Enlarge / A charter spectrum vehicle.
Charter Communications will spend nearly $ 2 billion less this year on capital improvements to its Spectrum cable network and services, even though TV and broadband prices have risen – and despite Ajit Pai's claims that the removal of net neutrality rules would boost capital investment.
"We currently estimate that mobile investment expenditures in 2019 will be approximately $ 7 billion, compared to $ 8.9 billion in 2018," wrote Charter today in a earnings statement. "Our expectation for lower capital expenditures in 2019 over 2018 is primarily driven by our expectation of lower end-customer equipment costs upon completion of our fully digital conversion [and] With the completion of the introduction of DOCSIS 3.1 technology across our entire footprint, the cost of scalable infrastructure is lower. "The cost of charter is also declining as Time Warner Cable and Bright House have largely completed the integration of Time Warner Cable following the acquisition of cable companies in 2016.
"2019 is the year in which we will significantly reduce capital intensity," Charter's CEO Tom Rutledge said today in a earnings statement.
Charter said its cable investment in relation to cable sales had already declined from 20.9 percent in 2017 to 20.4 percent in 2018. This percentage should continue to fall this year as Charter lowers the cost of cable capital and increases revenue.
Charter increased prices in November
Despite the expected cost-cutting increase, Charter raised prices in November in all 41 states. The price increases affect both broadband and cable TV service and could increase to $ 91 per year for individual customers who buy both.
Charter said retail cable revenue in the fourth quarter was $ 111.78 a month, an increase of 0.9 percent over the previous year. Charter said that "promotion rate up-ups and modest rate adjustments" – in other words, price increases – have offset the fact that many customers only buy Internet services and thus do not pay for TV.
Charter told Ars in October that its new price increase "reflects the dramatically faster speeds and investments we've made in reliability and quality."
However, the speed increases in 2018 were achieved without a significant increase in investment. Charter's total investment for 2018 was $ 9.1 billion, including $ 242 million for its new mobile service. In 2017, it was $ 8.7 billion. Charter is a reseller of Verizon network capacity and therefore does not build its own mobile network. However, there was money for back-office systems and retail store upgrades to launch the mobile service in June 2018.
Pai predicted an increase in investment
Charter's plan to cut capital spending in 2019 contradicts Federal Communications Commission Chairman Ajit Pai's claim that lifting the net neutrality rules would cause ISPs to increase broadband investment. As advocates of net neutrality often said (and how ISPs have conceded to investors), broadband investment has not been influenced by the rules of the Obama era lifted by Pai.
Investments are rising and falling due to business needs and cycles for the modernization of technology, such as: Eg the introduction of DOCSIS 3.1 mentioned by Charter. As we reported last week, Comcast's cable division spent $ 7.95 billion on investments in calendar year 2017, but declined to $ 7.72 billion in the 12 months ended December 31, 2018.
Despite the increase in speed of the charter on their network, the New York government officials say the charter did not meet the broadband upgrade requirements it had agreed to in order to obtain state permission to buy Time Warner Cable. US Rep. Anthony Brindisi (D-N.Y.) asked the FCC this week to hold "Charter / Spectrum accountable."
"Since the merger of Charter and Time Warner Cable, hundreds of my voters have contacted me to share stories about exorbitant rate hikes," Brindisi said in a letter to Pai. "Some people, who paid just over $ 100 a month for cable and Internet services, paid about $ 200 for the same service just two years later, but these rate increases are not for working families and seniors living on fixed incomes acceptable."
Charter's annual revenue increased from $ 41.6 billion in 2017 to $ 43.6 billion in 2018. Net income declined from $ 9.9 billion to $ 1.2 billion. However, this decrease was primarily due to a GAAP tax benefit, which was due to a reduction in deferred tax liability in the 2017 federal tax reform. "
Charter is the only high-speed broadband broadband solution for 38 million Americans. This makes it difficult for Internet customers to switch to price increases, as a recent study revealed. However, some cable TV customers are missing out on online streaming options. Charter's total video client base decreased from 16.4 million at the end of 2017 to 16.1 million at the end of 2018, while its broadband customer base grew from 22.5 million to 23.6 million in the same 12-month period.
Disclosure: The Advance / Newhouse partnership, which owns 13 percent of the charter, is part of Advance Publications. Advance Publications owns Condé Nast, which owns Ars Technica.