Q1 2022 Altice USA Inc Earnings Call
Greetings and welcome to the Al piece USA first quarter 2022 earnings results Conference call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
Note that this conference is being recorded.
I will now turn the conference over to our host Nick Brown. Please go ahead.
Hello, everyone. Thank you for joining in a moment I'll hand over to outpaced USA <unk> and CFO , Mike Girl, who will take you through the presentation and then we'll open the lines for Q&A as today's presentation may contain forward looking statements. Please read the disclaimer on slide two.
Please go ahead.
Thanks, Nick and good afternoon, everyone.
Jumping in with the summary of our recent quarterly performance on slide four.
Revenue in Q1 declined two 3% year over year, driven by our residential business, partly offset by strength in news and advertising.
Broadband customer net losses were 13000 for Q1 with trends similar to those at the end of last year as we have not yet realized the full benefits of our growth initiatives.
Q1, adjusted EBITDA declined seven 7% with a margin of 49%, reflecting both the revenue decline and higher opex to drive future growth.
Free cash flow of $208 million was solid even though that even with the elevated levels of investment as we are accelerating our fiber expansion newbuild activity and other network upgrades.
Recall, we launched more competitive internet plus mobile converged offerings in January and in March we announced an expanded agreement with T. Mobile allows us to offer more attractive mobile promotions.
We believe we are in significantly better competitive position today than we were 12 months ago and we're moving full steam ahead preparing for the launch of our own multi gig fiber broadband service later this year on our optimum fiber network. Additionally, we continued to expand our sales distribution channel for growth and have commenced the rebrand of sudden link into optimum.
To drive home, a more uniform and fresh marketing effort and customer experience.
Slide five shows our revenue trends in more detail.
Total reported revenue in Q1 declined two 3% year over year, mainly due to the recent expected pressure on our residential business with declined three 6%.
Discuss our residential trends in more detail in a moment.
Total revenue was down two 1% excluding about $5 million of prior year are strained revenue.
To remind you our backhaul contract with two mobile I was terminated at the end of last year. This will result in a loss of about $125 million of air strained revenue. This year when comparing to 2021 with about $110 million of this in the second half of the year coming out of our business services Division.
You can see business services revenue in Q1 was flat year over year on a reported basis, but grew one 5% excluding this air strand revenue.
News and advertising grew nine 1% in Q1, which is now approaching pre pandemic levels of growth.
Moving to slide six in Q1 customer trends in our residential business.
We reported a net loss of 21000 residential customer relationships in Q1, and a broadband net loss of 13000 re.
Remember in 2020, where the big boost in the early days of the pandemic and customer trends have not yet fully normalized and we saw much of the additional growth reversing in last few quarters.
We are still seeing a lower level of gross additions across the company have churn in our footprint has now clearly stabilized.
We did not need to push as hard on marketing promotions as we did in the fourth quarter as we aligned our offers more closely with files and you can see this reflected in our pud trends stabilizing sequentially.
The main drag on a year over year residential revenue and <unk> remains the loss of video customers, which has increased in recent quarters as the gross add video attachment rate continues to fall and we have been passing through more of the programming cost inflation.
Normally we would offset this with broadband and unique customer growth, but given temporary declines here, we're seeing the full impact of the video loss.
Given the progress we're making on our growth initiatives. We are confident that we will return to broadband customer growth in the second half of this year with our accelerated fiber rollout multi gig services in newbuild activity complemented by more attractive mobile blender and expanded sales distribution channels.
Turning to slide seven on business services.
Revenue growth of one 5% excluding air Spring revenue was slightly below the last couple of quarters as the comps are normalizing after comparing to 2020, when we saw a reduction in sales volume with less small business activity.
Given more positive customer trends now we expect to see revenue growth accelerated again as we go through this year.
S M B and other revenue grew one 9% ex air Strand, and Lightpath revenue grew 0.6% now.
Net sales bookings at Lightpath increased 70% year over year in Q1, which is a huge jumps to benefiting from our recent network expansion new market launches and expanded sales force we.
We anticipate that this should also contribute to accelerated revenue growth in it.
In the coming quarters.
Slide eight shows an update on our news and advertising business.
Revenue grew nine 1% in Q1 with year over year comparisons normalizing here now as well, excluding autos, which remained weak revenue grew about 15%.
In particular, we're seeing strength with the travel and entertainment sector is coming back plus a boost from sports betting as this has now been legalized in certain states, including New York.
Additionally, we expect more of a political benefit this year in the second half given the midterm elections.
Slide 10 is a recap of the strategic measures, we announced at the end of last year to enhance the company's network product portfolios and customer experience on an accelerated basis I'll go through each one of these initiatives in more detail now.
Turning to slide 11, we are on track to bring 100% fiber broadband delivering multi gig speeds to more than two thirds of our entire footprint over the next four years, reaching a total of $6 5 million.
F T th past things by the end of 2025.
This will include at least 4 million fiber passing that optimum, which should be done by 2024 and at least two and a half million fiber passing that suddenly.
