Q3 2021 Charter Communications Inc Earnings Call
[music].
Okay.
Okay.
Yes.
Good day, and thank you for standing by and welcome to the charter third quarter 2021 investor call. At this time all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session.
You May ask a question during the session you will need to press star one on your telephone.
Please be advised that today's conference is being recorded if you require any further assistance. Please press star then zero.
I would now like to hand, the conference over to your speaker today, Jeff and Ed and Jerry.
Please go ahead Sir.
Good morning, and welcome to Charter's third quarter, 2021 investor call.
The presentation that accompanies this call can be found on our website IR Doc 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.
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 results.
Any forward looking statements reflect management's current view only and charter undertakes no obligation to revise or update such statements or to make additional forward looking statements in the future.
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.
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, Chris Winfrey, our CFO and Jessica Fisher, our CFO with that let's turn the call over to Tom.
Good morning, and thank you Stephanie we.
We performed well in the third quarter with good customer growth and very strong financial results. However were operating in an unusual environment, where the market effects of COVID-19 have not yet normalized market churn remains historically low such that net gains are being driven by much lower transaction activity.
Right that for the fourth quarter, we added 185000 customer relationships.
Customer growth of three 3% year over year.
We also added 265000 internet customers in the quarter and $1 3 million over the last year for a year over year growth of four 4%.
244000, mobile lines and supported by lower churn in our more tenured customer base. We grew our adjusted EBITDA by a strong 13, 9% and our quarterly free cash flow by over $700 million year over year.
Our view is that we have a long and robust runway of customer growth ahead of US today, our network passes over 54 million homes and businesses and we're doing business with approximately $32 million of them, leaving us with over 20 million opportunities to create new customer relationships.
There are also approximately 120 million mobile broadband lines in our footprint and we're currently serving $3 2 million of those we're currently very underpenetrated.
We're looking forward.
Looking forward, we remain focused on improving both the quality and value of our products as data usage in the home and outside the home tends to increase at a rapid pace.
Earlier this month, we launched our new and highly attractive unlimited multiline pricing structure, which allows customers to save even more on their mobile bills.
Early next year, we will launch a field trial or see brs small cells and a full market area, allowing participants to attach to our CBS C. B R. S small cell access points.
When they are outside of Wi Fi coverage, providing our spectrum mobile customers with even faster speeds.
While improving the economics of our mobile business.
We also continued to deliver improving wireline connectivity products today over 70% of our internet customers subscribed to tiers that provide 200, megabits or more speed and our new Wifi six routers and spectrum Wi Fi pods managed by our advanced home Wi Fi platform and our mine.
My by my spectrum App.
Provide customers with complete home coverage and greater control of their home networks and connected devices.
As expected, we continue to see very high demand for data.
By our customers during the quarter non video Internet customers used over 600 gigabytes per month stable as of late but more than 30% higher than pre pandemic levels and today close to 20% of our non video internet customers use a terabyte or more of data per months.
In order to increase the capacity and speed on our network for next generation products and services. We have developed a multifaceted approach to a network evolution comprised of a number of technologies, which will be deployed where they make the most sense strategically and economically delivering the very fastest speeds and lowest latency at the low.
<unk> cost and time to deploy.
We continued to expand our capacity by splitting nodes, but we have a cost effective approach to deliver multi gigabit speeds in the downstream and a gigabit per second.
Symmetrical speeds in both downstream and upstream directions.
All using our deployed DOCSIS three one platform and high splits which are currently being tested in market not only allow for increased speeds in the near term, but are also a capital efficient way.
As they currently are.
Use deployed DOCSIS three got one customer premises equipment.
And reduce the need for node splits, which require an average consumer bandwidth utilization.
Which would require.
Where required.
Yeah as consumer bandwidth utilization increase so.
What I'm, saying there is that the.
Yeah.
Hi split actually.
Uses of capital.
Jack.
Was needed for.
Splits.
We also continue to actively develop our DOCSIS four <unk> technology plant architecture.
And rollout, which allows us to cost effectively.
And cost efficiently offer greater gigabit speeds in both the downstream and upstream and of course, we're already using fiber to the home technology.
And a number of use cases across our footprint, including rural areas, such as our art off Bill and an empty use in greenfield build areas, where the economics make sense ultimately our plant will be comprised of the most bandwidth rich and cost effective technologies, enabling us to deliver the fastest speeds in the industry in a more cost efficient manner.
Then competitors ubiquitously across 24 million passengers and growing.
So with our network and product capabilities, we remain confident in our ability to grow our customer penetration EBITDA and free cash flow for many years to come.
Before turning the call over to Chris I want to make a few comments about our recently announced management changes in promotions.
On October 19th we announced that John victim had been appointed Vice Chairman ahead of its previously announced retirement at the end of 2022.
I've worked with John for three decades, and at every turn his knowledge leadership and steady hand of not only contributed greatly to the success of the Companys. We led that made a profound impact on the growth of our industry I'm grateful that John will continue to serve charter in his new capacity as a strategic adviser to me and the executive team.
