In an example of forward thinking unusual for the

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In an example of forward thinking unusual for the staid cable industry, Charter has activated its mobile virtual network operator (MVNO) agreement with Verizon. The agreement will enable Charter to launch its own wireless service in mid-2018. Comcast launched its own wireless MVNO in May 2017. Charter has also begun the experimental testing of a 5G (fixed wireless) network. We think the company is determined not to be left behind by the development of new wireless technology by carriers like Verizon and AT&T, which could invade its markets. TWC/Bright House transactions have certainly added scale to Charter as it expanded its potential footprint from less than 13 million households to almost 50 million. The added scale should also drive down programming costs by enabling the company to obtain greater volume discounts and exercise greater leverage in contract negotiations with program suppliers. FINANCIAL STRENGTH & DIVIDEND We rate Charter’s financial strength as Medium-Low, the second-lowest point on our five-point scale. At the end of 1Q18, the company had $71 billion in debt, of which $3.3 billion is current. Debt/total capital was 60% at the end of 1Q18, up from 55% at the end of 2016. Trailing 12-month free cash flow was $2.9 billion, down 36% year over year. Charter has ramped is capital expenditures related to its Docsis 3.1 standard high speed internet rollout and prelaunch expenses related to its new wireless service in conjunction with Verizon. Charter’s credit ratings are in the mid-B’s, one to two notches below investment grade, and outlooks are stable. Charter does not pay a dividend. The company repurchased about 2 million shares for $683 million in 1Q18. MANAGEMENT & RISKS The transformative nature of the Time Warner Cable/Bright House mergers carries significant merger and integration risks for both back-end (IT, accounting) and front-end (customer provisioning and service) functions; challenges in these areas could lead to business disruptions, unhappy customers, and subscriber losses. Charter also has large debt obligations following the TWC/BH mergers, which could limit investment in other business opportunities and potential acquisitions. Charter faces increasingly intense competition in the cable industry, with satellite broadcasters DirecTV and Dish being the greatest current threats. Resurgent telecoms AT&T and Verizon are also ramping up comparable service offerings, including video, high-speed internet and digital phone, and are combining them with wireless services that further intensify competition in the cable market. The telecoms are competing vigorously by offering low-priced promotions of their comparable broadband and video services. AT&T’s DirecTV satellite broadcast service is available nationwide.
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