Q3 2020 Charter Communications Inc Earnings Call
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Ladies and gentlemen, this is the conference operator todays conference is scheduled to begin momentarily until.
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I would now like to hand, the conference over to your Speaker today Stefano Andrew. Please go ahead, Sir good morning, and welcome to Charter's third quarter 2020, Investor call presentation that accompanies this call can be found on our website IR dot charter dot com under the financial information section for.
Before we proceed I would like to remind you that there are a number of risk factors and other cautionary statements contained in our SEC filings, including our most recent 10-K and our 10-Q filed this morning.
I will not review those risk factors and other cautionary statements on this call. However, we encourage you to read them carefully various remarks that we make on this call concerning expectations predictions plans and prospects constitute forward looking statements. These.
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 before to make additional forward looking statements in the future.
During the course of today's call, we'll be referring to non-GAAP measures as defined and reconciled in our earnings material piece.
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 on today's call. We have Tom Rutledge, Chairman and CEO and Chris Winfrey, our CFO with that.
Let's turn the call over to Tom.
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Thank you Steffen.
It's a significant challenges that COVID-19 is pose we've been able to operate our business throughout the pandemic earlier.
Early in the pandemic, we offered our customers a set of programs, including our remote education offer and keep America connected pledge that supported customers' needs, resulting in a significantly higher number of customers enjoying our services. In addition, we opened our white hot spots across our footprint for public use.
Opened up our spectrum news web sites to ensure people have access to high quality local news and information rapidly connected and upgrading fiber services to health care providers and donated significant airtime to run public service from outlets elements to our full footprint.
16 million video subscribers, our employees were given an additional paid sick time for Cobiz related illnesses flex time program to address other cobot issue.
We also.
Increased our wage for all hourly field operations and customer service call Center employees by $1.50, an hour and we remain on path to a 20 dollar minimum wage by 2022.
Our ability to operate our for our customers and communities. Despite the challenging environment is a testament to the quality of our insourced and onshore workforce or safety precautions and in many cases, our ability to operate remotely or add to our sales to carry agents have continued to sell our products and to provide outstand.
And service to our customers most of our stores have been able to remain open throughout the pandemic serving customers in need.
Our field operations personnel have handled professional installations and repairs.
Continued their work in the field servicing customers in their homes and maintaining the quality of our physical plan.
Our plant construction has continued and we've actually seen plant miles and passing to increase more this year than last and our product development team has continued to develop and roll out various product improvements, including updates and enhancements to our video Internet and mobile products, our ability to continue to operate well under the circumstances as also.
The result of investments we've made in various parts of our business over the last several years, including our investments in.
Systems integrations and automation.
Our self installation program, which ran at over 80% of installations during the quarter, our online and digital sales and self service platforms.
Network, including DOCSIS, three dot, one which provides ample bandwidth to stand surging use with residential data usage per internet only customers remaining at an elevated 600 gigabytes per month during the third quarter.
Our operating and investment strategy has allowed us to sustain and accelerate our customer finance for growth.
During the quarter, we added 537000 residential and small business internet customers versus 380000 in the prior year quarter and the past 12 months, we've added 2.3 million internet customers and 2 million overall customer relationships.
We're growing well and gaining share against all our competitors in all of our markets regardless of competitive infrastructure.
In the third quarter, we grew our mobile lines by 363080 7000, more and then in the third quarter of last year and continued acceleration from last quarter we.
We recently purchased 210, CPR rest priority access licenses and 106 counties across all our key de amaze for just over $460 million.
Over a multiyear period, well execute on our inside out strategy with small cells attached to our existing network using unlicensed and now our licensed spectrum based on a disciplined return on investment approach consistent with our goal of reducing mobile operating costs.
Turning to the third quarter financials, we grew consolidated EBITDA by over 13%.
And our third quarter free cash flow grew by nearly 40% year over year.
Looking forward and subject to what happens with the virus unemployment stimulus, we expect our broadband and mobile products to continue to drive demand and churn and growth to return to pre pandemic levels SMB, it's actually performed better than we expected and our ability to grow we'll also be it partly.
Tied to the economy.
In enterprise retail sales activity is picking back up despite limited on site access and those new sales get installed in the coming as those new sales gets installed in coming months, we expect enterprise revenue growth to pick back up.
[noise], our advertising business is improving our core AD business, excluding political it's about 90% back to normal in part because of the amount of sporting events that are now Aaron So core AD sales are improving and we still expect political advertising to be meaningfully contribute a meaningful contributor in the fall.
Fourth quarter.
To maintain that growth will continue to invest in our network. So that we can continue to offer new and better products than our competitors becoming.
Coming years, we expect data usage per customer to continue to grow and we're prepared to deliver more throughput across our network. The growth in demand for data is and will be driven by a number of factors, including the growth of IP video services, including video conferencing and gaming [noise] also.
Also the number of growth.
Growing IP devices connected to our network, which is nearing 400 million devices.