We also recently announced that Chris Winfrey had been promoted to Chief operating officer over the past 11 years, Chris is influence on charter has expanded far beyond that of a typical CFO.
<unk> been actively involved in all our business operations and that deep knowledge combined with his previous operational experience in Europe will service well as charters next chief operating officer and.
And John's guidance as Vice Chairman will help ensure a successful transition for Chris.
<unk> role.
As Kris moves to CFO. We've also promoted Jessica Fisher previously executive Vice President of financed Chief Financial Officer.
Jessica leadership and financial expertise has benefited charter for many years both in her roles at charter and while it Ian why where she was a key adviser during our 2016.
Transactions in her new role Jessica will have an even greater impact on charter success finally, rich D. Geronimo, our chief product and technology officer at the oversight of network in software operations to his current responsibilities, leading the product and technology organization.
Expanded responsibility rich will both shape the customer experience and lead our networks critical evolution into the <unk> future delivering to our customers.
Purion broadband connectivity experience now I'll turn the call over to Chris.
Thanks, Tom I wanted to make a few comments about what we're seeing in the marketplace and briefly discuss our long term market opportunity.
Initial customer activity, particularly churn has taken longer than we expected to return to normal levels.
Overall lower level of market churn has reduced sales opportunities available to us, but interestingly the value of net additions is even higher in this environment.
We still maintain good continued customer growth.
Given that the start of Q4 feels similar to Q3, we now expect current your Internet net adds to look more like 2018 in 2019 as record low churn of every type is not offset higher loss of selling opportunities from from competitor competitors churn.
That lower overall transaction volume is exposed to high level underlying EBITDA and cash flow growth that is normally masked by even higher unit growth.
With fewer new customers than usual have a lower mix of customers on promotion benefiting our customer relationship.
Additionally, lower sales volume has driven lower expense and capital expenditures associated with sales and installation.
Our upfront provisioning cost and fewer service calls and truck rolls, which are more frequent with newer customers.
Ultimately market churn will return driving more sales opportunities and to return to normal. Net addition environment for charter as that happens we would expect a reversal of some of the transactional financial benefits I mentioned a moment ago.
We thought that would happen by December of this year, but it hasn't happened quite yet lower transactions have lowered cost and at the same time, our cost per existing customer relationship continues to get better.
Our service model drives lower service calls and truck rolls with nearly 100% in sourcing of our call centers now improving tools for employees and increasing customer usage of our digital and automated platforms.
The service churn and expense benefits of those initiatives will continue for years.
We've also continued to invest in our product marketing sales capabilities and our yield for close rate.
It has been growing, albeit on lower sales traffic.
And we continue to grow internet customers across our footprint, regardless of the competitive technology or infrastructure.
Earlier this month, we announced new mobile multi line pricing designed to drive new mobile relationships, where lines per relationship and ultimately stimulate overall market movement and sales opportunities for all of our products, including Internet.
Mobile and wireline broadband are converging into a single connectivity service package and we offer the nations fastest overall normal service combined with our Wi Fi and best mobile pricing, which offers unlimited service for just $29 99 per line per month when households have two or more lines.
And average household served by the big three mobile broadband competitors with two lines in mobile broadband and wireline broadband spends approximately $200 per month on its telecom services.
With our pricing and packaging of spectrum customer can purchase our internet product and two lines of our unlimited local product with faster service for nearly 50% less.
And with more lines means more savings and customers can also combined by the gig rate plans for $14 per gig with one or more unlimited lines to take advantage of the new 2000, 1999 unlimited line pricing.
Today, we have roughly $2 million of our $54 million passing subscribe to this converged connectivity services. So as Tom mentioned, we have a very long runway for customer and market share growth created by the ability to save customers hundreds or even thousands of dollars per year with better product capabilities and service.
As Tom mentioned, Jessica has been promoted to CFO I've had the opportunity to work with Jessica for over 10 years five years, while she was a partner at E Y advising us including on the structure of the time Warner cable and bright house transactions.
Last five years she's been a charter she has steadily grown our responsibilities from initially overseeing tax and treasury to adding procurement internal audit investor relations and acquisitions and capital markets activities, all of which is prepared her to take over the CFO role.
Now I'll turn the call over to Jessica to cover our Q3 results in more detail.
Thanks Kay.
Now, let's turn to our results on slide five.
We will continue to reference the Covid schedules, we provided last year and included again on slides 17, and 18 of today's presentation to help with year over year financial comparisons.
We grew total residential and SMB customer relationships by 185000 in the third quarter and by $1 million in the last 12 months.
Including residential and SMB, we grew our internet customers by 265000 in the quarter and by $1 3 million or four 4% over the last 12 months.
Video declined by 121000 in the third quarter wireline voice declined by 216000, and we added 244000 mobile lines in the quarter.
As of the ended the quarter, we had $3 2 million mobile lines.
Despite the lower number of selling opportunities from cable South we continue to drive mobile growth with our high quality attractively priced service rather than using device subsidy.
Moving to our financial results starting on slide six over the last year. We grew total residential customers by over 900000 or three 2%.
