Hello, and welcome to the Charter Communications and Cox Communications Investor Webcast. We ask that you please hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question-and-answer session. Also, a reminder, this conference is being recorded today. If you have any questions, please disconnect at this time. I will now turn the call over to Stefan Anninger.
Thanks, Leila, and welcome, everyone. The presentation that accompanies this call can be found on our website, ir.charter.com. I would like to remind you that there are a number of risk factors and other cautionary statements contained in our SEC filings, and we encourage you to read them carefully. Various remarks that we make on this call concerning expectations, predictions, plans, and prospects constitute forward-looking statements, which are subject to risks and uncertainties that may cause actual results to differ from historical or anticipated results. Any forward-looking statements reflect management's current view only, and Charter undertakes no obligation to revise or update such statements. As a reminder, all growth rates noted on this call and in the presentation are calculated on a year-over-year basis unless otherwise specified. Now I'll turn it over to Chris Winfrey, our President and CEO.
Thanks, Stefan, and thanks to everyone for joining us on today's call on short notice. This morning, we announced the combination of Cox Communications and Charter. This transformational transaction will create an industry leader in mobile and broadband communication services and seamless video entertainment. It marries Charter's customer and employee-focused operating strategy with Cox's long-standing reputation for service quality and investment. The Cox family is the longest continuous operator in the industry, going back to 1962, and one of the most successful. I've spent the past decade getting to know the Cox team, including Alex Taylor, the Chairman and CEO of Cox Enterprises. Perhaps more relevant, the Cox team spent that time getting to know us. The trust they're putting in us to do right by their customers, employees, and communities is something we don't take for granted.
This combination also offers very significant benefits for our customers, employees, local communities, and shareholders. It's a great outcome for both our current shareholders and for the Cox family. The combined company will bring together the best of Charter's consumer-friendly operating strategy and Cox's service reputation and B2B success. Together, we'll be better positioned to aggressively compete in an expanding and dynamic marketplace against national and increasingly global competitors. Our larger footprint will give us better marketing and branding capabilities. It will also allow us to expand investment in product development, AI tools, and innovation, accelerating product development and driving greater efficiencies, which helps us to continue to save customers real money.
The combination also enhances our footprint efficiency and adds key markets and gives the opportunity to offer our products with Spectrum pricing and packaging to Cox's customers the best products at the best prices and driving better top-line growth. Of course, the new combination will return jobs from overseas and create new, good-paying customer service and sales careers. This combination is good for America. Our footprint will now include key, attractive, growing markets like Phoenix and Las Vegas, large adjacent markets like Virginia, Kansas, Oklahoma, and Rhode Island, and better in-market sales and service coverage in places like Los Angeles, San Diego, New Orleans, and Florida. In total, our network will span approximately 46 states, passing nearly 70 million homes and businesses with 38 million customers, which we intend to grow. Yet, we will remain a regional operator competing against national and often global competitors.
In addition to the obvious residential footprint expansion, Cox was the first and most successful operator to focus on business-to-business communication services starting back in the late 1980s. In addition to the best-in-class business operations inside the cable business, Segra, a fiber network operator with assets across 24 states, and RapidScale, a managed services provider, will complement our capabilities to provide highly competitive business services on a more national basis. I think we'll find real upside from Cox's B2B assets and operations over time. The opportunity to expand our combined medium and large business footprint is significant and, similar to residential and small business, will drive top-line growth.
For that residential and small business, our immediate focus post-closing will be on the deployment of our industry-leading products in pricing and packaging across the Cox footprint, marrying the best products with the fastest speeds and modern entertainment solutions with the ability for customers to save hundreds or even thousands of dollars each year. From a product perspective, we'll launch Spectrum Mobile, the Spectrum TV app, Seamless Entertainment, and Zumo. We'll also deploy the Spectrum TV app on third-party devices like Roku, Apple TV, and various smart TV manufacturers in the Cox footprint. Our first goal in the operational integration will be to ensure that Spectrum customers and employees have the same experience between different footprints. A customer in Oklahoma will have the same product sales and service experience as a customer in Wisconsin.