We are confident that this is the right approach to improve the customer experience and has enhanced the value of the business.
Total incremental fiber path things and related Capex should peak in 2023, and 2024 at around $1 6 million new passengers in both years, especially.
Especially as we expand across the suddenly footprint and an accelerated pace.
We expect with a more differentiated broadband service to drive higher gross additions and reduced churn given the reliability of the fiber network service, reducing our long term network maintenance technical and customer care costs.
When comparing the experience what broadband customers on our fiber network to that of customers on our HFC network. We are now seeing 66% NPS improvement, 7% higher <unk> on gross adds and around 5% to 6% annualized churn benefits and significant reduction in incidence rates and from a trend.
Perspective, we're seeing these customer metrics improve every month.
Okay.
Slide 12 gives a customer a current snapshot of our progress with our fiber build in customer trends.
You can see on the left we released an incremental 146000 fiber passing during Q1.
Reaching just over $1 3 million total pass things, mainly our optimum footprint.
We expect incremental growth on fiber passing to meaningfully step up in Q2 and Q3 following our increased investments.
And given the spring and summer months are more conducive to construction and deployment with the better weather.
On the right you can see our quarterly Fibernet adds have been about 11 to 12000 per quarter and we have now reached just over 6% fiber customer penetration with 81000 fiber customers.
To be clear our customer penetration market share in these areas, including customers on our HFC network is much higher typically above 50%.
But on the fiber side, we are mostly focused on adding new customers onto our fiber network.
We are now starting to ramp up on existing customer migrations, which when combined with the rapidly expanding <unk> footprint will lead to an improved churn and faster customer growth.
Slide 13 demonstrates the runway we have to sell broadband services that can support very high levels of data usage.
The average download speeds customers take now has increased to 363 megabits per second.
Which continues to grow as customers are increasingly taking our one gig service.
Our one gig customer penetration increased to 17% in Q1, which is up over 70% from a year ago with just under 50% of all new customers now taking one gig speeds.
Around 46% of our customer base take speeds of 200 megabits per second or lower so we still have a huge opportunity to keep driving customers to higher speeds.
Average monthly data usage for broadband only customers was 630 gigabit gigabytes in Q1 with video streaming still the biggest driver.
Looking at our highest data consuming customers, 15% of our broadband only customers are using more than one terabyte of data per month.
Given these trends and insights we're confident we're making the right decisions and focusing on fiber to future proof our network <unk>.
Fiber is the best technologies that exist today to support high levels of throughput and data usage with very low latency and very high reliability of service.
Fiber is also a proven technology, which is widely available at a reasonable cost to date. So there's also a time to market advantage versus upgrading DOCSIS or other HFC network upgrades the.
The fiber network. We're building is also very easily scalable and will allow much faster upgrades in the future to enable more capacity and higher broadband speeds, it's a difference of having about.
I have a million active components in our HFC network today.
That would need upgrading versus just a few thousand pieces of equipment in our new fiber network for the same number of homes.
This is why we will be able to launch multi gig symmetrical speeds on our fiber network. Later this year just by adding modules at our head ends and in our field cabinets without needing to change any of the physical infrastructure.
On Slide 14, you can see we added 42000, new building passing in Q1 and are on track to adding approximately 175000 this year.
We're mostly edging out around a suddenly footprint and about one third of our new total whole newbuild activity. This year will be in fiber homes.
We are still achieving about 40% penetration after the first year of expanding our network into new areas. So theres, a very clear correlation with new customer growth.
Separately. We're also on track this year to complete the upgrade of about 100000 and suddenly HFC homes in areas, where customers previously only received maximum download speeds of 150 Megabits per second increasing this to either 400, megabits or one gig we.
We upgraded 16000 of these homes in Q1.
And lastly, as an update on our broadband subsidy applications. We received our first award for 8000 homes and the Yavapai County, Arizona and the team is actively working to significantly increase our total numbers of applications and awards.
Slide 15 gives us an update on our mobile business, where we've reached now a 198000 customers as of the end of Q1, reaching four three penetration of our four 3% penetration of our residential customer base and.
In January we launched our new converged offerings with up to $30 of monthly savings. If you take both the broadband and mobile service from us.
And in March we extended our strategic <unk> agreement with T mobile on mutually beneficial terms.
This new agreement gives us among other things much more flexibility on pricing, which is why we recently launched an aggressive one gigabyte promotion that drove about two thirds of our additional customer growth for the quarter we.
We believe that as we continue to adjust our mobile and converged offerings. We can maintain a high level of more mobile customer growth going forward and expect this will help improve broadband customer churn as well.
Turning to slide 16, now is an illustration of our new let's reconnect campaign, which kicked off the rebrand of sudden linked to optum.
This campaign represents our companywide commitment to reconnect with our customers communities and employees unifying all of our products and services under the <unk> brand across our whole footprint.
The investments I've been describing today, including our network and product enhancements to improve our quality of service and customer experience support this campaign.
