Q4 2019 Earnings Call
[music].
The press Star one on your telephone keypad.
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Now I'd like to turn the conference over to stuff and manager.
Good morning, and welcome to charters fourth quarter 2019, Investor call. The presentation that accompanies this call can be found on our website IR dot charter dot com under the financial information section.
Before we proceed I would like to remind you that there are number of risk factors and other cautionary statements contained in our FCC filings, including our most recent 10-K filed this morning.
We will not review those risk factors and other cautionary statements on this call. However, we encourage you to read them carefully.
Various remarks, we make on this call concerning expectations predictions plans and prospects constitute forward looking statements. These forward looking statements are subject to risks and uncertainties that may cause actual results to differ from historical or anticipated results.
Any forward looking statements reflect management's current view only and charter undertakes no obligation to revise or update such statements or to make additional forward looking statements in the future <unk>.
During the course of today's call, we'll be referring to non-GAAP measures as defined and reconciled in our earnings materials.
These non-GAAP measures as defined by charter may not be comparable to measures with similar titles used by other companies. Please also note that all growth rates noted on this call and in the presentation are calculated on a year over year basis, unless otherwise specified.
Joining me on today's call, our Tom Rutledge, our chairman and CEO and Chris when free our CFO with that let's turn the call over to Tom.
Thank you Stephanie.
Our operating strategy continues to deliver strong results.
I'm focused on driving customer growth by delivering superior services and value to our customers.
Proving the quality of our operations by reducing unnecessary service transactions and truck rolls for customer delivering sustainable free cash flow growth by driving EBITDA growth, while reducing capital intensity and finally positioning our company for long term customer relationship growth with current and new products by continuing to evolve.
Fully converged network to deliver high speed low latency seamless connectivity services inside or outside customers homes sedentary environments run the move.
2019, we created over 1.1 billion new customer relationships.
Actually more than 2018.
Added over 1.4 million, new Internet customers also more than 22.
We grew our full year.
Cable adjusted EBITDA by 6.6%.
Political advertising, there and combined with our lower cable capital expenditures are 2019 cable free cash flow grew by over 100% year over year.
We expect that art cable EBITDA growth combined with our declining capital intensity.
Disciplined capital deployment strategy will drive continued strong free cash flow growth.
Our mobile business is a strategic extension of our core conductivity capabilities today, and the future and it continues to grow.
I have well over 1 million mobile lines and service with over 900000 or those added 2019 at an accelerating pace.
2019, we saw substantial reduction in service transactions per customer relationships.
And those improvements were reflected in lower per relationship repair called.
Troubled called truck Rolls and doesn't calls we also performed fewer physical installation truck rolls given growing levels, so salt installation activity.
Looking forward to 2020, well position to continue to would do service activity per customer given a higher level of customers in spectrum pricing and packaging.
So each one of our insourcing program.
You singly experienced Insource call center in field operation Workforces, the overall, improving quality reliability and maintenance of our network greater levels of online service activity.
Self service activity and growing levels self installation activity as I mentioned, which in the fourth quarter exceeded 50% of sales.
So when 2020 at lower levels of overall satisfied.
For all service activity customer relationship.
Tenure improvements in customer satisfaction.
Sure.
Actually cost to service customers customer relationship.
Our in home connectivity products that also continues to improve.
85% of our residential internet customers now exceeding minimum internet speeds of 100, megabits or more nearly half receiving minimum Spi 200 Bucks.
We continue to offer Florida market, that's our ultra product.
Speech here across your entire footprint.
We made our net network capable of providing gigabit service everywhere, we operate using DOCSIS 3.1 technology over the course 13 months for $450 million capital.
Through our 10 GE plan, we also have a cost efficient pathway to offer multi gigabit speeds and lower latency to consumers and businesses continue to attach more devices to our network is more and more data on a daily basis not demand in greater net worth responsiveness and response and reliability.
During the quarter. We also continue to deploy our advanced home white by capabilities to new markets beyond Austin, Texas, including Dallas, San Antonio portions of Southern California.
Our dance wife, I capability provides enhanced security privacy and have based control over I, all IP devices in our consumers' homes, while simultaneously delivering superior customer experience through better in home Wi Fi coverage and match, what a managed Wi Fi solutions from dynamic they haven't switching and channel locked in.
Position within the bank.
So far deployment has gone well and we plan to roll off this capability throughout our entire footprint.
Our spectrum mobile business continues to grow quickly and we added over 280000 lines in the fourth quarter more than we added in the third quarter. While it's still early we believe that our results. So far indicate our mobile product drives core connectivity customer satisfaction and will generate standalone Crawford.
