Q4 2019 Earnings Call
Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to stand by and thank you for your patience.
[music].
Great.
Ladies and gentlemen, thank you for standing by and welcome to the all teeth U.S. any Q4 and full year 2019 earnings presentation.
This time, all participants' lines are in a listen only mode. After the speakers presentation, there will be a question and answer session.
Ask a question during the session you need to press Star one all your telephone if you require any further assistance. Please press star Zero I would now like to have a conference over to your speaker today, Nick Brown. Thank you. Please go ahead Sir.
Hello, everyone and thank you for joining in a moment and you've already but south east USA see next the guy and see if I might grow who will take you create a presentation and then we'll make the Q and <unk>.
Today's presentation may contain forward looking statements. Please read the disclaimer on page two.
The slides are available in the company's website and a replay of the cool be available.
I now hand Ivas Dexter.
Thanks, Nick Hello, everyone. Thank you for joining on the jump right into a slide three.
Revenue growth for 2019 was 2% with adjusted EBITDA growth of two and half percent or 3.4%, excluding mobile launch cost.
Following our strength in the first half the year, when we're going north of 3% we saw a temporary slowdown in Q3 and the first part of Q4 due to a few factors we shared in November including lapping a prior year rate event, the impact from higher than normal promotional roll off.
Some disruption from our recent BSS Oss that's integration.
However, we saw strong stronger than expected turned around in operations performance in December.
Typically we saw significant rebound customer and broadband net additions leading to a 7000 net broadband additions.
For the quarter with normalized trends continuing so far in Q1.
Even with the temporary uptick in churn in the early part of Q O Q4 broadband video customer trends for the whole year in 2019 were inline with prior years or they'll show you in a minute.
Using the advertising growth is still being driven by a four in shutter any off that we saw from the political cycle is expected to reverse in 2020.
L. T mobile has been ramping up since we launched in September as we continue to expand our handset lineup and opened multiple sales channels. We are excited for the launch of new handset. This year, which we think will drive strong switching cycle also we're very happy and supportive of the Timo spreads decision, which we believe will be a very good.
Long term partnership for us.
Oh, the network side, we increased investment to ramp up our fiber build during 2019 and simultaneously deployed DOCSIS 3.1, all of this to serve to drive a differentiated connectivity experience for customers.
Well, Mike will take you through the outlook for 2020 more detail I want to highlight the anticipated accelerated revenue growth for the core cable business and even faster for total revenue, including a full year mobile we expect free cash flow to step up supporting another 1.7 billion of share repurchases, well still targeting four and a half to five times net debt to EBITDA.
<unk> ratio.
And lastly, we announced today the acquisition of service electric up New Jersey adjacent to the optimum footprint $450 million or about 10 times EBITDA pre synergies. This deal should close by the third quarter. Following regulatory approval. This is a great bolt on acquisition for us to be able to expand or differentiate broadband video mobile.
Well in advertising services to water area.
[laughter] onto slide four we show the breakdown of told revenue growth for both the full year 2019 and for Q4.
Residential business grew 1.6% in 2019 inline with the prior year. Despite a temporary slowdown in Q3 and the early part of Q4 due to the issues I already mentioned, notably by December we had more than offset softness from the early part of Q4 with better volumes come very successful sales and retention activity although.
With some increased measure of ARPU dilution.
Broadband continues to be the main driver of residential revenue growth with customers consistently using more data and paying for higher speeds as you'll see shortly we have significantly more runway on broadband revenue upside with all the new streaming video offerings being one of the main drivers a greater usage in greater speeds.
We are excited by our broadband offerings and continue to invest a true fiber to home network and combined with the upgraded Docsisthree 0.1 experience, we're pushing gig speed deeper into our footprint and enhancing wife I performance.
Business services grew in 2019, a 4.8% was in line with the prior year and the growth of 4.1% in Q4 was consistent with the part quarter as expected.
Our news in advertising divisions declined 2.3% in 2019 and declined 9% in Q4, excluding political news and advertising revenue grew by about 10% for both the year and for Q4, driven by the success of our advanced advertising platform before and tschetter.
We're extremely pleased with the progress from our integrated news in advertising platform, thus far and expect strong performance in 2020, as we're well positioned to benefit for the political cycle coming back this year.
Slide five illustrates how the annual residential customer trends have been very consistent for the last few years with broadband customer growth offsetting video decline, even with the temporary uptick in churn we saw in Q4.
Annual customer relationship growth was 0.3% in 2019 with growth in residential revenue per customer of 1.3% supporting that growth in residential revenue of 1.6%, which was in line with the growth rates in 2018.
Hi, Brian net additions of 72000 in 2019 going just under 2% year over year, where exactly in line with 72000 additions in 2018.
And video customer losses were only 10000 worse than the prior year declining 3.3% year over year, which is inline or better performance than what we've seen in the industry.
We continue to attribute part of this outperformance LTC, one which has improved both are broadband why fight and video experience for customers and reduce churn.
