Good day,
and thank you for standing by. Welcome to Charter's First Quarter 2021 Investor Call. At this time, all participants are in a listen only mode. And after the speakers' presentation, there will be a question and answer I'd now like to hand the conference over to your speaker today, Stefan Anninger. Please go ahead.
Good morning, and welcome to Charter's Q1 2021 investor call. A presentation that accompanies this call can be found on our website, ir. Charter.com under the Financial Information section. Before we proceed, I would like to remind you that there are a number of risk 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 During the course of today's call, we will be referring to non GAAP measures as defined and reconciled in our earnings materials. These non GAAP measures as defined by Charter may not be comparable to measures with similar titles used by other companies. Please also note that all growth rates noted on this call and in the presentation On today's call, we have Tom Rutledge, Chairman and CEO and Chris Winfrey, our CFO. With that, let's turn the call over to Tom.
Thanks, Stefan. We continue to execute well in the Q1, Even in an environment with lower consumer move activity, we added over 300,000 customer relationships during the quarter with growth of 5.8 Year over year, we also added 355,000 Internet customers in the quarter and 2,000,000 over the last year for A year over year growth of 7.3 percent. We added 300,000 mobile lines and we grew our adjusted EBITDA by 12.5% But the economy as the economy reopens and normal activities resume, we expect more sales opportunities to develop during the second half of the year. We remain confident in our ability to grow our customers' EBITDA and free cash flow at healthy rates given the investments we've made in our network, which enable us to offer superior products and services. While the last year has focused on our successful operations and execution through the pandemic, May 18 will mark the 5th anniversary of the closing of our transaction to acquire Time Warner Cable and Bright House Networks.
Since then, we've added more than 7,000,000 Internet customers and our annual EBITDA has expanded from $13,600,000,000 to over 19,000,000,000 And our enterprise value has increased by $100,000,000,000 Since the start of 2016, we've invested over $40,000,000,000 Infrastructure and Technology. In over the last 5 years, we've extended serviceability to approximately 5,000,000 homes and businesses. We've also committed to extending our network to reach more rural areas. Over the next 6 years, we expect to spend At least $5,000,000,000 offset by $1,200,000,000 in RDOF subsidies to reach over 1,000,000 Unserved consumer locations with gigabit Internet speeds and we're actively exploring additional opportunities to further expand our rural Since our transactions closed, we've also enhanced the quality and efficiency of our operations. We've hired thousands of new employees into good jobs by bringing all of our work back to the U.
S. And we committed to a minimum wage $20 per hour to provide the best service possible, which fuels our growth. Since close, we prepared the launch of mobile broadband products at scale And our customers now have the fastest and least expensive mobile and wireline broadband products available in the market. Importantly, We continue to improve our connectivity products as demand for data in the home continues to grow at a very rapid pace. During the Q1, we continued to see significant growth in data usage per Internet customer.
On average, non video customers Used about 700 gigabytes per month in the 1st part of the quarter and for the full quarter average usage By non video customers was up nearly 20% year over year. Close to 20% of our non traditional video Internet customers Now use a terabyte or more of data per month. The growth in demand for data is and will be driven by a number of factors, including the growth in IP video services, New and emerging products and services that are being developed as we speak such as e learning for telemedicine and 4 ks, virtual reality or holographic formats for example. We're continuously increasing the capacity in our core and hubs and augmenting our network to improve speed and performance at a pace Dictated by customers and the marketplace, we have a cost effective approach to using DOCSIS 3.1, which we've already deployed To expand our network capacity 1.2 gigahertz, which gives us the ability to offer multi gigabit speeds in the downstream and at least 1 gigabit per second in the upstream. In addition, we have DOCSIS 4.0 and other emerging technologies to cost efficiently offer While we have a great network asset, which is fully deployed and has a capital efficient path to deliver even higher capabilities, Our strategy is founded on saving customers money while providing state of the art products.
Mobile and wireline broadband are converging into a single Our share of household An average household served by the big three mobile broadband competitors with 2 plus lines of mobile broadband and wireline broadband It spends approximately $200 a month on its telecom services. Today, Charter only generates $33 a passing and $65 a customer of that $200 of combined monthly spend on mobile and wireline broadband service. By choosing Charter as their full service connectivity provider, customers can save 100, even 1,000 of dollars per year with better product capabilities and service. And so our goal is to do the same with mobile in our service area as we did with wireline voice, where we made Charter the predominant wireline phone carrier by reducing consumer telephone bills by over 70%, meaning Charter can grow for a long time As we remain underpenetrated and our growth will reduce customer costs. Now I'll turn the call over to Chris.
