Charter speeds up next-gen network deployment plans

Charter Communications Inc. is expediting the rollout of its next-generation network technology as it prepares for increasing broadband demands.

Charter now expects the rollout of DOCSIS 4.0 to be completed in 2025, five years ahead of its previous projections. At full deployment, DOCSIS 4.0 technology supports up to 10 gigabit-per-second speeds downstream capacity and up to 6 Gbps upstream capacity over existing hybrid fiber coaxial networks.

Charter will pursue a multi-tier approach to its rollout. In the first step, covering about 15% of Charter's footprint, the company will offer multi-gig downstream speeds. By the end of step two, Charter will offer 5 Gbps speeds to 50% of its footprint by 2024 in tandem with the rollout of new modems. Step three will begin in late 2024 with top-tier speeds of 10 Gbps. Charter will spend about $5.5 billion on the rollout to cover its current 55 million passings at a target cost of $100 per passing.

"We are targeting that over 85% of our footprint will be capable of an up to 5 gigabits per second service by end of year 2025. And at that time, a 10 gigabit per second service will be available in a large portion of our footprint," said Charter President of Product and Technology Richard DiGeronimo during a Dec. 13 investor meeting. "We intend to be essentially complete with this full footprint deployment by the end of 2025."

Charter CEO Chris Winfrey called the target "aggressive" but not unprecedented, referencing the DOCSIS 3.1 rollout that began in 2017.

"We think it's worth it, and we think everyone else would agree as well," Winfrey said.

New Street Research analyst Jonathan Chaplin said the build was previously expected to take eight years and the acceleration to a three-year rollout would increase capital expenditures over the next three years by $1.1 billion on average.

"The spend of $100-per-home-passed is roughly what we anticipated; the spend is just much more concentrated," Chaplin wrote in a research note.

Charter currently expects full-year 2023 capital expenditures, excluding line extensions capital expenditures, to be between $6.5 billion and $6.8 billion. In aggregate, including line extensions, the company is guiding toward more than $10 billion in capital expenditures.

By comparison, Charter recorded capital expenditures from cash flow of $7.56 billion in 2021 and $7.49 billion in 2020.

Charter currently expects capital expenditures, excluding line extensions capital expenditures, to peak in either 2024 or 2025 due to network evolution and to decline thereafter.

Chaplin said Charter is doing the right thing for long-term value.

"Capex will be elevated and free cash flow and share repurchase will be depressed until 2026," Chaplin said. "The pay-off from the investment will take time to materialize. This will make Charter a tough investment for those looking for near-term catalysts. Those with a longer-term perspective, particularly those that have gotten to know the management team, will appreciate that they are building long-term value."

The investment comes as consumers continually ramp up their broadband usage. The latest data from OpenVault, which provides data-driven insights for the broadband industry, showed that the average household in the third quarter used 495.5 GB of data per month, up 13.9% from 434.9 GB in the year-ago period.

Chaplin said Charter seems to be having a "decent" fourth quarter, which should lead to positive adds and an improvement from the third quarter. In particular, the analyst expects growth from Spectrum One, a $50-a-month broadband, mobile and advanced Wi-Fi bundle.