We're mindful of the market backdrop with increasing number of streaming OTI t. services being marketed heavily but we're positive about our relative positioning both as a high quality broadband provider that enables the streaming video services and as an aggregator of linear and non linear video services.
That said, we continued to be incredibly thoughtful about balancing volume in profitability.
Like our peers, we could do to pass through more programming cost inflation to our video customers, which is reflected in our recent rate event in February.
However, broadband connectivity is the core of our residential business and an increasingly part of our EBITDA and cash flow and we're confident broadband growth will remain robust.
Turning to slide six we've broken out the monthly customer trends to highlight the temperature and we've mentioned impact the business in October November as well the recovery in December which was stronger than anticipated overall, we had three 7000 broadband net adds for the full quarter as you can see on the right.
This ever did see some benefits from the reversal delayed gross adds and prior disconnects following or be assessed what sets migration and we're seeing more normalized net adds trends so far in Q1 of this year.
On the left you can see we lost 5000 customer relationships in Q4 with December again, offsetting heavy law heavier losses earlier in the quarter.
The gross additions remained strong throughout the last few months the board by simple price for life offers we had in the market.
Again, we want to call out the inter quarter trends this quarter. Because this proved that with a very short lived churn impact on our businesses and what was frustrating to end the year that way. It has not detract from the growth opportunities in which we have invested heavily in we continued to see very good trends in Q1.
Slide seven further highlights the broadband growth opportunity as a number of streaming video auctions increases in other more data intensive applications emerged like cloud gaming, we have significant runway on broadband usage and speed up tiering, which translates to broadband revenue growth.
Customers continue to take higher broadband speeds and use more data and as you can see the average speeds of our customers take has increased about three times in the past three years to over 200 Megabits per second following all of our network upgrades and the launch about piece, one or average household data usage continues to grow over 20% year over year.
To over 300 Gigabits per month.
More interesting, we're seeing a big divergences broadband usage between single play broadband customers and those who bundle with video 850 gigabyte per month gap due mainly to increase video streaming amounted to things that single play base as usage increases this creates an untapped he compelling opportunity for us up here our broadband customers.
As a reminder, we're launching one gig services across often footprint. Following our DOCSIS 3.1 upgrade which we started with the Bronx last month, which replaces our prior maximum speed of 400 Megabits per second on the often footprint.
This is an addition to our fiber network upgrade which is happening in parallel we already offer one gig speeds over fiber, but we'll be able to provide multi gig services going forward.
Combining industry trends with our ongoing investments in broadband we expect our ongoing one gig deployment, both on fiber and the DOCSIS networks will continue to be a driver of broadband revenue growth.
Slide eight underscores our progress lead to our network investments, which continued to enhance the customer experience.
On the right you can see we've now reached over 600000 fiber homes ready for service, which is about 12% of the ultimate footprint I think about a half a million homes ready for service during 2019 as planned.
This was the main reason for Capex step up in the last year, and we expect the pace of rollout to accelerate once again 2020, while maintaining the same capex levels.
The penetration of L., just one continues to increase now reaching 17% penetration of our video based up from just 9% in Q4 of last year.
We continue to upgrade and enhance the l. piece, one offering for our customers our latest innovation and the addition of smart why fight available now for all the existing and new LTC when customers, which will increase wife, I speeds improve Wi Fi coverage and reduced latency solving by network congestion issues.
Smart wildfires intelligent messed technology with Leverages band steering across both 2.4, and five gigahertz frequency ranges as well as between lifelike senders using a single S. I D across the home.
Smart life by also allows for better performance for devices in motion between different rooms.
We already offer swipe smart Wi Fi with our one gig fiber service. So this is very much a complimentary upgrade.
Now turning to slide slide nine and an update on LP LT Snowball. We're pleased with the traction we've gained a few short months as at the end of Q4 with 69000 lines, which is just under 2% of our broadband customer base in just over one quarter looking at industry Metro sees this penetration growth is.
Head of what we've seen from other NVNO launches by about two times faster.
Recall or introductory offer was focused on providing one simple plan with unlimited everything for $20 a month for existing optimum and suddenly customers.
This introductory offer will come to an end next week, but even with a slightly higher price. We will continue to have the most attractive unlimited plan for single lines and therefore, we don't expect a material change in the volumes we've been achieving.
During Q4, we broaden the handset lineup online with the addition of iPhone and send some handsets around Thanksgiving and expect to as many of the major new handsets coming to market in the next few months.
We remain disciplined on cost and expect EBITDA mobile EBITDA losses of no more than 100 million in 2020.
Turning to news and advertising on the right hand side. The slide you can see the impact of the political cycle on our news and advertising revenue in 2019 with X political growth a 10%. The overall advertising market was weak at the end of the year, which you saw across the entire industry, but 2020 should be a strong political year and we are excited about women.
Them with their integrated a four inch other platforms into this upcycle.
Before I turn the call over to Mike I'd like to thank our team in LTC, let's say for their tireless efforts in 2019, we greatly appreciate their contributions and we're all very excited by the momentum driving our business into 2020 and beyond.