New and emerging products and services are being developed as we speak such as E learning or Tele medicine and for K virtual reality or holographic formats for example.
We're continuously increasing the capacity and our corn hubs and augmenting the network to improve speeds and performance.
In the near term however, we have a large opportunity to improve throughput and latency by continuing to use already deployed DOCSIS three dot one technology, which still has a long runway.
[noise] and additional bad with tools available to US today include the conversion of the distribution network to DOCSIS three dot one delivery for all products, including video broadband and Celesnik by allocating more plant spectrum. The DOCSIS three dot one IP services, we have the ability to offer symmetrical gigabit plus.
Speeds well.
We also continue to invest in DOCSIS for Dido with key vendors and the rest of the industry for even greater capacity in functionality. The DOCSIS for data specification allows for multiple path to reach 10 gig and higher speeds, including full duplex DOCSIS extended spectrum DOCSIS both three.
Got one and four Dato DOCSIS can be deployed in an economically efficient way as the market dictates.
Our network evolution strategy allows us to offer superior connectivity products to meet changing consumer demand and extend our growth strategy and drive free cash flow.
Before turning the call over to Chris I'd once again like to thank charter's employees for their hard work dedication and diligence throughout the pandemic they've been asked to go above and beyond the regular duties and they have delivered now I will turn the call over to Chris.
Thanks, Tom turning to customer results on slide five of our presentation. We grew total residential and SMB customer relationships by approximately 2 million over the last 12 months by 6.8% by 457000 in the third quarter.
Including residential and SMB, we grew our internet customers by 537000 in the quarter and by 2.3 million or 8.8% over the last 12 months.
Video grew by 67000 in the quarter better than last year's third quarter, a decline of 75000 video customers. The positive performance was driven by churn benefits, particularly when bundled with broadband and.
Similarly, wireline voice declines by only 25000 compared to a loss of 190000 in the prior year quarter.
Mobile line net adds accelerated again to 363000 in the quarter.
To put what is already a strong third quarter subscriber results into perspective remember that our Q2 results of 765000 customer relationship net ads and 850000 Internet net adds already included the benefit of our coated programs and our third quarter results reflect any churn out of those programs.
Our year to date customer growth shown on slide six remains the right metric for industry comparability given different reporting.
So in the third quarter, we saw excellent retention rates for our remote education offer churn has been similar to regular new customer acquisition churn.
We re launched the program very late in September with de Minimis impact on our third quarter Internet net adds going forward, we expect the acquisition volume, but this offered to be significantly lower than the original program given the high retention rate of customers added during the first half of this year, we won't be breaking out this offer separately.
Or keep Americans connected program completed in late June and we saw good retention of those customers in the third quarter.
The second quarter, we put approximately 200000 customers that were passed normal disconnection back into current status through a write off of their debt and so far the vast majority are paying with minimal difference to normal customers. So the retention has been much better than our expectations the development of customer's ability to pay generally though.
Through employment or subsidies remains the key driver for our short term residential outlook as I mentioned last quarter, our customer growth performance should be measured by our full year performance rather than a particular quarter.
The third quarter progressed, we can already see the market returning to more normal churn activity and not at levels and we expect that to be the case in Q4.
Turning to the financials on slide seven as we expected there continue to be moving parts due to cobot no reference some of those items, which we've again laid out in slide nine of today's presentation with full year slump summary on slide 19.
Residential revenue grew by 4% in the quarter, primarily driven by accelerating relationship growth and similar PS you bundle and video mixed trends weve seen over several quarters.
6.9% customer relationship growth in residential was partially offset by a $218 million onetime adjustments for estimated sports network rebates that we intend to credit to video customers due to the accounting treatment, which I'll cover in a moment not all of that rebate estimate was offset in the current period expense.
SMB revenue grew by 1.5% and while revenue growth was slow this quarter to the first half volume and SMB customers that remained on our seasonal plan our customer growth has accelerated despite its still tough economic climate for small and medium business.
Spectrum enterprise revenue declined by 4.3% year over year, driven by the sale of Nab a site in the prior year period, and the continued pressure from the wholesale side of the business, while the comparability issue for Navistar. It goes away. After Q3 wholesale in particular cell tower backhaul has been challenged and probably continues that way until late next year based on current activity.
Retail enterprise, which is the vast majority of our enterprise revenue is growing around 6% driven more by pre covered sales in the last six months performance.
Tom mentioned enterprise sales activity is now pick back up despite limited on site access.
Those new sales get installed in subsequent months, we we expect enterprise revenue growth can recover and begin to accelerate next year.
[noise] spectrum reach third quarter advertising revenue increased by 17%, primarily driven by political excluding political core AD revenue was down by about 10%, which is reflected on slide nine cove. It impacts so our core very much tied to the economy, it's coming back and were significantly better than the second quarter.
With or without the recent heavy sports learn obvious.
Obviously, we expect the fourth quarter to benefit from political as well.
Mobile revenue totaled $368 million with a $172 million of that being device revenue.