Residential revenue per customer relationships increased by five 6% year over year, given last year's third quarter residential revenue adjustment of $218 million for sports network credits, we provided some video customers as well as emotional rate step ups video rate adjustment that pass through program or <unk>.
And a greater mix of longer tenured customers.
Thank you, but partially offset by the same bundle and mixed trends, we have seen over the past year, including a higher mix of non video customers and.
And a higher mix of choice essentials and stream customers within our video base.
Keep in mind that our residential or pay does not reflect any mobile revenue.
As slide six shows residential revenue grew by nine 4% year over year, reflecting customer relationship growth and last year's Covid impacts.
Turning to commercial SMB revenue grew by seven 5%.
This growth rate reflects COVID-19 related impacts of $11 million that negatively impacted the third quarter of 2020.
Excluding this impact from last year F&B revenue grew by six 3% faster than the second quarter growth when making the same COVID-19 related adjustment.
Enterprise revenue was up six 4% year over year and included some one time fees, which were a benefit and that's quite a <unk>.
Excluding the benefit from this year enterprise revenue grew by three 8% and by six 5%. When Additionally, excluding all wholesale revenue.
Enterprise <unk> grew by four 5% year over year.
Yeah.
Third quarter advertising revenue declined 15, 1% year over year, primarily due to collect political revenue in 2021, partially offset by Covid impacts last year.
When compared to the third quarter of 2019 advertising revenue declined by <unk>, 8%, primarily due to local AD revenue, particularly auto.
Mostly offset by our growing advanced advertising capabilities.
Excluding auto the third quarter advertising grew by 8% over the third quarter of 2019.
Mobile revenue totaled $535 million with $201 million of that revenue being device revenue.
Other revenue grew by six 5% year over year.
In total consolidated third quarter revenue was up nine 2% year over year.
Moving to operating expenses on slide seven in Q3 total operating expenses grew by 460 million or six 2% year over year.
Similar to revenue the year over year operating expense growth rate is that weighted due to 2020 COVID-19 effects.
Grabbing increased nine 4% year over year due to last year's third quarter benefit of 163 million related to sports network rebates and higher programming right.
These factors were partially offset by a higher mix of lighter video packages, such as choice essentials and strain.
Regulatory connectivity and produced content grew by three 5%, primarily primarily driven by higher regulatory and franchisees and video CPE for the customers.
Cost to service customers were essentially flat year over year compared to 3.3% customer relationship growth.
Excluding bad debt cost to service customers declined by two 8% year over year.
Despite a higher number of customers and outsize hourly wage increases that we put through earlier this year.
Bad debt was higher by $47 million year over year, it's still nearly $75 million lower when compared to the third quarter of 2019.
Marketing expenses were also flat year over year, primarily driven by the lower sales.
Mobile expenses totaled $607 million and were comprised of mobile device cost tied to device revenue customer acquisition and service and operating costs.
Other expenses grew by three 8% driven primarily by higher corporate costs, partially offset by lower advertising sales expense year over year, given the absence of political revenue this year.
Adjusted EBITDA grew by 13, 9% in the quarter.
Turning to net income on slide eight we generated $1 $2 billion of net income attributable to charter shareholders in the third quarter versus $814 million last year the.
The year over year increase was driven by higher adjusted EBITDA.
Turning to slide nine capital expenditures totaled $1 $9 billion in the third quarter below last year's third quarter spend of $2 billion driven by lower scalable infrastructure spend primarily due to a stabilized level of network traffic growth and investments made earlier this year.
A decrease in line extension spend driven by housing built delays due to supply chain constraints in the housing industry and lower support capital primarily due to timing.
We spent a hunter is $119 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 out.
For the full year 2021, we expect cable capital expenditures to be relatively consistent as a percentage of cable cable revenue versus 2020.
As slide 10 shows we generated nearly $2 $5 billion of consolidated free cash flow this quarter, an increase of $722 million or 41, 2% year over year.
We finished the quarter with $87 $9 billion in debt principal our.
Our current run rate annualized cash interest pro forma for financing activity completed in October is $4 $1 billion.
As of the end of the third quarter, our net debt to last 12 months adjusted EBIT with $4 three two times.
We intend to stay at or just below the high end of our four to four five times leverage range.
During the quarter, we repurchased five 3 million charter shares and charter holdings common units totaling about $4 billion at an average price of $753 per share.
Year to date, we purchased $12 million of our stock in common units.
And since September of 2016, we have repurchased $51 $4 billion or <unk>, 37.5%.
Writers equity at an average price of $436 per share.
Our results show that even in this unusual environment are flexible and robust business and service models, which benefit economically from lower customer transaction activity still drive outstanding EBITDA and free cash flow.
Coupling that with our unique balance sheet structure and a proven capital allocation strategy, we will continue to produce shareholder value for years to come.
Operator, we're now ready for Q&A.
As a reminder to ask a question. Please press Star then the number one on your telephone keypad.
Your first question comes from Vijay Jayant with Evercore.
Hi, good.
Morning.
Just wanted to sort of unpack, obviously some of the trend.
On broadband.
There's some sense out there that some of this could be competition is there any way you can talk about what you're seeing in the marketplace from fiber or fixed wireless.