[noise]. Thank you Dexter.
Turning to slide 10, you will see our free cash flow in more detail as we generated $397 million of free cash flow in the fourth quarter.
Cash Capex was modestly lower than Q3 at 323 million.
And you will remember cash interest is lower in the second and fourth quarters because of the timing of coupon payments.
Cash tax payments, which was 4 million in Q4, and we still do not expect to be a significant cash taxpayer until 2021 with the remaining Anna wells that we have.
You can see from the other operating cash outflow of 95 million that we did not see full reversal of the working capital outflow we saw in Q3.
And this is the main reason, we fell slightly short of our annual free cash flow target for the year at $1.2 billion.
In particular this included temporary outflows related to the BSS Oss BSS transition.
An extra payroll cycle in 2019, which was accelerated in Q4 from January.
And working capital outflows from mobile activities, specifically handset inventory unfinanced handset receivables.
Both the BSS Oss BSS payments and the extra payroll cycle will not be drags on free cash going forward and we expect to see free cash flow growth in 2020, driven by continued revenue and EBITDA growth.
We also have some large bonds become callable later in 2020, which should bring further cash interest savings into 2021, if the debt markets remain a supportive as they have been recently.
We do not repurchased any shares in Q4, given our commitments to our bondholders to maintain leverage ratios at close to five times at year end.
Even so we already exceeded our initial target of 1.5 billion for 2019.
Recall, we purchased 1.7 billion of stock, we repurchased 1.7 billion of stock at an average price of $23 per share last year.
We have resumed share repurchases in January and I've already brought back an incremental 200 million of stock year to date.
We expect to complete 1.7 billion in share buybacks this year.
[noise] [noise] slide 11 shows an annual view of our cash flows.
Left hand side demonstrates how we've continued to grow adjusted EBITDA and increased margins in excess of our original efficiency targets.
Specifically, how tissue essays adjusted EBITDA margin on a consolidated basis reached 43.7% in 2019 up 20 basis points year over year.
Excluding wireless losses, the adjusted EBITDA margin grew 70 basis points for the full year inline with our guidance and reached 45% in Q4.
You can see we've stepped up capex by $300 million to $400 million in the last couple of years, mainly as we've been investing more into our fiber ltcs, one and mobile growth initiatives.
Capital intensity, excluding fiber Newbuilding mobile remains below 10% of revenue.
Our on our annual operating free cash flow or EBITDA less capex has been fairly consistent during this period at around $3 billion.
On the right hand side, you can see free cash flow after cash interest taxes, and working capital, including restructuring costs was down slightly mainly due to the approximately $200 million of working capital outflow that I touched on previously.
However, EBITDA growth and the steady level of free cash flow has supported the accelerated pace pace of share repurchases.
Free cash flow growth in 2020 will allow us to continue at this accelerated pace.
Remember, we have authorization for up to $5 billion, an incremental share buyback over the next three years, which represents a significant portion of the free float.
We've already done about 400 million of this amount.
[noise] turning to slide 12 is a recap of our debt maturity profile with the balance sheet in a very strong position.
We will continue to proactively manage our balance sheet in the same way going forward as I mentioned before we should have ample opportunity in the next year to continue to push out maturities and reduce our interest costs.
Our weighted average cost of debt fell to 5.9% at the end of 2019 with an average life of 6.5 years.
75% of our debt is at fixed rates and we retain $3 billion of liquidity.
We have no bond maturities greater than 1.1 billion until 2025 with none at all in 2020.
[noise] lastly on slide 13 is an overview of our financial outlook for 2020.
We expect revenue growth ex mobile of 2% to 2.5%.
And further adjusted EBITDA margin expansion again ex mobile.
This represents an acceleration in revenue growth, we are being relatively conservative here as we want to build momentum.
Cash Capex, we expected a similar level to 2019 between 1.3 in $1.4 billion sustaining investment in all of our growth initiatives.
Our year end leverage target remains 4.5 to five times on the last two quarters annualized basis.
We ended 2019 at 5.1 times leverage slightly above this target.
It may remain slightly above this range during the year given the normal phasing of our EBITDA generation and the current pace of share repurchases.
And finally as noted earlier, we are targeting an incremental $1.7 billion and share buybacks in line with 2019.
With that we will now take any questions.
Yeah.
Thank you and your first question comes from the line fill up 'cause sick with JP Morgan.
Hi, guys. Thanks I'm.
Thinking about the revenue guidance and the price increase you've already announced.
It seems like there's a lot of video loss in the model can you help us think about.
The model going forward fourth quarter, I assume was was pretty well drag because of all the things that were dragging broadband I'm wondering if first quarter has rebound from there, but but in general how you're thinking about video losses here and also how you think about one Q 19, as a comp to this quarter for video and broadband. Thanks.
Yeah listen thanks.
Phil I think on the revenue guidance, it's fair to say that we are are being conservative in our guidance.
Given that two big factors are swing factors.
One being mobile handsets.