And they set the stage for the roadmap ahead of us as we strengthen the relationship we have with our customers and solidify <unk> position as the provider of choice.
And now I'll hand, it over to Mike to review some of the financials in more detail.
Thank you Dexter and good afternoon everybody.
Picking it up on slide 18, with a summary of our financials for the quarter.
As Dexter outlined our revenue declined two 3% in Q1 with adjusted EBITDA declining seven 7%.
You can see our adjusted EBITDA margin was 49% in Q1, which is just over two percentage points below the prior year quarter, reflecting higher operating costs to invest in some of the areas. We have outlined to drive better customer growth and higher medium to long term revenue and cash flow growth.
For example, we are now well over 300 door to door salespeople and above 100 retail stores and we've been putting money behind our new mobile converged offers.
There will be additional spend later this year as we continue to ramp up in these areas, including additional marketing to support our rebrand campaign, which is more of a one off.
Cash Capex was up 84% year over year, which I'll come back to in a moment.
This all contributed to a 30% reduction in our EBITDA less capex or operating free cash flow.
On Slide 19, you can see our capital intensity was 16, 2% in Q1 up from eight 6% in the prior year quarter.
Without fiber and new home build growth investment capital intensity would have been nine 5%.
Our capex target in 2002 remains between $1 7 billion and $1 $8 billion on a cash basis, including $300 million to $400 million of additional FTE th capex and $100 million to $200 million of additional newbuild capex compared to the prior year.
Recall that after a couple of years of elevated capex to support our accelerated fiber rollout, we expect to start seeing significantly reduced capex. After 2024, once we start scaling back the build.
Slide 20 highlights the components of free cash flow in Q1 totaling $208 million for the quarter, which is lower year over year, given all of our accelerated growth investments.
Our quarterly cash interest payments of about $300 million should be fairly even throughout the year.
Cash taxes were $23 million in the first quarter, but this should step up throughout the year.
Lastly, other financing activities includes about $180 million of debt paydown using excess free cash flow.
Finally on slide 21, we show how we have a very well termed out debt maturity profile following recent and prior refinancing activity.
We have no annual bond maturities greater than $1 billion before 2025, all of which could be covered by either free cash flow generation or capacity from our revolver.
At the end of Q1, we had liquidity of approximately $1 9 billion.
On top of maintaining a healthy level of free cash flow generation.
The weighted average life of our debt is currently six years and a weighted average cost of debt is four 6%.
And as always we will continue to proactively and opportunistically manage our liabilities.
And with that we will now take any questions.
Operator, please open the lines for questions.
Thank you.
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Our first question comes from John Hodulik with UBS. Please state your question.
Great.
Dexter.
Yeah, I think it's the topic du jour of anything you're seeing from a competitive standpoint in the.
In high speed data and then.
On the new.
Converged fixed mobile offerings, just any commentary on sort of how they've been received.
With just 4% penetration in wireless at this point.
Hi.
Can you continue to you said you can continue to grow adds but you know what do you need to do to sort of accelerate the growth there on the wireless side. Thanks.
Thanks, John on the competition side listen I think you know.
Competition in the east and our optimum footprint remained stable, we continue I think quarter over quarter, improving our competitive stance relative to <unk>.
And we're really looking forward to being able to launch our new multi gig product.
In a few months from now and they'll continue in to rolled out throughout the year.
So thats pretty stable, we don't we are obviously starting to see frontier come into the Connecticut footprint and and have them have some stickiness and their efforts as they drive some of their fiber build there in small amounts.
But mainly we are seeing incremental competition and the sudden link footprint.
Which is no surprise as AT&T.
<unk> continues to increase its fiber footprint and we do have some smaller operators out there.
That are overbuilding.
But primarily the results of the quarter our.
Improved to stable churn at lower gross add activity, alright, and we're seeing lower gross add activity I think really driven by lower lower move activity.
But also some more competitive activity out in the west.
Related to your fixed mobile.
Commentary that said we are.
Very focused on growing.
That base.
We will continue to be thoughtful about how we bundle it with our fixed line product.
We had a nice promotion that will end here in the middle of May.
On one gig that was very successful and we're seeing a.
Good transformation, we believe in terms of being able to upsell those for one gig product something more.
And we'll be thoughtful about them about our packaging and office going forward, but we're very focused on it and it'll be part obviously about our whole rebranding reconnecting campaign throughout the year, we'll come up with some with various types of marketing efforts around the mobile product.
Okay.
Great. Thanks, David.
Our next question comes from Phil Cusick with J P. Morgan. Please go ahead.
Okay.
Hey, guys. Thanks.
I guess I'll take first following up first on the wireless.
Green gig wireless customers what does it cost you to add those are they bringing their own handset is there substantial sac there or is it sort of a almost a free trial on your part.
I mean, it's pretty much a free trial and we see a bounce.
At 35% of our new mobile subscribers buying new handsets and about two thirds of them, bringing their own device.