A customer care representative in Phoenix will have all the same systems and tools to service a customer in Orlando. We'll rapidly onshore service jobs, insource jobs currently with contractors, and we expect to hire field sales personnel in local markets. We'll offer good-paying U.S. jobs with minimum wages of at least $20 per hour, with great benefits, retirement plans, career progression opportunities, and stock ownership opportunities. With our own onshore employee base and Cox's rich service history, we'll extend our market-leading customer commitment, including our four key promises: reliable connectivity, transparency at every step, exceptional service, and number four, always improving. We'll continue to support those commitments with guarantees, including customer credits. As we keep improving, both companies have already embarked on a multi-year ubiquitous upgrade of their networks to multi-gig speeds.
Combined with Spectrum Mobile and Seamless Connectivity, with advanced Wi-Fi and shared licensed and unlicensed CBRS spectrum already being deployed by both companies, we'll provide the fastest mobile broadband in the country at the best prices. From a Charter shareholder perspective, this is an accretive transaction. We're acquiring Cox at an enterprise value to 2025 estimated EBITDA multiple of 6.4x and less than 6x , reflecting cost synergies and tax benefits to both parties. That synergized multiple doesn't include the benefit of top-line growth synergies or operating cost synergies from the implementation of our customer-friendly operating strategy. That will drive higher long-term revenue, EBITDA, and free cash flow growth of the pro- forma entity. While this transaction has taken place in a period near historic low industry valuations, with the exception of some upfront cash, Cox is exchanging for equity in the new company. They aren't a seller.
At the closing of the Cox transaction, we'll accelerate the closing of the Liberty Broadband merger. In many respects, Cox family, as long-time cable investors, will effectively take Liberty's place as long-term capital, which provides strategic value, including on our board. The Cox family will own 23% of our fully diluted outstanding shares on an as-converted, as-exchanged basis. With Cox, Advanced Newhouse, and John Malone, indicating his intent to personally remain a Charter shareholder, we'll benefit from decades of this industry's best entrepreneurial and capital allocation capabilities. Within a year of closing, we've agreed to change our parent company name from Charter Communications to Cox Communications. While we take tremendous pride in the Charter name, it's an incredible story of operational and strategic restructuring, employee and network investment, product and industry innovation, and footprint expansion.
We step into a new parent company name steeped in entrepreneurialism and service to customers, committed to employees and communities, something we are and will be equally proud and part of. Along those lines, as part of this new partnership, we will make a significant contribution to a foundation focused on philanthropic activity in our Spectrum branded service communities and an employee-focused disaster recovery fund. Let me now hand the call over for a moment to Alex Taylor to talk about Cox for a moment. Alex?
Hi, everyone. Thank you, Chris. I want to just take a second to say thanks for your nice comments and to you and your whole leadership team for some very long hours that have been put in over the past many weeks that we've been working on this, particularly the last 48 hours. Thank you. We have been talking for years about the evolution of this industry and the possible partnerships that we might be a part of, but we've always preferred to remain private since Cox Communications went through our privatization transaction in 2005. The reason this makes sense now to us is the following. Charter has built what we believe is the best platform for success going forward.
As the largest investor in the cable industry, my family and our team spend a lot of time analyzing what we're seeing out there, what other people are doing, and comparing it with what we're doing. Charter has really impressed us above all others with the way they have spent capital. In the last five years, they've spent over $50 billion investing in multi-gig speeds, DOCSIS 4.0, and their wireless offering. They've also been very creative in their customer-facing innovations, like paying off customer balances when they port over or letting them upgrade devices without the onerous restrictions and tricks that you see some others doing. It's a very high-integrity business. They've been very thoughtful about their network, and the network is the gold of this industry. We who nerd out on it a lot think they're best positioned for success going forward.