Thanks, Tom. Before getting into the details of the quarter, a few comments regarding our outlook and reporting. On last quarter's conference call, I spent some time walking through the outlook for 2021. That commentary related to our customer and financial growth expectations given the difficult comparability to prior year results due to the effects of COVID in 2020. Those comments were intended to help investors update their models for 2021 and understand the backdrop for what should be a very good 2022.
So while I won't repeat everything I said on the last earnings call, our outlook in general has not changed. 2019 remains the better customer growth Comparison for 2021 where we expect Internet and customer relationships to be at or above 2019 net additions. And we will continue to reference the COVID schedules we provided last year and included again on Slide 17 and 18 of today's presentation to help with the year over year financial comparisons. Secondly, bundle allocation rules as required by GAAP continue to have a significant impact on our residential Internet, video and voice Product revenues. Because of the declining utility of individual product revenues to investors, it's likely that at some point, we'll collapse all Product revenues into 1 residential revenue line.
Turning to our results on Slide 5. Customer activity levels in the marketplace, Specifically, move churn and nonpaid churn have still not returned to normal levels, which means on the one hand, we benefit from the lower operating expense reduced service transactions and significantly lower bad debt, but it also means there are fewer selling opportunities in the market generally. Those trends are on a slow path to normalization. Despite a lower sales environment, we continue to gain share across our footprint And we remain the share leader in Internet in all of our markets regardless of competing infrastructure. We grew total residential and SMB customer relationships by $1,700,000 in the last 12 months and by $302,000 in the Q1.
Including residential and SMB, we grew our Internet by $355,000 in the quarter and by $2,000,000 or 7.3 percent over the last 12 months. Video declined by 138,000, Wireline voice declined by 88,000 and we added 300,000 higher ARPU in mobile lines. In residential Internet, We added a total of 334,000 customers in the quarter, lower than the 398,000 that we gained during a strong Q1 in 2019 for the reasons I mentioned. Our residential video customers declined by 156,000 consistent with the loss of 152,000 we saw in the Q1 of 2019. In wireline voice, we lost 102,000 residential customers in the quarter also similar to the loss of 120,000 in the Q1 of 2019.
Turning to mobile, we added 300,000 mobile lines in the quarter. And as of the end of the quarter, we had 2,700,000 mobile lines with a good mix of both unlimited and by the gig lines. We continue to be pleased with the results and trajectory of Spectrum Mobile with less EBITDA loss per line as the business scales to expected standalone profitability. Over the last year, we grew total residential customers by $1,600,000 or 5.8 percent. Residential revenue per customer relationship declined by 0.5 Lower pay per view and video on demand revenue and lower installation revenue given higher self install rates.
Keep in mind that our residential ARPU does not reflect Ending mobile revenue. The slide 6 shows residential revenue grew by 5.8% year over year reflecting customer relationship growth. Turning to commercial. SMB revenue grew by 1.6%, a bit faster than last quarter's growth. Enterprise revenue was up by 2.5% year over year also a bit better than last quarter and grew by 7.2% excluding wholesale revenue.
Enterprise PSUs grew by 2.8% year over year. 1st quarter advertising revenue declined by 5.8% year over year due to less political revenue. Our non political revenue grew by 5.3% year over year, primarily due to some COVID impacts late last March and our growing advanced advertising capabilities. Other revenue declined by 2% year over year driven by lower late fees, partly offset by higher RSN revenue. Mobile revenue totaled $492,000,000 with $228,000,000 of that revenue being device revenue.
In total, consolidated Q1 revenue was up 6.7% year over year. Moving to operating expenses on Slide 7. In the Q1, total operating expenses grew by $235,000,000 or 3.2 percent year over year. Programming increased 3.3% year over year due to higher rates offset by a higher mix of lighter video packages such as Choice Essentials and Stream and lower pay per view expenses year over year tied to the lower pay per view revenue I mentioned. Regulatory connectivity and produced content grew by 8.9% driven by more Laker games than normal this quarter resulting from the delayed start to the NBA season combined with fewer games in the prior year period when sports leagues played fewer games due to COVID.
