The big challenge Charter faces in making a bid for the much larger Time Warner Cable is that it might force Tom Rutledge to take on too much debt. But he seemed undaunted in comments to investors today at the UBS Global Media and Communications Conference. He currently wants to keep Charter’s debt at less than 4.5 times its cash flow, “but if there was an opportunity for us we would go higher.” He adds that today’s low interest rates make this “the best” time to borrow “that I’ve ever seen.” While he didn’t discuss any specifics regarding a possible deal, conceptually he says a company like his could make a transaction pay off by operating the company well “to unleash the full power of these networks” — for example by getting rid of analog transmissions and going all digital. That would help to increase subscriptions and “there is a big difference in value between growing subs and losing them.”(TWC lost 306,000 subs in Q3.) He also says that cable companies like his have to address the fact that they negotiate deals with “several large programming companies that have a de facto monopoly product” while he has to compete with satellite and telco distributors. “The good news is that our competitors have the same problem. The bad news is that people are getting priced out of the video market.” And “the trend lines don’t seem to be changing.” Although the FCC has some authority to regulate retransmission consent negotiations with broadcasters, it “has not done it.”
Rutledge is more upbeat about technology and broadband. He foresees a time when he might be able to cut spending on set top boxes: “An iPad is a TV and a set top box in one device,” he says. He’s open to the idea of including a video service such as Netflix or Hulu on a broadband-connected set top box. “It will be available if the customer chooses to put it there….There’s no technical or business reason why you would not want to do that.” Indeed, it could help boost his share of the broadband market — a top priority. As a result, “I’m not particularly interested in raising prices….I want [customers] to use bandwidth.” Nor is he interested in usage based pricing just yet. “Our biggest opportunity is to get more customers and getting the customers we already have to use the product more effectively…If a product isn’t used, then there’s no differentiation” with competitors that have slower broadband systems.
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