Charter Plans '5G-Like' Trials, Wireless Rollout, Considers FCC M&A Curb Relief

With its eye on 5G networks enabling products like virtual reality offerings and a route to better serve the enterprise market, Charter Communications is starting "5G-like" field trials using its wireline network and high-capacity radios using licensed and unlicensed spectrum "as learning opportunities," CEO Tom Rutledge said in an earnings call Thursday. He also raised the possibility of a partial commercial rollout before year's end of Charter's planned wireless offering (see 1611030041). And the operator may seek relief from FCC conditions on its approximately $90 billion in cable mergers and acquisitions.

Many of the products that likely will accompany low-latency high-capacity 5G networks won't be mobile but will be used primarily in homes or offices, at least in the next few years, Rutledge said. He said Charter envisions such fixed wireless opportunities as connecting strip malls without having to dig through parking lots to connect them with fiber. But he said Charter's current tests will focus on the network technology itself: "It's not about a business model yet."

The cable operator plans to broadly launch its wireless offering in 2018, but that doesn't preclude some commercial offerings this year, Rutledge said. The company is working on a business plan and some test processes, he said, saying the biggest challenge is integrating wireless into Charter's existing business. The company also is working through such issues as contracts with hardware providers and looking at its own billing system and storefront capability, he said: "To do it at a relatively small scale is relatively easy. The issue is how do you do it at massive scale quickly.” He said the Verizon mobile virtual network operator agreement will be the basis of Charter's wireless offering in the near term, but the company's long-term wireless plans will be broader.

Charter executives said they have high hopes for new regulatory and tax approaches under the Ajit Pai FCC and Trump administration. Pointing to Title II regulation of broadband, Rutledge said Charter "had a lot of headwinds" under the Tom Wheeler FCC, but the good probability that that will be reversed and that new set-top box rules are dead "all look to be better for us than the previous regime." But net neutrality rules likely won't go away, Rutledge said, saying Charter didn't have a business plan that involved paid prioritization regardless. Winfrey said the company hoped to be able to talk with the Trump administration about tax deductibility of interest in financing large network builds.

Some of the conditions imposed on Charter's 2016 takeovers of Time Warner Cable and Bright House Networks included optionality and the right of the acquirer to petition for changes, and the better regulatory climate raises the likelihood of the operator seeing reductions on those conditions, Rutledge said. He declined to say how the new regulatory regime might affect its view of transactions. Charter has been the subject of rumors of a combination with and possibly purchase by Verizon (see 1701260032).

Charter said its Spectrum pricing, packaging and brand has been rolled out to about 75 percent of its legacy TWC and BHN footprint, with the introduction expected to be fully done by the end of March. The company said it ended 2016 with 16.8 million residential video customers, down 1.3 percent on a pro forma basis, driven largely by churn in its legacy TWC footprint as it works through cheaper promotional offers that the company had offered in 2015 and early 2016. "There were 96,000 different promotional offers out there,” Rutledge said. While Charter goes through its TWC/BHN integration, growth should stay relatively stable, Wells Fargo analyst Marci Ryvicker emailed investors. Rutledge said that during Q4 the company restarted its all-digital rollout to parts of legacy TWC and BHN and the company's footprint should be completely digital in less than two years.

Q4 revenue was $10.3 billion, up 7.2 percent on a pro forma basis from a year earlier, Charter reported. It ended the year with 21.4 million residential internet customers, up 7.4 percent, and 10.3 million residential voice, up 3.7 percent.