Excluding those sports rights costs related to our RSNs, This expense line item grew by 2.1% year over year. Cost to service customers declined by which continues to benefit from record payment trends similar to 2020, though our expectation remains that bad debt trends should normalize over the course of this year. Going the other direction, we saw pressure from outsized hourly wage increases that we put through in March of last year and again in March of this year, which we've discussed previously and relate to our commitment to reach a $20 minimum starting wage in 2022. Excluding bad debt, Cost to service customers grew by 3.2% year over year, including the minimum starting wage increase and reflecting the 5.8% relationship growth. Marketing and sales expenses declined by 2% year over year.
Mobile expenses totaled $572,000,000 and were comprised of mobile device cost tied to device revenue, customer acquisition and service and operating costs. And other expenses declined by 5.5%, primarily driven by a non recurring adjustment to bonuses related to COVID. Adjusted EBITDA grew by 12.5% in the quarter. Excluding mobile and bad debt in both years, our EBITDA growth rate would have been 3.6 percentage points lower. Turning to net income on Slide 8, we generated $807,000,000 of net income attributable to Charter shareholders in the Q1 versus $396,000,000 last year.
The year over year increase was primarily driven by higher adjusted EBITDA. Turning to Slide 9. Capital expenditures totaled $1,800,000,000 in the first quarter, an increase of $360,000,000 year over year driven by higher scalable infrastructure spend primarily related to augmentation of our network capacity At our normal pace for customer growth and usage, with incremental spending to reclaim the network headroom we maintained prior to COVID. We also spent more on line extensions due to continued network expansion, including to rural areas. This does not include any yard off spend, which we will incur and start to disclose this year.
The cost of build outs tends to be front loaded with design, make ready and construction before passings are activated. So we'll take well into next year before our construction cadence lets any cost per passing metric to be meaningful. We spent $112,000,000 on mobile related CapEx this We expect cable capital expenditures excluding any RDOF investments to be relatively consistent as a percentage of cable revenue versus 2020. The slide 10 shows we generated $1,900,000,000 of consolidated free cash flow this quarter, an increase of 35% year over year. We finished the quarter with $84,300,000,000 in debt principal Your current run rate annualized cash interest pro form a for financing activity completed in April is $4,000,000,000 As of the end of this the Q1, our net debt to last 12 month adjusted EBITDA was 4.38 times.
And we intend to stay at or just below the high end of our 4 to 4.5 times leverage range. During the quarter, we repurchased 6,300,000 shares Charter shares and Charter Holdings common units totaling about $4,000,000,000 at an average price of $6.27 per share. Since September of 2016, we've repurchased $43,000,000,000 or 34 percent of Charter's equity at an average price of $408 per share. Turning to taxes on Slide 13. We don't anticipate becoming a meaningful federal cash taxpayer until 2022 And we expect the bulk of our existing NOL to be utilized by the end of this year.
Subject to any corporate tax rate changes For the years 2022 to 2024, we expect our federal and state cash taxes to approximate our consolidated EBITDA, Lesser capital expenditures and less interest expense multiplied by 23% to 25% with the tax rate in 2022 to be a bit lower than that range given some carryover of tax attributes. That estimate It includes partnership tax distributions to Advance Newhouse, which are captured separately in cash flows from financing in the financial statements. There are multiple factors that impact what I just described and we're always looking for ways to improve our cash tax profile. Our operating model is growing by saving customers money, our network capabilities now and in the future and our balance sheet strategy all work together over long periods of time. And we expect our results to reflect a growing infrastructure asset with a lot of ancillary products to use for and sell on top of our core connectivity services With good value and service to our customers to grow cash flow with tax advantaged levered equity returns.
Operator, we're now ready for Q and A.
And we'll pause for just a moment while we compile the Q and A roster. Our first question comes from the line of Doug Mitchelson with Credit Suisse. Go ahead please. Your line is open.
Thanks so much. Good morning. One for Tom, one for Chris. Tom, I feel like you threw down the gauntlet a bit on fixed wireless convergence fixed wireless convergence. I think the Including the entire mobile market in your Target market of $200 a home of telecom spending, does your commentary suggest a more aggressive posture regarding Wireless marketing, you already have a pretty healthy growth pace of lines already.
And when you look out 5 or 10 years, if that's where the market is headed, I know you've been asked and answered in the past, but wouldn't that suggest at some point you need owners' economics on the wireless to match up with what you have in the wireline side. And then Chris, can you talk about the returns investors should expect on the $5,000,000,000 of build out CapEx Or the $3,000,000,000 net CapEx spend over the next 5 years? Thank you both.
Sure.