Profitability at scale. We also continue the task dual Sim technology, using CBR, a spectrum by small cells mounted on our own high capacity to weigh network. Our tests continue to go very well, we continue to add features and functionality to our spectrum mobile mobile product and in the first quarter.
Sure we plan to offer Fiveg mobile service I will turn the call over to Chris. Thanks, Tom before covering Oversold supports reminder, that we closed the sale of now the site managed cloud services business within spectrum enterprise in September .
We've not prepared pro forma for natural serve reported results include now the site in fourth quarter of 2018, but not in fourth quarter 2019 for the next few quarters I will discuss enterprise revenue growth, including and excluding that was like for comparability on an annual basis novosad generated roughly $150 million in revenue and its impact on our EBITDA.
On Capex was not material.
Turning to our results on slide five over the last 12 months, we grew total residential and SMB customer relationships by over 1.1 million, 4% by 268000 in the fourth quarter.
Including residential in SMB, we grew our internet customers by 339000 in the quarter by 1.4 million were 5.6% over last 12 month video declined by 120000 in the quarter wireline voice declined by 128000, and we added 288000 higher ARPU local watch.
Do you ended the fourth quarter, 85% of our residential customers weren't spectrum pricing and packaging.
Residential customer relationship growth accelerated to 3.8% year over year.
So we looked at 2020, our goal is to accelerate or for your customer growth rate as we deliver highly competitive products, which better service and trucking connection and reducing churn.
In residential Internet, we added a total of 313000 customers in the quarter, resulting in residential internet customer growth of 5.4% year over year, driven by continuing churn improvement.
In residential video, we lost 105000 customers in the quarter, primarily driven by lower video gross additions your for year end in wireline voice, we lost 152000 residential customers in the quarter driven by lower sell in following our transition to selling local and the bundle and continued fixed mobile substitution in the market generally.
Turning to mobile we added 288000 total mobile launch in the quarter driven by the value of her mobile product offers growing brand and product awareness and increased sales effectiveness.
As of December 31st we had nearly 1.1 million lives with a healthy mix, both unlimited and by the kick lines.
Spectrum mobile continues to scale with less EBITDA loss provide even at an accelerating net addition rate that does not include any benefits to our traditional cable connectivity business.
Over the last year, we grew total residential customers by just over 1 million or 3.8%.
Residential revenue for residential customer relationship grew by 1.8% year over year, given a lower rate of SPP migration and promotional campaign roll off in rate adjustments.
Those are approved benefits were partly offset by a higher mix of non video customers higher mix of streaming and lighter video packages within our video base and $29 million of lower pay per view revenue year over year in the quarter.
Cable our true does not reflect any mobile revenue for Q4, especially benefited from the timing of the rate adjustment this year.
Slide six shows or cable customer growth combined with that elevated Q4 ARPU growth resulted in year over year residential revenue for the 5.7%.
Turning to commercial SMB revenue grew by 6.3% faster than last quarter as the revenue effect from the repricing of our SMB products and legacy TWC and bright house continues to slow.
I think the customer relationships grew by 6.8% year over year.
Enterprise revenue declined by 45% year over year, driven by the sales now the site and some onetime cell tower backhaul fees that we mentioned as a benefit in the fourth quarter of 2018, excluding knapsack from the fourth quarter of 2018 enterprise revenue grew by 1.3% in the fourth quarter 2019, and excluding both cell tower back.
Paul and have a site enterprise grew by eight half percent.
I expect that retail portion of enterprise to continue to grow nicely that the wholesale piece, including cell tower backhaul continue to be challenging.
[laughter] fourth quarter advertising revenue declined by 23% due to less political revenue in 2019 nonpolitical advertising through.
Our revenue grew by 4.6% year over year, primarily due to our advanced advertising capabilities and recently deployed products that efficiently. So highly viewed long tailed inventory using our own anonymized much more detailed viewing data.
As we look to the full year 2020, we expect continued AD growth driven by our advanced advertising business into healthy Europe political revenue.
Other revenue declined by 6.6% year over year, driven by lower processing fees and lower home shopping revenues related to video subscriber declines, partly offset by higher levels of video CP he sold to customers.
Mobile revenue totaled $236 million with $138 million without being device revenue.
In total consolidated fourth quarter revenue was up 4.7% year over year.
Cable revenue growth 20, mobile was 3.4% were 5.2% when excluding advertising approach years and now the site in 2018.