And the second being political on the advertising side, two things, which caught us a little upside.
In the second half of the fourth quarter.
And so instead of being ahead of the curve, we wanted to to be thoughtful and build our momentum through on on revenue guidance I'll tell you that.
Our initial perspectives in the early part of Q1 as we saw very good performance on the rebound of December.
Very good performance in January continue into February so it's business as usual.
On the.
On the actual RG you guidance on Q1 19 versus Q1 2020, we did have a stronger than expected performance in Q1 of 2019.
Particularly on the broadband side.
I don't anticipate us matching.
Exactly where we are next last year in Q1, but we do feel very good about the the annual number 72000 for 2019, what we did in 2018 also plus 72000 broadband.
RG use so I think for the year, we feel very good about that target.
The question really will be how that gets phased in over the over the quarter and since we had such an exceptional quarter last year Q1, I don't want to necessarily say, we're going to hit that number today.
On video video losses.
We saw the uptick in video losses of some of our peers.
I think it's too early to call that today for us.
Given our revenue guidance, we're being cautious that the that could come through.
Over the year, given what the industries is seeing.
We do know clearly as we look at the economics, though.
The margin impact, particularly on gross margin is small.
And as we flow through down to EBITDA, and particularly down the free cash flow was actually gets down to positive on a free cash basis. So.
We'll monitor that he will fly get on the revenue side, specifically, but the free cash flows we feel very very good about it irrespective what happens on video.
Thanks Dexter.
Your next question comes from the line of Craig Moffett with Moffett Nathanson.
Hi.
Can you talk a little bit more about the.
Wireless business and the changes that you expect now that the sprint T mobile deal looks like it will happen.
It looks as though you're ending the 20.
And I'm, just trying to get a sense of whether you think.
The business can be profitable at the current pricing long term or whether the change in the $20.
Facing suggests that there's.
Different picture for the breakeven for that business, then you'd previously thought.
Thanks, Craig and listen I think we feel.
Very very relieved and very supportive of the decision.
To to approve the merger I mean, obviously I guess not over until it closes so we'll see if there's some.
Any subsequent appeals here in the process.
But as we had flagged in our discussions.
And decisions and commentary around the FCC into Ajay one access to Fiveg.
Was clearly delineated and access to the new Timo network.
Secondly, the extension of our transaction to to the consent period, which is seven years from closing is a significant win for us. So.
We feel really good about the opportunities to work with new Timo.
Obviously, there's a bunch of things to work on in terms the transition of the network and establishment of the Fiveg services, but we're out we're very cautiously optimistic and excited about having a very long term partnership now with the new Tivo in terms the economics. It was our gross margin economics.
Our good as you know as we flagged.
The question really is is the opex dynamics of of cost on the distribution side.
And this is where we're going to be thoughtful.
On our profitability is trying to drive volume by spending more opex or trying to balance a much more thoughtful view on cash flow.
To make sure that we know we're thoughtful around around shareholder value and creation. So that whole balance of mixed I don't think some I'm going to talk about it today I think as we see through to the year and push through.
On on a price increase on the mobile even though we continue to have a very attractive on limited package, we're just going to raise prices by $10.
We'll be will be good.
Alright, thank you.
Your next question comes from John O'donnell, when you bias.
Great. Thank you.
Extra could you characterize the price increase you guys put through in January and maybe compare to what you've done in the past, maybe the timing and any early read on.
What date reaction has been and the subscriber base and similarly pricing has got some new meow mix and match plans on the biocide any impact or show reaction from a competitive standpoint to what that could do your business and volumes going forward.
Sure listen on the price increase I think.
We had a slight uptick on price increases really driven by pushing more of the programming costs onto our subscriber. So the range across the subscriber base was a price increase of 4% to 5% as opposed to on average about three three and half percent historically.
We have obviously, we're about two weeks into that price increase.
Letters went out for some of our franchisees already in December so.
So we have seen some volume on on our call centers, but nothing exceptional no.
No differentiated let's call it a reaction from our customer base so far.
Into into mid February so, we'll monitor that very closely.
But to date, we've had a kind of a normalized reaction to tour price increases.
In terms of PHYOS.
Just to be clear they went out and.
And separated.
Video from broadband.
And the tied to effects and theyre headline promotional price looks more attractive on the broadband side, but if you see through to.
The fact that to give you an auto pay discount of $10.
And on top of that their cost of equipment is more expensive than ours the price points on their 200, Meg chrome not promo, but the 200 make everyday pricing for single broadband is actually more expensive than a 300 megabit product today, which is on promo but.
As you know promos tends to be pretty much the existing.
Prices. So if you look at it there are 30 999.
Plus $10 a discount for auto pace was 40, 999, and another $12 I believe for their equipment or $15 for equipment. So.
They are around closer to $265 for standard a single 200, Meg broadband versus our 300 megabit broadband which is 30 999.
Plus $10 plus $3 54, our network access charge, so, whereas more like 53 50.