So they are signing up three gigs I think today, what we're charging $25 for three gigs if it's not connected to your mobile and then depending on that second tier fixed line subscription and then you get a discount on your mobile and your fixed depending on what type of speeds, you're taking on your fixed line side.
But from a from a SaaS standpoint.
We don't look at it as an individual one product Sac, we look pretty much at our overall marketing spend.
Throughout.
Throughout our mobile product, which is really an allocation.
Relative to our overall marketing spend more of an accounting allocation.
I think that if we were to try and figure out what we would attribute the losses in mobile too in the first quarter, that's probably somewhere around $17 million to $18 million, but it's very very difficult.
Two attributes unique marketing spend.
To mobile because of the converged offerings and the way we market out there, which is really about the optimum brand and in fiber and fixed line products as well so.
But to give you just some context in terms of the size of the loss in the first quarter from an accounting standpoint, it probably and about being 17 $18 million, but we don't really incur.
Encourage disclosing that all the time because it's just.
It's more of a funny accounting number more than anything.
Okay. Thank you.
And it seems.
I don't mean to be flippant, but do you think you can grow broadband subscribers this year.
We can the first half stronger in the back half I know it's not.
Perfect visibility, but any idea at this point.
Yeah, I mean, Phil it's imperfect visibility I mean, we definitely believe we're only growing subscribers in the second half of this year.
<unk>.
I can't tell you, where the math will end up and whether it will be positive.
Or not but what we're clearly pushing to be positive and we've got some good momentum we think in terms of some of the initiatives that we've been working on for the last six months ago.
That's probably as much as much for side as I can give you at this point.
Thanks, and then lastly, if I can these federal awards.
The 8000, what does that process look like is this sort of building momentum or are they still a little bit fast right now.
It's not a federal process. These are local community processes. As you know this is federal money being allocated to states and then states in many respects allocating them to communities.
And not every cat looks alike every single state and communities has got a different process.
But we are.
We are applying for every single community, where we have.
Our competitive advantage.
And they.
They take a life of their own.
There are twists and turns in every single one of these sometimes they start with Rfps, saying 20000 homes. They can come back and say no. We actually want to do 5000 homes and then we'll figure out the other 15000 homes.
Place and as you can think about it it's really a lot of backdoor politics in terms of how to allocate money locally.
Something called infrastructure and so I.
I think that.
Having followed this very closely for the past six months, it's starting to get quite organized today I.
I think it was very disorganized.
In the back half of last year and is starting to get a lot more organized we have a ton of applications.
That are pending but the decision making process. It takes a very long time.
And really just every single process is very different.
Typically once you are awarded.
Ah the grant to the subsidy, they're looking for two to three years for you to deploy your network and within that you know in just in this yavapai one that I believe we've got 24 months to deploy.
Our expectation is deploy hopefully in the next 12 to 18 months as quickly as possible and just move on to the next but we've got teams across our 21 states working actively on all of these subsidy programs.
Okay. Thanks Dexter.
Our next question comes from Craig Moffett with Moffett Nathanson. Please state your question.
Alright, Thanks, Dexter I'm going to stay with broadband.
Yes.
Two questions if I could first can.
Can you talk about the difference that you've seen in the legacy optimum footprint versus the legacy suddenly footprint.
It seems like.
Verizon actually hit a relatively weak fiber result, and and yet theres been very poor new household formation and sort of sensus demographics and legacy optimum.
But I'm wondering what you're seeing in in legacy sudden link where where it's presumably a more ripe target for fixed.
<unk> fixed wireless access and then second I Wonder if you could just talk about the pricing strategy a little bit for for broadband.
<unk> is not growing very much and yet youre, adding a lot of one gig subscribers should we understand that to me that you're sort of readjusting.
Readjusting, some of the pricing or promotional pricing.
Pricing that some customers are on in some of the lower tiers.
So and just on your first question Craig.
Is the overall theme that talked about fixed wireless.
And that competitive threat or just kind of just overall commentary on each one of them. Each one of the footprint I guess overall commentary in each one of the footprint.
But fixed wireless is obviously very topical in the sudden like footprint for a lot of investors, yes, yes, so on the optimum footprint.
I mentioned this in my commentary in my prepared comments on the presentation.
Well I think we've been performing a lot better relative to <unk> obviously the.
That the bundling of our mobile product has been good and we have been promotional.
Very promotional in the back half of last year going into this year as well all of the customer service metric CS are are meaningfully higher end and we're being.
Very thoughtful and pushing the fiber products. So we've got good momentum on the optimum side, which probably.
It reflects a little bit in the <unk> numbers.
That they that they announced.
The one part where we are seeing increased competition is in frontier in the Connecticut footprint, which is going to be a couple of hundred thousand homes. Eventually one frontier builds out there, but we all we will be fully fiber ryzen, Connecticut by the end of this year. So I think we've got we've got good momentum in terms of being able.
I'll address that competitive threat on the sudden link footprint I think obviously the primary.
Competition is coming from AT&T as it upgrades fiber.
It's gone from about 300000 homes passed to about 600000 homes passed in our footprint over the last 12 months.
