Q1 2021 Charter Communications Inc Earnings Call
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Okay.
Ladies and gentlemen, this is the operator. Please standby today's conference will begin momentarily until that time your lines will be again placed on music hold thank you for your patience.
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Good day, and thank you for standing by welcome.
Welcome to Charter's first quarter 2021 investor call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
I'll ask a question during the session you will need to press star one on your telephone.
If you require any further assistance please press star zero.
I'd now like to hand, the conference over to your speaker today, Jeff.
The manager. Please go ahead.
Good morning, and welcome to Charter's first quarter 2021 investor call presentation that accompanies this call can be found on our website IR charter dot com under the financial information section.
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 also our 10-Q filed this morning.
We will not review those risk factors and other cautionary statements on this call. However, we encourage you to read them carefully various remarks that we make on this call concerning expectations predictions plans and prospects constitute forward looking statements. These forward looking statements are subject to risks and uncertainties that may cause actual results to differ from historical or anticipated.
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Any forward looking statements reflect management's current view only and charter undertakes no obligation to revise or update such statements or to make additional forward looking statements in the future during.
During the course of today's call, we will be referring to non-GAAP measures as defined and reconciled in our earnings materials.
These non-GAAP measures as defined by charter may not be comparable to measures with similar titles used by other companies.
Please also note that all growth rates noted on this call and in the presentation are calculated on a year over year basis, unless otherwise specified.
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.
Thanks, Stephanie.
We continue to execute well in the first quarter, even in an environment with lower consumer move activity we.
We added over 300000 customer relationships during the quarter with growth of five 8% year over year. We also added 355000 internet customers in the quarter.
2 million over the last year for a year over year growth of seven 3%.
We added 300000 mobile lines and we grew our adjusted EBITDA by 12, 5% and our free cash flow by nearly $500 million from 35%.
COVID-19 has continued to have an impact on our operations, but the economy is.
The economy reopens at normal activities resume we expect more sales opportunities to develop during the second half of the year and we remain confident in our ability to grow our customers EBITDA and free cash flow at healthy rates given the investments we've made in our network, which enable us to offer superior products and services.
Well the last year has focused on our successful operations and execution through the pandemic.
May 18th will Mark the fifth anniversary of the closing of our transaction to acquire time Warner cable and Bright House networks. Since then we've added more than 7 million internet customers.
And our annual EBITDA has expanded from $13 6 billion to over $19 billion.
And our enterprise value has increased by 100 billion.
Since the start of 2016, we've invested over $40 billion in infrastructure and technology and over the last five years, we've extended serviceability to approximately 5 million homes and businesses.
We're also committed to extending our network to reach more rural areas.
Over the next six years, we expect to spend at least $5 billion offset by $1 $2 billion in art off subsidies to reach over 1 million Unserved consumer lake locations to gigabit Internet speeds and we're actively exploring additional opportunities to further expand our rural build potential.
Since our transactions closed we've also enhanced the quality and efficiency of our operations.
We've hired thousands of new employees into good jobs by bringing all of our work back to the U S and we committed to a minimum wage of $20 per hour to provide the best service possible, which fuels our growth since close we prepare the launch of mobile broadband products at scale and our customers now have the fastest from at least expensive mobile and wireline brought.
Band products available in the market.
Importantly, we continue to improve our connectivity products as demand for data in the home continues to grow at a very rapid pace.
During the first quarter, we continued to see significant growth in data usage per internet customer.
On average non video customers used about 700 gigabytes per month in the first part of the quarter and for the full quarter average usage by non video customers was up nearly 20% year over year.
Close to 20% of our non traditional video internet customers now use a terabyte or more of data per month.
The growth in demand for data is and will be driven by a number of factors, including the growth in IP video services, including video conferencing and gaming.
The growing number of IP devices connected to our network, which now totals nearly 450 million devices, and new and emerging products and services that are being developed as we speak such as E learning for telemedicine and for K virtual reality or holographic formats for example.
We are continuously increasing the capacity in our core and hubs and augmenting our network to improve speed and performance at a pace dictated by customers and the marketplace. We have a cost effective approach to using DOCSIS, three one which we've already deployed to expand our network capacity to one two gigahertz, which gives us.
The ability to offer multi gigabit speeds in the downstream and at least one gigabit per second in the upstream.
In additional in addition, we have DOCSIS four dot O and other emerging technologies to cost efficiently offer multi gigabit speeds.
From both the downstream and in the upstream.
Serving the heavy data usage needs of our customers with colleague quality connectivity services.
While we have a great network asset, which is fully deployed and has a capital efficient path to deliver even higher capabilities. Our strategy is finally found it saving customers money, while providing state of the yard products mobile and wireline broadband are converging into a single connectivity service package, which has delivered over.
Combination of mobile and fixed networks.
Our share of household connectivity spend including mobile and fixed broadband is low and we remain very much under penetrated relative to our long term opportunity in.