Total consolidated third quarter revenue was up 5.1% year over year.
Moving to operating expenses on slide eight.
In the third quarter total operating expenses grew by $36 million or zero, 0.5% year over year cable operating expenses and excluding mobile declined by 1.2% year over year were 0.8%, excluding Napa side with a number of kobin related items outlined on slide nine.
Programming decreased 2.3% year over year, reflecting the same rate volume and mix considerations that we've seen in prior quarters.
And this quarter includes a $163 million benefit related to sports networks rebates.
The difference between the $218 million estimated credit to video customers, which lowered revenue and $163 million programming benefit relates to an expected reduction in sports rights content cost, which is recognized in the produced content line over the remaining life of the contract similar to the delayed expense recognition in Q2.
Do we games were canceled.
From a cash perspective, however, we will provide our customers a bill credit for the rebates received from the sports program networks. When those details are finalized.
Regulatory connectivity and produced content expenses were essentially flat year over year and were comprised of lower regulatory and franchise fees offset by higher video CP sold to customers and higher sports rights costs.
Cost to service customers increased by 0.4% year over year with meaningful productivity improvement lower bad debt and higher wages and benefits as drivers.
Bad debt expense was down year over year, given surprisingly, probably our best ever payment collection trends.
Excluding bad debt from both years cost to service customers was up 7.5% year over year in the third quarter, primarily driven by 6.8% customer relationship growth. The hourly wage increase we instituted earlier in the year coated flex time, and the timing of medical benefits cost.
Slide nine of today's presentation, we've isolated the temporary bad debt benefit as customers pay better than usual and the labor cost increase from an acceleration in frontline wage increases and benefits timing.
I expect continued nonrecurring puts and takes on this line item for a few more quarters over time cost to service customers should again grow at a slower rate than customer relationship growth due to lower transaction volumes and higher self service trends. Despite the step up in minimum wages.
Cable marketing and sales expenses declined by 0.7% year over year as our unit growth did benefit significantly from lower churn.
Other expenses declined much declined by 2.5% year over year, primarily due to NAV site cost in the prior year period, and mobile expenses totaled $456 million and they were comprised of mobile device cost tied to device revenue customer acquisition, and then be in our usage cost and operating expense.
Mobile EBITDA is still negative because of customer growth costs, but my by much less despite the higher growth another.
Another way of describing that trend is that we have now crossed 2 million lines and our mobile service revenue now exceeds all regular operating costs, excluding acquisition and growth related mobile cost.
In total we grew adjusted EBITDA by 13.6% in the quarter, when including our mobile EBITDA loss of $88 million cable adjusted EBITDA grew by 11.7%.
We generated $814 million and net income attributable to charter shareholders in the third quarter capital expenditures totaled $2 billion in the third quarter.
Our third quarter capital expenditure shows we've continued to invest to support current and future growth. We invested significantly in continued capacity upgrades at the national and local levels to stay ahead of higher data usage, we have not slowed down on new build including construction in rural areas.
We continue to purchase significant DOCSIS 3.1, modems for new connect and swaps as well as the high attach rate for advanced in home Wi Fi service. We also continued to invest in facility improvements back office systems and local store build outs.
For the full year 2020, we still expect cable capital expenditures as a percentage of revenue to decline year over year, but maybe only slightly due to the significant customer growth related CPM capacity investments.
We generated $1.8 billion, a consolidated free cash flow in the third quarter and excluding our investment in mobile we generated $2 billion of cable free cash flow up about $500 million versus last years third quarter.
Currently we don't expect to be a meaningful federal tax payer until 2022.
We finished the quarter with $1.3 billion cash and $4.7 billion of availability under our revolver.
As of the end of the third quarter, our net debt to last 12 month. Adjusted EBITDA was 4.3 times or 4.2 times. If you look at cable only.
Earlier this month, we issued $1.5 billion of 12 year high yield notes at a yield of roughly 4%.
Pro forma for our recent financing activities. Our current run rate annualized cash interest is $3.8 billion, we remain comfortable in the middle to high end of our target leverage range of four to four and a half times.
During the quarter, we repurchased 6.1 million charter shares in charter holdings common units totaling about $3.6 billion at an average price of $592 per share.
We will always evaluate the best use of our capital to generate long term returns for shareholders via organic investments such as our launch of mobile network edge out.
Accretive M&A, we're purchasing or from shares probably in that order.
The prioritization of organic investments is because there is high demand for our products across every part of our footprint, which is why we continue to aggressively build out more broadband passings and ensure that our network is well invested ready and working for future opportunities.
As the environment continues to evolve our goal is to stay focused on what we do well and to execute a proven operating strategy that works for customers and employees to create shareholder value.
Operator, we're now ready for questions.
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 and we'll pause for a moment, while we compile the Q and a roster.
And our first question comes from the line of John Hodulik from Yes. Go ahead. Please your line is open.
Okay. Thanks, guys.
Couple of questions about broadband.