And so that incremental 300000 homes passed as is creating more competition for us and then we've got pockets of competitors like Vexes taxis and suddenly some guys like that that that are rolling out fiber.
Particularly in our Texas footprint.
There that that's creating competition as well and so we're not seeing meaningful moves in terms of overbuilt. We believe we're still at about the 25% overbuild level, but we clearly will see incremental competition going forward over the next several years.
Some builders are continuing to build out and so what do we look at.
Some of our penetration levels that falloff.
500 subscribers here 500 there.
That is affecting our our growth in the suddenly footprint.
But we think we are very well positioned to address that over the next coming quarters and years with our fiber rollout with with what we're doing on our branding side and what we're doing with mobile.
In terms of the fixed wireless side, we continue not to see.
A lot of them competitive threats there.
Definitely not in the optimum footprint.
If you look at.
Even like what starry is saying that they cover about 15% of the of our footprint is is covered by them. We don't really see them active other than in certain MDU units and then on the Verizon side I think just looking at their numbers.
A big chunk of their ft, SWA numbers came from businesses.
Construction sites and mobile.
Mobile businesses and as such and so we're not really seeing a lot of pressure there and on the west I think equally well.
We're not seeing pressure today and in our selling footprint. It doesn't mean that we don't expect to see it going forward, but today, we're not seeing.
Any traction there and the FWS side.
And then on pricing strategy.
I think I mentioned already in our yearend commentary that we were going to increase prices this year.
So we will be looking to increase prices, particularly at the higher levels. They are at the one gig level very pertinent to your question.
We've been very promotional as we're going through a transformational side.
On the operating side over the last six months.
Stabilized.
Really the churn numbers in the churn numbers or keep on getting better and it's really about driving gross adds going forward with the with product and service and less about through price and so we will adjust those prices going forward, particularly as you as you mentioned.
A lot of our gross adds are taking one gig and we've been meaningfully cheaper than than than the competition on one gig over the last six months. So we will be starting to move those and.
I had mentioned that if we had kept the hour.
Promotions for the whole year that we would be flat on broadband <unk>.
We are up a buck in change on broadband or through a sequentially Q4 to Q1.
And we expect to continue to grow that the broadband <unk> throughout the year.
Helpful. Thank you.
Okay.
Thank you. Our next question comes from Brett Feldman with Goldman Sachs. Please go ahead.
Yes, thanks for taking the question I'm curious for a little more insight on who is taking the fiber to the home product and so for example to what extent as you roll it out our existing customers getting excited calling in and asking for it.
Or maybe to what extent are you finding that most of the customers who are taking it or are moving in to the residents or maybe it was a newbuild that had fiber from day, one and I think on the last call you had talked about your strategy for actually doing the connect in a way that is friendly for the for the household I think youre going to do to truck rolls and you'd shared some insight on how long that was.
Taking in the costs and I'm wondering if any of that hasnt changed or improved since the last update thank you.
So.
Brent we've been.
Not active on migrations.
We launched migrations.
In March on a one P basis.
And we've launched.
Migrations on a <unk> basis here in April , but we have not been actively pushing them.
So the customers that have been taking F. Dth are really gross add customers, we don't offer HFC and the zones that we have fiber to the home unless theres a problem. So.
85% of our gross additions in the areas, where we have fiber available are taking fiber are.
The remainder is there's a technical issue or there's a preference on the video side to have to have the old equipment.
Or certain exceptions like that but fundamentally we will not be offering in the HFC product in an areas, where we have fiber available.
In terms of the migration strategy.
We are literally right now starting to accelerate our migration strategy.
All the statistics.
Your point about the install side have gotten significantly better.
In terms of install times, yes, we are going to truck roll.
Over 80% of the installs are our two truck rolls there.
There are certain areas, where we just say, it's not efficient for us to do that so they are longer truck roll areas times, we've which has allowed us to expand the windows of availability.
In terms of.
In terms of the install times and we're in an HFC installed typically takes about 45 to 50 minutes typically.
The HFC the FTE th install for the customer is around an hour and a half.
And so we've meaningfully made that that.
That experience a lot more attractive for the customer.
And which is why we're starting to launch the migration side of the of the process a lot more aggressively the goal today as we're about averaging 506000 net adds.
Per month, we'd like to double that as quickly as possible and.
And being much more aggressive on the migration side and so.
We start releasing more and more homes over the rest of the year, you know thats the target for us to get to those types of numbers.
The target for the year is to try and get to close to 200000.
Fiber homes fiber subscribers by the end of this year and hopefully we will we'll be on track to deliver that.
Uh huh.
With the efforts that we're doing.
Thank you.
Thank you. Your next question comes from James Ratcliffe with Evercore ISI. Please go ahead.
Thanks, I have two if I could first of all any commentary on any impact you're seeing from inflation in the cost structure in general and particularly around the cost of your fiber build.
With labor and equipment.
Are you seeing any supply chain issues, there and secondly, a did you have any significant impact from the migration from the emergency broadband plan to the ACP at the start of this year.
