Charter opens up on mobile spending and discussions with Sprint

Charter Spectrum Mobile phones (Charter)
Charter offers a handful of Android phones for its Spectrum Mobile MVNO. (Charter)

Cable giant Charter reported its second-quarter results and offered a clear peek into the millions of dollars it is spending to enter the mobile industry. Specifically, the company said it spent $116 million during the quarter on mobile, including $33 million in operating expenses and $53 million in capital expenses.

The company’s CEO also said that Charter held MVNO discussions with Sprint, but not T-Mobile, before launching its Spectrum Mobile MVNO service with Verizon.

“We now offer mobile service to both new and existing Spectrum customers at highly attractive prices,” CEO Tom Rutledge said during the company’s second-quarter earnings conference call, referencing Charter’s launch of its Spectrum Mobile MVNO at the very tail end of the second quarter. “The launch has gone very well and we’re scaling the operation, which is intentionally generating relatively small order volume at the moment as we ramp up features and marketing throughout the summer. In the next few months, we’ll expand our mobile capabilities, offer a wider array of mobile devices and give customer the ability to transfer their existing handsets. We’ll also expand our mobile sales channel, including offering our new service in a greater number of retail locations.”

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Rutledge also said that Charter carefully weighed its Spectrum Mobile pricing strategy, and that the company’s pricing is part of its efforts to integrate mobile into its overall offering. “Our intention is to use mobility as a feature of our overall customer relationship creation process,” he said.

Interestingly, Rutledge also said that Charter didn’t make any attempts to purchase wireless assets. “That isn’t to say that we didn’t have significant discussions with Sprint about an MVNO relationship,” Rutledge said. “We had virtually no discussions with T-Mobile, as I recall.”

Added Rutledge: “We have advantages in our network infrastructure that will allow us to build an inside-out strategy in wireless that we think doesn’t require any kind of immediate mobile relationship other than an MVNO. It doesn’t mean that some time in the future mobile assets might be priced right and that natural convergence would occur. But there’s nothing in our near-term horizon that dictates that we go that path.”

In the company’s quarterly report, Charter outlined its exact spending on its mobile efforts. The company said its capex in mobile totaled $70 million during the first six months of the year, and that the company spent $53 million of that in the second quarter. In terms of operating expenses, Charter said it spent $41 million on mobile during the first six months of the year, and that the company spent $33 million of that during the second quarter.

“Charter burned $116 million in the June quarter due to startup costs from mobile,” wrote BTIG analyst Walter Piecyk in a post. “They cited, $33 million of opex and $53 million of capex. The remaining $30 million is presumably the build in phone inventory, which implies ~50,000 smartphones likely now in inventory. In comparison, we estimate Comcast’s cash burn from mobile was $254 million in Q2. However, Charter provided more detail than Comcast, which likely indicates that Comcast’s cumulative cash burn is even higher than our $1.2 billion estimate.”

Overall, Charter said it lost 73,000 video subscribers, which is both a quarterly and annual improvement. Click here for that story from FierceVideo.

FierceVideo Editor Ben Munson contributed to this report.

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