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FCC Drops Overbuild Requirement for Charter Communications

Zacks Equity Research

Yesterday, leading cable MSO (multi-service operator) Charter Communications Inc. CHTR received some respite after telecom regulator Federal Communications Commission (FCC) voted to reverse a stringent condition imposed by its previous regime under Obama administration.

In May 2016, Charter Communications acquired Time Warner Cable and Bright House Networks LLC for a total consideration of around $60 billion. As a requirement to approve these mergers, the FCC, under the chairmanship of Tom Wheeler, had ordered Charter Communications to extend high-speed Internet access to two million customers within five years, with one million served by a broadband competitor.

Meanwhile, the American Cable Association (ACA), the industry body representing small-sized independent cable operators, has been lobbying the FCC to remove the overbuild requirements on Charter Communications. The ACA argued that the overbuild condition will have devastating effects on smaller broadband providers. The industry body was afraid that the imposed condition would enable the cable MSO to enter new areas and lure broadband customers away from its smaller peers across the country.

In a new order, the newly constructed FCC under the Republican regime with Ajit Pai as its chairman, ordered Charter Communications must provide service to two million additional subscribers in places without existing service. The company has welcomed the new ruling as this will enable it to utilize resources to build high-speed broadband in areas where it doesn’t have any footprint. 

After Time Warner Cable and Bright House Networks acquisitions, Charter Communications has become the second largest cable MSO after Comcast Corp. CMCSA. The company serves about 26 million residential and business customers in 41 states. Management already announced intentions to enter into the wireless market with the company’s existing MVNO (mobile virtual network operator) agreement with Verizon Communications Inc. VZ.

Recently, following a meeting at the White House, Charter Communications said it plans to invest $25 billion in broadband infrastructure and technology over the next four years. It has selected ARRIS International plc. ARRS, leading customer premises equipment (CPE) manufacturer for the cable TV industry, as its vendor partner for its next-generation WorldBox 2.0 set-top box.

Price Performance of Charter Communications

Year-to-date, the stock price of Charter Communications’ has gained 14.04% outshining the Zacks categorized Cable TV industry’s gain of 13.74%. Nevertheless, U.S. cable TV industry is facing a massive cord-cutting threat and Charter Communications is no exception to the trend. We believe that is the primary reason behind the stock currently carrying a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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