So Doug, I think that our opportunity over a multiyear period is significant. And I think that We have an opportunity to when you look at the penetration of those mobile products, we have an opportunity to continue to grow rapidly. And so we are moving to make sure that happens in terms of the way we position and sell our products and in terms of their both product attributes and the price that we charge. My The purpose of that exposition on how much telecom spin there is, is just to show that there's lots of runway in front of us And a significant market opportunity there for us to create value for Charter, while at the same time Creating value for consumers. In terms of convergence, we already are moving toward convergence in many ways, And we have owners' economics in many ways, and we also have a good relationship in MVNO.
The owner's economics we get are in the CBRS spectrum that we purchased and its deployment In the Wi Fi network that we've deployed and the traffic that we carry over it and there's continued opportunities to take advantage of that In the near term and the long term to create additional value for our customers and for the company's cost structure.
On the RDOF spend, Doug, the way we think about that $5,000,000,000 Just in Phase 1 of hard off, we think there may be more opportunities over time either through federal programs or through what we call white space areas that It might be a product of the additional rural investing that we make that open up new opportunities. But when you think about this in terms of project financing, These construction projects have a much higher cost per passing than what we've typically built And they have a longer payback, but as a result of them being as expensive as they are, we have a real high confidence in our You can have pretty high confidence in terms of what the financial model is going to look like both from a cost and revenue perspective over time. So I think I've mentioned in the past that we'd expect the payback, the cash from cash payback for these type of projects to be double digits in terms of years, So over 10 years, but the IRR can be mid teens. And so we think that's attractive investment With a low risk in terms of our ability to achieve those types of returns, what we haven't factored into any of that is what does that open for additional Building opportunities on the edge of those networks, as well as some of these rural communities by having broadband Can actually have more fill in or become more suburban like, which could open up opportunities which aren't built into our model.
We think it's consistent to build This way it's part of our strategy and we think it's the right thing to do for the extended communities that we serve and we think it's attractive For shareholders is a way to continue to grow our broadband footprint over time. So another alternative way to think about is when you think about those type of economics, it's actually not that different from cable M and A at a point in time where there just hasn't been unfortunately as much cable M and A that we would have liked to have done.
Great. Thank you.
Thanks, Doug. James, we'll take our next question, please.
Our next question comes from the line of Ben Swinburne with Morgan Stanley, go ahead please. Your line is open.
Thanks. Good morning. Tom, I was wondering if we can get your This came up on yesterday's Comcast call on sort of the consumer demand and opportunity for Charter to offer symmetric And sort of the need for the network to offer symmetric service and kind of how you get there. You touched on 3.1 and 4.0 in your prepared remarks. But If you could give us a little sense of the past and time line in your mind and I guess the cost, whether it would move capital intensity around enough that we would notice.
And then I was just wondering, Chris, this sort of subdued activity level we're seeing, which is helping bad debt, hurting gross adds, I know it's impossible to know, but could this end up sort of lasting through the year? I mean, it seems like even though we're seeing vaccinations ramp back up, The consumer we're seeing this across a lot of companies, this churn is at like record lows, like unusually low levels. I'm just wondering If you're seeing any signs that things are normalizing or if that's just an expectation you have. Thank you, guys.
So Ben, the issue of capacity and where it's needed and how it's used It's a complicated discussion, but basically our view is that if you think about the way networks are used And I said people are using 700 gigs a month in the presentation today and A lot of our customers are using over a terabyte per month. Most of that is television being delivered through IP to households. And the actual upstream usage It's quite sufficient for all the current uses that we have. So we don't have an immediate need to expand the capacity of the plant. And the plant is actually used in a very asymmetric way by the products that are currently on it.
And we don't see that changing in the near term, but we do have the capability from a technical to upgrade our network based on changing market dynamics, however, they may develop in terms of how products develop. We don't see an immediate need to do that, but we do think our network from a competitive point of view It's well positioned from a capital intensity perspective to make those upgrade costs at much lower Cost and alternative means and so we think that we're positioned to grow in the marketplace In a very efficient way and serve products that we need to serve up based on the way the market develops. But Today, we should continue to operate our network with more capacity downstream than upstream.
Ben, on the lower level of activity, it's true it's normalizing slightly, Slower than what we would have expected or hoped for. Like I said in the prepared remarks, the benefit is that we have really Significant EBITDA growth is a result of last year's subscriber growth and this year this quarter subscriber growth Compounded by the lower level of activity in the marketplace, which is driving down transaction costs and churn and bad debt, which produces an outsized temporary financial result. Our preference would be to put a little bit of pressure on those financial results by increasing our sales and marketing through Commissions and through normalizing the market through a higher level of move activity, which opens up additional selling opportunities for us as a share taker. As a share taker, we'd like to be on the offensive and to acquire customers to save them money. And that opportunity is what contributes to net adds and what contributes to short term financial pressure to have a higher long term EBITDA and free cash flow.
