Q3 2021 Frontier Communications Parent Inc Earnings Call
Hello, everyone and welcome to the Frontier Communications Q3, 2021 earnings conference call. My name is Charlie and I will be coordinating the call. Today, you will have the opportunity to ask a question at the end of the presentation, if you'd like to register your question. Please.
Press Star followed by one on it.
Keypads.
And I have the pleasure of handing over to your host <unk> head of Investor Relations to begin. Please go ahead.
Good morning, and welcome to Frontier Communications third quarter 2021 earnings call. This.
This is Spencer kurn from tiers head of Investor Relations.
I'd like to note that the presentation can be followed within the webcast and is available in the webcast and events section of our Investor Relations website.
During this call we will be making certain forward looking statements.
Forward looking statements by their nature address matters that are uncertain and involve risks, which could cause actual results to be materially different from those expressed in such forward looking statements.
Please review the cautionary language regarding forward looking statements found on page two of the presentation.
On this call we will discuss certain non-GAAP financial measures. Please refer to the presentation for how management defines these measures certain shortcomings associated with these measures.
We can filiation that these non-GAAP measures to the closest GAAP measures can be found in the presentation.
I'm joined on the call today by John Stratton Executive Chairman of the Board Nick.
Nick Jeffery, President and Chief Executive Officer, and Scott Beasley, Chief Financial Officer.
I'll now turn the call over to John.
Good morning, everyone and thank you for joining today's discussion.
Our business continues to be well positioned to win in key markets and to execute on our unique opportunity to create significant shareholder value.
We have a solid foundation of fiber assets and infrastructure.
Significant customer base and strong competitive positioning.
In the last 12 months, we generated $6 $6 billion of revenue and $2 6 billion of adjusted EBITDA, which represents a 39% adjusted EBITDA margin.
Driving this performance are $2 8 million broadband customers across both consumer and commercial businesses.
As we've said before fiber is the future of frontier.
$1 1 billion of our EBITDA in the last 12 months has been generated from our fiber products and we're investing to grow our fiber EBITDA rapidly.
We have approximately 400000 businesses within 250 feet of our fiber and over 23000 towers within one mile of our fiber.
As we continue to build out our network, we expect to grow and convert these attractive and footprint opportunities.
2021 has been a pivotal year for frontier or.
Our transformation began when Nick Jeffrey joined in March and we recruited a talented new board of directors with high levels of subject matter expertise across key areas, including digital transformation brand development capital investment operational efficiency and of course telecom strategy.
We emerged from bankruptcy at the end of April and are listed on the NASDAQ exchange on May four.
We refocused the company around our simple, but powerful purpose to build gigabit America and announced our accelerated build plan to reach 10 million locations with fiber by 2025 at our Investor Day in August.
Nick has spent a significant amount of time recruiting a world class executive team and the team has started to make an immediate impact on the business, even though the third quarter was the first full quarter at frontier for most of our executive team.
Transformations of this magnitude take time, but this team is executing with a sense of urgency that is a new discipline for frontier.
By almost every account the team is executing extremely well and Nick will talk in more detail about our key accomplishments for the quarter.
We're also increasingly encouraged by the long term secular tailwind behind our fiber centric strategy.
<unk> for high speed broadband is increasing at an accelerating pace.
Between 2020, and 2025 uses is expected to triple and fiber is the best product to meet this rising demand.
First fibers performance is vastly superior to cable today, with 34% faster download speeds and roughly 18 times faster upload speeds and 42% lower latency levels than cable.
Looking forward fiber will continue to outpace alternatives, featuring symmetrical download and upload speeds and a clear low cost path to 10 gigabit service and beyond.
And frontier is uniquely positioned to capitalize on building fiber our.
Our incumbent position affords us a roughly 20% cost advantage versus a new entrant and we are well positioned competitively.
Nearly 90% of our footprint, we have one or fewer competitors, giving us a significant opportunity to build upon the strong foundation of our current network.
Our company's purpose is to build gigabit America and we're encouraged that the government is aligned with this purpose.
Digital divide in the United States is enormous with just 30% of U S households passed with fiber versus over 90% at many other developed nations.
The government has already passed legislation that will drive an estimated five to six times increase in broadband stimulus over the next few years.
We believe government funding should be targeted at the locations that would be uneconomic to pass with private capital alone.
We expect to be an active participant in these programs and believe were strongly positioned to meet this need with the lowest cost.
And importantly, I want to reaffirm our commitment to ESG as we build the future backbone of our nation's connectivity infrastructure.
This commitment aligns well with growing pools of capital directed at ESG investments.
We continue to invest in products that connect underserved communities in rural areas in our footprint, helping to bridge the digital divide.