Versus their $65 or if you take the auto paid 53 50 versus 55, so we're not seeing any impacts on volume today and as such as I've mentioned, we had a very good January and we see good trends here in February.
And then when you put the bundled together are bundled pricing is a lot more attractive than their bundle pricing when you add.
There are single broadband plus their single video so that's really not been.
Today a competitive.
Impact on our business.
Extra detail.
Your next question comes from the line of Doug Mitchelson with credit Suisse.
Oh. Thanks, so much two questions. One is just looking for a little bit more detail on the on the fiber rollout or the timing of the triple play box or how how many homes your marketing today I don't think you're doing much.
But I do think customers can sign up right and any experience you've had so far but when when do you really light up those.
600000 households, and then separately.
Commented about the wireless losses for the full year I think you've previously Dexter said that you would be breakeven or profitable late in the calendar year is that still accurate is there sort of quarter to quarter improvement in losses that have you towards that prior target. Thanks.
So when the fiber rollout, we're really trying to drive that in the second quarter this year and it will be across the entire.
600000 foot print actually will be more than that.
At the time of launch given that we continue to to light up homes ready for service every month.
Pretty much at a pace of 50000 plus in London.
Based on 2020.
In terms of today, we're marketing we are marketing of our single play fiber product.
Across several hundreds of thousands of of homes really continuing to test the network test the drop.
Dynamics and the efficiency of it.
We don't we don't really talked about the number of subscribers. We have there, but we feel very good about performance of the network and so we're ready to launch that triple play once the Triple play box is available, which we have we expect to be able to do that in the second quarter of this year.
In terms of wireless losses, I think I touched upon it little bit and my answer to Craig which is we like the gross profit dynamics. We have right now it's really a question of how how hard we are going to push on the opex cost, which is really sales and marketing costs right. Both distribution on the sale side and now have you want to be on marketing side.
And so that guidance in terms of when we are going to be breakevens willingly driven by our desire on volume and how we think that impacts of fixed line business. So I think we'll continue to to monitor that and happy to continue to answer that question every quarter here as we get through to the end of the year.
If I could just follow up on that Dexter is that based on.
Needing more experience with wireless and the benefits in terms of of churn and sort of operating dynamics or is that you sort of already have a and idea in mind and you just sort of want more proof a round or the marketing effectiveness and you go forward.
Yeah, I think it's really the second we've got plenty of experience on the wireless and what we think the wireless impact is on our on our existing subscribers on fixed line.
I think the real question is the cost dynamics of distributing our mobile.
Which has.
Various different elements, which are a little bit different than some of the other markets that we have so as we continue to push 40% were four months into this.
And we're penetrating at a pace that's two WEX, what our peers did when they launched so we are ahead of the curve, but we also are mindful that we don't want to spend the money.
That we've seen some other people spend.
Early on so we're being mindful being very good having good balance there.
On our numbers.
Alright, thank you.
Your next question comes from the line of Brett Feldman with Goldman Sachs.
Thanks, and just maybe to come back to talk a little bit more about our residential customer ARPU you highlighted in the presentation. You've had two consecutive years here, we've grown at a pretty steady rate you just talked about some of the rate adjustments in the opt hearing on broadband is it fair to say that your outlook for this year assumes steady type of growth performance and that may.
Trick like we've seen the last two years and then just one more eve always talked about capital returns like buybacks kind of being the best way to drive value absent an opportunity to invest in the business. For example to M&A you announce your buyback, but you also announced the deal. So first I'm wondering should we be thinking about the combination of those two amounts is really being the total capital your.
Putting to work or other words, the by that could have been bigger if you didnt have M&A and they can you maybe just give us an update on what the M&A opportunities that looks like out there right now thank you.
That's enough looks like 10 questions, but one long question.
[laughter] listen I think on the on the ARPU side, you know very consistent we saw ARPU grow 1.3% in 18 and 1.3% in 19 right.
And so the mix of the ARPU is.
Pretty much the same trends to Iwear video ARPU was flat to slightly down down 5.1, 0.8% and broadband ARPU up 9.7% right. So I think we were forecasting in our revenue guidance to be pretty consistent I think as as Phil mentioned in his first question.
We're mindful as to what revenue impact video could have even though from a cash flow standpoint, it's got to probably a positive effect on things. So I think that's why we're being cautious on our on our revenue guidance just as we kind of want to feed feel through the first couple of quarters here.
To see where we think video trends are there, but on profitability standpoint, we feel very good about that.
In terms of buybacks, yeah listen we on the numbers are pretty straightforward I think as you as you go through your model.
And you lever, our EBITDA growth and you look at our free cash flow.
The buyback number.
Is there to maybe even slightly higher.
Then the question really is on M&A, Yeah, we announced this.
This deal I mean, if we had one hundreds of these deals we'd love to have them, because they're very very profitable and accretive to us it's contiguous to our business is a great area and Sparta.
New Jersey, and its and its surrounding areas.
Yes, there are no over builders in that in that area and it's also an underdeveloped broadband networks. So we continue to upgrade those networks and drive increased speed. So we think the synergy.
