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Charter eyes further mobile gains following Q3 sub growth

With its mobile business cycling through its first full year, Charter Communications Inc. is now serving almost 800,000 lines and expects further subscriber growth in the months ahead.

During the third quarter, the cable operator reported 276,000 additional Spectrum Mobile connections, building on 208,000 additions in the second quarter. The company launched its 4G LTE Spectrum Mobile wireless service in September 2018. The service is connected to the operator's WiFi hotspots across the country.

Revenue from mobile reached $192.0 million over the three months ended Sept. 30, up from just $17.0 million in the year-earlier period.

The gains were attributed especially to the expansion of the Bring Your Own Device program to all of Charter's sales channels; the introduction of the product to small and medium-sized businesses; and an emphasis on converting the operator's wireline customer base to the wireless option.

Charter Chairman and CEO Tom Rutledge said on an Oct. 25 earnings call that the company expects Spectrum Mobile business to surge.

"We really just got all of our marketing and operating tools available across all the platforms that we operate in," Rutledge said. "As we look at the yield that we're taking out of each sales channel we have, and we look at things like Bring Your Own Device and its implementation and its effect on sales, we think that we'll continue to accelerate the growth rate."

Under the BYOD program, customers can activate some smartphones from Apple Inc. and Samsung Electronics Co. Ltd. at Spectrum Mobile retail outlets and via its website or customer service. Spectrum Mobile's unlimited plan retails for $45 per month for the first line, while consumers can also pay $14 per gig across all lines.

The service leverages the cable company's network of Wi-Fi hotspots and a mobile virtual network operator agreement with Verizon Communications Inc. Any mobile usage that occurs off the Wi-Fi network leads to payments to the telco.

Rutledge said the Spectrum Mobile store build-out and other activities have not been completed yet. "When we look at the kinds of yields we're getting in those channels, our expectation is that our mobile yield will continue to accelerate."

CFO Christopher Winfrey noted that the company lost 213,000 residential wireline voice customers in the quarter, owing to "lower selling following our transition to selling mobile in the bundle" and continued mobile substitution in the market overall.

Charter added 351,000 residential internet customers in the third quarter, compared with 266,000 additions in the prior-year period. At quarter's end, Charter counted 24.6 million residential internet customers, with 85% subscribing to tiers providing speed at 100 Mbps or more.

Video defections continued, as Charter lost 77,000 customers in the third quarter to finish with 15.7 million. The company shed 66,000 video subscribers in the third quarter of 2018.

Video revenue edged up 0.6% to $4.36 billion from the prior-year period in the third quarter, driven by rate adjustments and promotional roll-offs, partly offset by the decline in video customers during the last year, and lower pay-per-view and video-on-demand revenue.

Broadband business grew 10.1% year over year to $4.19 billion. With voice contribution off 6.8% to $477 million, the company's total residential revenue advanced 4.4% to $9.03 billion from $8.65 billion.

On the commercial side, revenue increased 4.1% to $1.62 billion year over year, as contributions from small and medium-sized businesses rose 5.7% to $974.0 million and enterprise was up 1.8% to $644.0 million.

Elsewhere, advertising sales declined 10.6% to $394.0 million, hampered by lower political revenues. Backing out that category, ad sales would have grown at a 5.8% clip from the year prior.

Total revenue rose 5.1% to $11.5 billion during the three months ended Sept. 30, from $10.9 billion in the third quarter of 2018.

Net income attributable to Charter shareholders totaled $387 million in the third quarter of 2019, or $1.74 per share, down from $493 million, or $2.11 per share, in the year-earlier period. The decline was partly shaped by a pension remeasurement gain, which benefited the third quarter of 2018, and higher interest expense. It was partly offset by higher Adjusted EBITDA and lower depreciation and amortization costs.

The S&P Global Market Intelligence consensus EPS estimate for the quarter was $1.69 on a normalized basis and $1.66 on a GAAP basis.