We are committed to creating a safe healthy and inclusive workplace in which our people can thrive.
We're also committed to investing in the communities, where our employees live and work.
We recognize our responsibility as stewards of the environment and our opportunity to lead on sustainability in the industry.
Fiber is a passive technology and uses less energy than competing technologies like cable.
As we upgrade our copper network to fiber will be on a path to reduce our greenhouse gas emissions and footprint significantly.
And lastly, we're committed to modeling the highest standards of governance, we have a board with diverse backgrounds and relevant experiences and skills with a separate chairman and CEO role.
We have implemented comprehensive compliance and ethics programs and have built a pay for performance compensation philosophy into our executive compensation programs.
We look forward to providing more details on our ESG commitments as we continue to make progress on our ESG journey.
We built our strategy around four key levers of value creation.
Expanding our fiber footprint is at the core of our strategy, we plan to accelerate our fiber deployment to be able to reach over 10 million homes by the end of 2025.
Along with growing our footprint will be launching new best in market products to meet customer demands and increased penetration in our fiber footprint.
Of course, it's not all just about winning customers, but also how we engage with customers.
Our goal is to deliver an exceptional experience throughout the customer journey.
And lastly, we've looked across all parts of our company to identify opportunities to simplify how we operate and to focus our operations and.
Through this process, we've identified significant potential to reduce our operating expenses and simplify the business.
I'll now turn the call over to Nick to review, how we performed against these initiatives in the third quarter Nick.
Thanks, John Frontier is in the early stages of its transformation.
Most of the New Executive Committee has been here for just one full quarter. So I'm really pleased with the significant progress made in executing our strategic priorities and it's pretty short period of time.
During Q3, we built a record 185000, new fiber locations.
Bringing our year to date, new power things to nearly 450000.
We added a record 29000, new fiber broadband customers nearly a five fold increase over the same period a year ago.
We have signed multiyear agreements with key labor and materials partners to secure important parts of our supply chain.
Supply chain concerns persist across the economy, we feel as well positioned as possible given our risk mitigation actions.
And I'll tell you about we raised $1 billion of debt, which secures funding for our wave two build through to the middle of 2023 at our already announced build rate.
And we continue to round out our world class executive team with two important new highs Melissa pint joined frontier as our Chief Digital Information Officer. Melissa was most recently the head of technology at Jcpenney, where she designed and implemented a digital strategy to accelerate the company's turnaround.
As shown on Macintosh joined frontier as our chief customer operations Officer.
Charlie joins us from Humana, where she was head of customer experience and use digital technology to modernize their customer processes.
Sean also has deep experience in the communications industry with previous leadership roles at both charter Communications and time Warner cable.
Moving to the next slide we take a closer look at our first strategic initiative.
We have built fiber to a record 185000 locations this quarter.
Our network team continues to steadily ramp up and.
And our target of 4 million total fiber policy things by the end of the year is well within reach.
We're excited to continue to accelerate our build and execute on our plan to reach a total of 5 million fiber locations by the end of 2022 and 10 million locations by the end of 2025.
Simply put our network team has executed well this quarter and our fiber build plan remains on pace and on budget.
Turning to fiber broadband customers on the following slide we added a record 29000 consumer fiber broadband customers this quarter.
Driving an acceleration in our year over year fiber broadband customer growth to just over 5%.
The overwhelming majority of our fiber broadband ask this quarter with new different year, demonstrating our ability to win new customers.
And we grew customers, while growing up 10% year over year.
Part of this growth have come from customers choosing faster speeds than they have historically and we continue to see increasing demand for our one gigabit per second product.
The changes to our pricing and marketing that we implemented in Q3 are clearly resonating with customers and the market.
At the core of our offering we have a superior product to our competitors at a competitive price with no activation or other hidden fees.
And we put the customer experience at the center of everything we do.
This strategy worked well in the third quarter and it continued to drive strong customer momentum into the fourth quarter.
Our competitive advantage is clear today and we're excited to launch our symmetric two gigabit per second offering early next year, which will extend our competitive advantage even further.
Even since our August announcement that would be the first large fiber plant also two gigabit per second services in the United States. Several other fiber providers have followed with similar announcements about two gigabit per second services.
And I am delighted that others are following our lead and building gigabit to America.
We take this as early evidence of a desire to innovate and lead.
And if the fundamental superiority of fiber over alternatives.
Customers will continue to want the fastest service possible and we will continue pushing the industries, but these faster and better office.
On the next slide we look more deeply into our fiber broadband customer base.
We're committed to providing transparency on our penetration in both our base fiber footprint and penetration of each five expansion cohort as it reaches its 12 month anniversary.