And average household served by the big three mobile broadband competitors with two plus lines of mobile broadband and wireline broadband spends approximately $200 a month on its telecom services today.
Today charter only generates $33, a passing $65 a customer of that $200, a combined monthly spend on mobile and wireline broadband service by choosing charter is their full service connectivity provider customers can save hundreds even thousands of dollars per year with better product capabilities and service.
And so our goal is to do the same with mobile in our service area as we did with wireline voice, where we made charter the predominant wireline phone carrier by reducing consumer telephone bills by over 70%.
Meaning charter can grow for a long time, because we remain underpenetrated in our growth will reduce customer costs now I'll turn the call over to Chris Thanks, Tom before getting into the details of the quarter a few comments regarding our outlook in reporting on.
On last quarter's conference call I spent some time walking through the outlook for 2021 that commentary related to our customer and financial growth expectations, given the difficult comparability to prior year results due to the effects of COVID-19 in 2020.
Those comments were intended to help investors update their models for 2021 and understand the backdrop for what should be a very good 2022.
So while I won't repeat everything I said on the last earnings call. Our outlook in general has not changed 2019 remains to better customer growth comparison for 2021, where we expect internet and customer relationships to be at or above 2019, net additions and we will continue to reference the COVID-19 schedules. We provided last year included again.
On slide 17, and 18 of today's presentation to help with the year over year financial comparisons.
Secondly, bundle allocation rules as required by GAAP continue to have a significant impact on our residential internet video and voice product revenues because of the decline in utility of individual product revenues to investors, it's likely that at some point will collapse all residential product revenues into one residential revenue line.
Turning to our results on slide five.
Customer activity levels from the marketplace, specifically move churn and non pay churn have still not returned to normal levels, which means on the one hand, we benefit from the lower operating expense from reduced service transactions and significantly lower bad debt, but it also means there are fewer selling opportunities in the market generally those trends are on a slow path.
To normalization.
Despite a lower sales environment, we continue to gain share across our footprint and we remain the share leader in internet and all of our markets regardless of competing infrastructure.
We grew total residential and SMB customer relationships by over $1 7 million in the last 12 months and by 302000 in the first quarter income.
<unk> residential and SMB, we grew our internet customers by 355000 in the quarter and by $2 million or seven 3% over the last 12 months.
Video declined by 138000 wireline voice declined by 88000, and we added 300000 higher arc through the mobile lives.
Residential Internet, we added a total of 334000 customers in the quarter lower than the 398000 that we gained during a strong first quarter in 2019 for the reasons I mentioned.
Our residential video customers declined by 156000, consistent with the loss of a 152000, we saw in the first quarter of 2019.
In wireline voice, we lost 102000 residential customers in the quarter also similar to the loss of 120000 in the first quarter of 2019.
Turning to mobile we added 300000 mobile lines in the quarter and assets at the end of the quarter, we had $2 7 million mobile lines with a good mix of both unlimited and by the gig lines continue to be pleased with the results and trajectory of spectrum mobile with less EBITDA loss per line as the business scales to expected standalone profitability.
Over the last year, we grew total residential customers by $1 6 million or five 8%.
<unk> revenue per customer relationship declined by 0.5% year over year, given a higher mix of non video customers higher mix of choice essentials and stream customers within our video base lower pay per view and video on demand revenue and lower installation revenue given higher self install rates keep in mind that our residential <unk>, who does not reflect any more.
Revenue.
Slide six shows residential revenue grew by five 8% year over year, reflecting customer relationship growth.
Turning to commercial SMB revenue grew by one 6% a bit faster than last quarter's growth.
Enterprise revenue was up by two 5% year over year also a bit better than last quarter and grew by seven 2% excluding wholesale revenue.
Enterprise Psus grew by two 8% year over year.
First quarter advertising revenue declined by five 8% year over year due to less political revenue non.
Nonpolitical revenue grew by five 3% year over year, primarily due to some COVID-19 impacts late last March and our growing advanced advertising capabilities.
Other revenue declined by 2% year over year, driven by lower late fees, partly offset by higher <unk> revenue.
Mobile revenue totaled $492 million with $228 million of that revenue being device revenue.
In total consolidated first quarter revenue was up six 7% year over year.
Moving to operating expenses on slide seven in the first quarter total operating expenses grew by $235 million or three 2% year over year.
Programming increased three 3% year over year due to higher rates offset by a higher mix of lighter video packages, such as choice central to stream and lower pay per view expenses year over year tied to the lower pay per view revenue I mentioned.
Regulatory connectivity and produced content grew by eight 9% driven by more laker games than normal this quarter, resulting from the delayed start to the NBA season, combined with fewer games in the prior year period, when sports leagues played fewer games due to COVID-19.
Excluding those sports rights costs related to ours and this expense line item grew by two 1% year over year.
Cost to service customers declined by two 4% year over year compared to five 8% customer relationship growth.