How big a business is that for you.
On the first one.
Clearly we've got about.
1% of our overall <unk>.
Cost base.
Which relates to power.
Whether it be powering of the network.
Or or part of our facilities.
Hi.
And that has remained pretty stable.
Over over the past couple of years, but clearly we may see pressure on the energy side.
But it's only about $100 million.
Of our entire cost base per year.
Other things we've locked in on the supply chain the.
The fiber and the CPE cost.
And the labor side.
For the next for this year and going into next year. So we've got a pretty good predictability in terms of what we believe the cost per home is going to be on the fiber side and the newbuild side.
And.
There are.
There's pockets of jurisdictions and communities to try to take advantage of things like cost of the police force that.
That certain communities insists on escorting.
Our trucks as we lay out fiber.
Which you know is not is not peanuts in terms of numbers.
Because they will affect maybe $10 million to $20 million of additional cost in terms of things that certain communities are trying to extract from us.
But overall, we've got the cost base pretty well contained.
Here.
In terms of what we planned and what we expect the.
The cost to deliver over the next 12 to 18 months debate.
On the second question I'll, let that Mike Mike answer that.
Yes, James so on the.
The actual migration from the former ABB programs with ACP program.
The problem that it's been fairly seamless is not a material part of our business I would caution you when you see the.
The numbers of the government discloses about total enrollees a substantial majority of those are at least two thirds are using that subsidy for a mobile product rather than a broadband product. We have about 30000 customers currently in the ACP program on a flip side of the business.
Got it thank you.
Thank you. Our next question comes from Michael Rollins with Citi. Please go ahead.
Thanks, and good afternoon.
Earlier in the year.
You outlined the size of some of the incremental investments in the operations to make the pivot invest in marketing and surveys and just curious how those items are trending for the year and how you see the impact to EBITDA over the course of 2022, and then as Youre looking at it.
This model if you can give us an update on <unk>.
You make this progression.
The new date for all piece might look like in a few years whether it's.
The prospects for revenue growth or how margins may look as you pivot to a more fiber centric.
Portfolio.
I think we're well on track relative to the targets on Opex.
We're maintaining a lot of flexibility on our marketing dollars to increase that.
Going forward so we.
We were kind of estimating.
125 ish plus of incremental Opex going.
Going into this year some of it being one time relative to the rebrand.
I think we would clearly reserve.
Pocket of $25 million to $50 million of additional Opex. If we think about was useful for our growth initiatives, particularly as we're looking to accelerate and do more fiber and newbuild.
Then what we had.
Our budgeted to do back in November So we will continue to remain very flexible on that side.
In terms of how we think about.
Let's call it a new steady state cost base.
And Capex based on forward we've spoken about this in.
In a relative detail over the course of last years or so.
And we're getting a lot more granular in terms of in terms of the affected cost base in capex.
If you look at just the overall capex budget today, and you exclude fiber to the home.
And.
And new homes built youre, probably around a $1 billion.
About $1 billion is about.
$600 million, which is what we would have we would look at it in terms of maintenance capex and another $400 million of.
Of growth CPE, driven customer Capex and.
If you look at those numbers and you have a 100% fiber network or predominantly fiber network going forward.
That maintenance numbers comes comes down probably about a couple of hundred million maybe.
Maybe up to 300 million. So we're probably on the maintenance side closer to $700 million and we are $1 billion.
Pre.
Pre any fiber build out which will be over and then it's really about how much we're spending on any extensions of the network.
Which have been averaging about a couple of hundred million dollars going up to about $300 million this year.
Given the given the acceleration we're doing in terms of edge outs.
So that's probably the.
The.
<unk> as to what we look like from a capex standpoint.
Going forward, let's call it post 2025 and onwards, and an Opex standpoint no.
We have about.
$800 million to $1 billion of addressable Opex.
Opex that we could isolate that relates to network and service.
A related issues.
It is about <unk>.
<unk> $500 million and expand that probably the $600 million, depending on how you define things.
And as you think about really driving.
We reduced opex youre looking at saving.
It's hard to guesstimate, but you're probably out there saving $2 to 300 million easily.
Of that Opex.
And.
Hopefully more as we as we are seeing already the early returns from the reduction of incidence rates.
Lower churn numbers higher ARPA numbers et cetera, right. So.
We're very confident here that the strategies here, it's a very attractive return on invested capital.
And we will really drive.
Very good financial statistics on a steady state basis.
After 2025.
Thanks.
Okay.
Thank you.
And our next question comes from Doug Mitchelson with Credit Suisse. Please state your question.
Thanks, so much.
The extra a couple of questions first on just a follow up to a breath question on the fiber installs I think you said.
Install times are down to an hour and a half and I think you said from a customer perspective, so that's probably the in home.
Truck roll right I'm, just curious what's driving the improvement and the reason I ask because I'm just thinking over time, you have to transition more and more of your workforce from installing HFC to installing fiber I know in the past you indicated there was a need to train them.