And our base fiber network penetration increased 30 basis points since last quarter and the progress made this quarter by a new team demonstrates the impact of a more rational offering and agile marketing strategy and an improved customer experience.
Our based fiber footprint serves as the template for where we expect to drive penetration in our expansion footprint.
And we expect to steadily grow penetration to at least 45% over time.
Our 2020 expansion cohort continues to show strong penetration of 30% at 12 months, Mark and as we said last quarter. While this 12 months penetration is encouraging it represents a relatively small sample of just 26000 locations.
So the overall build plan, we continue to expect the 15% to 20% penetration rate at the 12 month Mark.
And with penetration continuing to arrive and subsequent years towards a terminal penetration of 45%.
While our initial focus today has been on the consumer segment.
We also have significant opportunities to grow our commercial business.
Our addressable commercial market is over $8 billion.
With more than $5 billion coming from small and medium or SMB sized businesses.
The first step in addressing this really is to get the basics right with a compelling business to business offering.
In a short space of time, we've taken three major actions to reset our strategy in the SMB segment.
Firstly, we simplified SMB alpha into three speed tiers and introduced a more rational market based pricing structure.
Next we renewed our channel strategy and introduced an improved set of channel partners with much stronger digital capabilities.
And lastly, we've done a full set of our lead generation activities to improve the quality of our marketing.
Taken together these actions are already showing early signs of improvement, but we really have a long way still to go to further differentiate our business with best in class products value added services and industry, leading partnerships to provide services such as business identity theft protection office productivity tools managed Wi Fi and <unk>.
Waste services.
Stay tuned for more updates here, which we'll cover in future earnings calls.
Turning to our wholesale business on slide 14, we reached an important milestone by signing a multiyear strategic partnership with AT&T.
AT&T is our largest wholesale customer and we've previously talked about our strategic decision to reset pricing for our wholesale customers in return for future volume growth.
This agreement positions us as a strategic partner of AT&T as they build their <unk> mobile network boosting connectivity between cell towers and that core network using our fiber infrastructure.
As John mentioned that our 2000 3000 cell towers within one mile of our fiber footprint.
We only penetrate a low percentage of these.
There is an opportunity to grow our fiber to the tower business.
And our new network agreement with AT&T is an important catalyst for this growth.
Additionally, AT&T will use frontier is fiber network to connect its large enterprise customers, where they have locations on our footprint.
Despite short term pricing headwinds this agreement vastly improves the stability of our wholesale segment and positioned it for a return to growth in late 2022 and beyond.
Stepping forward to slide our customer engagement starts with providing market leading products.
Really the best sales experience.
We are also committed to providing great service throughout the customer journey to create much deeper relationships and earn our customers' loyalty.
In July we assembled an agile team dedicated to improving the customer journey and we have already completed many actions on identified areas for further improvement.
As we've often said there really is no single silver bullet to improve the customer experience.
But then it requires hundreds and even thousands of small changes rooted in the attention to detail and a determination across the business to quickly improve and remove these pain points.
This team is systematically working through these improvements I mean, it's just a small sample of them here.
We've made simple yet powerful changes to our App for example items like remember me for card payments.
Remember me full viewing that Alan SKU.
We've launched updated billing and payment flows to simplify our billing and payment experience that make it much simpler for our customers.
And we've improved and refined our interactive voice response system with artificial intelligence powered KOL routing optimization.
I mean, we've eliminate customer pain points with items like removing transfer fees and the process for toning equipment.
Every single week, the executive team meets for two hours to review all aspects of the customer journey and build a clear plan with strong actions to improve this experience.
Turning to slide 16, we're also focused on partnering with great companies to improve our customer experience.
We've announced several important partnerships over the last few months and I'm really excited about the improvements and innovations the spring.
We've partnered with Red benches, and expanded our digital channels to provide customers more options on how they want to engage with us, including more self serve capabilities and chat functionality within our website and app.
We've partnered with Arrow, an Amazon company to provide customers with the best in home Wi Fi experience.
Advanced Wi Fi analytics from Arrow enables customer rats to provide foster mexicana or in many cases, the ability for customers to diagnose any issues and eliminate these without the need to call service at all.
And lastly, we have a partnership with Nokia to connect homes do X GFS polymer technology, which boosts network capability to give customers. The best experience high bandwidth applications like video conferencing gaming and virtual reality.
And as I said at the beginning our new Executive Committee has only been in place for a few months and it has just begun to implement all of these improvements. So I'm really encouraged to see a number of early indications that our actions are starting to bear fruit.
First and foremost broadband churn across both fiber and copper customers continues to fall.
Each down 20 to 25 basis points versus the third quarter last year.
John tends to be higher in the first 90 days of the customers' lifecycle that is across the total base of customers.