Moving to operating expenses on slide seven in the fourth quarter total operating expenses grew by $165 million or 2.3% year over year cable operating expenses, excluding mobile were essentially flat or up 0.6% when excluding never site. That's despite strong relationship and revenue growth.
Programming increased the 0.6% year over year due to higher rates that was offset by a video customer decline of 2.8% year over year, a higher mix of streaming and lighter video packages such as choice in the screen and lower pay per view expenses year over year tied to the $29 million as lower pay per view revenue I mentioned.
Looking at full year 2020.
Correct programming costs per video customer to grow in the mid single digit percentage range.
Regulatory connectivity and produced content grew by 4.3% not was driven by higher cost of video CP sold to customers and original programming cost.
Cost of service customers declined by 2.3% year over year compared to 4% customer relationship growth. So were meaningfully lowering our per relationship service costs through number operating quality and efficiency improvements, which is core to our strategy.
Key metrics like calls per customer truck rolls per customer churn self install rich or continue to move into right direction as Tom mentioned.
Looking ahead, we expect further declines in cost to service customers on a per customer relationship basis, but this quarter's level of operational productivity was exceptional and it won't be replicated every single quarter.
Cable marketing expenses increased by 2.1% year over year and other cable expenses were down 1.4% driven by lower AD sales cost, which reversed as into political year and lower costs related to the sale of NAV site, which will carry through to the third quarter. This year.
[noise] mobile expenses totaled $372 million and they were comprised of mobile device cost tied to device revenue customer acquisition in the NVNO usage costs and operating costs to stand up and operate the business.
2020 mobile leave it up probably look similar to 2019 due to growth and the scale cost, but looking even further our current expectation is that in 2021 on mobile service revenue will exceed all regular operating costs, excluding acquisition and growth related mobile cost.
Turning to EBITDA, we grew total adjusted EBITDA by 8.8% in the quarter, when including the mobile EBITDA startup loss of $136 million.
Cable adjusted EBITDA grew by 8.9% in the fourth quarter, including a roughly 3% negative growth rate impact from advertising revenue net of its associated expense in both periods.
Turning to net income on slide eight we generated $714 million and net income attributable charter shareholders in the fourth quarter versus $296 million last year.
Year over year increase was primarily driven by higher adjusted EBITDA loss on financial instruments in the prior year period, partly offset by higher income tax expense.
Turning to slide nine capital expenditures totaled $2.3 billion in fourth quarter with or cable capex declining about $200 million year over year, driven by the same CPC trends DOCSIS three dot one benefits and lower in sourcing and integration cost I've mentioned throughout the year.
We spent $151 million a mobile related capex this quarter, which is mostly accounted for and support capital. There was driven by software development costs in retail footprint upgrades for mobile.
2020, we expect our mobile capital expenditures to be similar to 2019, and then declined meaningfully in 2021 is that work will be behind us at minimal capex outlook excludes any potential mid band spectrum acquisition and build out.
Which would be based on a separate ROI evaluation.
In 2020, we expect our cable capex intensity to continue to decline from the 15% in 2019.
On an absolute dollar basis, if you don't expect or cable capital expenditures to be meaningfully different from 2019 level.
Similar to what I, just said about or no capital expenditure as we find new high ROI projects. During the course of the year, where that accelerated spend on existing projects could drive faster growth, which still do so.
Slide 10 shows we generated $1.6 billion consolidated free cash flow this quarter and excluding our investment in mobile we generated $1.9 billion a cable free cash were up $700 million versus last year's fourth quarter.
For the full year 2019, we generated $5.8 billion, a cable free cash flow up $3 billion versus 2018, despite a cable working capital headwind of $800 million this past year.
For the full year 2020, we would expect cable working capital to improve significantly with the neutral to slightly negative impact on our cash flow.
We'll still have typical seasonal swings, including a first quarter, which are working capital as most always make use of cash.
With respect to mobile working capital, we continue to add mobile customers at an elevated pace, which will continue to drive handset related working capital needs in 2020.
In any event or free cash flow profile improve significantly last year represents position to continue to couple of free cash flow growth with a return focused investments in capital structures strategy.
We finished the year was $78.4 billion in debt principal and $74.9 billion a net debt.
Current run rate annualized cash interest is $4 billion and as of the end of the fourth quarter. Our net debt to last 12 months adjusted EBITDA was 4.4 or five times at the high end or four to four and a half times leverage range.
And when calculating or leverage we include the upfront investment level to be more conservative than looking at cable only leverage which was now 4.31 times at the end of the fourth quarter.