How quickly do you think over the next couple of years, you would have to move more and more workforce into the fiber side and do you think you have that locked down where that training are the improvements that you're making are scalable. That's that's the first question.
Yeah I mean.
What we what we used to do in the initial days of fiber installs is have one truck roll for the whole day rate, which looked for that.
Full drop into the home.
From the <unk>.
And.
And the entire installation process in the house now what we do is we do we do the drop ahead of time, so that the final drop into the home is what the install process.
And the customer faces and it's an extra half an hour relative to HFC half an hour or 40 minutes relative to HFC.
<unk> you actually dropping.
A new distribution wire into the home and working with the homeowner as to where to drop that into.
And through what side could be a drill into the side of the home could be just the drop into their garage.
I think that that's what takes the additional time is to identify.
Really the geographical location as to where you're going to drop.
The fiber into which drops into the gateway and then the whole distribution of the gateway over.
And the installation of the Wi Fi it takes just a little bit longer than through HFC.
And we continue to see improvements.
As people get trained more and more we do believe we have the.
<unk> balanced today in terms of training.
We are heavily recruiting more.
More internal workforce.
To be able to keep those.
On standby as the key fiber installers and not subcontract all of that out and so.
We are ramping up those efforts commensurate with what we expect to ramp up to be in terms of the amount of installed.
So we're pretty well oiled machine today after fits and starts over the last couple of years here in particular with Covid as well.
On there and in terms of just delivering.
New homes passed.
Last year.
We had a big permitting issue in the state of New York.
That we believe has been solved that's about four or 500000 homes.
That will be released.
Are well on track in the Connecticut footprint to upgrade our entire Connecticut footprint to fiber. This year and also I have been working very closely with the state of New Jersey. So we're on track to deliver our.
Approximately 1 million fiber homes. This year, hopefully, we'll do better than that.
In the optimum footprint and then we're also starting to launch a couple of hundred thousand fiber homes in the west as well.
Great. That's helpful and the second question on the wireless side I was just hoping you would compare and contrast sort of the wireless strategy.
Strategy now versus versus last time, and the reason I asked the question is I feel like through the pandemic perhaps.
Little bit of less of a retail focus more of a greater ability to facilitate through digital sources, but I'm sure. There's other dynamics as well that perhaps who you think is different so just curious there.
Well I think when we launched we went very digital first strategy.
Strategy.
And unfortunately, the U S market still remains.
Not that adapt to the digital first type of distribution of mobile.
Retail and inbounds continues to be.
The bulk of our.
Our sales on mobile.
<unk>.
That's one of the reasons why we're aggressively pushing out our retail network, we've got 75 new stores.
Set to open this year, we've already opened up 10 this year.
We will continue month over month to continue to increase that.
And just getting better at the entire sales effort through the call centers as well.
Both in retention.
And in straight marketing side. So we feel good about where we are at today, particularly since.
We've got a new T mobile agreement.
That we think is very attractive.
Allow us to be very flexible in terms of how we think about our offers.
Going forward.
And as our distribution footprint.
<unk> footprint continues to increase.
We're optimistic that we'll be continuing to be able to push that so it's really just a.
Thought process around.
Our digital first strategy, which did not work very well given the complexities in the U S market on mobile.
With the handsets and with porting and with the same changes.
Those three things are not necessarily.
Very normal activities, let's call it for the U S consumer relative to other markets that we've seen which.
They're very very well in tune with all three of those things so pivot.
Pivoting into.
A more traditionally distribution oriented side, we see is going to do as well on the distribution of our mobile product right.
Great. Thanks, so much.
Thank you. Our next question comes from Ken <unk> with Barclays. Please state your question.
Thank you.
So that's where maybe on the.
The first question is on with John .
Stabilization that you talked about.
Have you gone through this process.
Stabilizing the base.
Could you give us some insight into.
White people were leaving lots of the product.
Was it a desire to put symmetrical fiber speeds will that marketing or price or something else.
And what has changed in terms of retention strategies or is it mainly just upgrade the fiber or something else just any insight on that would be useful.
And on the subsidy side.
The subsidy that you've gotten that is on that could you just give us a.
Many more sense of what you can use that money for it and when the money starts coming in and can you use. This for instance put extensions a job's or do you have to do this as a newbuild and when did the money start coming in once you do the work.
Thanks.
On churn stabilization I mean.
There is less activity in the market as.
As people require obviously.
<unk> to be working $24 seven all the time and so I think people are a lot more patient.
With their providers than they have been historically.
But also obviously the improved customer care matrices that we've seen as I can.
<unk> investment in the network.
Plays into it.
A big majority of our churn comes from voluntary.
Because people are switching over to another provider for either price reasons or performance reasons right and.
So.
There's nothing.
Particularly.
Differentiating that's driving the churn reductions other than old fashion, Good service and good network performance.
Is allowing and obviously from a behavioral standpoint people are I think a little bit more cautious about switching providers.
Given given how they need their service to be working nonstop and if it's working very well, what's the point of changing.