So early June is an important metric that we track internally to measure customer satisfaction, particularly as we implement all of the improvements we've just discussed.
90 day churn is down 30% since the same period last year and down 22% since March of this year.
Which indicate changes, we're making to the customer experience are driving real results.
Touch point, NPS, which measures the work of our customer care team improved 13 points since March of this year and is now at an all time high for the company.
And we've delivered improved customer cap whilst simultaneously rationalized.
Well I think to call centers during the quarter.
And since we launched next they installed that has resulted in a 15% reduction in cancellations between order and installation.
So I'll now turn the call over to Scott to run through our third quarter financial performance and our performance against our full strategic pillar of operational efficiency Scott over to you.
Thank you Nick and good morning, everyone.
Before discussing our results, let me point out that in order to more clearly describe the performance of our business versus previous time periods I will reference pro forma numbers in 2020 is if the fresh start accounting changes that we enacted when emerging from bankruptcy in 2021 had been implemented in January of 2020.
I also encourage listeners to review our new supplemental package that is posted to the quarterly results page on our Investor Relations website part of our effort at improved transparency for our stakeholders.
Turning to results on slide 19 revenue was $1 $5 8 billion in the quarter driven by roughly flat sequential data revenue, but lower voice revenue.
We earned $126 million of net income and $587 million of adjusted EBITDA.
$278 million of our adjusted EBITDA came from fiber products, which grew nearly 7% year over year driven by strong.
Moving to <unk>.
Performance was strong this quarter.
Consumer fiber customers grew roughly 5% year over year with a sharp acceleration journey.
In Q3.
Customer growth was flat year over year.
<unk> emerged as a key growth opportunity during our strategic review this summer and early signs from the new initiatives that you described point to improved customer performance in the fourth quarter.
Turning to slide 21, our total revenue declined 6% this quarter a modest improvement in trend from the first two quarters of the year.
Fiber revenue growth was flat year over year, an improvement versus last quarter's 3% decline.
Consumer fiber revenue growth was roughly 1% year over year, an improvement of 50 basis points versus last quarter as broadband revenue growth of 15% was roughly offset by declines in video and voice.
Business fiber revenue growth was flat year over year also an improvement versus last quarter as our wholesale business gains stability as a result of the strategic partnerships that we have developed.
It is important to note that while video generated significant revenue it generates only minimal profit did a high content costs.
We made the decision to stop marketing video to new customers earlier this year.
Video declines will continue to be a headwind to revenue, we expect minimal impact on EBITDA.
Copper revenue declined 100 basis points sequentially to negative, 9% as both consumer and business faced continuing but expected pressures.
Turning to slide 22, total EBITDA declined 12% this quarter again, it's fiber growth was offset by declines in copper subsidies and Doug.
Fiber EBITDA accelerated 800 basis points sequentially to six 9% this quarter.
Given by strong consumer fiber broadband growth and margin improvements that offset video voice and business declines.
Frontier is a fiber first company fiber now represents 55% of our adjusted EBITDA, excluding subsidies and other will increasingly drive the growth trajectory of the overall company.
Copper EBITDA declined consistent with our expectations and we expect sequential declines to moderate over the next several quarters as our customer experience initiatives pay off.
Our EBITDA has been pressured this year due to copper declines in our wholesale repricing actions next year, our subsidy revenue will fall roughly $300 million is the caf II subsidies or retire.
Even with this headwind next year, we expect growth in consumer fiber EBITDA and stability across our other businesses to drive a sequential acceleration in EBITDA by late 2022.
We'll move to capital allocation on slide 23.
The underlying cash flow generation of the business remains strong.
Splitting the capex associated with building fiber and reorganization and restructuring items, we generated approximately $400 million of free cash flow this quarter, and $1 1 billion and free cash flow over the trailing 12 months.
Our future program remains on track.
Track to deliver $250 million of gross annual cost savings by 2023.
<unk> already implemented several initiatives such as closing two call centers, while improving call center productivity prioritizing and rationalizing it spend and optimizing our travel ticket routing and field operations.
Last quarter, we announced that we were targeting $25 million of realized cost savings. Just this year 2021, and I am pleased to announce that we've already surpassed that number and are on track to capture more than $30 million of cost savings this year.
We're committed to managing our balance sheet in a disciplined manner and we plan to maintain a net debt to EBITDA ratio in the mid threes in line with our peers.
Finally, we are committed to our rigorous capital allocation decision, making our fiber build will be the primary focus of capital allocation over the next several years and the bill cost that we communicated to you last quarter of roughly 900 to $1000 per location for 2022 to 2025 remain unchanged.
Including the roughly $1 billion of debt that we raised in October.
We ended Q3 with $2 2 billion in cash and $535 million of available capacity on our revolver representing roughly.
