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Charter Revenue Rises on Strength in Internet, Commercial Segment -- Update

08/04/2015 | 12:53pm US/Eastern
By Angela Chen and Shalini Ramachandran 

Charter Communications Inc. on Tuesday posted second-quarter sales growth of 7.6%, slightly higher than analysts had expected, thanks to increases in Internet and commercial revenue.

In May, Charter agreed to merge with Time Warner Cable in a $55 billion cash-and-stock deal, giving cable mogul John Malone the prize he has been chasing for two years. The acquisition by Charter, which is backed by Mr. Malone's Liberty Broadband Corp., would vault the cable operator into the ranks of the biggest U.S. broadband and pay-television companies.

Charter could eventually use its larger size to push back on big TV channel owners, like Time Warner Inc.'s HBO, as they experiment with new Web products outside of the TV bundle.

On a conference call with analysts, Charter Chief Executive Tom Rutledge said that when traditional TV networks go "over the top," they "lower their value to us" and "they may or may not be carried in the future as a result of that." Mr. Rutledge said that trend could actually benefit cable operators' costs, since they are likely to pay less for such channels. "Like all things, no trend goes unchecked forever," he said.

Mr. Rutledge's comments came as Charter is trying to win regulatory approval for its deal to buy Time Warner Cable and smaller operator Bright House Networks LLC. The deal was struck only a month after Time Warner Cable went back on the block after Comcast terminated the companies' planned $45.2 billion merger in the face of serious pushback from Washington regulators.

Nevertheless, analysts remain largely bullish on prospects for the Charter-TWC deal winning regulatory approval, especially after Charter scored a recent endorsement from Netflix Inc., one of the loudest opponents of the ill-fated Comcast merger. MoffettNathanson Research on Tuesday gave the deal an 80% chance of approval and said those odds might actually be too low.

Overall, Charter posted a wider net loss of $122 million, or $1.09 a share, compared with a year-earlier loss of $45 million, or 42 cents a share. Revenue increased to $2.43 billion from $2.26 billion. Analysts had expected revenue of $2.42 billion.

Charter's stock rose 1.9% to $190.84 as of midday Tuesday. The shares had increased about 12% this year through Monday's close.

Charter lost 33,000 residential video customers in the quarter, compared with a loss of 29,000 in the year-ago period. Video revenues totaled $1.15 billion, up 3.4% from the year before.

Internet revenues grew 16.5% to $743 million. The company added 70,000 Internet customers, stronger than the 49,000 added a year ago.

Commercial revenues rose 14% to $278 million, driven by higher sales to small and medium-size business customers and to carrier customers.

However, voice revenues fell 7.3% to $135 million, due to value-based pricing and revenue allocation from higher bundling.

The quarter includes a $128 million loss on debt extinguishment, a $26 million charge related to the Comcast transaction and $19 million of other charges. The increase in net loss was mostly due to these extra charges.

Charter expects capital expenditures of $1.7 billion in 2015.

Write to Angela Chen at angela.chen@wsj.com

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