The decline was driven by a $100 million and lower bad debt, which continues to benefit from record payment trends similar to 2020, our expectation remains that bad debt trends normalize over the course of this year.
Going the other direction, we saw pressure from outsized hourly wage increases that we put through in March of last year and again in March of this year, which we've discussed previously and relate to our commitment to reach a $20 minimum starting wage in 2022.
Excluding bad debt cost to service customers grew by three 2% year over year, including the minimum starting wage increase and reflecting the five 8% relationship growth.
Marketing and sales expenses declined by 2% year over year mobile expenses totaled $572 million from were comprised of mobile device cost tied to device revenue customer acquisition and service and operating costs.
And other expenses declined by five 5%, primarily driven by a nonrecurring adjustment to bonuses related to COVID-19.
Adjusted EBITDA grew by 12, 5% in the quarter, excluding mobile and bad debt in both years, our EBITDA growth rate would have been three six percentage points lower.
Turning to net income on slide eight we generated $807 million of net income attributable to charter shareholders in the first quarter versus $396 million last year.
The year over year increase was primarily driven by higher adjusted EBITDA.
Sure.
Turning to slide nine capital expenditures totaled $1 $8 billion in the first quarter, an increase of $360 million year over year, driven by higher scalable infrastructure spend primarily related to augmentation of our network capacity at a normal pace for customer growth and usage with incremental spending to reclaim the network headroom remain maintained prior to COVID-19.
We also spent more on line expenses due to continued network expansion, including to rural areas. This does not include any yard off spend which we will incur and start to disclose later this year.
The cost of build outs tends to be front loaded with design make ready in construction before passing as are activated so it would take well into next year before construction cadence, let's any cost per passing metric to be meaningful.
We spent $112 million on mobile related Capex this quarter, which is mostly accounted for in support capital and was driven by investments in back office systems and mobile store build outs.
For the full year of 2021, we expect cable capital expenditures, excluding any art off investments it would be relatively consistent as a percentage of cable revenue versus 2020.
Slide 10 shows we generated $1 9 billion of consolidated free cash flow this quarter, an increase of 35% year over year.
We finished the quarter with $84 3 billion in debt principal our current run rate annualized cash interest pro forma for financing activity completed in April is $4 billion.
As at the end of the first quarter, our net debt to last 12 month adjusted EBITDA was $4 three eight times and we intend to stay at or just below the high end of our 4% to four five times leverage range.
During the quarter, we repurchased six 3 million shares charter shares and charter holdings common units totaling about $4 billion at an average price of $627 per share.
In September of 2016, we have repurchased $43 billion or 34% of charter's equity at an average price of $408 per share.
Turning to taxes on slide 13, we don't anticipate becoming a meaningful federal cash taxpayer until 2022, and we expect the bulk of our existing NOL to be utilized by the end of this year.
Subject to any corporate tax rate changes for the years 2022 to 2024, we expect our federal and state cash taxes to approximate to approximate our consolidated EBITDA less our capital expenditures and less our cash interest expenses multiplied by 23% to 25% with a tax rate in 2022.
A bit lower than that range, given some carryover of tax attributes.
That estimate.
Includes partnership tax distributions to advance New house, which are captured separately in cash flows from financing in the financial statements.
There are multiple factors that impact what I, just described and we're always looking for ways to improve our cash tax profile.
Our operating model and growing by saving customers money, our network capabilities now and in the future and our balance sheet strategy. All work together over long periods of time, and we expect our results to reflect a growing infrastructure assets with a lot of ancillary products to use for until on top of our core connectivity services with good value and service to our.
Customers to grow cash flow with tax advantaged Levered equity returns operator, we're now ready for Q&A.
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 just a moment, while we compile the Q&A roster.
Our first question comes from the line of Doug Mitchelson with credit Suisse.
Go ahead. Please your line is open.
Thanks, So much good morning, one for Tom one for Chris I feel like you threw down the gauntlet a bit on fixed wireless convergence.
Quite a line conversions.
You know clearly total mobile market in your target market of $200 a home of telecom spending does your commentary suggest a more aggressive posture regarding wireless marketing.
Do you have a pretty healthy growth pace of lines already and when you look out five or 10 years, if that's where the market is headed.
I know you've been asked this you know asked and answered in the past, but wouldnt that suggest at some point need owner's economics on the wireless side to match up with what you have in the wireline side and then Chris could you talk about the returns investors should expect on the $5 billion of build out capex or the $3 8 billion net capex spend over the next five years. Thank you Bob.
Sure.
So Doug yes.
Think that or opportunity over a multiyear period as significant.
I think that.
We have an opportunity to when you look at the penetration of those mobile products.
We have an opportunity to continue to grow rapidly and and so.
When you are moving to make sure that happens in terms of the way we position and.
And sell our products and in terms of both product attribute some of the price that we charge.
Okay.
The purpose of that.
Exposition on how much telecom spend there is just to show that there's lots of runway in front of us.