Our net leverage remained low at two <unk>.
Two times at the end of the quarter, giving us ample headroom under our.
<unk> net leverage target.
Yeah.
We do not have any significant maturities earlier than 2027.
Clear runway during our wave two.
Fiber built.
Additionally, as a result of the Capex in our build plan, we do not expect to be a significant federal cash taxpayer through outweighed too.
As I stated before we will pursue a disciplined financial policy it will enable us to manage through a range of economic scenarios.
We are also reiterating our 'twenty to 'twenty one guidance today, we continue to expect capital expenditures of roughly $1 8 billion. Although we may come in slightly below that level due to build cost at the low end of our wave two rich.
We are also maintaining our full year EBITDA guidance of $2 40 to $2 5 billion.
We expect results to fall within the upper half of the range due to stronger than expected broadband performance and cost savings generated in the third quarter.
I'll close by bringing the frontier investment thesis altogether.
There is strong and growing demand for fiber driven by expanding.
Salary.
Fiber is a superior product for a number of reasons, including symmetrical uploading.
Download speeds that far exceed tables capability lower cost of ownership term driven by fibers passive technology and lower latency levels that enable important uses like video conferencing and gain.
We operate within a favorable market structure.
As you recall, we only have one or no competitor and 86% of our markets. As you think about fair share penetration, we believe that 45% to 50% with a superior product as well within reach.
We have a clear strategy and purpose. We are building gigabit America connect Americans to the digital economy.
We have ample liquidity and a strong balance sheet, providing us with access to capital to fund our strategy.
Lastly, we've attracted a strong and experienced leadership team, we're singularly focused on exit.
Executing our four part strategic plan.
Sir Please open up the line for questions.
Thanks, Scott operator, we're now ready for Q&A.
Ladies and gentlemen, if you wish to submit a question. Please press star followed by one on your telephone keypad, maybe join US online please speak flag icon.
Our first question comes from Brett Feldman of Goldman Sachs. Your line is now open.
Great. Thanks, so much for taking the question just a few it was interesting that you highlighted that most of the year fiber net adds are actually new relationships to frontier I was hoping you could give us some insight into where you are winning customers from the extent to which youre getting converts of households, moving off of cable versus maybe just doing a good job winning jump.
<unk> when you have someone moving into a new location.
It was also great to hear the update around all the work you've been doing to improve the customer experience I was hoping you could also give us an update on where you are in terms of evaluating your branding strategy going forward. Thank you.
Yes, Hey, Brett it's John <unk>. So thanks for your questions.
And maybe Nick and I can double team this.
Maybe just to start.
Relationship delivery service et cetera, and how thats affecting sure yes, thanks, John and thanks, Brian.
As we said in the discussion we've really put a lot of effort into improving our offer both in terms of attractive onramp pricing.
A more attractive.
And proposition with things like the launch of the Arrow round to a partnership with Amazon, which gives us a really winning in home Wi Fi experience coupled with.
Much greater promotional activity, which really drove to attention. The fact that we have a superior product and indeed, a product that does what cable cones, which is all kind of slow than we've been running with.
Recently.
I think has increased attractiveness.
To all of the potential sources of new customers, whether that's converting copper to fiber customers, where we built new fiber.
Winning from cable.
And indeed, even our own customers upgrading to higher speeds, which is also what we're seeing as a measurable trend across the base right. Now so I think it's growth coming from all of those sources, but really rooted in a fundamentally more attractive proposition now I don't want to over.
So that work is completed is very far from complete.
Because the team that's been doing it is really only been there for a few months.
Quarter at most and many.
The much less so this is really very much early green shoots rather than us declaring victory and much more work still to come on that but the goal is to make us more attractive across all of the segments.
Therefore, all of the sources of growth for us.
A question on brand.
And thank you for getting into the early weeks, while we anticipated a lot.
As we said at the last quarterly results.
We were evaluating the all of the options, but we do with the brand whether we double down on the frontier brand, we change it somehow or we completely reinvented ourselves with the new Brian but always with the belief that brand is what our brand does and therefore, the vast majority of our effort is going into changing what we do to customers because of that.
<unk> is the core and the very essence of our brand is much more than the logo.
Stuff you see on building on the side of trucks and so on.
That said we are currently in deep research on the future path of the brand with more than 1200.
<unk> completed already across five different states.
We are beginning to form a hypothesis on what is the best most efficient value, creating route for us to take the brand evolution and I anticipate coming back to our board in the next quarter or two with a firm recommendation on how we'll take that forward and of course once that decision is made we will share it with you on one of these results.
Great Thanks for that operator.
Thanks, Brad Operator, we'll take our next question please.