And.
And then a question for Tom on your Capex.
Comments this morning.
It looks like you're going to deploy high split and that will probably.
Use the need of doing those states going forward can you sort of talk about broadly the cost impact of that shift in strategy. If you sort of go down that that sort of bring forward some capex and while the total capex.
What really changed over the long term does that really the message.
Yes.
Yeah.
Hi.
Let me see.
Start with the high splits question first.
<unk>.
We are deploying it in market.
To see how it works and how it.
How it actually works in the real world, but.
Our sense of it is that.
You know you get a symmetrical gigabit speeds out of it but you also get the.
The augmentation capacity that we've been spending capital on for years.
Average consumer growth in usage of data continues to increase and so.
When you take the actual cap.
Capital.
And net that against it it becomes a very low cost of incremental capital and at the same time.
Comes.
Yeah.
Operationally a lot more.
Capable in terms of the products that you can deliver on the network. So.
We think it's a very capital efficient way of of.
Upgrading the network and maintaining our superiority from a competitive point of view everywhere we operate.
The.
In terms of how we're doing in the marketplace and what the competitive environment's like.
The competitive environment is.
As similar to what it's been and when we look at the effects of the marketplace.
In terms of net adds and the churn environment we're in.
We're seeing the same effect, where there are no wireline competitors.
As we do with wireline competitors in terms of net adds proportionately to say 2019.
And so we're seeing that.
That the competitive environment doesn't appear to be significantly different than it has been it's always been a competitive environment.
And that the effects.
Lower activity or throughout the marketplace, regardless of what the infrastructure, we're competing against us.
Great. Thanks, so much.
Thanks, Vijay April we'll take our next question please.
Your next question is from Ben Swinburne with Morgan Stanley.
Thanks, Good morning, everybody.
And congratulations Chris and Jeff on the promotions.
I want to ask questions similar to Vijay is if you don't mind I guess two of them.
One is you guys are obviously, describing an environment that is impacting that adds tied to activity, but the market's focused on competition. If we were to look at markets that charter operates in with fiber competition.
You know I know AT&T has been adding fiber for a number of years, what would we see a dramatically different business in terms of penetration in <unk> and even kind of pricing strategy than if we looked at charter's footprint in DSL markets isn't that'd be.
Helpful.
A framework to think about this and then number two is on the network again sort of following P. J. This line of thought.
And Chris be interested in your perspective, given your European experience, we're seeing some cable companies in Europe, essentially skipped DOCSIS Ford auto and go fiber and I know there's.
Major structural differences there versus here.
But I'm just wondering if there is.
If there was any thought in your head about where fiber might make sense or what would what would cause you to move towards fiber to the home versus Ford out over an extended spectrum, DOCSIS, which which seems to be your sort of planet right now anyway love to hear your thoughts on those two thank you.
Well I would just I would say that.
And fiber markets versus DSL markets.
That.
Our business model works pretty much the same way.
And.
And there are slight variations in penetration everywhere we operate.
For a variety of reasons, but.
They're very similar businesses and our growth rates.
Our <unk>.
Similar.
Structurally.
So we've.
We've been able to grow market share.
In every environment, we operate in.
Pretty much in terms of facilities based competition.
For a variety of reasons.
It's not just.
Capacity in every case, it's sometimes service, sometimes the overall product mix, including the mobile piece of it.
So we've found ways to make our product work.
Regardless of the operating environment.
Yes.
The difference between Europe, and the U S.
Totally different densities.
We do fiber to the home today in rural environments, Austin, and then to your environment.
The increment, where we're doing greenfield.
The capabilities of the DOCSIS three <unk> three one network really has a very long runway, which is what Tom was mentioned that are extremely low capital cost.
And and provides all kinds of opportunity, including picking over time, how you attack access Ford auto and and fiber to the home.
But we have a really capital efficient path that doesn't that means that we don't have to.
Go down that same path and a lot of the different tiers, I think driven more by density than anything else density and conduits.
The way markets are built.
It's a much different environment, but the reality is that we can upgrade our network at way less than it cost too.
To build fiber platform over top.
And and.
Fiber works for us on the increment in Argos It works for us.
And certain kinds of MDU environments certain kinds of Greenfield.
Greenfield new construction environments.
But in terms of taking existing infrastructure that we've already deployed.
You know three quarters of a million miles of infrastructure essentially.
That we can upgrade at very low costs.
Orders of magnitude less than it cost to build fiber and get equal performance.
In those cases faster.
And do it quickly.
Thank you.
Thanks, Dan April we'll take our next question please.
Your next question is from cut down morale with RBC capital markets.
Good morning, and thanks for taking the question I was hoping for more color on residential ARPA trends the quarter came in strong even when backing out the COVID-19 comps against last year. I know this was partly related to the June rate event, but you also noted benefits from a more favorable customer mix customer mix, given how low churn has been I guess.
Given your commentary on 2021 net adds looking more like 2018 should we assume these positive <unk> trends can continue not only into the fourth quarter, but also into early 2022, it's just I assume that even if market activity picks up we would likely take a few quarters to reverse some of this tailwind in your overall subscriber mix.