A significant market opportunity there for us to create value for charter.
While at the same time.
Creating value for consumers.
In terms of convergence, we already are moving toward convergence in many ways.
And and we have owners economics in many ways.
And we also have.
A good relationship as an M D.
The owner's economics, we get are in the CBR spectrum that we purchased in its deployment.
In the Wi Fi network that we've deployed and the traffic that were carryover it and.
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There is continued opportunities to take advantage of that in the near term and the long term.
To create additional value for our customers and for the company's cost structure.
On the day.
Art off spend Doug.
The way, we think about that $5 billion just in phase one of our it off we think there may be more opportunities over time, either through federal programs or through what we call white space areas that might be a product of the additional rural investing that we make that open up new opportunities, but when you think about this in terms of project.
Financing.
These construction projects have a much higher cost per passing than what we've typically built and they have a longer payback.
But as a result of them being as expensive as they are we have a real high confidence in our ability to penetrate these markets with broadband service, that's needed and desired and so what that means is together with low risk assumptions from the RFP you can have pretty high confidence in terms of what the.
The financial model is going to look like both from a cost and revenue perspective over time.
So I think I've mentioned in the past that we would expect that.
Payback the cash from cash payback for these type of projects to be double digits in terms of years. So.
Over 10 years, but the IRR can be mid teens and so we think that's attractive investment with a low risk in terms of our ability to achieve those types of returns what we haven't factored into any of that.
What does that open for additional building opportunities on the edge of those networks.
As well as some of these rural communities by having broadband.
Can actually have more fill and where it become more suburban like which could open up opportunities, which arent built into our model.
We think it's consistent to build this way, it's part of our strategy and we think it's the right thing to do.
For the extended communities that we serve and we think it's attractive for shareholders as a way to continue to grow our broadband footprint over time. So another alternative way to think about it is when you think about those type of economics, it's actually not that different from cable M&A at a point in time, where there just hasnt been unfortunately as much cable M&A that we would have liked to have done.
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Alright, thank you.
Hi, James we'll take our next question please.
Our next question comes from the line of Ben Swinburne with Morgan Stanley Go ahead. Please your line is open.
Thanks, Good morning.
Tom I was wondering if we could get your perspective, because it came up on yesterday's Comcast call on sort of the consumer demand and opportunity for charter to offer symmetric products and sort of the need for the network to offer a symmetric service and kind of how you get there you touched on three dot one in Florida I know in your prepared remarks, but if you could give us a little sense of.
The path and timeline in your in your mind and I guess the cost whether it would move capital intense day around enough that we would notice and then I was just wondering Chris you know.
This sort of subdued activity level, we're seeing which is helping bad debt hurting gross adds I know, it's impossible to know but could this could this end up sort of lasting through the year I mean, it seems like.
Even though we're seeing vaccinations ramp back up.
You know the consume we're seeing this across a lot of companies just churn is at record lows like unusually low levels I'm. Just wondering if you. If you if youre seeing any signs that things are normalizing or if that's just an expectation you have thank you guys.
So Ben.
The issue of capacity and where it's needed and how it's used as a.
It's a complicated.
Discussion, but basically our view is that if you.
Think about the way networks are used in and.
I said people are using 700 gigs a month.
The presentation today and a lot of our customers who are using over a terabyte.
Per month, most of that is television.
Being delivered through IP.
Mhm to households, and the actual upstream usage as is.
Is quite sufficient for all of the current users that we have so we don't have an immediate need to expand the capacity of the plant.
In the <unk>.
Plant is actually used in a very asymmetric way by the products that are currently on it and we don't see that changing in the near term.
But we do have the capability from a technical perspective to upgrade our network based on changing market dynamics. However, they may develop in terms of how products develop.
We don't see an immediate need to do that but we do think.
Our network from a competitive point of view is well positioned from a capital intensity perspective to make those upgrade costs at much lower cost than alternative means and so we think that we're positioned to grow in the marketplace.
And a very efficient way and and serve products that we need to serve up based on the way the market develops but.
Today.
We should continue to operate our network with more capacity downstream than upstream.
Alright.
Ben on the.
Lower level of activity, it's true it's normalizing slightly.
Lower than what we would've expected or hoped for.
Like I said in the prepared remarks, the benefit is that we have really significant EBITDA growth as a result of.
Last year's subscriber growth and this year this quarter subscriber growth compounded by lower level of activity in the marketplace, which is driving down transaction costs and churn at debt, which produces an outsized.
Temporary financial result, our preference would be to put a little bit of pressure on those financial results by increasing our sales and marketing through commissions and through normalized in the market through a higher level of new activity, which opens up additional selling opportunities for us as a share taker as a share taker.
We'd like to be on the offensive and two a quarter.
From money and.
And that opportunity is what contributes to net adds and what contributes to short term financial pressure to have a higher long term EBITDA and free cash flow.
Im.
We have seen the.