Perfect. Thank you. Our next question comes from Jonathan Chaplin of New Street Research Jonathan theory already have your product cable I think it probably well understood by everybody on this call, but it's not clear that the consumer market.
Understand that as.
As well as we'll do and so the launch of the two gigabit product next year I think will be exciting in that regard and I'm wondering when you launched that product so you're going to keep the three tiers.
Structure.
Two gigabit per second at the top of that maybe a gigabit as your as your flagship product to move up.
And as well what are you going to put it in as a fourth tier that sits above your current three tiers.
Jonathan.
I'm going to give Nick chance to think about housing.
Not answer that question.
Given its competitive sensitivity, but we'll know we'll come back on and then just one thing we were talking about a little bit earlier. This week was.
There's two ways to think about the superiority of the fiber product and certainly our ability to move very quickly to a two gigabit offering as a point of great differentiation at the topic of the stack, but what are the things that we also talked about just just yesterday.
If you take our entry level price point.
Which's remarkable value.
On our 500 Meg service.
You can't buy that service for any price from our competitor.
In that it is 500 down 500 up.
And people I think are beginning to recognize that that's a pretty important dimension to their broadband experience and and I think as we as we think about the continuing momentum that we're building from a subscriber gains perspective.
To get to that recognition and consumer side, but.
Im sure Youre not going to want to betray anything that sensitive commercially, but I talked about the to date, how you see the market developing yes. It's a great question. Thank you, Jonathan and John as well.
But I think I think.
Jonathan Your point is well made in that.
Consumer awareness is not as great as I would like it debate all the benefit of our symmetric fiber network.
But that's been part of the job that I have given a new marketing team to go fix that's why we're doing the brand research. That's why we're simplifying our product and doubling down on a core customer message, which begins to emphasize that.
What we're learning is that actually the pandemic has been extremely useful for educating consumers on two things one is that this reliable high speed connectivity masses and.
And secondly.
For the first time I think they are understanding that symmetrical speeds also impact their experience together with latency, but the sort of growing gaming community.
Of course, as evidenced in that short period of time.
And the entirety of the proceeding five years.
So it's very clear that consumer behavior is changing and as it changes either understanding exchange and our job in marketing and branding and marketing communications, it's a double down on that product benefit and make sure that people really understand how it improves their experience their lives their jobs their entertainment.
Interactions with friends and family and so on.
We started in that direction more work to be done I think.
<unk>, we've done good work I hope on simplifying our offer down to two core offers an on ramp 500, Meg offer and a core one gig off but we're going to augment that with a two gig also.
Remember our network is already 10 gig capable end to end.
So we can carry on driving up speed as demand requires and.
A very low cost very quick way again in a way that cable comp and I would like us to have a speed price ladder that really does let people find their own sweet spot for what they use in their house and as that demand continues to grow gives them an easy upgrade path.
<unk>, which of course delivers a better experience for them and higher raw. So I think you should expect us to see a continued strengthening of the speed ladder and over time, we'll add various value added services as well, but we are going to keep those under wraps until we launch them.
Got it thanks, guys congrats on a great quarter.
Thank you.
Thanks.
Yes.
I'll take.
<unk> of J P Morgan Phil.
Your line is now open.
Hey, guys.
<unk>.
Three quick ones, if I can first any supply chain issues or is Veronica gotten ahead of this.
We've seen some overbuild is actually accelerating to get ahead of your fiber construction can you remind us where is the competitive overlap today and have you dug deeply into how that's going to ramp over the next couple of years and has that impacted your build plans at all and.
And finally can you quantify the wholesale revenue hit we should expect in the fourth quarter from the AT&T deal. Thank you.
Yeah, Hey, Phil it's John So maybe if we can ask Scott to take the first and the third of those questions on the supply chain.
And then on the wholesale.
Impacts would be good.
Sure.
Yes, Phil Thanks for the question.
So I think we continue to ramp up as expected as John noted we're on track on time on budget and supply chain clearly with a build of this scale will have issues from time to time, but we've done really three things to help mitigate those issues first as you noted we have a world class team led by Veronica.
It's very much in the details and very much looking ahead of putting into place risk mitigation strategies, we have a great team.
Earlier this year ran a very rigorous procurement process to expand our pool of suppliers for both labor and materials and that really resulted in a more diverse supplier base, where we have less.
Risk on an individual supplier individual contractor.
And we ended up signing multiyear agreements with most of those suppliers to secure supply.
<unk> pricing and in addition to that where we've strategically needed to be bought ahead on key inventory items, particularly network electronics. So we feel good about.
The supply chain ramp up it's something we're watching closely we will continue to.
Monitor and keep you all updated.
So that supply chain on the last question on wholesale.