During the quarter Weve repurchased 5.6 million charter shares in charter holdings common units totaling about $2.6 billion at an average price of $459 per share.
For the full year 2019, we've repurchased over $7.6 billion of our equity.
And since September of 2016, we've repurchased over $27 billion were a bit more than 25% charters equity at an average price of $346 per share.
Turning to taxes on slide two tax assets are primarily composed of our and are well in our tax receivables arrangement with advanced New House, we now anticipate becoming a meaningful kept federal cash taxpayer until 2022 were some modest federal cash tax payments beginning in late 2021, as we expect the bulk of our existing in a way.
Well to be utilized by the end of that year.
For the years 2022 bits are 2024, we expect our federal and state cash taxes to approximate our consolidated EBITDA lesser construct our capital expenditures unless our cash interest expense multiplied by 21% to 23%.
That estimate would include partnership tax distributions to advance new house captured separately and cash flows for financing and the financial statements.
There are multiple factors that impact what I, just described and we're always looking for ways to improve our cash tax profile, but it's a good baseline for today.
So we're pleased with our results we believe in our operating strategy or network capabilities and the balance sheet strategy, which all work in concert to create value over long period of time.
Charters and infrastructure asset with strong growth characteristics and cash flow yield we have a lot of ancillary products. He is for and so on top of core connectivity services that when combined with good value in service will drive cash flow growth with tax advantaged Levered equity returns.
Operator, we're now ready for QNX.
At this time I'd like to remind everyone in order to ask a question. Please press star followed by the number one on your telephone keypad again, if you'd like to ask a question. Please press Star then one on your telephone keypad and we'll pause for a moment, while we compile the Q and a roster.
Thanks.
Thanks.
Our first question comes from the line of John Hodulik from yes.
Ahead. Please your line is open.
Great.
Thank you.
Hi, Chris you gave a lot of good detail on.
On some of the cost metrics as we look out into 2020, and the 200 basis points you guys saw and cable margin improvement this quarter, especially in the advertising headwind I think was it was really the highlight the putting it all together in terms of the programming that cost us are continuing to come down.
How should we think of cable margin trend.
Heading into 2020 year. Thanks.
Sure.
Look on one hand, you had a headwind as you mentioned political advertising not be ended the fourth quarter 2019 on the other hand, we had some fairly exceptional pieces that we're taking place as well the the timing as our rate increase was earlier inside of Q4 2019 than it had been in prior years. So.
You know I think that results in the higher ARPU per customer relationship growth, whether it be sustainable either prior to that quarter were inside of 2020, you need to take that into account I.
I think that growth rate given a subscriber mix could look a lot more like we saw for the full year of 2019 than it would what we saw in Q4.
The second thing I'd mentioned is that programming has done very well on a on a gross and per customer relationship basis, I think it'll still do well relative to other years.
But we expect mid single digit per customer relationship growth in programming cost in 2020, and then finally as I mentioned the cost to serve.
Exceptional in the fourth quarter, our cost to serve per customer relationship has been declining it's going to continue decline is our expectation.
But to have an actual.
Gross declined a significant one inside of a quarter was a big step down and I just would encourage people to replicate that every single quarter.
So then working against US again, I'm, not giving guidance, but ways to help you to to build a model.
Particularly later in the Euro we expect us to be a pretty good here for political advertising.
So all in I think it's going to move around and.
It's not something that we actively manage inside the business. We're managing is can we grew our customer relationships faster and that's our goal which were done drive better revenue growth.
Continues to be our goal ticket faster.
And it has been our experience and continues to be our goal to grow EBITDA at a faster rate than our revenue growth rate with or without political advertising here. So that's that's I think the right way to think about it and not to get particularly hung up at a particular quarter of year over year comparison on this on a margin rate, but what's happening with the underlying.
Entrant.
Hi, Great that's helpful. Thanks.
And we'll take our next question please.
Our next question comes from the line of.
Philip Cusick with JP Morgan go ahead. Please your line is open.
Thanks, guys. Following up there Chris you talked about lower video gross adds year over year is that a result of of your promotions and unchanged incentives.
And you said the goal is to accelerate customer growth rate. How do you expect that to go from in terms of gross had some churn going forward.
And then quickly follow up if I can on on the in sourcing program you talked about it in your and your commentary where are we on the completion of that and.
How much in terms of costs are still being duplicated as you in source labor and everything else. Thank you.
Sorry, So what was your second question. So first was lower video gross outdoors third one of the status in sourcing program.