Market slowly coming back and so it is it is moving in the right direction and it's just not moving as fast as some of us would like.
Does that includes from.
From move churn.
Not as much on non pay because of all day subsidy that's out there today.
Different topic.
But I think it's going to start getting back to normal here pretty quick a lot of us who have been in the office every day through the pandemic.
Just noting this morning, the pickup in traffic, even in New York, and Connecticut area, it's pretty symbolic in terms.
Normalized <unk>.
We think that'll start to commodity will continue to take price across the rest of the country and so we're optimistic about our ability to sell in net add through the rest of the year.
Thank you.
And James will take our next question. Please.
Your next question comes from the line of Brett Feldman with Goldman Sachs. Go ahead. Please your line is open.
Hi, Thanks.
I think with a similar theme you all I appreciate that moves creates a lot of jump balls with the company you know you're only serve half the households in your footprint.
Majority of those you don't serve I think are poorly served and thats, probably becoming increasingly apparent to them.
Does the math on marketing dollars become more favorable meaning looking into potentially force the issue bid as opposed to just waiting for a natural shift in volumes in the market and then also I'm curious how significant is an assumption that bad debt sort of revert to normalized levels in terms of thinking about the margin profile of the company this year.
And the reason I ask you it would seem like all the things going on in the background are favorable to bad debt, whether it's an expectation that the economy continues to recover and also just the government continuing to show a prioritization and making sure that people not only have access to good broadband, but are able to sustain that access including through additional subsidy program and I'll just seems to be moving in your fee.
Or from a bad debt standpoint. Thanks.
So two separate topics one in.
I'm not sure it's Tom.
Would differ but.
We feel we're pretty aggressive on the sales and marketing side and to the extent that we could be more aggressive and we thought that it would have the ability to add more subscribers and we would do it and so we're always looking for that and we're not afraid to spend if we think we can drive customer acquisition.
The difficulty is that your.
Youre digging out customers are alert and so you have to keep coming back and back and back end.
As attractive as our products are and as much as we can save customers money. It takes a while to prime loose and its disruptive to swap out one if not all of your services in the household.
And despite the economics that we can provide into better quality speeds and service. It just takes a little bit of time, but we're always looking for ways to be more aggressive in its.
As Tom mentioned I think mobile.
The additional outsized amount of dollars that we can save customers is it really interesting tool together with the combined benefits of <unk>.
<unk> set that we can provide that.
Most cannot.
Okay.
Good.
Good for me.
Bad debt.
Look there's a there's a bull case that the market could start to move.
And our selling opportunities could increase which would drive higher commissions and transaction cost to acquire and provisioned and installed these customers.
And the Bull case would be at the same time, you have that because of the level of subsidy that is out in the marketplace and might continue that our bad debt could remains low and it could actually open up those subsidies could open up portions of the market from an affordability standpoint that can drive more sales.
And so could you end up with the best of both worlds, maybe but that's not something that we're betting on.
It's an environment, we've never really seen before.
That's not factored into any of the kind of outlook are forward looking statements that were provided I don't think we want it dependent on third parties to drive our growth.
And it may be the case that that's how it turns out but right now we're focused on.
Selling more capable.
And minimizing the churn to the extent that we can things that are in our control.
What I would.
I would say is that.
We're in an unusual climate.
It's still unusual and.
When it normalizes, which I expect it to normalize.
Our cost structure, we will revert to what it was historically and that includes non pet fad.
Bad debt.
And.
As a result of that.
Growth could accelerate the growth also.
Can create cost.
Relative when you are comparing it to someone who isn't growing.
And.
So that has an impact on margins.
But.
Overall.
The trajectory of our business notwithstanding the.
Current circumstances, which are really.
Unprecedented.
The fundamental cost to serve our customers continues to come down.
Because of our Digitization of the sales and marketing and service infrastructure.
Denis.
And our ability to do self service and self installation.
And.
The relative.
Ease of delivery going forward creates.
Long term advantages and the cost of CPE continues to come down on a.
Relative basis, so we have long run trends, which are favorable to our cost structure.
We have short term trends, which are favorable to our cost structure, which I expect to go away.
Thank you.
That's right James we'll take our next question. Please.
Our next question comes from the line of Craig Moffett with Moffett Nathanson go ahead. Please your line is open.
Two questions, if I could Chris M&A.
Push it just returned to what you were just talking about a stimulus and.
And just given the size of the stimulus with about four times as much stimulus in dollars about $20 billion.
As the annual growth rate of the entire U S band market.
How do we.
How do we think about them.
Quantifying that I know you said, it's not in your numbers, but can you just talk about what you as a company have done to prepare in terms of applications and what have you for the <unk> and the E rate and.
And what impact do you think that might have on your business and then a second somewhat unrelated question is just if you could talk about the business services segment, perhaps and that's still growing significantly more slowly than residential are you more or less through the repricing of the TWC customers now so that we can expect that to rich.
