Investors have apparently extrapolated that Charter's (CHTR, Financial) recent string of lackluster broadband customer growth portends zero (or negative) growth into perpetuity. Skeptics point to early customer wins for wireless broadband offerings and fiber-network operators' plans to aggressively expand their footprints as evidence that Charter's (and cable operators', generally) ability to add subscribers is permanently impaired. We disagree. Wireless broadband will likely continue to win customers in areas where wired infrastructure is unavailable or by expanding the market to new customer segments (e.g., construction trailers, food trucks, etc.). That said, the carriers face an important trade-off, as fixed wireless is a lower-return usage of scarce network capacity. As fixed and mobile data usage inexorably grow, we believe carriers will prioritize their traditional mobility business at the expense of expanding their fixed wireless base. With respect to growing competition from fiber-to-the-home operators, Charter's footprint is already roughly 40% overbuilt and has been competing successfully for over a decade. As fiber companies look to enact previously announced expansion plans, inflationary pressures for labor, equipment, and funding costs may reduce their ultimate appetites.
Of course, Charter isn't simply sitting back playing defense. We believe the company can resuscitate customer growth through expanding its own network into underserved areas. High-speed networks with little (or no) competition tend to generate strong demand as they come online, bringing new subscribers to Charter's rolls. Charter is also rapidly growing its own mobile phone business across its entire network with some of the lowest-priced plans in the industry, taking market share by delivering significant savings for customers while also growing their cash flow per-customer relationship at the same time. All that to say, at these levels we believe the stock is mispriced. We can't predict when other investors may change their minds, but in the interim, the company continues to generate very healthy cash flow, and management's continued share repurchases compound value on our behalf.
From Wallace Weitz (Trades, Portfolio)'s Hickory Fund third-quarter 2022 letter.