Opportunity on the cost side in the revenue side is significant.
Even if you take that 150 million and you take it out but you have to add some type of pro forma EBITDA coming in once we get the online three months from now the impact is not going to be significant reduction in our in our buyback capacity.
And obviously, we think that.
On an LTM Q way basis.
If we can drive Dissynergies quick quickly we may have limited very limited impact on on our buyback capacity in terms of our guidance of 1.7 billion.
We don't have a pipeline of a lot of these.
They come they are if they're available we pounds and we try and go very quickly.
But I think we're very much like our fellow brother in cable, which is there there are not a lot of sellers out there and when there are they're interesting.
But in terms of size, we don't see anything sizable right now.
Thats available.
Thank you for that.
Your next question comes from Milan over Michael Rollins with Citi.
Hi, good afternoon.
When you look at the broadband business can you talk a little bit of the mix of rate plans at your broadband only subscribers are taking relative to those that are already bundles and are you seeing any.
Point.
Customers are willing to spend on broadband regardless of their bandwidth consumption.
And just tag on one other question if theres an update on the explorations for that fiber infrastructure business that you won't thanks.
I'm not so sure I I understand the first question fully if you could just.
Give me some more pointers there.
Yes. So you mentioned earlier in the call that the broadband customers to broadband only you are consuming a lot more gigabytes per month.
Then the bundled broadband.
Broadband customers.
Yes, those customers that are broadband only they're consuming more bandwidth are on a different mix of rate plan in terms of the speed tiers that they're taking relative to what a bundled customer might take and then as you look at what customer spend over time I'd just point.
Point that customers hit regardless of what Dan We say take they just don't want to spend more to X dollars a month on broadband.
Okay, I'm, sorry that that makes a lot of sense I'm just little thick.
On.
I think the.
There is two dynamics one is one we start cord shaving.
People from bundled to single broadband.
Those people are up tiering automatically because of the and the tremendous amount of savings there getting from a from a revenue standpoint on video Theres betting that extra 10 to $20 to go up to the next tier.
Pretty much automatically as they down tier in court shape.
So those so by definition the single broadband player who is cord shaving is going to a higher speed.
In terms of the adoption on the gross adds standpoint.
Most of the gross adds who take a bundled product take it take a promo bundle, which tends to be a 200, Meg product or 300 make product.
Very few going for one gig product on a bundle.
And the where we see the higher tiers of people on gross ads on the single bundle plus effective are in single.
Well data so people will take.
341 gig on on single products much more optimal to on a bundled basis. So we will always we are seeing definitely higher speed taken for people on a single.
Single data.
Subscription, whether it's someone who court shaved or someone who gross added just on a single basis.
Do we see resistance level no.
We've consistently seen.
Very nice growth in our broadband you know were on average broadband ARPU of about $65.
And we continue to see that 9% to 10% growth.
Year over year here, we don't see any slowdown I'm going to particularly as we drive now on the optimum footprint to one gig and then with the fiber footprint, an optimum to be able to do one gig and beyond we think we've got a very good.
Revenue broadband roadmap to continue to push ARPU is on broadband further.
Thanks, just on the fiber infrastructure business, if there's an update on the exploration yeah listen we were in talks.
With.
A couple of dice.
Which.
We continue to to worked on there and the diligence phase.
On that so I mean, I can't call. It we've been we've been asked about this an updated people regularly that this is something that people have been quite proactive.
And reaching out to us and so we'll talk to them if they hit.
A handful of parameters that we're looking for and so there's a couple of people who are doing that right now and so I I think that we'd be in a position to talk about this.
Probably a couple of months from now with more clarity as to how far they get too.
Thank you.
Your next question comes from the line of James Ratcliffe with Evercore as well I ESI.
Great. Thanks, I too if I could first of all looks like you are re up.
MSG and core in the quarter and or just early this year one of your thoughts on our sends in general.
The most expensive ours and mark in the country here.
Work and what sort of returns as or that's or investment is giving you and secondly on broadband here, we're seeing across the industry cable providers.
Trying to compete on more than just speed and not sure and adding advanced quantify any thoughts on offering a thinks it's a cord cutters integration products standalone and talking to something like for like Comcast flex to be so that you could be the yeah. The the front end for somebody who was just buying video from multiple.
Providers. Thanks.
Sure.
Listen on the on the broadband sides as you're right. We are competing with other things in speed for the smart Wi Fi products has been very very successful.
It's early stages, and we'll think we'll continue to.
To drive that it's a it's something in particularly on the on the SMB.
Side that has getting very very strong early adoption.
So we'll continue to drive that and see how going but I think from the residential customers. That's something that that speeds continue to go and you continue to attach more and more devices to network.
Smart why Fi is going to be very popular.
I think on the.
On the video side, Yes, we know we think the flex products very interesting.
We obviously are developing our a similar type product as well, it's not something that we are spending a huge amount of resources doing given the amount of OTI t. product that's out there, but the LTE is one platform really is.
The platform that.