In a double of what was the second one.
That was that the gist of it.
Okay, well I thought there was second but anyway lower video gross adds up.
I think it's more a function of the marketplace more than anything else.
We still believe and videos and attractive piece to the connectivity.
Package that we offer its an important attribute we continue to invest in at both in a traditional set top box sense with as well as all of our IP platforms.
Tom one stat and warm that.
Well, yes.
The lower gross adds I think are a function of the marketplace.
It's not material to what drives our economic model, but it is.
Nice.
Paul addition to our broadband connectivity business.
And then on the in sourcing program and.
The the in sourcing is essentially complete we have well over 90% of our service calls are handled in house onshore.
And then they field service side need to have some contract labor available for peaks and valleys, but we're well over 75% of our labor being in source. There thats been the case for both of those for sometime now theres very little of the way of double up cost anymore. That's a system I do think that it's going to continue.
To get better for all that reasons that Tom mentioned, the tenure of our employees gets longer which means they get more experienced in better and higher quality transactions with our work with our own employees, we have a career path at charter.
The amount of self installation.
Is this going up the number of calls and truck rolls are going down the churn is going down and the amount of digital.
Transactions, which Tom talked about is also going up which based less labor intensive service infrastructure and I think thats that trend is going to stick with us for a long period of time.
Thanks, Chris.
James we'll take our next question please.
Our next question comes from the line of Brett Feldman with Goldman Sachs. Go ahead. Please your line is open.
Thanks, and Tom you just mentioned have video still can be very complimentary tier your core broadband product.
There are number of new direct to consumer video products coming soon whether its each be a max or peacock in.
Those providers of all said, they're looking for distribution, including through Mvps I was hoping you could give us your updated thoughts around being a partner for some more all of them and maybe some of the factors that you have to think through as you decide whether it makes sense, whether it's the economics theres technical issues or just some strategic considerations that are weighing on weather.
Not yet you intend to do this thank you.
Right well Brett.
Yes, theres, an opportunity and us marketing direct to consumer products.
Our relationship with programmers and those relationships in many cases or.
Our also operating under the old model too.
Which is the bundled cable model.
And we can hold both thoughts in our head at the same time and sell bundled products, which I think we'll be selling for years to come but also selling.
Direct to consumer products and because of our customer relationship because of the way we can package those products into our overall.
Product mix and the user interfaces that we develop with which products like flex are designed to help enhance.
We have an opportunity to create.
And help programmers sell their content and do that in a way that's mutually beneficial to both of us and so we're working through those models with the various companies.
We have already placed direct to consumer products like Netflix on our user interface.
And customers can.
Purchase products directly.
From our user interface Alec card products, so to speak which we've been doing for a long time by the way.
Many ways I look at these products like I look at pay TV.
There are opportunities to enhance the video experience and and part of the customer relationship. So.
We have ongoing discussions with all of it entities out there and.
Fundamentally I think while there's a lot of dislocation going on in the video business Theres an opportunity in there for us.
Great. Thank you.
Thanks, James will take our next question please.
Next question comes from the line of Ben Swinburne with Morgan Stanley Go ahead. Please your line is open.
Thanks, Good morning, guys.
Two questions for for either view or both of you.
Tom any change in how you're thinking about pricing the video business in particular I don't know if you would characterize your rate adjustments in the fourth quarter is.
Changed from prior philosophy or or not but at least it seem to us like a more aggressive increase in your video pricing than you've done in the past Im just wondering if that reflects a change in your mind, how you manage the business and then Chris mentioned in his prepared remarks sort of mid band spectrum and any acquisition build out there.
Was just curious where you guys collective head was that on that opportunity. If that's something that's become a more likely less likely or just how we should be thinking about that as we go through this year and think about some auctions coming down the road.
Ben I think fundamentally we didnt haven't changed anything with regard to our pricing strategy, which is.
Price isn't the major component of how we drive our revenue growth its subscriber growth.
And and we have accelerating subscriber growth.
And we.
I expect to continue to have accelerating subscriber growth because we have the price strategy, we do with the product strategy we do.
And the bulk of our revenue growth comes from that so.
We have been passing through things like.
Retransmission consent fees and other things into video business and.
Looking at the margins in the video business.
And the competitive environment in the video business and how were priced but our fundamental strategy is not different.
Got it.
Neil wireless.
Mid band spectrum.
We were interested in mid band spectrum, Theres, an auction coming up for Crs.
We're likely to participate in that auction.
I think theres an opportunity for us.
She's been helpful and.