Would appreciate your perspective thanks.
Yeah. So first of all I would point you back to city Shanda and that Covid picture that that there is a big piece of the year over year or to increase it is related to their.
The revenue credits in Q3 of last year.
But I do think you pointed out some thing you know the low return environment benefits us in a large number of plays in one of those is on the ERP side and the longer that a customer stays with US yes, more customers as they roll off promotional.
Packages, and therefore roll into higher pricing packages and as we have said in.
Our low churn environment, where you have additional longer tenured customers, we do see some impact on <unk> from that.
But the other piece that's in there that you pointed out is that is there additional programmers had pass through costs.
We pushed at the end of the quarter. So so there's a mix of the three there will I think if we continue to be in the low churn environment continue to be some impact.
Just as having longer tenured customers on the system.
And the financial results of having those customers in the system for longer at really a very good both on the revenue and the transaction side, which is some of what you see in the overall financial results for the quarter.
I guess I would just add to that.
Think about it from a return on investment perspective every customer you add in a low churn environment.
As more valuable customer you're at a higher churn environment, because the average life of customer is longer.
Therefore, the total cash flow of the customers longer.
The.
Cost to serve the passing from a transaction cost perspective is less.
So it's.
From a financial point of view.
Slower.
A slower growth environment.
Related to churn.
Being reduced is actually economically positive from an ROI perspective.
That's perfect. Thank you both.
Thank you April we'll take our next question. Please.
Your next question is from Phil Cusick with J P. Morgan.
Follow up on a question and Echo my congratulations to Chris Jessica and Richard's well deserved.
First on on Vgs question, you said that adds are more valuable I think Chris does that mean youre seeing something similar to Comcast.
Slower low end customer and consistent high end.
And any thoughts on whether wireless fixed or mobile might be pulling more of that low end.
And then Tom can you expand on your C. D. R. S trial comments, how why the trial is this how many sites and then you can help us with there. Thank you.
I'll do a quick answer on the CBS.
An entire DMA market test.
Thousands of sites.
Because there are.
Full monitored.
Sites.
Small cells relatively speaking.
I don't know the exact number but it's an entire DMA.
In terms of customer mix acquisition, it's true that the programs that we've put in place.
In the midst of Covid last year, where there is the remote education offer or the way that we worked with customers where the keep Americans connected credit.
Oh through the sales as well as from a retention perspective, there was a locking in or.
Securities.
The.
Lower income population and forgive him on his charter customers.
We're really pleased that we did it.
Is that a pull forward and maybe that took place last year, but that doesn't mean that we haven't stopped.
We stopped marketing and selling into that base, we've been an active participant in the emergency broadband fund.
I wouldn't say that it's created in the third quarter any incremental acquisition vast majorities.
And to that program through our existing subscribers.
We're utilizing that federal program to make sure that we service that community and continue to actively market sell and service.
This space, but your point is true.
Certainly a lot of people who had been on wireless substitution in the past or had affordability issues that through the things that we did cooperating with the federal government, we were able to get them to proper broadband.
I understand it from that last year, we managed to keep those customers through the course of this year, but at the same level of inflow of sales were little lower.
Thanks for that contributes to the lower churn environment as well correct.
Okay.
Thanks, Phil April we'll take our next question please.
Your next question is from Craig Moffett with Moffett Nathan.
Hi, Good morning, and let me join the parade of all my congratulations to Jessica and to Chris and two too rich and and too John.
So two questions if I could first just digging into the broadband dynamics one more time.
In this low churn environment have you seen any change in in the share of gross additions that you're winning so my understanding is the gross addition pool is is clearly suppressed by low churn, but has there been any change in your windshield as far as you can tell among what's left in <unk>.
Additions and then as you think about the upcoming C. B R. S. Offload trial, what's your expected offload what's your target for how much of the what would otherwise go over the cellular contract with Verizon.
You can offload onto the C b around small cells.
Yeah.
So in that.
The first part of your question on the broadband growth.
Are you talking about new construction growth.
No just in the in the smaller gross addition pool that's available given the customers are just moving less and and churning less.
But in that smaller pool, that's available do you have any sense that your share of wins has changed at all.
Yeah go ahead.
I guess we've seen.
Seen that in the in the field that do come in the door and the yields are actually going up so the number of sales that come in the door that were able to close and convert to customers on it.
It has been increasing I and it looked at it exactly in the great. Yeah. That's that's that's a R.
Our share of activity.
It was actually higher.
From the activity that we see in front of us so our ability to attach mobile units too.
Transaction is going up there is just less of them.
And.
But.
No in terms of.
I don't see really a change or a shift in.
Any material way that I can see in the numbers in terms of our.
Acquisition sure are our churn is down and all types of markets with all types of infrastructure that we operate in front of us and our gross adds are down proportionately inside all of those same footprints. So there isn't any incremental.
A change in any material way.
Gross ads based on which we operate is just lower transaction volume taking place across the entire board.
And so it's it sounds a lot like what you're describing is just that.
<unk>, a low mobility and low household formation market.
That's true.
And how that unwind is unclear.
I mean, there was some.