On the subsidy side typically the money comes in when we deliver that.
The homes passed.
Each RFP by the way is does not look like the next one.
Community looks at different things.
Some may look forward to your point may look for line extensions.
Primarily.
The number one.
Desire is to get symmetry of at least 100 megabits of symmetry.
And so a lot of the cable providers, who do not provide.
Ft Th build outs are a little disadvantaged relative to operators that are providing FTE th.
Rollout.
Particularly on the cemetery side, so we've seen instances, where cable providers will say listen I'll do one gig, but I only can do 50 on on the on the upstream and they fail.
To get.
To get the contract because they want symmetry and so.
As we basically have committed on each and every one of our.
Of our subsidy.
<unk> to go after two to deliver fiber to the home which has been of various.
Very successful strategy and we think we're going to continue to have good traction on that going forward.
But I can't tell you what the rules of the game are in every single one of our applications because each application look very different.
Got it and just as a follow up I mean is there is the activity around subsidies big enough to offset some of the capex pressure potentially next year it'll be here beyond wants to start scaling.
No. This is all incremental capex.
And if you think about it these are underserved or unserved markets and.
So the cost of building out typically it's prohibitive.
Historically.
And so the subsidy is helping to make help to make it relatively.
Attractive to be able to be the only provider in certain markets that no one will want to ever overbuilt, because it's prohibitive to kind of create a second network out there. So this is incremental capex. This is not.
This is not sooner just to capex there are situations to be fair, where we are able to upgrade backbones or head ends.
Or extensions with subsidy money because it allows us to hit.
These underserved or unserved markets and as part of our responses to rfps, but by and large this is all incremental capex.
Got it thank you.
Thank you.
And our next question comes from Jonathan Chaplin with New Street. Please go ahead.
Hey, guys. Thanks for taking the question so.
Just wanted to touch on <unk> for.
For a second Dexter I joined a bit late but I heard you say that you expect heartbeat of growth for the year.
And.
No I was just a question about broadband Aqua Jonathan.
Greg asked about broadband our group and so for our broadband <unk>, who has grown from quarter over quarter, and we think that we will continue to be able to grow that.
Yeah, and so my question on broadband architectures, whether given the pressures youre seeing on on subscriber growth and the competitive environment intensifying, whether that's the right strategy right now whether.
On the cable business so.
Where youre deploying fiber.
You've got a phenomenal product for all the reasons that you articulated you can price that product.
At a high level because it does as it did in markets, where you're competing with cable.
Does it make sense.
To be to be pushing price in those markets given the competitive the competitive intensity that you are facing.
Yeah, we're not pushing price.
Well, maybe take one step back Jonathan.
We look.
<unk> at what our competition is and we are definitely not price leaders in terms of.
Pricing over our competition right. So.
Where we do compete against a <unk> as an example, youll see regularly.
Now, there's a big differential of $20 plus depending on what products youre, taking and working to narrow that gap with price adjustments, but were never going to be more expensive or even even on par we've always been pretty much a slightly below <unk> historically and as we launched fiber that may change.
Over time, given that we probably will have a superior superior product.
A bit of time.
In the west.
This is something that we monitor very closely some of the fiber providers are very aggressive.
And come in and priced very low price point to try and monetize the network and in those cases, we obviously, we tend to address that much more in retention.
Then in and then in changing overall all of our promotional efforts.
We want to try and keep a unified marketing strategy across products and price across our entire footprint, but allow our local teams to be flexible relative to retention or other types of.
Of add ons to the extent, we see competitive pressures.
There.
But we are not looking to push price.
Or push our pool based on pushing price, it's really we're seeing <unk> increase because our customers are.
Are mainly taking the one gig product 49% of our customers are taking one gig on fiber I believe thats 56, or 57% of our gross adds are taking one gig.
Today, and so that is driving naturally to the higher <unk> numbers.
Right So <unk>.
Correct me, if I'm wrong, but I think youll promo pricing in Verizon markets is lower than Verizon, but your rack rate is higher.
And I'm wondering if it's maybe the step up from promoter rack rate, which is making competitive dynamics more difficult and we've seen sort of most of the fiber providers get a flat pricing for broadband over the course of the.
<unk>.
The.
The last couple of quarters and I'm wondering if that's hurting you guys competitively.
It's a very good comment Jonathan because thats.
That's literally like three presentations on my desk about this type of stuff that.
That you are addressing right now.
We're being very thoughtful about how we're thinking about.
The step ups in pricing over the next.
Two to three years typically.
Is one step ups come in and how we think about <unk>.
<unk> guarantees or whatnot.
Either for life or for periods of time, So I can't comment on it right now, but its a life topic here that were that were.
And we will have a very clear response on this in the next couple of months.
Got it.
Thanks Dexter.
Thank you I'll now turn the floor back to management for any closing remarks.
Thank you everyone for joining do let US know if you got any further questions and hope to speak to you soon thank you. Thank you.
Thank you. This concludes today's conference all parties may disconnect have a great day.