Positioning that spectrum and weighted so.
Opportunity for us.
And the answer here.
Carefully considering our options.
Great.
Discipline as you'd expect about an hour why approach.
Spectrum Thats acquire Costa acquired the cost to build that what's the financial returns or.
For doing so where would you do it so.
People should expect that we won't be disciplined around the first but we think it's pretty attractive and clearly the more local lines that we have more truckers that ROI is.
Right, Okay makes sense.
Thank you guys.
Thanks, Ben I change, we'll take our next question. Please.
Our next question comes from the line of Craig Moffett with Moffat Nathanson go ahead. Please your line is open.
Thank you I've two questions if I could first on the wireless business. If I could just continue down that line of thinking.
How much it just given what you know today how much traffic do you think you you will eventually be able to offload with sort of thinking about as percentage of total maybe.
To be able to offload onto your own facility. If you think about.
Where it might make sense to build where you have aerial infrastructure to be able to build and and is there any scenario, where you would ever.
I want to go to a full facilities.
Based strategy, where you would on your entire network and then just back to the videos question for a second.
How do you think differently about.
Programming renewals just given the change in tone around your your video strategy.
Right. So look on the on the wireless situation it's a.
It's really a math question.
What's the cost to.
Two.
To pay for your NVNO rate and what's a cost.
Paul, whereas the traffic and what's and how does all that work and that's the discipline. The Chris was talking about so as we think about it.
Theres.
It depends on what you're paying for.
Mobile traffic and what.
What the economic tracking zone is in inside of a particular area and.
And how you would switch that traffic so.
Adam there's no immediate plan to change our fundamental relationship with though.
Our carriers and.
Over time as as.
As the market evolves.
Speeds go up and capacity goes up.
The economics make change and we'll take advantage of those through time as.
Yes.
As the marketplace unfolds with regard to.
Programming.
Obviously, the biggest issue in the bundled packages price and a lot of people been priced out of the market and.
We continue to negotiate.
Contracts and.
[music].
As as penetrations in the overall distribution change relative value the constant changes and the changes the relationship and.
Changes, how much programmings worth to you as an operator and so.
Well, that's I don't expect the general circumstance distributions precipitously change over the next couple of years.
I think we'll still have a big bundled product but.
The relative pieces of that are changing and value.
Okay.
And we'll act appropriately in the marketplace.
Greg you had a sub question on that wireless side that assistance in a scenario, where we want to own it all the and networking. So far we haven't seen anything that really demonstrates that we have a very good partner right, it's going very well.
And they have a very strong Microsoft power network.
And so I don't think Theres any economic case than stands today that says when all the partner.
Partners within in their partners for years to come.
Thanks, Chris Thanks, Tom.
James will take our next question please.
Our next question comes from the line of Jonathan Chaplin with New Street go ahead. Please your line is open.
Thanks.
Just a follow on the.
The question around cost and so thats good thanks.
Jason You said, we shouldn't impact with the same improvement in cost of service, we saw year over year this year well we shouldn't.
We should assume the same cost of service that something that would drive cost of set this up from here or something.
What are the depressed it and then later.
I'm wondering if you can give us an update on.
The legacy time Warner churn is relative to you can see totter Chen and whether you can see chart of China's bought Indago. This lot maturities for that come down because it seems like the China movement.
A big component.
And then cost itself.
So.
You were a little garbled, there, Jonathan but on the cost to serve.
The cost to serve trend is continues to go down on a per customer basis.
There are all sorts of reasons, that's true I think Chris was tried to say the what the pace that is and how that will manifest itself quarterly isn't something that you should straight line extrapolate.
But.
But the fundamental.
Arc that were on in terms of.
Customer self serving using high quality.
Surface operations with well skilled people doing the work.
Is reducing overall transaction volume as is the digitization and and and the definition of the network as a software defined networking and many of the operations, becoming software defined all of those things are taking fundamental operating costs out of the business and.
Capital expenditures that we made over the last three years as result of the integration puts us in position to realize that upside.
So that that's the fundamental notion that he was trying to express.
In the legacy TWC churn continues to be.
Both elevated relative to legacy charter, but continues to be.
Declining at a faster rate than legacy charter continues to decline.
So they're converting gotten the magnitude of the gotten used to it.
Yeah.
And Jonathan you've got really bad sell signal that so at this time around we couldn't hear anything on that question.
Yes.
Okay.
Thanks, Jonathan.
Operator, we'll take our next question please.
Next question comes from the line of Jessica Reif Ehrlich from Bank of America Go ahead. Please your line is open.