Turn to being a growth driver rather than.
Just mathematically today being a growth drag.
So Craig.
I'm a stimulus you know there's a lot of that money is undifferentiated in the states has broadband in front of it.
And the nomenclature, but it's it can go anywhere and so yeah, we're out.
Through our business sales services groups.
Trying to Orient that money, both to line extension and too.
Products for schools and municipalities.
And we have a full suite of.
Products to sell.
But how that money gets allocated.
How it gets spent in the stages.
It's difficult to say and I think it will vary by location. So it's it's a huge opportunity as you point out and it's massive.
And our sense is that the states don't.
I don't know how to spend it all.
And so there.
We'll see what happens, but there is an opportunity there.
And as it relates to business services growth.
There are really two separate categories here, one is SMB and enterprise.
The re pricing of the TWC base is essentially through.
For SMB.
We have had some pressure recently through seasonality programs that we've offered to SMB customers through COVID-19.
It is winding down as well as the repricing going through if you take a look at the unit growth on SMB I think you can pretty quickly see a path for us to get revenue growth in S&P more closely in line two.
Unit growth rate for the customer relationship growth rate. So I think the outlook on S&P from a revenue standpoint is positive the same applies for enterprise enterprises slightly different set of circumstances. The retail revenue growth rate like F&B has been accelerating.
It's up sequentially same as S&P, it's now at seven 2% from the retail portion of revenue for enterprise.
And it's being held back from slightly by wholesale, particularly cell tower backhaul.
Where that's becoming a lesser and lesser portion of the overall revenue mix in enterprise and the more strategic piece for us is retail in any event.
On the enterprise.
Our business is selling more is doing extremely well.
Certainly compared to last year, but also compared to 2019.
And that's despite the fact that these are complex fiber products, where today less than 25% of the time, we're meeting our customers' cio's and in the office. So that's a difficult sell to make when you're not in person to have a complex fiber cell whether its for fiber Internet access Ethernet unified Communications SD Wan.
And yet our sales are increasing and accelerating despite the fact that we can't be on location to make ourselves. So I'm optimistic about the enterprise retail side and what that's going to do from the overall revenue growth rate not only for enterprise, but.
When you look at commercial combined together with S&P, which is also improving.
Thanks, Chris.
Thanks, Craig and James will take our next question. Please.
Our next question comes from the line of Peter Zaffino with Bernstein Go ahead. Please your line is open.
Hey, I wanted to ask about the mobile business do you expect to use device subsidies any more aggressively in the future I know your unit economics have historically made that challenging and also have a sense that theyre getting better so any thoughts on that strategy for the long run would be great. Thanks.
So far we haven't done that much of that and we.
We like the way we're marketing it currently.
It's not a growth business.
I didn't have itself.
We will create customers if we can retain those customers.
Yeah.
Whatever works, but.
We're doing well without it.
Okay.
Thanks, Peter channel fill.
Our next question please.
Our next question comes from the line of Phil Cusick with Jpmorgan go ahead. Please your line is open.
Hey, guys a couple of sort of follow ups on broadband Chris can you talk about the drivers of seasonality and customer growth in a typical second quarter and any differences we might see this year because of the pandemic and do you think that could be offset somewhat by increasing win opportunities in ABB.
And then second on Capex.
Higher or at least stable not stable to lower in the core cable business, what's changing there do you see more opportunities is that a function of mobile what's happening.
Okay.
On broadband I don't see the broader seasonality differences that have always existed in Q2 with disconnects in Q3 with reconnects.
That's <unk>.
College in back to school, driven as well as the new season of people repositioning and if anything one hand, I think it'll be normal on the other hand, you could argue that things really do get back to a fully normalized level. There may be a pent up demand for that type of move activity. So I don't know.
The two factors, you mentioned, which could.
Around the edges have an impact slightly although I don't think it changes the overall curve would be to the extent that the subsidies and stimulus continued to drive down non pay and at the same time, we had an acceleration to move churn, which allowed more selling opportunities maybe that could have a positive impact and the other one that you pointed out with.
The EBV program, which could have similar types of benefits both on the.
Non pay as well as on the activation side, but I don't think that's fundamentally the overall trend of Q2 compared to Q1 or Q3 or Q4 is going to be that much different.
On Capex.
We slightly tweaked, what we said from an outlook perspective.
And it ties back to what I've talked about with Ben in terms of the market is normalizing interest at a slightly slower pace.
But as that market has been remained slow to normalized data usage remains high.
And so that has an impact on the amount of headroom, we planned for in terms of capacity and network augmentation.
Now, it's very much possible, our core cable capital intensity declines this year, but given the uncertainty.
We updated the outlook slightly to say relatively consistent in quotes with last year.
But I wanted to be clear there is no change to our long term outlook for core cable capital intensity to decline.
Thanks, Chris do you think that with with mobile.
Ireland.
Broadband coming on.
Does that give you any pause on your assumption for a strong second half.