Can't help but notice that you guys talked about.
The fact that you're competing well really regardless of the infrastructure that you're going against.
Obviously strong strong numbers across the board for the industry in terms of broadband net adds can you talk about how you're competing against fiber competitors.
And sort of market flow share and if you could set some numbers there and then the other number that stuck out to me was the 600 gigabytes of usage and the continued growth there. It looks like maybe we're a couple of years away from that from a terabyte on average for for broadband only customers, Tom how does that affect competition.
As you look out over the next few years I think specifically against fixed wireless access as it does it make it more difficult for fixed wireless.
Be a true competitor to sort of.
Wired cable service thanks.
Well, John how do we compete with we have it's not just the products, but the products do matter and it's.
Obviously, what you're selling.
As a product how much capacity, how much speed how much throughput with the reliability is.
But also how well you service it and.
And.
And how efficient you are delivering the product and so we're competitive with.
The infrastructure that we have against all of the various competitive infrastructures, we go against fiber fixed wireless.
Satellite.
And.
Copper based.
Hi capacity.
Networks and so.
Our network is highly capable it's easy to augment from a capital investment point of view, it's very efficient to augment and we keep our product set and our.
Service sets better than our competitors and we prevail and most almost everywhere we operate.
How do I think about that going forward with fixed wireless.
I think that.
All of the various.
Opportunities for competition require significant capital investment by our competitors.
And.
And I think our network sets up better from a capital investment perspective going forward.
So that we can provide more capacity.
And.
More capability at lower costs than our competitors.
So it's a very competitive environment theres, a lot of different ways of making the competition work.
But I think our network has superior capabilities of properly manage.
John I would just add that I kind of went out of my way in my prepared remarks to say as you if you want to compare.
Again, some of that competition, you really need to take a look because of the moving parts throughout the different quarters, you need to look at the year to date results and compare that in terms of what's charter doing in front of competition thought mentioned, we have competition essentially everywhere. We operate we've had that is not new but.
But we're performing very well and if you take a look at our Q3 year to date results I think thats, probably the most indicative way to really look at it and think about the performance.
Okay. Thanks, guys.
Thanks, John James We will take our next question. Please.
Our next question comes from the line of Ben Swinburn from Morgan Stanley Go ahead. Please your line is open.
Thanks, Good morning, taking.
Picking up a little bit on the same themes that John asked about.
I wanted to ask Tom about the network.
Evolution, you discuss going to IP video.
Just so I understand are you too are you taking down Mpeg across the system and is that something that requires a swapping out of boxes. Just what are the what are the capital business implications of moving video over to IP on three dot one.
So that seems like a big transition from from the historical approach.
And then.
Again, just going back to the broadband results this year across the industry. It seems like we've pulled forward.
Penetration in broadband in the United States.
If you just look at the year to date growth Thats, an unbelievably strong year across the industry. So im just wondering I know, Chris if you want to take this one so just thinking about lab.
Lapping this year next year and speaking about the quality of the customer as you brought on I know you've seen good churn stats, so far but should we be thinking about this pull forward, having maybe lapping. This next year and next years, maybe a below average year I don't know if you have any thoughts on sort of where we go from here as we come out of cold bid, which is obviously just pulled all that.
So all of this growth into 2020 thank.
Thank you both.
Well, okay, Ben so the how's the network work right now.
We actually run three actually more than three but all three major networks inside of one physical infrastructure. So we have DOCSIS 3.1, which is a.
Which we use capacity to deliver.
IP based services to specific motor.
Modems households, and customers.
We also have a DOCSIS three though infrastructure inside of our network and we have a qualm based video infrastructure.
Most of the network is still dedicated bike Qualm based video the traditional cable TV service.
And delivered to connect consumers that way.
So you can actually and today, we have multiple ways of delivering video to our customers and other services.
And we have 10 million app based streaming products.
Vice is connected to our network, where the customer has downloaded an app and we're feeding that app our app.
Yes.
A full bundle of video packages.
And the consumer brings their own device. We also have.
Significant.
Distribution of Qualm based traditional cable TV services.
And we are planning on mixing the two together in the same device.
And we do for instance, we have Netflix on our set top boxes in a device, we provide but it's actually being delivered.
Through a different path to the box so the box will look at.
Video from the traditional cable TV path and we'll also look at the at the new IP path and combine them together in a seamless experience for the customer. So we have the ability to manage.
CB and customers through time and manage the way we.
Use our network in an efficient way to.
To provide a full range of services and with regard to impact you know, even if we deliver IP video will as we do we still use Mpeg to do it.
It's the digital format the videos and there is a.
An opportunity through compression.
Going from Mpeg, two which is still widely distributed by us to Mpeg four.
And there's opportunities through the addition of.
Products to what we call switched to video, which can be either IP or impact traditional qualm based impact.
And we can manage how much is switched how much has an impact to how much is in qualm. How much is in DOCSIS 3.0, and how much is in DOCSIS 3.1.
Actually run all of that at the same time.
