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Analyst Blog

On Sep 23, we issued an updated research report on cable multi service operator (MSO) Charter Communications Inc. (CHTR - Analyst Report) . The company announced plans to foray into the wireless service business next year, following the footsteps of rival Comcast Corporation (CMCSA - Analyst Report) .

Wireless Plans

Charter Communications will utilize the Mobile Virtual Network Operator (MVNO) agreement that Time Warner Cable had signed with Verizon Communications Inc. (VZ - Analyst Report) in 2012. Notably, Charter Communications acquired Time Warner Cable this year to form the second largest cable MSO in the U.S. after Comcast. The company plans to provide its wireless network services through the MVNO deal with Verizon. This process involves utilizing Verizon’s wireless network to provide mobile phone service in lieu of paying a lease. Additionally, Charter Communications intends to install Wi-Fi hotspots across cities to expand its network.

Ethernet Boom

Interestingly, the rapidly developing business services division has become a major growth driver for cable MSOs in the U.S. and Charter Communications has been targeting this space. Recently, it became the third largest player in the U.S. Ethernet market post its merger with Time Warner Cable and Brighthouse Networks. We believe cost synergies and takeover of fiber assets will help Charter Communications carve a formidable position for itself in the Ethernet space.

Cautionary Note

Online video streaming service providers like Netflix Inc. (NFLX - Analyst Report) and pose severe competitive threat to cable TV operators. Online video services provide extremely cheap source of TV content which is much in vogue, even amid volatile economic conditions. Moreover, the impending launch of AT&T Inc.’s over the top service – DIRECTV Now – will mount more pressure on Charter Communications.

Charter Communications currently carries 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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