That sort of built in already.
Mobile wireless broadband you mean, our own local wireless broadband wireless.
Sorry, no competitive wireless broadband.
Two thirds of Americans.
We're multiple wireless broadband.
Are you talking about somebody else's, alright, I mean, T mobile and horizon T mobile and Verizon mid band.
Wireless offerings.
Always concerned about competition and watching for it and on the increment.
I think there will be added pressure, we think it's a real product.
For certain areas of our customer base and so it's something we're keeping an eye on and we have our own mobile broadband wireless together with our fixed line broadband converged.
Think compete well and it requires us to continue to invest in that space.
And beyond that spectrum as well.
Correct.
From a C band perspective, that'll be something we participate through the day MTN No and then we have urgency of your assets you are aware of as well.
Thanks, Phil Thanks James.
Take our next question please.
Our next question comes from the line of Michael Rollins with Citi. Go ahead. Please your line is open.
Okay.
Can you share your mix of broadband customers between entry level versus higher level tiers.
How youre looking at the <unk> opportunity.
Terry migrate customers to higher performing level.
And then secondly, just from your comments earlier.
Can you share what the peer average rate.
Maybe pat growth can be for charter.
Goodbye.
The five year horizon.
You could share that with or without <unk>.
Yes.
In terms of the broadband customer base.
<unk> of our customer basis on the entry level.
Package, meaning 200 megabits.
So are our basic strategy has been to have a very rich broadband product.
Our base product.
And we've continuously taken that up.
And so.
In terms of.
Opportunity to sell up.
We have a lot of it.
We haven't done much of that really we do it and.
And obviously, we satisfy the market.
The bulk of our customer base.
As at the entry level speed, which is quite.
Hi.
I'm not sure I fully understood what you were going at with the passenger growth but.
It's really about housing starts.
And.
Versus.
You take out the art off out of it.
And what's that going to look like and and.
Yes, we are.
Footprint pretty much looks like the United States from a statistical perspective so.
If you look at housing starts and you have an opinion on that but it will probably.
Mirror our passenger growth.
I agree that that'll be the variability driver just to put it in context of what's going on today were building about we're constructing about 600000, a year much of which is rural extension is proactive on our part already before our dog.
The remainder of what you see of our passenger growth as Phil.
Phil.
The other type of what we call brownfield opportunities.
While new development New development.
Florida, Yes, so that it will all depend on the overall housing starts growth and then during the period of our dock there is an additional.
Over 1 million homes that will construct in these rural areas to address arent off on top of whatever the organic growth rate is which.
Big drivers.
Housing starts as Tom mentioned.
Thanks, Mike.
Okay. Thanks.
Okay.
Our next question comes from the line of Jessica Reif Ehrlich with Bank of America Go ahead. Please your line is open.
Thank you.
Question I guess.
Two parter on video.
But it hasn't come up at all are there any plans to offer a product.
Similar to Comcast flex.
Maybe you could talk about the pros and cons from a charter perspective.
And then is there any difference in how youre approaching programmers that are now offering a direct to consumer services that mirror, our encompass a lot of that content. They have on their pay TV channel.
Jessica.
The video business, so under a lot of challenge in the end, it's going through a transformation.
And.
We are we have over 10 million customers now who.
Receive our service through a application as opposed to a set top box.
And.
We have direct to consumer relationships, and we have new relationships with programmers developing.
That allow us to sell traditional content and bundles, we have different kinds of bundles from our traditional cable TV packages. Some are.
Over the top packages and some are direct to consumers, where we're representing.
Direct to consumer.
<unk> and <unk>.
And really essentially acting in a consignment kind of mode. So we have every business model you can imagine going on simultaneously.
Which I think over the long term creates opportunity for us.
Right now it's quite disruptive.
And approached programmers well you mean.
How we deal with programmers from a content perspective.
It hasnt changed because of the way that theyre selling content into well, it's going to affect the.
The value of content.
And obviously of content.
Comes out of.
Bundled packages and goes direct to consumer its value in the bundled goes down.
Thanks Jessica.
Yeah.
Alright, James we'll 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 to two unrelated questions first Tom I thought the message on the magnitude of investment you've put into building a future proof network at the beginning of the call is pretty powerful both in terms of what you've invested over the course of the last five years from what you would invest over the course from next Mike yet.
I'm wondering.
What you'd be able to share from the conversations you've been having with the administration.
Around their ambitions for <unk> 100 billion.
Infrastructure investment.
In broadband I'm.
I'm wondering how it specifically.
You guys see the opportunity to benefit from that if it would have if it were to come to pass and where you see potential threats and.
And then separately I just looked back at where voice penetration of broadband customers peaked.
At 50% and that probably understates your market share because it peaks at the end of 2015 when the market was already declining I'm wondering if you can remind us where market share growth wired voice piece for you guys and is that is that basically where you are setting your expectation for mobile penetration to go.