So we have a lot of room and and I think the key takeaway is that traditional video is still the largest single it's more than half the capacity of the infrastructure.
Yes, but you don't need to replace boxes in order to move that no that network. Okay. The key point you got it.
And on your broadband question I'll take a crack at it and Tom May want to add that has more to it the the way the.
The industry is growing at a faster pace and weve taken in a higher amount of share across all areas of our footprint and infrastructure is as Tom mentioned, where you're seeing that come from is broadband Nevers and also the acceleration of mobile only.
In addition to the significant share shifts that we're seeing is capable generally.
I don't think.
Whether that was a pull forward or not I don't know, but.
It doesn't go backwards I think the demonstration that the need for the product is there I don't think it goes away I think its a permanent either shift or trend.
Reducing the mobile only and requiring more broadband.
In the household.
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What I think we're seeing already and I mentioned in the prepared remarks is late in Q3, you can already start to see the market moved to more normal transaction activity.
And that includes both churn and sales we think that.
Indicative, where Q fours, probably heading and and I think probably for next year as well, you'll have higher levels of nerve or churn and.
Market churn and as a result, you have higher sales.
Doctors through on it and I think next year right now probably looks more like a normal years as opposed to 2020.
The other thing I would add just in terms of.
Longer run trends.
Yes Cove it had some impact on the broadband adoption, but so does the change in the video business that's going on rapidly.
And.
As more and more people are using IP connected devices to bring video services that traditionally would have been delivered either over the error by cable.
That that increases overall demand for broadband in the home.
And I think that also simultaneously going on so you have a.
Sort of overall demand change as a result of what's really going on in video and so I don't know that it changes adoption rate so much going forward, but as it should just shifted the entire amount of people that would be interested in having a.
In home broadband service, which kind of ties into the Sean's question about the suitability of wireless access over time, when you have that kind of throughput going through I agree.
So its good points. Thank you.
Thanks, Ben James will take our next question. Please.
Our next question comes from the line of Jessica Reif Ehrlich from Bank of America. Please go ahead. Your line is open.
Thank you.
Even with the increase in broadband to now which is quite evident you posted video net adds for the second quarter in a row.
Significantly bucking industry trends, so first half trends in fourth quarter indicated that you can continue that trends or was it related.
The pull through that you were talking about and second whats specifically about.
Your offerings you believe consumers are responding to and then just as a second topic.
Tom just a follow up on your advertising comments, you said that the core underlying advertising is 90% back to normal what do you think the drivers there because it still seems that local businesses are struggling. So what are you doing differently what would.
That's actually do what data you do using that's different.
All right well.
You know if you look at our overall connectivity growth.
As a charter versus the industry, we have higher and faster connectivity growth.
Generally speaking to the industry and as a result of that.
We're pulling through video with that growth.
If you just think about overall video penetration.
As a percentage of households, and you think about changing households over.
To your network.
You're going to you're going to pull through a certain percentage of.
Video and if you grow fast enough you'll grow video as a result of that and we said that in the last call.
In terms of why we think our video growth is positive.
We don't think that the overall video marketplace.
Has changed meaning we still think.
Fat bundles of very expensive video are under pressure.
And.
We'll continue to be.
And.
And so you're you're going to have continued erosion of that bundle. We think through time, but were just growing faster than that erosion.
With regard to add sales I'll, let Chris answer that but I want to say one thing about local businesses. They are under duress.
But you know our SMB growth rate is higher this year than it was last year.
In the third quarter.
And and so we're actually seeing a lot of yes, theres a lot of damage out there, but there is also a lot of.
Reinvention.
And a lot of new business formation.
And at the very small business level, and and were taking advantage of that.
Jessica the.
Spectrum reach which is our advertising group as you mentioned is back to 90% of prior year on the non political local advertising.
From what I've seen so far most of our peers are reporting.
In a similar range of their core advertising being back in so I don't I don't think we're that unique.
Thank for the industry some of that benefit.
The lack of advertising in Q2 people wanted to get back into the market. Some of that was tied to what a lot of that was tied to what Tom said is the SMB spaces is behaving well for us on the on the business side.
But also the sports timing in the third quarter, you had a doubling or in some cases tripling sports activity inside of the third quarter related to a lot of the delayed seasons for the different sports and that was encapsulated inside of Q3, so that admittedly helped.
From a charter specific perspective, we have New York city in La and they've been more locked down in other markets. So from an economic perspective, we have a slight drag.
Or delay in that returning relative to others.
But if you really step back the despite the overall market.
Having negative video trends and.
You know everything that's said about the traditional advertising space, we have a good runway for growth in front of us because of our ability to monetize the long tail of the inventory by.
Tools that weve developed to.
Really drive impression based viewing measurement and to be able to sell our product our advertising product on that basis. So traditional channels that weren't able to be monetized are now able to be monetized in packaged and it really different way and sold at a different price.