Thanks I have.
Follow ups I think it was Tom who said.
You.
We'll accelerate or you expect to accelerate customer growth rate this year and I just wonder if you could elaborate on that do you mean high speed data only or June putting video one here.
And then you also Tom mentioned luck.
<unk>.
Don't know who's just in the context of direct to consumer services.
Do you plan for our first surface similar to Comcast flex and or can you talk about how you're thinking about the evolution of your broadband product that differentiate.
Make it more different beside speed.
French again.
Right well when I spoke of accelerating growth there was talking about has been in customer relationship growth accelerating.
So that's what I meant by that and.
And in terms of.
Flex or similar products, yes, the answer is yes.
There are a variety of IP relationships, we have we have one with Apple.
Selling IP devices through Apple Yep, Roku devices that are product design, we've got millions of customers, who subscribed to us directly through an app based product.
And so.
Our video product on the Internet or IP delivered.
Cable TV, an IP delivered over the top products are all being delivered through a variety of new technology platforms flux is one of those and.
So the answer is we're pursuing all the various opportunities in video that are available to us.
And including those in our broadband strategy.
In addition to our broad we've enhanced our broadband through speed differentiation and taking our minimum speeds up.
More than half of our customer base now gets minimum speeds of 200 megabits.
As as the slowest speed we sell.
And and Weve enhance that with our advanced Wi Fi products.
Which deliver high quality service throughout the house allow you to manage all the devices in your house see with the service quality of those devices is and how they're connected to the network as well as allow you to manage the privacy.
Or the utilization of any of those devices throughout your house, so that your secure private and ER and delivering and getting a high quality service.
Everywhere inside your property and on the go and so we continue to invest in broadband platform to make it a better platform and we continue to invest in legacy video and we continue to invest in the way legacy video transforms itself into a.
IP platform.
Thank you.
Thanks, Jessica James will take our next question. Please.
Next question comes from the line of VJ Jan with Evercore go ahead. Please your line is open.
Hi, James Ratcliffe for VJ I too if I could first of all Tom you mentioned a.
10, GE is sort of the next phase and the tying the three with the three dot one rollout done can you give us any idea of the timing or magnitude if that sort of deployment I mean, I assume it's it differing in kind not just degree to the nine bucks or home passed or so that threed out one wise and secondly, you in the slide you mentioned that.
You know that the strategy in the business is not dependent on M&A can you talk about what you see the M&A landscape looking like both any opportunities for horizontal or if there any incremental vertical acquisition that would make sense. Thanks.
Sure well was with regard to 10 G.
We just upgraded the whole network to one gigabit everywhere.
That was the $450 million capital project I mentioned that over 13 month timeframe.
10, GE as a set of technology specifications that the industry's develop that allows us ultimately get too.
10 gig symmetrical services.
Which are provided that.
Very low latency.
Deliveries.
That's the occasions and allows you to quit hi, compute capabilities throughout your network.
And there is no.
Immediate need to.
Ploy.
A new upgrade in the marketplace today, but it's an evolution that we can invest in as we go forward.
And it allows us to do that incrementally in a very cost efficient way a lot less cost than it would cost to build a brand new network and so.
We have no immediate.
Capital deployment associated with it but it's a variety of tools to incrementally get you to at least at 10 gig symmetrical and there's there's.
We have already surpassed that capability in our laboratory testing and so that's just a stake in the ground in terms of.
What the potential of our existing infrastructure is.
With regard to M&A.
First of all we don't have any thing that we're about to talk about that.
The.
The cable businesses.
Is owned by control shareholders, mostly through the United States and.
I think we have a great business and and lots of opportunity.
With the right a combination of assets, there's always value and and scale and.
And market approach.
But there is nothing for us to say at the moment.
Great. Thank you.
Thanks, James James will take our next question. Please.
Our next question comes from the line of Bryan Kraft with Deutsche Bank Go ahead. Please your line is open.
Thanks, Good morning, I wanted to ask you couple of questions on Capex.
Can you talk about some of the puts and takes and scalable infrastructure capital is down quite a bit and 29 team from the prior couple of years, just wondering how we should think about that spending category in the coming years relative to history as or sort of normal level. If you will and then secondly on Capex as you reached the end of the FCC.
Commitment for a new homes passed what should we expect in terms of a normal homes passed growth rate will it kind of be the just the rate of home growth in your footprint. The way it's been maybe historically over the years or do you see opportunities now to extend the network to existing premises that are currently off now thanks.