Overtime.
Well my actually my hope is to have all the share overtime.
And so we have significant ambition.
It'll take a long long time to get that but.
If you do I don't have the wireline share off the top of my head, but its significant there were years and years and years, where when we modeled.
Yes.
Forecasted and realized what we were getting it was always at 50% of broadband to your point and so.
Until the.
Wireline substitution with mobile really took place in a significant way that was pretty reliable for a long time, so I think that where youre going gives you. What you were looking for if you look at how much of the wireline business. We currently own yes. It's.
It's significant.
Oddly.
We got the right to be and to compete in the telephone business and we are the telephone company now.
And that's kind of strange when you think about it.
In terms of how we are communicating.
With regard to broadband buildout and subsidy infrastructure subs.
Subsidies.
Our view is that the job one is to get the unserved areas of the countries.
Served.
And subsidies should be directed to do that.
And we're.
Willing to help and invest in and to make that happen and net.
The private capital that's been deployed in the United States.
In the communications networks capital that just got spent.
Spectrum by the.
Wireless.
Companies in the us.
And Comcast in the CVR.
<unk> auction and the capital that's going into.
That has gone into and continues to go into the.
Communications infrastructure in the country is good.
And held us in good stead.
Through the pandemic when we were able to operate networks at high capacity instantaneously, Unlike western Europe, and other places where.
Communications services and entertainment services were actually down raised.
So we think.
There is a good model, there and an opportunity to serve the unserved and.
You'd like to help and be part of it.
Thanks, Jonathan Great candidates.
Our next question will come from the line of Bryan Kraft with Deutsche Bank Go ahead. Please your line is open.
Hi, good morning.
So off the beaten path a little bit here.
Talk about how youre thinking about the future of your Los Angeles <unk>, given the pressures on pay TV bundle volume. So you just talked about.
Against your fixed rates and production costs.
Is the right long term model for the business and also under your rights agreement.
Could you actually bundle it as an app with broadband outside of a bundled service.
Well.
Okay.
It's not a material part of our business.
Okay.
It's difficult.
And it's.
It's expensive and the <unk>.
Prices continue to go up.
Yes.
It's hard to say.
How we could monetize it effectively.
Over the long run.
Thanks, Brian.
Operator, we'll take our last question please.
And our last question comes from the line of Vijay Jayant with Evercore go ahead. Please your line is open.
Thanks, I've got two great.
Great.
Given where you are on your wireless.
But I think it gets out of line, then behind Comcast and they sort of broken even.
From a profitability standpoint is that something we can extrapolate to.
Quarter, two away that it's no longer.
While it's no longer sort of a.
Headwind on EBITDA growth.
Not.
Is there any reason and economics.
Changes that.
And Tom you know.
Your comment.
Even last quarter and this quarter I've talked about the healthy broadband growth.
But.
Interesting that you talked about acceleration in 2022.
Can you kind of talk about what gives you the confidence from that is that all about.
Contribution, though just sort of.
Nashville, and Colby thanks.
So on the wireless EBITDA.
You know.
Our goal is.
This is going to sound bad, but our goal isn't to drive short term EBITDA profitability. Our goal is to drive as much growth as we can because we know what the underlying profitability is and what it does for the overall business.
I'm sorry.
I don't think we're going to be forecasting EBITDA breakeven on a consolidated and wireless business basis, which isn't even how we look at the business because we think about it combined.
That being said we have.
Essentially the same economics as Comcast and so the model is very similar.
And we are focused on really driving as much subscriber acquisition as we can the business itself absent any subscriber acquisition cost so absent any marketing and sales already cleared profitability absent growth cost at the 2 million lines Mark So we're well into that territory. So really what youre looking at in terms of <unk>.
That drag right now is really about new subscriber acquisition and.
That's something if we have the opportunity to push we're going to go do that and so on.
I don't want to get necessarily a guidance or an outlook on that.
The trend continues to improve despite the fact that we have a very strong net addition rate on wireless lines.
And if I understand your question. It was why do we have comprehensive broadband growth will accelerate.
And why 'twenty two it will be.
Than 'twenty.
'twenty one.
I think that the.
Our basic view is that if you.
Go back over the last.
A few years that.
We've been on a growth track and that growth track has been accelerating and we had a very anomalous situation in 2020.
Carries into 'twenty one.
And that.
If you sort of trimmed out that long term.
Line.
It gets back on that line in 'twenty two.
And that's really what we're saying it's that simple.
We will take our daughters, it's gonna be a significant contributor in 2022, just given the limited number of activated passes that will be there. So I don't think about that as a material driver I think about it is the momentum and the ability to use mobile, which we treated as an.
And attribute to the broadband product as a way to continue to drive growth to continue to improve retention on the broadband side.
Great. Thank you.
Thanks, Vijay and thanks to everyone for listening James I'll pass it back to you.
This does conclude today's conference call. We thank you for your participation you may now disconnect.
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