Together with Addressability and a lot of the additional interactive advertising features that you are well aware of that we've been adding to the portfolio. So even in an environment, where video slightly declining I think absent a pandemic, we have the ability to grow our core advertising.
You know in political and non political years I'll like and so that business is outside of the pandemic that that business actually in very good shape.
Great. Thank you.
James We 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, guys.
Two quick ones. So Chris you mentioned that next year would be a more normal broadband yeah, but we.
Accelerating broadband subs ever since the time Warner cable acquisition, what do you think called this a normal broadband subscriber growth yard that.
Sort of 6% year over year growth.
And then on we'd love to you Jonathan.
The next question.
I fully expect an answer to the question that Chris.
Okay, and then on on EBITDA growth the.
The contribution from wireless this quarter was also I mean I assume that just continues the losses continue to recede and not will be a propellant EBITDA next year as well do you have a sense of what that could contribute to year over year growth EBITDA next year.
So both of those kind of kind of EBITDA guidance questions, which isn't isn't what we do.
The honest answer to your first question is we don't know and we see trends reverting back to normal which means more normalized growth does that mean more like 2019 does that mean continued acceleration somewhere yes, I guess is the answer to both of those questions and don't know.
But.
I think it's going to be good either way and.
And so were really positive on the outlook for profit and obviously as we look further out to the extent that were.
Doing.
Rural build and expanding our footprint to the extent that mobile really has a significant impact both the acquisition as well as churn to the extent that there is additional mobile subs.
Substitution that declines for all the reasons that we talked about before all of those things would be positive relative to our normal growth rate and so we need to see how all that develops.
Wireless side to your point you can look at a few different ways you can take a look at our law.
Losses per mobile line, which is doing very well you can think about it in terms of what I said before is that once we got to two line lines, which we crossed over inside this quarter that it's now an incrementally positive business, but for the subscriber acquisition cost.
So its already EBITDA positive, if we decided to stop growing which of course won't do.
So the answer to your question.
Yes, it's going to continue to get better, but the amount that it continues to get better in terms of its contribution to our EBITDA performance really depends on the growth rate of wireless subscriber acquisition cost the faster you grow the.
The more you are going to spend and we're going to try to grow as fast as we can.
It depends on growth.
But the way to think about mobile is yes, it's EBITDA positive going forward and it's.
And as it's currently price but.
If you grow mobile rapidly as we are.
You will grow your broadband rapidly to growth.
Thanks, Jonathan Thanks, guys.
Thank you James will take our next question. Please.
Our next question comes from the line of non bank could touch far from Barclays. Go ahead. Please your line is open.
Thank you.
Chris I guess a couple for you with the first is on the gross additions trend I mean, obviously the gross adds have been really strong this year.
And many of them have come in at a lower price and in general growth additions commented a little crazy so.
When you look at our next year it.
It should be stronger than normal because of the Gerhard shift this year and the big good volume of growth ambitions Bill just wanted to understand if that's the right way to think about their go to the other thing that offset that benefit.
And then secondly in terms of home fastening.
You guys have been I think growing at more than 2% Thats unit, which is high then household formation and then higher than most other than the industry if.
If you could give us some sense, albeit that suites for these newer homes passed where says good existing base to give us a sense of what is the the mix of these newer homes looks like that would be helpful. Thanks.
And so I think the answer to your first question on gross additions.
It's going to be a little bit of a mixed bag Q2 of this year definitely had higher gross additions for all the reasons that we talked about in sort of Q2 Q3 did not.
As I mentioned the activity levels drop significantly both on.
Those particularly related to churn, which also has the impact of reducing sales across the entire market. Because you have less flow. So inside the third quarter one of the reasons, our marketing and sales costs were so low despite the significant growth that we had was tied to that very fact.
So I think you're going to see a mix bag inside of next year as it relates to ARPU impacts from promotional pricing roll off on top of that I would argue that the biggest driver of our ARPU device.
Development really is less about the individual p. issue pricing at roll off and it ties much more to do not a single play selling and so that's that's the biggest driver that's going on together with the video tier mix. So when you think about our success in selling spectrum stream and choice in essentials.
Products has a bigger impact and then the mix that you were referring to.
On the homes passed when we do new construction.
Dependence is what we call brownfield or greenfield, but we have pretty steady penetration curves over each vintage if you want to call. It that if what we're building and that's what gives US a lot of confidence to go do more of it because we can see at high level of consistency in terms of our ability to get to very high terminal penetrations.
When we build into markets.
And.
And so that's that's what gives us confidence in our ability to go extend that that investment concept I.
I don't know if that's helpful and answering the question but.
We'd like to see penetration the speed and the curve of the penetration that were getting these capacity.
Got it thank you.
Yep.
Thanks, Good on 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.
Hi, Thank you.
Two questions if I could first if I could just stay with.
What you were just talking about.
With the.
Adoption curves in new market.
Can you can you share with us how much of this quarter's growth came from newly passed homes or say homes passed within the last.
24 months or so just to get a sense of.