We have seen the market slowly coming back and so it is moving in the right direction. It's just not moving as fast as some of us would like. That includes from move churn And it's slight not as much on non pay because of all the subsidy that's out there today, which is a different topic. I think it's going to start getting back to normal here pretty quick. A lot of us who have been in the office every day through the pandemic, We're just noting this morning that the pickup in traffic even in the New York and Connecticut area is pretty symbolic in terms Normalizing, we think that will start to well, it will continue to take place across the rest of the country and we're optimistic about our ability to sell and net add through the rest of the year.
Thank you.
Thanks, Ben. James, we'll take our next question, please.
Next question comes from the line of Brett Feldman with Goldman Sachs. Go ahead please. Your line is open.
Thanks. I'm going to kind of Stick with a similar theme, I appreciate that moves creates a lot of jump balls for the company. You only serve half the households in your footprint. Vast majority of those you don't serve, I think are poorly served and that's probably becoming increasingly apparent to them. Does the math On marketing dollars become more favorable, meaning looking to potentially force the issue bid as opposed to just waiting for a natural shift in volumes in the market.
And then also, I'm curious how significant is an assumption that, that debt sort of reverts to normalized levels In terms of thinking about the margin profile of the company this year, and the reason I ask you, it would seem like all the things going on in the background are favorable to bad debt, broadband but are able to sustain that access including through additional subsidy programs, it all just seems to be moving in your favor from a bad debt standpoint. Thanks.
So 2 separate topics. 1, and I'm not sure if Tom would differ, but We feel we're pretty aggressive on the sales and marketing side. And to the extent that we could be more aggressive than we thought that it would have The ability to add more subscribers, we would do it. And so we're always looking for that and we're not afraid to spend if we think we can drive customer acquisition. Some of the difficulties that you're digging out customers and they're inert and so you have to keep coming back and back and back.
And As attractive as our products are and as much as we can save customers' money, it takes a while to pry and loose. And it's disruptive to swap out 1, if not all of your services in the household. And despite the economics that we can provide and the better quality speeds and service, It just takes a little bit of time, but we're always looking for ways to be more aggressive. And as Tom mentioned, I think mobile, because of the Additional outsized amount of dollars that we can save customers is a really interesting tool together with the combined benefits of products that we can provide that Most cannot. I agree with that.
Okay. Good. Good for me. Bad debt, look, there's a bull case that the market could start to move And our selling opportunities could increase, which would drive higher commissions and transaction costs to acquire and provision and install these customers. And the bull case would be at the same time you have that because the level of subsidy that is And so could you end up with the best of the most worlds?
Maybe, but that's not something that we're betting on. It's an environment we've never really seen before and that's not factored into any of the kind of outlook or forward looking statements that were provided. I don't think we want to depend on 3rd parties to drive our growth. And it may be the case that that's how it turns out. But right now, we're focused on Just selling more cable and minimizing the churn to the extent that we can, things that are in our control.
What I would say is that we're in an unusual climate And it's still unusual. And when it normalizes, which I expect it to normalize, Our cost structure will revert to what it was historically, And that includes non a bad debt. And as a result of that, Growth could accelerate, but growth also can create cost as when you're comparing it To someone who isn't growing, and so that has an impact on margins. But the overall Trajectory of our business, notwithstanding the current circumstances, which are really Unprecedented. The fundamental cost to serve our customers continues to come down Because of our digitization of the sales and marketing and service infrastructure of the company and our ability to do self-service and self installation and The relative ease of delivery going forward creates Long term advantages and the cost of CPE continues to come down on a relative basis.
So We have long run trends which are favorable to our cost structure. We have short term trends which are favorable to our cost structure, which I expect to go away.
Thank you.
Thanks, Fred.
James, we'll take our next question please.
Our next question comes from the line of Craig Moffett with MoffettNathanson. Go ahead please. Your line is open.
Hi. Two questions, if I could. Chris, I'm going to push you to just return to what you were just talking about of stimulus. And Just given the size of the stimulus with about 4 times as much stimulus in dollars, about $20,000,000,000 As the annual growth rate of the entire U. S.
