grew basic video subs by 42,000 customers. The operator said that it will restart all-digital efforts in legacy TWC systems in the coming quarters, which should help spur growth.

Charter closed its $80 billion purchase of TWC in May, and shortly thereafter began the arduous transition to its Spectrum brand in legacy TWC markets. That transition is still ongoing and is expected to be completed in most major markets by the end of the first quarter this year.

Integration issues tied to the massive undertaking of switching over more than 10 million voice, video and data subscribers, coupled with what some analysts assumed was deep discounting at the legacy TWC systems prior to the transaction closing, added to the pressure. Overall, TWC legacy systems shed about 105,000 basic video customers in the period. 

In a note to clients, MoffettNathanson principal and senior analyst Craig Moffett wrote that the video subscriber results were a clear disappointment – his estimates were for a gain of 48,000 customers – but the jury is still out as to the cause.

“Whether today’s results are a sign that this process is not going as well as hoped, or instead, whether they simply reveal that TWC has undertaken what in retrospect may have been overly aggressive promotional moves to stimulate pre-close subscriber metrics will take some time to sort out,” Moffett wrote.

In addition to the video customer losses, high-speed data and voice customer growth also slowed in the period.

Charter added about 357,000 high- speed data customers in the quarter, down from the 450,000 added in the prior year. Voice customer additions were 39,000 compared to 304,000 in the same period in 2015, again drive by aggressive promotions at legacy TWC.

"Since the close of our transactions in May, we have been managing the complicated process of integrating three different companies with over 26 million customers and 90 thousand employees. Despite the complexity, our integration is going well. We also continued to grow in 2016, with pro forma customer growth of nearly 5%, revenue growth of 7%, and double digit Adjusted EBITDA growth," said Charter chairman and CEO Tom Rutledge in a statement. "In 2017, we remain focused on applying our growth-oriented operating strategy across our new footprints, driving more customer satisfaction, growth, and shareholder value."

Revenue in the period was up 7.2% to $10.3 billion, driven primarily by growth in Internet, commercial, advertising and video revenues. Cash flow rose 12.7% to $3.9 billion.

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