We haven't quantified the specific wholesale headwind from any specific customer other than and are reiterating our total guidance for.
The full year, which implies Q4, where we said we'd end up kind of in the upper half of the total EBITDA range of two 4% to two five.
Yeah, Nick here on your second question <unk>.
The first thing to say is just to be kind of take a step back. It is the fact that our overbuild is is a really positive reinforcement of our belief that the fiber really is the superior digital infrastructure this country needs and that capital.
And that operators.
In a sense it supports the overall industry thesis for Greg.
Terms of do we adjust our build prior.
Priorities to reflect that the answer very simply yes.
We have a an extremely.
Detailed.
Fully integrated build model.
That actually Scott.
His team and our marketing teams maintained together.
Which lets us adjust where we build and the pace of build according to many variables competitive intensity is an important one of those.
But it isn't just about adjusting our build we also very dynamically adjust our marketing pricing go to market effort channel effort and so on and our partner <unk> New partnership with Red benches is extremely useful in facilitating that because it lets us be much more digitally agile in terms of.
We target.
Propositions, we target with to do active AB testing on a very localized basis and simply move faster than the competition. So it's about dynamically evolving all build model.
And in a very agile way adjusting our go to market strategy to make sure that we send a very strong message to overbuilding that if you want to start have fine, but you'd be fighting with us and it will be a difficult fight because tomorrow.
Have you.
Forecast, where that overbuild numbers kind of looked like in a couple of years now.
Yes, we have.
Care to share.
No.
As John discussed as it picks up.
They're gone.
Yes.
Thanks, Phil Operator, we'll take our next question please.
Perfect. Our next question comes from Greg Williams of Cowen Greg. Your line is now open.
Great. Thanks for taking my questions I'd like to dovetail the conversation about the speed tiers into your ARPA growth. It looks like it was up 10% in fiber broadband <unk>.
How many subscribers are taking one gig plan I imagine, it's fairly small, but it sounds like you're going to start to lead with the one gig plan.
Which is from what I understand on $80 versus the 500, Meg plan at $55 and what's the take rates of that in your gross adds balance for that for that plant.
Or maybe qualitatively, how durable sustainable double digit <unk> growth in.
In that area second question is just on.
The wave three assets you know you spoke in the past that.
Could that be possibly sold and youre waiting to see the infrastructure Bill and the calculus to that.
It really has to happen.
Does the bill need to get past or do you want to see how the states will dole out the dollars.
Are you having conversations on answering those three assets.
Yes, hey, Thanks, I'll start it's John on just the wave III stuff I think it's sufficient to say that that's sort of our work is still in process and so we have a high sense of urgency we recognize that.
One we don't want this to be an overhang in any way a distraction for our management team or anyone who is thinking about the company.
But it's a bit more work to do there and that it's a mix of properties. It's a mix of conditions on the ground and financial calculation about the investment thesis and the nature of potential actions going forward is more broad. So for example, when we talked about wave one and to what we said back in August was.
That was a clear compelling no doubt about 10 years back and go kind of a message that we were able to deliver both externally and of course internally to our teams to go and build it a bit more work to do to sort of work our way through value capture and creation in wave three so that's underway certainly.
To your question.
Federal or state level subsidies and different programs that may come through in the various infrastructure bills are important to the calculus that could shift some of the breakeven points on some of those investments, but it is not the only factor there's a bit of sort of business strategic development that needs to accompany that effort as well. So we will we'll be red.
To talk about that in the next couple of quarters, we're not ready to give you anything more here today, but maybe Scott you I'll take the first piece about ARPA growth sure Greg.
<unk> growth. So our ARPA increase was really a result of a mix of factors.
The price and offering rationalization that Nick mentioned as well as the speed up tier that you discussed.
You start with we now have the entry level price, that's highly competitive with any other offering in its much faster and it's upload speeds than on the one gig offering. We've said, we're very encouraged by the number of customers, particularly in expansion markets, who are choosing the one gig offering which shows that.
That offering has particularly as we win new customers that has been a nice uplift to ARPA as well. So we expect continued.
Continued uplift from from both the one gig offering and normal price offering rationalization that we discussed.
Got it thank you.
Thanks, Craig operator, we.
We will take our next question please.
Okay.
Of course, our next question comes from Frank Louthan of Raymond James Frank Your line is now open.
Great. Thank you walk us through the agreement with AT&T for the backhaul and once that gets for you and how does that fit with their announcement with one word.
Is that.
Satellite backhaul and some more remote areas does that depend on.
Any sort of conflict, there and I've got a follow up.
Yes, Frank Great question. Thank you Super excited about the deal with AT&T.
Headline but.