Band market, how do we think about Quantifying that, I know you said it's not in your numbers, but can you just talk about what you as a company have done to prepare in terms of applications and what have you for the EBBP and the E Rate and what impact you think that might have on your business? And then a second somewhat unrelated question, just if you could talk about the business services segment perhaps and that's still growing significantly more slowly than residential. Are you more or less through the repricing of the TWC customers now so that we can expect that to return to being a growth
So Craig, on the stimulus, a lot of that money is undifferentiated in the States and it has broadband In front of it, in the nomenclature, but it's it can go anywhere. And so yes, we're out Through our business sales services groups trying to orient that money both to line extension and Products for Schools and Municipalities and we have a full suite of Products to sell, but how that money gets allocated and how it gets spent in the States It's difficult to say and I think it will vary by location. So it's a huge opportunity as you point out and it's massive. And our sense is that the states don't know how to spend it all. And so there We'll see what happens, but there's an opportunity there.
As it relates to business services growth, there's really Two separate categories here. 1 is SMB and Enterprise. The repricing of the TWC base is essentially through For S&B, we have had some pressure recently through seasonality programs that we've offered to S&B customers through COVID That is winding down as well as the repricing being through. If you take a look at the unit growth on S and B, I think you can pretty quickly see a path for us to I get revenue growth and S and P more closely aligned to the unit growth rate or the customer relationship growth rate. So I think the outlook on SMB from a revenue standpoint is positive.
The same applies for enterprise. Enterprise is Slightly different set of circumstances, the retail revenue growth rate like S and P has been accelerating. It's up sequentially same as S and B. It's now at 7.2% for the retail portion of revenue for enterprise. And it's being held back slightly by wholesale, particularly cell tower backhaul, where that's becoming a lesser and lesser The enterprise Business is selling more, is doing extremely well, both certainly compared to last year, but also compared to 2019.
And that's despite the fact that these are complex fiber products, where today less than 25% of the time we're meeting our customers, CIOs in the office. So that's a difficult sell to make when you're not in person to have a complex fiber sale, whether it's for Fiber Internet Access, Ethernet, Unified Communications, SD WAN and yet our sales are increasing and accelerating The fact that we can't be on location to make those sell. So I'm optimistic about the enterprise retail side and what that's going to do for the overall revenue growth rate, not only for enterprise, But when you look at commercial combined together with S and P, which is also improving. Thanks, Craig.
Thanks, Craig. James, we'll take our next question, please.
Our next question comes from the line of Peter Cipino with Bernstein, go ahead please. Your line is open.
Hey, I wanted to ask about the mobile business. Do you expect to use device subsidies I know your unit economics have historically made that challenging and also have the sense that they're getting better. So any thoughts on that strategy for the long run would be great. Thanks.
So far, we haven't done that much of that and we like the way we're marketing it currently.
It's not a great business. Yes, I mean of itself.
We'll create customers If we can retain those customers, and whatever works, but We're doing well without it.
Thanks, Peter. James, we'll take our next question, please.
Our next question comes from the line of Bill Cusick with JPMorgan. Go ahead please. Your line is open.
Hey, guys. A couple sort of follow ups. On broadband, Chris, can you talk about the drivers of seasonality and customer growth in a typical second quarter and any differences we might This year because of the pandemic. And do you think that could be offset somewhat by increasing win opportunities in EBB? And then second, on CapEx, higher or at least stable, not stable to lower in the core cable business, What's changing there?
Do you see more opportunities? Is that a function of mobile? What's happening? Thanks.
On broadband, I don't see the broader seasonality differences that have always existed in Q2 with disconnects in Q3 with reconnects. A lot of that's college, in fact, school driven as well as the move season of people repositioning. And if anything, One hand, I think it will be normal. On the other hand, you could argue that if things really do get back to a fully normalized level, there may be a pent up demand for that type of move activity. So I don't know.
The two factors you mentioned, which could around the edges have an impact slightly, although I don't think it changes the overall curve would be To the extent that subsidies and stimulus continue to drive down non pay and at the same time we had an acceleration to move churn which allowed And the other one that you pointed out was the EBB A program which could have similar type of benefits both on the non pay as well as on the activation side. But I don't think that fundamentally the overall trend of Q2 compared to Q1 or Q3 or Q4 is going to be that much different. On CapEx, we slightly tweaked what we said from an outlook perspective and it ties Back to what I talked about with Ben in terms of the market is normalizing, but just at a slightly slower pace. But as that market has been remained slow to normalize, data usage remains high. And so that has an impact on the amount of headroom we plan for in terms Capacity and network augmentation.
