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The Ratings Game: Charter’s internet growth struggles, but analyst sees an ‘Act III’ on the horizon

Charter Communications Inc. posted a net loss of internet subscribers for its latest quarter, offering one more sign of the tough conditions cable companies face when it comes to expanding their broadband customer bases after a stretch of pandemic-fueled growth.

The results from Charter
CHTR,
-0.80%

came a morning after peer Comcast Corp.
CMCSA,
-4.80%

reported no net new broadband subscribers.

Charter’s results were more complicated than Comcast’s as the company posted a headline loss of 21,000 internet subscribers across its residential and small- and medium-sized business units, but executives said they would have seen growth of 38,000 subscribers if not for disconnects related to a transition in government programming.

The Emergency Broadband Benefit, which aimed to help people afford internet access during the pandemic, is being moved over to the Affordable Connectivity Program, which comes with additional rules. Namely, there is “the requirement that customers use their service in each 30-day period, which covers the vast majority of the impacted subscribers,” Chief Financial Officer Jessica Fischer said on Charter’s earnings call.

Similar to what was seen at Comcast a day before, Charter executives admitted that they were seeing some competition from fixed-wireless providers but didn’t view that as the key factor steering the broadband-subscriber slowdown. Rather, both companies pointed to low churn figures, which the management teams saw as indicative of low household move rates.

“Housing occupancy and new construction is lower because of supply-chain issues, so that, I think, will get fixed in time, but it’s an issue affecting growth at the moment,” Chief Executive Tom Rutledge said on Charter’s call. “And so we’re pretty optimistic, relatively speaking, that as the post-pandemic market activity levels return and normalize, that our share of broadband growth will rise.”

Charter’s stock took the brunt of its pain Thursday, in the wake of Comcast’s report, falling 8.5% in that session before slipping another 1.3% as of Friday afternoon trading. By contrast, Comcast’s stock sank 9.1% Thursday and was down a further 5.9% Friday after several analysts downgraded the name.

“Cable management teams do continue to concede to ramping competitive pressures, as cable is in an increasingly difficult scenario as, on the margin, competitive pressures are ramping, meanwhile the low visibility environment offers no floor into broadband adds,” wrote Cowen & Co.’s Gregory Williams. “That said, management continues to lean into the mobile business, suggesting a long runway and positive Ebitda,” excluding subscriber-acquisition costs.

MoffettNathanson’s Craig Moffett saw a continued bright spot in Charter’s wireless results. The company added 344,000 net mobile lines in the quarter, and Moffett noted that wireless makes up about 5.5% of Charter’s revenue all while growing at a roughly 40% annual clip.

“As with Comcast’s report yesterday, we have no illusions as to how the market will judge today’s results; the broadband subscriber metrics will, for a time, be all that matters,” he wrote. “But the seeds of Charter’s Act III – wireless – have been planted.”

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