[noise], so with regard to scalable capex.
The.
We are getting advantages from the three dot one deployment and I think the those advantages.
Which which are in.
With the advantages that the growth in internet utilization on a per customer base as a continuous investment required by us and.
The Threed out one so expanded the capacity of the plant.
That some of that scalable infrastructure capital.
Might have been prior periods isn't required right now.
But that that opportunity continues for a while yet because.
It's a function of the rate of data usage per unit customer.
Interestingly, our internet only customers now are using.
Over 500.
Gigabytes.
Per month half terabyte.
Of data usage.
So it is something that continues to climb.
And that's relative to a wireless average customer.
Hey.
To put that in proportion the.
But the capital expenditure.
You know.
I think will stay in that space similar to what it is now for some period of time.
Clearly 2020.
Because of the capacity has been built by three dot one.
And the evolution of traditional video toward.
DOCSIS.
And you that opportunity.
Homes fast growth homes passed look we build everything that we can build from a homes passed perspective.
Without regard to the.
Requirements of our consent decree so we've accelerated and actually built more passing has done the consent decree required and there's nothing going forward that would change the rate at which were building other than the rate of household formation.
And Brian just on the Capex to Tom mentioned were temporarily depressed in 2019 to probably in 2020 for the continued DOCSIS three dot one benefits, but if you think about the different line items for Capex.
For CP, which includes traditional installed which is now going higher self install pcps declining and already.
Majority of that mix of CP is more tied to internet related products as opposed to video products.
As Tom mentioned, we've been building at an accelerated pace on the line extensions. So I think that will continue to be elevated with positive ROI attached to that build out.
The scalable while lower.
Last year and probably this year as well over time, that's an area that will continue to invest like we have in the past and support we continue to have not the same magnitude that we've had the past few years, but we're still a fair amount of integration backend integration capital, that's going on and you'll see that support category, whether thats through real estate or through right.
Systems, and so whereas scalable may be temporary temporarily lower I think support is temporarily still higher.
That's the way the different pieces of Capex move over the short to medium term.
Great and on and on balance continued declines in capital intensity is as you look beyond 2020 for the most part.
Next we don't see anything that changes the arc that we're on.
The local will have its own trajectory, which I talked about in the prepared remarks, which were expected to step down significantly in 2021.
But for any ROI based investment in spectrum vendor were filled up.
Great. Thank you.
Thanks, Brian James will take our last question. Please.
Your last question comes on line of Doug Mitchelson with Credit Suisse. Go ahead. Please your line is open.
Oh, thanks, so much I wanted to dig in a more specifics on a couple of topics Tom I think to ask the question directly that.
I think folks were trying to get to will you need to subsidize OTI de video services to compete in broadband in the future against the likes of 18 T. That's good include.
Feel Max for certain customers. So one did about about look going forward of broadband too.
On the spectrum at Super interesting conversations you've been having with us around wireless no lack of a need for a physical network. I guess my question is how much spectrum to you need because if you're just going after high capacity areas I think you could do that with.
Small amount of CBR asked for C band spectrum, 10, or 20 megahertz, but if you're gonna build out 10, or 20 megahertz, you might as well build out more because the cost to build is.
Sort of the same regardless of how many megahertz I'm just curious how you think about quantity of spectrum relative to that return on invested capital dynamic. Thank you.
Well on the subsidization about UTI.
That's really just price.
What's your selling broadband for end.
And I think that we have.
Relatively good competitive posture on.
Price perspective.
In the marketplace and so I don't I don't see us changing Matt.
Whether we'll do promotional offers.
That have a price effect in them cost in them.
I wouldn't say never but.
But it's just a marketing technique. It doesn't mean you change your fundamental pricing strategy.
And with regard to.
To wireless.
Your into the math of what's the value of of and of.
The physical network pieces, and that's a function of a lot of things. It's not is the cost to build its the cost to.
Of what's your rented network is in and how those two things interact with each other.
And and so I'd say I'm just thinking is correct.
But we haven't decided exactly.
We will do.
The I could just follow up on that Tom do you need.
Updated NVNO with rising or a new MB, though to take advantage of mid maximize taking advantage of of building out mid band spectrum and high traffic areas does there need to be any evolution in that relationship for you'd be able to switch to your to your spectrum.
We have a good relationship and we were happy with RMB relationship with Horizon and.
And.
I'm sure will evolve through time.
I thought of trial. Thanks, so much guys.
Thanks, Doug and thanks to everyone, who listen to our call today that concludes our call. Thank you very much.
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