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Charter Communications: Prospects Bright, Competition Rife

Zacks

On Nov 23, we issued an updated research report on Charter Communications Inc. CHTR – the second largest cable MSO (multi service operator) in the U.S. The company currently has a Zacks Rank #5 (Strong Sell).

(You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.)

Risks

Charter Communications is facing stiff competition from online video streaming service providers such as Netflix Inc. NFLX, Hulu.com and YouTube as they provide a reasonably-priced source of TV programming. Over the last ten years, the over-the-top business model has been gaining momentum, especially amid volatile economic conditions. Notably, in the third quarter of 2016, Charter Communications lost 152,000 video customers in the residential segment. Additionally, the company faces intense competition from telecom operators and other cable MSOs in the high-growth Ethernet market.


Moreover, the multi-channel video market in the U.S. is almost saturated. Furthermore, gaining customers from competitors is a difficult task as most pay-TV operators offer innovative packages.

Charter Communications also has a highly leveraged balance sheet. At the end of third-quarter 2016, Charter Communications had $1,165 million of cash and cash equivalents and $61,996 million in outstanding debt.

Growth Prospects

However, the acquisition of two U.S. cable operators – Time Warner Cable and Bright House Networks – will strengthen the company’s foothold in hybrid fiber coax (HFC) and fiber networks. This should also help Charter Communications better address small and medium-sized businesses (SMB) along with large enterprises. The company is also adopting various initiatives to improve its Spectrum products and cloud-based user interfaces. Also, accelerated residential and commercial customer growth, investments in business services division and rollout of several initiatives bode well.

The company also announced plans to foray into the wireless service business, following the footsteps of rival cable TV behemoth Comcast Corporation CMCSA. Toward this end, Charter Communications will utilize the Mobile Virtual Network Operator (MVNO) agreement that Time Warner Cable had signed with Verizon Communications in 2012. Additionally, Charter Communications intends to install several Wi-Fi hotspots across cities to expand its network.

Recent Events

In Oct 2016, Charter Communications selected ARRIS International plc. ARRS, a major customer premise equipment (CPE) manufacturer for the cable TV industry, as its vendor partner for the cable MSO’s next-generation WorldBox 2.0 set-top box. Initiated in early 2015, WorldBox 2.0 is Charter Communications’ innovative hybrid IP/QAM video platform which has been built to offer traditional and cloud-based user interfaces, content and new video features.

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