Is in place to allow for lot of OTI T. integration.
That to the extent that a customer is not a video subscriber can have a very good experience through the ltcs one platform and as we go onto the fiber.
Had this gateway configuration that will be even more attractive in terms of the way, we'll be able to interact and adopt.
If you platform, so I'm not saying that we will have a flex like product or flex, but very very focused on making sure that.
We are open and making all the OTI tea products available to our customers in a very seamless and user friendly way.
On the RF then side do you just on the RFM side.
Yeah, well listen we had a a very good re up.
With with a MSG.
Probably better than we than we expected.
I do think that that model enough probably said this historically is under pressure adjusted.
It's a little unnatural in general too.
To have that in the basic package.
But you know, it's it's New York in New York Lextar Sport.
And we want to be good partners to our local sports teams into our into our fans and customers.
But if you ran the statistics.
You know the the power ratio is just not a very attractive power ratio in terms of the amount of people who spend a lot of time watching live sports relative to the cost of the life sport. So.
That's a model that Thats challenge and I think you've seen in some the numbers were.
Affiliate fees are up but a subscriber numbers are probably falling faster than the affiliate fees growth and.
That's a challenging model over the long term.
Thank you.
Your next question comes from the line of come on Pancakes War with Barclays.
Thank you.
Dexter on a on drug Ben facing the 9% to 10% growth that you're able to get on on ARPU.
I guess it I've a couple of components to that you of course have upgrades to faster speeds and you have price increases and you also have downgrades of people are cutting the cord and therefore have to pay faster speeds. If you could just help us understand the breakdown.
In that 9% to 10% of how much of it is driven by upgrades listeners downgrades.
And then I guess the second question is when you think about.
The Verizon offered they've obviously made it easier at the Lewitt end to the market to get a broadband only product and like you mentioned video is free cash flow negative so losing video is actually accretive overall.
Why not replicate that offer more widely so that you're back book, which is forced essentially too big a bundle can also be more competitive versus the newly raised and offers thanks.
Well on the first part on broadband.
ARPU growth.
It's really two fold the vast majority is up tiering of people, whether its proactive up tiering.
For people cord shaving and appearing thereafter.
And then secondly, as you May know when you start doing the accounting allocation.
For broadband ARPU, if you are giving a let's call. It a 60 999 promo on the double play.
That's onboarding at $120 on 200 bags.
And you changed that promo two was 60 999.
At 300 Meg.
That allocation of the revenue increases to broadband and decreases the video so dollar amounts don't change, but the accounting makes us push more revenue towards the broadband because you've got 300 makes instead of 200 mix.
And so that's something that's very difficult you guys the model.
And so but that is one of the effect.
As you as you see Austin, our peers come up with some with larger broadband packages in our bundles.
The accounting allocation becomes heavy on broadband so it's not real true ARPU, let's call it.
But its accounting ARPU and its fifth reflective of the rock rate versus the bundled rate and you're given allocating more.
In terms of your filed comments I think I mentioned to one of your colleagues who talked about it.
They are not more competitive than we are today.
On the broadband single play they are more expensive than we are.
And they're much more expensive on bundled double play so we feel as if our price points.
Our our in the right spot.
Cheaper than there is both on the single and double play side.
Great. Thank you.
Your next question comes from the line, Andrew Bill with a rent research.
[laughter].
Hi, I'm, just trying to get a better understanding of the M&A trial. So it's just wondering if you could help us with the revenue contribution from Cheddar before school. So I'm the full year revenues might have been.
And then secondly.
Just also wondering about the process that you expect some timeline so going from the sprint ambient air agreement to a new new T mobile agreement because that deal closes.
And do you expect any change in the cool Dick pricing.
The seems to be in some commentary from my side that they.
Thank you might pay more for quite a coverage, but the cool places yesterday seemed to suggest the Ajay was a insisting on dish having relationship between you know T mobile's expanding capacity in a little wholesale pricing. So I just wonder if you have any thoughts or as you head into that negotiation.
So on the M&A side.
Just off the top my head I.
I think cheddar contributed about $10 million of revenue in the fourth quarter.
And for the year somewhere around 2020 5 million.
And that and that's not a full year, that's the accounting year. So we closed in June.
So I guess on a full year basis, it's probably closer to 35 ish 40.
As to what it would contribute.
In terms and just maybe give you a heads up in terms of the revenue contribution of the small cable operator.
Service Electric of New Jersey, that's a 45 to 50 million dollar revenue for a full year.
So whenever that closes we will get the pro rata for that year.
Coming into our account.
Thats not in our revenue guidance.
So you can add that to whatever.
Whenever that it's probably somewhere around 2020 bips of of additional revenue coming in this year.
In terms of.
Our I think I I didn't catch the entire length of your question Andrew on the second relative to the DLJ and and dish.
Yeah in <unk>.
Paces, It basically said that there Jay had a insistence on Oh.
So the.
It would be lower wholesale prices the.
The capacity of the a new T mobile network increased.
So you know just just sort of waiting backdrop against.