Very unusual market situation people.
Sheltered in place so to speak.
And so you had all the friction of the market came out.
That used to exist people in transition.
And they settled into subscriptions and win the market.
We mobilized so to speak I think there'll be continued pressure on gross.
Because of the pull forward of all of that activity.
But it is.
I mean, I think the fundamental opportunity for growth.
And long term growth.
Still the same and our ability to take share out of the market.
It's still the same.
In terms of C. B R S.
Today.
You know 80% of the traffic on mobile platforms is on Wi Fi.
And we continue to use the Wi Fi network, effectively and Theres, a whole new piece of spectrum available to Wi Fi.
Available to us.
So wifi.
And Cvr's together have an opportunity to.
To make a significant change.
<unk>.
How much traffic is on our network versus on the M. B now.
Our target for CBRE as I've said before.
Could be.
A third of the of the marketplace.
If everything works and it's fully deployed now youre talking years.
Of runway.
Necessary to deploy that.
And to get it fully utilized but the good thing about it is that the capital.
Associated with.
Any construction, we do is.
Yes.
Is dedicated to the to a lower cost in other words.
If we're going to put out a device or radio we know where the traffic flows are and we know that the traffic flows in that particular area justify the capital.
Placing that device.
They off load percentage that's associated.
With that specific geography is sufficient to pay back the capital investment in the radio so.
We will deploy that based on actual utilization.
But our modeling shows that it could be a significant.
Reduction in the overall traffic load.
On the <unk>.
Thanks, that's helpful.
Thanks, Craig April we'll take our next question please.
Your next question is from Jonathan Chaplin with New Street research.
Thanks, guys.
Just to start off with.
Housekeeping question, and then I've got another one as well.
For anchoring off of 2018 and I guess this is a question for Chris should we be anchoring off of residential net adds of $1 1 million or total net adds of closer to $1 3 million.
And then.
Following up from from one of the earlier questions.
I recognize the.
The the color you're giving on the transition of the network to Highsmith. That's extremely helpful. I'm wondering if you can give us some indication of how long that transition to high splits across the network will take and then win more or less do you expect to start folding in the DOCSIS four <unk>.
Oh great.
And then my final question on broadband adds.
Assuming any benefit in the broadband add guidance that youre, giving for <unk> effectively from a pull through.
The lower lower wireless plan rate plans.
You've put out there so if wireless accelerate.
Did that have a pull through benefit to broadband and is that baked into your expectations. Thanks guys.
Uh huh.
Okay.
Yeah.
And the timing of the.
The high split.
Opportunity from a timing perspective as well.
Also opportunistic.
Like I'm, just describing CB <unk>, but.
It's relatively inexpensive.
Like us see brs deployment.
Was excuse me that like a three one DOCSIS deployment was.
And it's.
On a per passing basis, we think can be quite efficient but.
The other beauty of it is it's pretty much an electronic drop in.
It could be done quite rapidly.
And cover huge swaths of geography, and a very short period of time.
And so it has two benefits one it just if you do it in a sort of a normal.
Management of augmenting <unk> network growth.
Pattern sort of deployment.
It replaces.
Yeah.
It replaces the need to do node splits, but if you do it quickly. It also has the same effect, but it gives you greater capacity in terms of what products you can deploy in our market marketing claims you can make so it can be done quite quickly.
And that's the beauty of it.
Do you want to go.
Sure.
2018 comments that I made was really in the context of total internet additions. So the answer to your question is yes.
And he's got a pull forward.
This one does mobile pricing pull forward you know the the the it's only been out in the market for two rigs. So we should be careful what we say, but the initial.
Blessed with mobile sales then.
A fairly significant.
As we expected and while we think it could and should have.
<unk> impact on broadband over a multiyear period, we havent seen anything yet that indicates that that's the case and so I think it's nor would we expect nor would we expect it and we didn't expect it. So I think it's premature to think that we're going to see that kind of pull through the internet just yet.
Got it thanks, guys and congratulations to both you and Jeff can krish.
Thank you. Thank you.
Thanks, Jonathan April we'll take our next question. Please.
Your next question is from Brett Feldman with Goldman Sachs.
Thanks, just a couple of follow up questions on wireless you know when we look at your wireless pricing strategy you've done the exact opposite of what the major carriers are doing which is you offer consumers a great deal on their service price, but youre not necessarily offering them a promo on the handsets and sat leads in sort of two questions. The first is <unk>.
What are you thinking about handset promotions, meaning would you be willing to also incorporate them into your price points, particularly as consumers look to upgrade to <unk> devices and they're offered promos elsewhere, and then bigger picture I mean, the key reason it looks like you were able to lower your prices recently, because you were able to get a better cost structure.
Under the <unk> agreement, meaning that you took your lower costs and converted them into lower prices and so the question would be if you're pleased with the success of the <unk> trial, what does that mean for your wireless business does it mean that you have an opportunity to be more profitable or do you think that it's an opportunity to take your price point down even further because once again youll blow your.
Thank you.
I would say both.
Okay.
[laughter].
Okay.
I think if you look at our total opportunity you really can't say you know customer spend on.