Now it's very much possible our core Cablewood capital intensity declines this year, but given the uncertainty, We updated the outlook slightly to say relatively consistent in quotes with last year. But I want to be clear, there's no change to our long term outlook for poor
Thanks. Chris, do
you think that with mobile wireless Broadband coming on. Does that give you any pause on your assumption for a strong second half? Or is that sort of built in already?
Mobile wireless broadband, you mean our un mobile wireless broadband.
What wireless sorry, no, competitive wireless broadband coming to the markets.
We're mobile wireless broadband. Are you talking about somebody else's?
Sorry, I mean T Mobile and Verizon, T Mobile and Verizon mid band wireless offerings.
Look, we're always concerned about competition and we're watching for it. And on the increment, I think there will be added pressure. We think it's a real product for certain areas A customer base and so it's something we're keeping an eye on and we have our own mobile broadband wireless together with our fixed line broadband converged, We think it competes well and it requires us to continue to invest in that space.
And we'll be on that spectrum as well.
Correct. From a C band perspective, that will be something we participate through to the MVNO and then we have our own CBRS, which you're aware of as well.
Thanks, Phil. James, we'll take our next question, please.
Our next question comes from the line of Michael Rollins with Citi. Go ahead please. Your line is open.
Thanks. First, can you share your mix of broadband customers between entry level versus higher level tiers and how you're looking at the ARPU opportunities and pace to migrate customers to higher performance levels. And then secondly, just from your comments earlier, can you share what the fair average rate of estimated
In terms of the broadband customer base, most of our customer base On an entry level package, meaning 200 megabits, So our basic strategy has been to have a very rich broadband product as our base product, And we've continuously taken that up. And so in terms of opportunity to sell up, we have a lot of it. We haven't done much of that really. We do it, and obviously, we satisfy the market, but the bulk of our customer base I'm not sure I fully understood what you're going at with the passings growth, but it's really about housing starts And versus if you take out the RDOF out of it and what's that going to look like And our footprint pretty much looks like the United States from a statistical perspective. And so If you look at housing starts and you have an opinion on that, that'll probably mirror our passings growth.
Yes, I agree. That will
be the variability driver. Just to put in context of what's going on today, we're building about we're constructing About $600,000 a year, much of which is rural extensions proactive on our part already before RDOF. The remainder of what you see of our passings growth is filament and other type of what we call brownfield opportunities.
Well, new developments. New developments in Florida.
Yes. So that will all depend on the overall housing starts growth. And then during the period of RDOF, there's an additional over 1,000,000 homes that we'll construct in these rural areas to on top of whatever the organic growth rate is, which has a big driver is the housing starts as Tom mentioned.
Thanks, Mike. Operator, can you please?
Our next question comes from the line of Jessica Reif Ehrlich with Bank of America. Go ahead please. Your line is open.
Thank you. I have a question, I guess, a 2 parter in video, which hasn't come up at all. Are there any plans to offer a product similar to Comcast Flex? Maybe you could talk about the pros and cons from a Charter perspective. And then is there any difference in how you're approaching programmers that are Now offering direct to consumer services that mirror or encompass a lot of the content they have on their pay TV channels.
Jessica, the video business is under a lot of challenge and it's going through a transformation. And we are we have over 10,000,000 customers Now, who receive our service through an application as opposed to a set top box. And we have direct to consumer relationships and we have new relationships with programmers developing that allow us to sell traditional content in bundles. We have different kinds of bundles. Some Our traditional cable TV packages, some are over the top packages and some are direct Consumer is where we're representing a direct to consumer relationship and really essentially acting in a consignment kind of mode.
So we have every business model you can imagine going on simultaneously, Which I think over the long term creates opportunity for us. Right now, it's quite disruptive.
And on approach to programmers?
Well, you mean how we deal with programmers from a content perspective?
Yes. It hasn't changed because of the way that they're selling content into deals.
Well, it's going to affect the value of content. And obviously, if content comes out of bundled packages and goes direct to consumer, its value in the bundle goes
James, we'll take our next question please.
Our next question comes from the line of Jonathan Chaplin with New Street. Go ahead please. Your line is open.
Thanks, guys. Two unrelated questions. First, Tom, I thought the message on the magnitude of investment you've put into building a future I'm wondering, what you'd be able to share from the conversations you've been having with the administration around their ambitions for $100,000,000,000 in Infrastructure Investment in broadband. Wondering how specifically how You guys see the opportunity to benefit from that if it would have come to pass and where you see potential threats. And then separately, I just looked back at where voice penetration of broadband customers peaked and it peaked at 50%.