Some of the things that we've heard <unk> T mobile so congrats on the.
On the agreements is it migrates to them.
Well listen I think you know we've gone to an agreement in place with sprint.
We expect that.
That agreement to move onto the new Timo.
We obviously have price discussion to have you had on fiveg.
Yeah. So you know I don't we are obviously going to.
Work through our contract and also work through the deal Jane FCC directives.
With them.
On stuff, but.
Yeah, I don't think anything to do with DLJ in dish is reflective of what our expectations are necessarily.
Okay. Thank you.
Your next question comes from the line of Peterson Pino with Bernstein.
[laughter].
Hi, two related questions Tommy both on marketing so the improvement in November and December of Internet subscribers did that come more from sign ups or from a churn improvement and what did you do specifically to achieve that sharp improvement and then looking forward I'm could you discuss marketing.
Kind of a more philosophical perspective.
Struggled to reconcile price for life in 2019, and some of the two year promos that we used in 2017.
With the company is broader focus on driving pricing and cash flow maximization. So appreciate your thoughts on both.
Sure in terms of the December impact.
One we saw a churn normalized relative to what we saw in December.
2018.
The increase impact and that's probably let's call. It December of 2018 was an eight to 10000.
Broadband net add month as opposed to a 17000, which we saw in December that incremental seven to 9000, let's call. It.
Some of it as I've mentioned was.
Backlog related to be SSL with us So we lost.
Customers on BSS to assess hub for things like we didn't build them because we lost their credit card numbers or that the transfers of credit card numbers.
Didnt go a seamlessly as it should have gone.
And then obviously they reconnected.
And some of it was just better retention.
Going into going December as the promotional roll off volumes fell off dramatically and we saw continued a trend similarly to that.
In terms of like for like performance year over year being very good in January of 2020 versus January 2019, and we didnt have any more really BSS Oss this impact.
There.
So that's really the the one off the effects of of December which is catching up on some of the effects of the negative effects on October November.
In terms of the marketing and you know our view on price for life is not so much trying to hamstring ourselves.
Relative to the ability to grow our crews.
With our clients, it's really to allow our clients to feel good about not being hit with the big promotional roll off.
Sequentially year over year.
Walter the same time, we know that a lot of our clients are proactively upgrading their broadband.
So whenever you do change your broadband or change any mix in your video package. If you're a bundle then your price changes in goes back to a new price.
So our anticipation we see that even with some of our early point price for life people that started in June as the people are proactively changing their packages and lose the price for life, but they like the fact that they know they're not going to get hit by that 15 to 20 dollar promotional roll off.
Which is a lot higher than the price increase.
That happens on an annual basis off cycle relative to the price increase which becomes a double whammy right and that's something that drives a significant amount of coal volume, which were trying to eliminate.
And your final question comes from a line of Ben Swinburn with Morgan Stanley.
Thanks.
Two questions texture on the one gig rollout can you give us a sense for sort of how much of your footprint. You are marketing that service I think you mentioned the Bronx and.
Your fiber footprint with an optimum and kind of what that goes to in 2020, just trying to get us for how much that may be a tailwind to customer growth.
And then secondly, I think earlier in the call. You mentioned, you expect revenue per customer growth in the 1% to 1.5% range for 20.
I just wanted to come back and confirm that given the price increase of four to five.
I thought more might convert over to a to ARPU yields just wanted to make sure I heard that correctly. Thanks a lot.
Just just to hit on your second question first I don't think we've talked about.
Volumes going went to one half percent.
I'm in ARPU actually if I said Vod okay.
Alright.
Right, we have an ARPU, we had an ARPU or at least let's call. It b to C revenues.
Of one that 1.51, 0.6% growth in the last two year.
Which is broken out 1.3% in price and 0.3% in volume.
I think it's fair to say to talk around those same number is.
Excluding any any acceleration of video.
Losses, so that would be our anticipation.
You're right in saying that our price increase is higher in assuming we get the same retention numbers in terms of percentages of that going forward, we could see some higher.
Impact on the 1.3%, maybe being a little higher so, but again, we're being a little bit conservative here.
Relative to we just want to see what the impacts of video will be a throughout the year.
Gotcha. It in terms of the one gig rollout the Bronx is one 800000 homes path.
And we have about half.
Half of that market in terms of in terms of penetration.
And in terms of the amount of thumb fiber footprint that we have rolled out one gig to today that we walked through its about 200 250000 homes.
So today, we're marketing around just over a million homes on one gig.
I don't think we are.
A modeling in let's call it and expecting a dramatic.
Approvement in penetration of one gig that's driving a broadband revenue growth this year.
But the rest of the entire broad the entire often footprint, we won getting ready. This year. So we will be marketing one gig across the entire optum footprint. This year.
Okay.
Thanks, a lot.
This concludes though question answer session I would now like to turn the call that sort of a presenters for any closing remarks.
Thank you very much for joining everyone do let US know if you got any follow up questions and we look forward to catching up with you next few weeks. Thank you. Thank you.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.
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