Combined mobile and broadband.
There's a lot of there's a lot of broadband.
Mobile spend I'm out there relative to your broadband spend so if you think about a customer a typical timberland household.
They might be spending a total of $200 on a on broadband and mobile.
And today, we're only getting a relatively small piece of that and so if we continue to sell mobile product, even if we do it by bringing the pricing ethanol down our expectation is that that will continue to drive both revenue growth and and bottom line.
EBITA growth from.
From that business, all while driving pricing down in the mobile industry.
And from the perspective of our mobile business I mean, even today, our mobile business is profitable if you take a customer acquisition costs out.
And like what we've done across our business. Our goal is always to further penetrate the market and so if we can increase our penetration of the mobile market in and have more sort of the ongoing revenues and less customer acquisition costs or not.
Even with additional customer acquisition costs.
Well, we'll generate strong profits out of that business justify penetrating the market.
Sticking with our strategy of having very competitive pricing for our customers.
Yeah.
Agree that I think that one way of thinking about it.
We have about 55% penetration of our broadband business at about $60 <unk>.
On average and.
<unk> spend.
Mobile.
Per home basis inside our footprint.
Uh huh.
Over $120 a month.
The average.
Number of devices inside our footprint of about $120 million.
And so when.
When you really look at our 6% mobile penetration in our 55% broadband penetration and look at that as a share of spend.
Even if you cut the mobile.
Average household price in half.
Our penetration of the.
The dollars is less than 30%.
Which is which means what I said earlier in this presentation, which is we're really underpenetrated and theres lots of.
Telecom spend in which to grow our business.
At the household level.
Thanks, Brett.
April we'll take our next question please.
Your next question is from Peter Zaffino with Bernstein.
Hey, good morning, I wanted to go back to the RP.
<unk>.
With fiber and fixed wireless.
Segmenting broadband, presumably in 2022 and beyond I wondered if you could talk with us a bit about how you manage local pricing in response to those local deployments and whether that might result in some <unk> growth deceleration, albeit still at positive rates in the years to come.
Let me take it started then sure so we have national pricing everywhere for our retail pricing and its low compared to any of our peers or competitors and do.
Do we have the ability to bundle products that most of those competitors that you mentioned don't have so if you think about.
Low broadband pricing is a national retail pricing.
Bind with the ability to save customers hundreds of thousands of dollars in mobile and increasingly because of where the rest of the market has gone we have the very best video product out there and that may not be for everybody because theres a lot of different ways to take video.
But our video product, we have something for everybody, whether it's a full expanded package, whether it's data or whether it's essential stream choice.
In the home outside the home on every single device.
So we have a packaging and price point for just about everybody and still about half of our internet sales still take video.
And it causes them to retain so we're able to add value to these households, not just by having a national low retail pricing.
Structure for broadband.
But the ability to use video and to use the savings from mobile to compete now and really for a long period of time.
So that's that's how we approach the marketplace really how we've always approached the marketplace, including back to if you think about phone.
Where the pricing is and again, it's only maybe half the customer base, that's relevant for it but it is relevant for half.
We have a $12 price point for phone as well so we have different ways, we can save customers money.
And we think the product that we offer anyway in broadband is as good if not better than any of the competitive footprint that we face.
And ultimately price.
You can do with price as a function of what the costs are.
And we.
We have lower costs.
Yes.
Thanks, Peter Thanks, very much.
We'll take our next question please.
Next question is from John Hodulik with UBS.
Great. Thanks, guys.
First question on video you guys saw some some accelerating video and voice losses actually this quarter is that just a function of the.
Catch rates and lower broadband adds or is there a sort of a reopening issue there as well where maybe the.
The price increase in June affect those numbers and then getting back to the wireless.
No clearly wireless and broadband is it sort of a new bundle.
<unk>.
Thanks for the number 2 million households, so far having that bundle I mean, it's early yet but can we look at the churn within that cohort.
And see whether or not you're actually seeing.
Improvement versus sort of Standalone broadband.
And if so can you can you.
Maybe.
Give us a sense of the change in churn that you might be seeing thanks.
On.
The video and voice losses.
I think that that one is just.
The impact of having the frigate.
Not having that level of broadband additions that we had.
On a N a.
2020, and when you when you have a lot of broadband additions, we pulled through a lot of latent video.
In bundling and in and Thats CFO.
Lower gross add low return environment.
It's just a carry trade laws.
The prior trends no no overall change in trends.
On the the churn benefits for a broadband customer also takes wireless.
I could sit here and advertise and tell you how fantastic. It is the churn is definitely lower than I could beat our chest about it but some of that a lot of that is really at this point through the self selection to customers are happy with our service. They like who we are they like the pricing that they have on the products and as a result, they take more product from us.
I don't know that that means there's enough evidence now dessay systemically, but our gut tells us the answer is yes.
And while the numbers would tell us yesterday as well I don't think you should rely on that in terms of an order of magnitude until we get further down the road and the churn.
Ultra is so low.
What is sort of a trend that is.
Hard to attribute the bill that's right.
Okay.
April we'll take our next question please.