And that probably understates your market share because it peaked at the end of 2015 when the market was already declining. I'm wondering if you can remind us where market share of wired voice peaked for you guys. And is that basically where you're setting your expectation For mobile penetration to go over time.
Well, my hope is to have all the share over time. And so we have significant ambition. It will take a long, long time to get that. But If you do, I don't have the wireline share off the top of my head, but it's significant.
There were years years years where when we modeled And forecasted and realized what we were getting, it was always at 50% of broadband to your point. And so Until the wireline substitution with mobile really took place in significant way, that was pretty reliable for a long So I think that where you're going gives you what you're looking for.
If you look at how much of the wireline business we currently own, It's significant. And oddly, we got the right to be in to compete in the telephone business, and we are the telephone company now. And that's kind of strange when you think about it. In terms of how we're communicating With regard to broadband build out and subsidy and infrastructure Subsidies, our view is that the job 1 is to get the unserved areas of the country And that subsidy should be directed to do that. And we're in the United States in the communications networks, the capital that just got spent on spectrum by the Wireless Companies and us and Comcast and the CBRS auction And the capital that's going into that has gone into and continues to go into the communications infrastructure in the country is Good and held us in good stead in through the pandemic when we were able to operate Networks at high capacity instantaneously, unlike Western Europe and other places where Communication Services and Entertainment Services were actually down resed.
So we think There's a good model there and an opportunity to serve the unserved and we'd like to help and be part of it.
Thanks, Jonathan.
Our next question will come from the line of Bryan Kraft with Deutsche Bank. Go ahead please. Your line is open.
Hi, good morning. I'm going to go off the beaten path a little bit here. Can you talk about how you're thinking about the future of your Los Angeles RSNs given the pressures on Pay TV bundle volumes that you just talked about, against your fixed rights and production costs, What's the right long term model for the business? And also under your rights agreement, could you actually bundle it as an app with broadband
Well,
Luckily, it's not a material part of our business. It's difficult, and It's expensive and the prices continue to go up. And it's hard to say How we could monetize it effectively over the long run.
Thanks, Brian. Operator, we'll take our last question, please.
And our last
Given where you are on your wireless subscriber growth, I think you're sort of like 10% behind Comcast and you're sort of broken even From a profitability standpoint, is that something we can extrapolate a quarter or 2 away that it's No longer while it's no longer going to be sort of a headwind on EBITDA growth, it's not is there any reason in economics that Changes that. And for Tom, your comments, even last quarter and this quarter Obviously, healthy broadband growth this year, but interestingly, you talked about acceleration in 2022. Can you sort of talk about what gives you the confidence in that? Is that ARDA contributions or just sort of natural on the core base? Thanks.
So on the wireless EBITDA, our goal is This is going to sound bad, but our goal isn't to drive short term EBITDA profitability. Our goal is to drive as much growth as we can Because we know what the underlying profitability is and what it does for the overall business. So I don't think we're going to be forecasting EBITDA breakeven on a consolidated Wireless business basis, which is even how we look at the business because we think about it combined. That being said, we have Essentially the same economics as Comcast and so the model is very similar. And but we are focused on really driving as much The business itself, absent any subscriber acquisition costs or absent any marketing and sales, already cleared Profitability absent growth cost at the 2,000,000 lines mark.
So we're well into that territory. So really what you're looking at in terms of EBITDA drag right now is really about new And that's something if we have the opportunity to push, we're going to go do that. And so I don't want to give necessarily a guidance or an outlook on that, but the trend continues to improve despite the fact that we have a very strong
And if I understand your question, it was why do we have confidence that broadband growth will Accelerate and why 'twenty two will be better than 'twenty I think that our basic view is that if you go back over the last Few years that we've been on a growth track and that growth track has been accelerating. And we had a very anomalous situation in 2020 that carries into 2021. And that if you sort of trend out that long term line, It gets back on that line in 2022 and that's really what we're saying. It's that simple.
I don't think RDOF is going to be a significant contributor in 2022 just given the limited number of activated passings that will be there. So I don't think about that as a material driver. I think about it as the momentum and the ability to use mobile, which we've treated as An attribute to the broadband product is a way to continue to drive growth and to continue to improve retention on the broadband side.
Thank
you. Thanks, Vijay, and thanks to everyone for listening. James, I'll pass it back to you.