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Cable getting 'a little more aggressive' on wireless

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Cable getting 'a little more aggressive' on wireless

The coronavirus pandemic drove record cable broadband subscriptions during the third quarter, but to a lesser degree, it also drove strong cable wireless subscriptions.

All told, the top three publicly traded U.S. cable companies — Comcast Corp., Charter Communications Inc. and Altice USA Inc. — added 568,000 wireless lines during the third quarter, up from 495,000 in the year-ago period. The results propelled some of these cable wireless offerings to break-even status earlier than expected. Analysts noted that the subscriber growth looks particularly strong against phone subscriber net adds at two of the major wireless players.

Driving the cable companies' overall gain was Charter, which added 363,000 mobile lines in the third quarter, compared to 276,000 during the third quarter of 2019.

Lightshed Management wireless analyst Walt Piecyk compared Charter's wireless additions to postpaid phone net adds at AT&T Inc. and Verizon Communications Inc. While AT&T came in ahead of Charter with 452,000 net additions, Verizon ranked below the cable company with 283,000 net additions in the third quarter.

MoffettNathanson pay TV analyst Craig Moffett said Charter's wireless business "soundly beat expectations." He pegged the consensus estimate at 304,000 net additions.

Charter's wireless service, which launched in 2018, leverages the cable company's network of Wi-Fi hotspots and a mobile virtual network operator agreement with Verizon. As such, any mobile usage that occurs off the Wi-Fi network leads to payments to Verizon.

Charter CFO Christopher Winfrey said during an earnings call that the company's third-quarter gains propelled the company over the 2-million-subscriber mark in wireless. As such, Winfrey said mobile service revenue now exceeds all regular operating costs, excluding acquisition and growth-related mobile costs. For the third quarter, mobile EBITDA was still negative because of customer growth cost.

But looking ahead, Jeffrey Wlodarczak, Pivotal Research Group's principal and senior analyst of entertainment and interactive subscription services, sees "waning wireless losses beginning in '21," which he believes will contribute to a double-digit EBITDA compound annual growth rate through 2025.

Charter further expects to lower its wireless costs by utilizing the mid-band spectrum it recently purchased in the 3.55 GHz-3.65 GHz band, known as the Citizens Broadband Radio Services, or CBRS, band. Charter spent $464.3 million on the spectrum, making it the third-largest bidder in the auction behind Verizon and new wireless entrant DISH Network Corporation.

"When we think about spectrum and the spectrum we recently got with CBRS, it's can you augment your Wi-Fi spectrum with the CBRS spectrum to move traffic onto your own network that you might be paying someone else to carry. And the answer is yes. And you can do that in an efficient way ... where you put the radio in such a way that you can actually reduce your overall cost," Charter CEO Tom Rutledge said on the call.

"We look at spectrum as a tool to extend the connectivity, and we plan to use it in ways where it takes our cost structure down," he added.

Comcast, which added 187,000 mobile lines during the third quarter, was also a big spender in the CBRS auction. The cable giant, which also leverages an MVNO agreement with Verizon, was the fourth-largest auction bidder with total winning amounts at $458.7 million.

Asked about the spectrum during the company's earnings conference call, Dave Watson, president and CEO of Comcast's cable business, said the company has the opportunity to look at dense pockets of usage and build out wireless service in those specific locations to achieve "a more efficient long-term delivery system." But he noted that there is not a rush to do that.

"Overall, we think that this is an important opportunity for us long term," he said. Watson added that going forward, "We want to be a little bit more aggressive, and that's on the road map."

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