Your next question is from Doug Mitchelson with credit Suisse.
Thanks, so much and I'll add my congratulations to Jessica and Christian and rich.
And I will stick with the broadband and wireless seems Tom just a clarification.
You sort of mentioned the pandemic was a pull forward and you I think you emphasized share opportunities should we think about the growth opportunity really is sheer focus going forward and that the broadband marketplaces broadly fairly mature after after this pandemic pull forward and then.
I guess jump ball, though Chris I know you experienced in Europe might inform this and it seemed like Brian Roberts yesterday was was implying that they're thinking about launching a converged sort of in home out of home.
Broadband offering and I'm I'm sure you've been thinking about the same thing or is there an opportunity to disrupt the marketplace.
A single converged you know by the home subscription rather than thinking about it as a per phone plus per home subscription model. Thanks.
So Doug I wouldn't.
Say broadband as mature in the sense that.
We think high capacity broadband, which we sell.
And and packaged with <unk>.
Mobility and packaged.
<unk>.
Great home connectivity.
Managed Wi Fi.
<unk> is still a growth opportunity in two ways you have.
What will the number of people that ultimately take that level of service fee.
Our footprint today.
We think.
93% of houses are occupied.
And so and I think the penetration of any kind of Internet service in that footprint is about 85%.
So theres still opportunity to grow the overall connectivity broadband market.
And then there is the opportunity to actually grow it into the high capacity service that we sell in.
The high quality service, we sell so we think.
You know that.
While we have 55% penetration that there's 37% penetration more to go.
In terms of what our possibilities are there plus the whole.
Broadband <unk>.
Broadcast platform as well.
Very underpenetrated.
So Doug to your question, Yes, it's true I spent a decade in European cable, but it's also been a decade since I've been there. So I don't know that I'm ready.
Any longer qualified to make comparisons or talk about it but your question was.
Apologize if I haven't followed it but the debt could you offer a mobile subscription together with broadband and how the mobile lines be part of the home subscription to multi line.
And you just said.
Single a single price for household to have sort of as many devices as they want out of the home. It's an interesting concept and I know what it is trying to solve I mean for all the reasons that you can think convergence tech technically makes a lot of sense the ability to have a ubiquitous internet product inside the home outside the home and the neighborhood and the coffee shop et cetera, all that which we talk about it.
The ability to save customers tons of money, which we do.
There are not that many markets where from a marketing and sales machine. It's been fully proven out yet how are you.
Combine that together when lines are often sold it at a person personal level and.
Broadband subscription wireline is sold at a household level. So I think it's an interesting concept and one that we're keeping our eye on it.
When you think about.
As our pricing gets lower on mobile, we're inching, our way towards that one way or another.
Other way of thinking about it.
But I think.
Those those type of.
Models and taking a look at how to fully get convergence also for marketing and sales and solve the difference between per line versus per household is interesting.
Great. Thank you.
Thanks, Doug April we'll take our last question. Please.
And your last question is from Jacob Jessica rise are like with Bank of America Securities.
Thank you for getting me in.
One last question on broadband to beat a dead horse and then one other question.
On the Internet ads on the SMB side, that's slowed as well.
And that that's an area that seems to have kind of normalized a bit more than residential can you talk a little bit about what's going on in commercial.
And then on X class T V that you know what.
Comcast talked about.
Rolling out is there anything.
And the service takes it to the extent like yourself to buy an X class T V.
Benefits are economics that you get or would you consider shifting to becoming an aggregate of streaming services.
You know with a different set of economics from linear.
Do you want to answer S&P.
I think the F&B space is really more about cyclicality right now related to.
Covid and how it takes it opened in.
Shut down then businesses.
Loews and restarted in and a.
New businesses for them, but I think it's much more tied to that.
It takes that we're seeing in the residential side.
Generally I would say that our SMT capabilities are as good as ever right now.
And in a market, where you have new verses businesses for me are coming back online.
Our competitive posture there is very good and I don't see the same type of issues that we've talked about in residential for us. So the fluctuations you've been seeing really much more about.
Just the overall economic cyclicality, that's taking place with Covid, but.
I wouldn't we don't face the same type of issues.
From market movements I appreciated residential in the SMB space.
I think our opportunity to grow there is remains good and segments residential.
Long term yeah.
From a streaming perspective.
It's interesting charters actually the biggest.
Live streaming app in the country and the most highly rated apps in the country.
We distribute streaming products on roku.
Apple TV.
On our own set top boxes.
Cloud based streaming application that can be.
Placed on our <unk>.
<unk>.
Streaming apps.
System that can be placed right on our set top boxes.
And so we've got more than $10 million.
Customers, who are connected to us strictly through a streaming relationship.
And we like the Comcast strategy with regard to their.
Putting their platform on on televisions and so we think there's lots of opportunity for us to continue to change the video model.
And and to take advantage of our relationship with customers and to make the video model more efficient.
For programmers and for operators.
To bring value back into television.
Thanks, Jessica that concludes our call. Thanks to everyone in April out in the past.
Yes.
This does conclude today's conference call. Thank you for participating you may now disconnect.
Yeah.