Where we're seeing penetration of newly opened markets versus where we're seeing increases in penetration of mature market and then and then.
Separately, just given how promotional the wireless market has become in the last few months or the last month or so in the wake of the iPhone launch obviously.
How does that affect your thinking about your your own promotional stance in customer acquisition for for wireless and and how should we think about what cost that might fair for the fourth quarter.
So Craig one I'd take the first one in the <unk> and Tom Congrats to second I don't I don't have the number in front of me, but it's it's not a material driver for our net additions.
The new Passings construction, it's been relatively small when you consider that compared to our 52 million passengers overall.
Helpful, but it's not the material driver of our growth.
Simple way to think about it as you can think about greenfield new construction.
Anywhere historically past couple of years, and 500 6500 to 600000 homes and so that gives you what you would need to go model and say apply an adoption curve to that.
Number of passes and you can get to a number and what you'd see is it.
Neutral, but it's not material to our overall internet net additions growth rate.
Yes, so it's meaningful but not material.
With the promotional.
Yes.
Our basic proposition when you think about wireless is that we can save consumers a lot of money.
And if you look at the average wireless Bill most households are paying.
They can connect to us.
And.
By the right package from us and save a significant amount of household spent telecom spend and reallocate that to us that's our our primary.
Objective and.
We don't we have the ability to switch customers over who already have a wireless account.
Our product and.
Were not driven by.
New hardware for the consumer to drive our business.
The consumer can bring their hardware with them.
And and connect to us and save money.
And so.
Yes, we are oriented toward.
Making our price.
Successful in the marketplace and we'll have to compete with that price, but we already have a significant price discount.
To what most people are paying.
For their wireless service.
And as a result of that and Weve had accelerating growth in wireless.
Connections and so we're offering real value to consumers.
And real overall savings by having them connect to us both.
Both for their broadband in their wireless products.
Thanks, Tom I, just wanted to say I was delighted to see the extension of your contract. This morning. So are we to understand that as you are now under contract until the end of 2024.
Yes, more time in the Salt mine.
[laughter].
And I think I can speak for a lot of chatter shareholders in saying that I think they are going to be a lot of people that are delighted to have these days.
Oh, Thank you very much.
Very kindly to say thanks.
Thanks, Craig.
James will take our next question.
Our next question comes from the line of Phil Cusick with Jpmorgan go ahead. Please your line is open.
Hey, guys.
Two if I can first a follow up on Jessica's question. What is the video attach rate to broadband sales. These days and how's that changed in the last few years and second a little more on wireless.
Talked about a network build over time with the inside out strategy, how does that take advantage of spectrum and just cellular get integrated into your your home routers over time do you build that in dense outdoor markets like Comcast talked about yesterday.
It's the sort of the plan over time.
Yes, yes, I mean, the attach rate of video to.
Broadband is this has been declining.
Steadily and.
And that's because the overall penetration of video.
Traditional video.
Is declining steadily.
And and so.
And so the reason we.
Our growing video isn't because that.
Ratio has changed it's because we're growing broadband faster.
And and therefore pulling some video through with it.
Interesting stat attached to that it's related as you know, we really don't sell video we somewhat packaging connectivity service. If you asked how many video single play do you. So it's about 5% of our of our video sales are coming through in a single place. So we really don't sell video resell, but as a navigation or service attached to the connectivity service.
Yes, and with regard to your second question, maybe I wasn't clear.
Go ahead.
I was just going to say what so what is it 95% of your your sales are.
Attached to broadband.
And not yet and so what is video as a percent.
We're not providing that I think for competitive purposes, but we're saying it's been declining and that hasn't changed we've just sold more broadband which is why we have more video.
Okay. Thanks.
And.
So this inside out strategy and how to use spectrum.
Can you put it in the house.
You know.
Well interestingly, our Wi Fi capabilities and available spectrum for Wi Fi.
Has continued to improve the FCC is just granted significance.
Amounts of Wi Fi spectrum too.
The public for use and we plan to use that spectrum in.
Inside.
Sellings and.
So when I, when we think about spectrum and the spectrum, we recently got with Crs It.
Can you augment your Wi Fi spectrum with the Crs spectrum to to move traffic onto your own network that you might be paying someone else to carry.
And and the answer is yes, and you can do that in an efficient way depending on the location and where you put the radio in such a way that you can actually.
Reduce your overall cost and as a result of that cost reduction you get a return on investment on the capital you spend on both the spectrum in the radios that you've deployed.
There are applications, where CBR, a spectrum or why five spectrum used differently than it has in the past.
Can be used in enterprise connectivity using a fiveg factory kind of notions, where you would control the inside of the building using spectrum. So there are individual products, where you would want to have multiple radios potentially in the same environment with.
You need to do that in a household in the short run.
Or not is not that clear because there's so much why five spectrum available, but their applications I can think of like farms in other places like that where CVR EPS could cover the whole property.
100 acres are 500 acres of property or or even more.
Hum.
For connectivity services.
So it's a tool.
