Charter raises expenses forecast as it expands into rural America

(Reuters) -Charter Communications raised its annual expenses forecast on Friday and missed estimates for quarterly broadband customer additions, as it grappled with network expansion costs and tough competition in a saturated market.

Shares of the company fell nearly 5% in early trading.

Charter has been dealing with intense competition for broadband and wireless mobile customers, while its traditional television-focused business has suffered due to cord-cutting.

That has forced the company to turn to rural areas in search of subscriber and earnings growth – a move analysts say will drive up costs before paying off in the long term.

Charter now expects annual expenses, excluding line extensions, to be about $7.2 billion, compared with its prior forecast of between $6.5 billion and $6.8 billion.

Free cash flow fell 27.2% to $1.1 billion in the quarter as a result of network expansion costs. Analysts had estimated $1.19 billion, according to Visible Alpha.

Charter added 63,000 internet customers in the quarter, lower than a 77,510 increase estimated by Visible Alpha.

About 15,000 internet disconnections were driven by the temporary loss of ESPN, finance chief Jessica Fischer said.

The company was embroiled in a dispute with Walt Disney earlier this year, with ESPN, FX and other channels from the House of Mickey Mouse disappearing from its service on Aug. 31 following a dispute over channel fees and how to package them.

The companies finally reached an agreement just hours before the start of NFL “Monday Night Football” on Sept. 11.

Video revenue fell 8.6% as Charter lost 327,000 video subscribers, of which roughly 100,000 disconnects were caused by the Disney dispute, Fischer said.

Rival Comcast on Thursday forecast higher broadband losses after the number of customers unexpectedly declined in the third quarter.

Charter’s revenue ticked up 0.2% to $13.58 billion, missing estimates of $13.63 billion, according to LSEG data. But adjusted profit of $8.25 per share beat estimates of $7.94.

(Reporting by Samrhitha Arunasalam in Bengaluru; Editing by Maju Samuel)