Resetting, our wholesale pricing, which would create some headwinds we talked about that in previous quarters and the goal was to use that as a mechanism to reengage with the wholesale market Windsor, new contracts and begin to grow share again and Thats exactly what this very significant deal with AT&T, who are our largest wholesale customers.
The other really two components of that deal.
First of which is our high speed fiber connectivity to the cell sites as they upgrade to <unk> and therefore have more data to carry back to their core network.
And the second component is AT&T using our fiber network to connect.
Some of the enterprise customers, where we have strong connectivity and perhaps they have have left so.
Really important contract.
And.
Two core components.
Yeah.
As it relates to Leo.
And then the thing that AT&T to do with that and I think both of those bullets really question for them relevant broth, but I would just say that Leo and high speed terrestrial symmetric five a very different proposition.
One is very low latency very high speed terrestrial fiber that's the deal that we have with AT&T and lowered orbit satellites as you know much higher latency lower capacity, great for reaching sort of more of a remote rural areas and so on but not really.
The game that we're in.
Alright, great and then.
Following up on your Capex came in a little lighter than what we were looking for but you maintained the guidance for the year. I know you guys are incentivized on getting the build on walk us through how that you're taking and how you're going to hit that target.
Year.
Yes sure Frank This is Scott.
We do expect a large increase in capex in Q4, given the acceleration of the build plan that we have going into 2022, so a lot of.
The Capex that we expect in Q4, which will be a significant significant step up is for locations that won't be opened for sale until 2022, either because we will have already started to work on those locations are we purchased materials in electronics, so as we ramp up our build and open for sale locations.
Typically see capex ramp up a quarter or two ahead of that so that's the dynamic going on.
The third and fourth quarter here in advance of a much bigger build year in 2022.
Alright, great. Thank you.
Thanks, Frank Operator, we'll take our next question please.
Perfect. Our next question comes from Matthew Harrigan with benchmark Matthew Your line is now open.
Thank you one more or less the Davos type question and then one for Zika.
Question I think the European Telecom Association different Consultancies are really highlighted.
Just how much value fiber adds to the economy and most of the value is appropriated by some of the large tech companies. When you look at the development of applications for fiber or the type of speeds that headroom.
Deliver do you see ways over time to participate.
More directly in the economics, maybe in a non traditional manner.
And then the second question.
I realize you don't have a non aggressive path with AT&T and you can't speak for EQT, but given your relationship with the wholesale side, which is great is it kind of reasonable to infer that.
Maybe they wouldn't be incentivize to build fiber in your areas because so many of their needs are addressed already thank you.
Yeah, Hey, John.
Just quickly on the second question, probably a better one for AT&T, what they intend to do and where they intend to do it we're really.
Quite pleased with the new.
New agreement that we have to provide fiber.
Fiber connectivity for them in our footprint, but beyond that it's probably inappropriate for us to speak to their intentions.
On the first part.
A really insightful question.
Question of where does value.
Become generated by the delivery of these high broadband networks and how to telecoms participate in that.
Meaningful way and what gets sort of.
Shut off to the technology companies that maybe are delivering the applications and such.
A virtuous cycle, what I would tell you is that if there werent those applications created by those technology companies to drive what has become an insatiable demand on the part of American consumers for all manner of things in the spirit of.
High definition video.
Our high intensity gaming.
All of these different applications than draw demand today, we have people, who are saying well why in the world what I need two gig.
Echo is something I heard 567 years ago, why do I need 100 Meg.
You needed because of the things that you'll be able to do and.
In our minds, when we lay out our investment thesis and when you look even at just waves, one and two which we're driving very very aggressively the value creation, we provide to our shareholders on the realization of those plants is remarkable and it is enormous and it's an incredible shift from where the business has been and these are then asked.
That are returning at a very high and strong level. So we feel very good about our position in the value chain look Nick as you referenced before will we will speak to in the moment as we release different.
Our products and services that may layer on top of our networks up the value chain I will talk about those as they come but we don't think about this as sort of a zero sum game. Its a very healthy ecosystem that creates demand that demand has been satisfied by our increasing level to deliver bandwidth.
Thank you.
Thank you.
Thanks, Matt.
Operator, I think we have time for one more question. So let's take our final question. Please.
Our next question is from Nick del Deo of most of it Nathan Nick Your line is now open.
Hey, good morning, and thanks for fitting me in.
First could you comment a bit on the sort of competitive responses, you're seeing from cable when you upgrade to to fiber in their markets.
And second could you talk a little bit about the share of gross adds you think you need to win to reach your target penetration rates and the degree to which launching fiber end market stimulates switching considerations and I guess tied to that a little bit.
I'm interested in how you think.
If the current.
Suppressed move environment persists.
Sort of impact might that have on either your ability to penetrate markets.