So we look at spectrum as a tool to extend the conductivity.
And and we plan to use it in ways, where it takes our cost structure down.
That's helpful. Thanks.
Thanks, Phil Operator, we'll 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.
Hi, good morning.
Follow up I guess on a on a couple of topics.
So one for Tom and then one for Chris Tom I wanted to follow up on your earlier comments on the HFC network.
I think there's been more talk recently in the industry about operators over building the fiber to the home.
Manages obviously being upstream and latency.
How are you thinking about the trade offs now between deploying more fiber to the home versus continuous HFC, particularly given some of the changes in upstream traffic patterns. During cove. It and can you just help us to understand how that upstream bandwidth and latency improve as the DOCSIS infrastructure evolves.
And then Chris I wanted to follow up on the build out or the inside out strategy.
Tom mentioned in his prepared remarks can you give us any color on the magnitude or the significance of the capital investment that we could expect there and maybe just some timing comments broadly speaking and you know is that a is that a long time to reach positive ROI or is it a fairly short duration. Thank you.
So Brian on the HFC plant.
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We think that there is a lot of capacity in the HFC plant, both downstream and upstream.
And we think that given the current marketplace and utilization.
Behaviors of consumers that we have plenty of upstream capacity.
And we have a pathway using DOCSIS three dot one technology and later for Dot one technology too.
Continue to increase that and we have a vision that in the event that there is.
A transformative products set needs upstream.
That would create value for consumers and then for us that we could.
Fairly rapidly upgrades are planned to get sick.
Massive change in in.
Upstream capability.
So we you know we build with fiber on the increment because it's cheaper.
But we think that the HFC plant can be.
Be equal to fiber from a capability latency.
Passively perspective for years to come and and.
And we think that.
With relatively small capital investments compared to replacement costs, new which is what fiber is that.
We can upgrade the network and.
And be competitive.
For.
That's a very long period of time.
And as it relates to the CB rest buildout, it's really a function of a few variables. One is the number of subscribers that you have the more you have the more economical adult but the usage.
Of those subscribers in amount of Wi Fi offload that you can get already what is your rate on NVNO and what's your density in the build cost and.
As Tom mentioned.
Were we wouldn't be building just to build a network we'd be building tied to a guaranteed.
Actively cost reduction and so the ROI is not only relatively quick but it's.
Very clear and Theres very low risk and so we're not we're not building any inside out strategy just to have a network or for other network type doping for reasons other than the cost reduction.
I don't think that it's going to be material in the short term I think it will occur for many multi year period.
And you could argue that as the mobile retail store build out.
Declines for mobile that can be substituted over time with some additional build out which has a direct correlation to cost reduction.
And as we start to do that we're not doing that yet we'll.
We'll probably provide a little more color on what we think that the effective payback of that is but.
But I think the thing it should take comfort is that we're not we're not building just to build and it's going to be tied to clear cost reduction in ROI.
The thing I would add to it is yes, we have the.
$460 million of.
Cost for Crs spectrum, but the incremental capital is very specific to.
The location and the amount of traffic that we would save and on essentially radio by radio kind of investment that doesn't require.
Building out a complete.
Print it it's actually opportunistic by location.
Okay. Thanks.
Thanks.
Thanks, Brian James we have time for one more question.
Thank you and our final question comes from the line of Michael Rollins with Citi. Go ahead. Please your line is open.
Thanks, Good morning, so over time, it gives us a lot of been taking to broadband consumption trends.
And was curious if you can give us an update on how your video customers are now engaging with your platform, especially as you grow instead year to date with respect to.
Maybe what percent of your customers engage with your DSD platform or the digital application that you offer where the cable networks offer and need to be authenticated re charter and then hey, all of that in aggregate how much time, they're spending that you guys.
And then as you roll that up then how does that work.
Strategy going forward in terms of the way you want to aggregate and distribute content. Thanks.
I don't know that I can.
Answer that.
Secondly.
Except to say this.
We we track.
What our customers do with their video products and we.
We also track how they radar applications.
And and how and what their customer experiences.
And.
And what our availability of content is to.
To sell to the consumer and the and we try to mix and match that in a way that.
We create.
Overall value in the relationship we have with the customer but also.
Create product that makes.
Money.
And.
And we've you know we've had some success in managing new ways of delivering video as I said, we have over 10 million.
Users, who are getting their service through applications as opposed through traditional hardware.
And.
And so we look at.
The business is evolving we think that people will continue to buy rich packages for years to come but we also think there are other opportunities to sell a variety of video services to consumers in different formats.
And that.
We can.
Improved the customer experience by being a good place for consumers to interact with us to get those video services.
And and so we're working toward that.
We're making some success and.
We're actually.
Optimistic in the very long term about our video.
Yes.
Okay.
Thanks, Mike.
That concludes.
Thank you everyone.
Thank you ladies and gentlemen.
This concludes todays charter's third quarter 2020 Investor call. We thank you for your participation you may now disconnect.
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