The seeds that they have planted are going to grow very, very high. The most important thing to me personally and to my family, the Cox family, is trust. We've known Chris now for a long time. I like Chris. I've spent personal time with him. We knew Tom Rutledge before him for a long time. My uncle Jim Kennedy has known John Malone for a long time, going back decades in the industry. We've known the Newhouses for a long time. I would call this organization and this whole partnership a powerhouse of integrity and trust and hard work and long-term commitment that you won't find anywhere else. That's why we're comfortable with this. Those are all the hallmarks we look for for long-term upside, and we couldn't be more excited. Thank you all.
Thanks, Alex. I could not have said it better, so I appreciate those comments. After that, it's a little hard. Jessica, do you want to cover the transaction, please?
Yes. Thanks, Chris. Before I walk through the structure and the terms of the transaction, a few words about Cox's operating statistics and financials. Cox Communications has about 12 million passings and 6.3 million customers, including 5.9 million internet customers. In 2024, Cox generated $13.1 billion of revenue and $5.4 billion of transaction-Adjusted EBITDA. The transaction-Adjusted EBITDA we show for Cox and the headline transaction multiple reflect pro forma adjustments to Cox's adjusted EBITDA for the elimination of expenses related to items that will not be included in the transaction. It has not been adjusted to reflect synergies. Moving on to the details of the transaction itself on slides 12 and 13, Cox Enterprises will contribute Cox Communications to the Charter Holdings Partnership, the same entity utilized for the White House transaction in 2016.
In addition, Charter will purchase Cox's Segra and RapidScale assets and contribute them to the Charter Holdings Partnership. In return, Cox Enterprises will receive approximately 33.6 million common units in the partnership, with an implied value of $11.9 billion. Those units are exchangeable for Charter common shares on a one-for-one basis. They will also receive $6 billion of convertible preferred units in the partnership, which pay a 6.875% coupon. Those preferred units are convertible into Charter Partnership common units at a 35% premium above the deal reference price of $354. Once converted into common partnership units, those common units are then exchangeable for Charter common shares on a one-for-one basis. Lastly, Cox will receive $4 billion in cash. The total consideration for Cox Communications, also computed at the deal reference price, totals $21.9 billion.
Adding in approximately $12.6 billion of assumed investment-grade debt and finance leases, the transaction enterprise value totals $34.5 billion. As Chris mentioned, that equates to 6.4x Cox's 2025 transaction-Adjusted EBITDA, which is equal to Charter's total enterprise value of 2025 estimated adjusted EBITDA, trading multiple of 6.4 times, based on Wall Street consensus for Charter's 2025 Adjusted EBITDA as of May 1st and Charter's 60-day VWAP as of April 25th of $354, which again is the deal reference price. Net of tax benefits, at approximately $500 million in run rate cost synergies, primarily procurement and overhead savings, the transaction multiple lands well below 6x 2025 transaction-adjusted EBITDA. That synergized multiple does not include the benefits of applying Charter's operating strategy to create revenue and operating cost synergies over time or CapEx savings. We believe both of those benefits will be significant. A few more details to note.
With respect to the preferred partnership units I mentioned, Charter has a right of first offer at all times and a conversion option five years after close. The annual preferred cash dividend on the convertible preferred partnership units will total approximately $413 million per year. We are also issuing Cox Enterprises a Class C share at Charter, providing the same number of votes in respect of their partnership common units on an as-exchanged basis. The structure of the transaction and the math around pro forma shares and ownership is shown on a table in slide 13 of the presentation. As I mentioned, the transaction uses the same partnership structure used in the acquisition of Bright House Networks 10 years ago. The structure provides tax benefits to the Cox family and to Charter shareholders, which I'll get to in a moment.
Charter's combination with Cox Communications will be contemporaneous with the previously announced Liberty Broadband transaction. As a result, Liberty Broadband will cease to be a direct shareholder in Charter. In turn and pro forma for all the transactions, and based on Charter's share count as of March 31, Cox Enterprises will hold an approximately 23% equity stake. Advanced Newhouse will hold an approximately 10% equity stake, both computed on an as-converted, as-exchanged basis. All other shareholders will own approximately 67% of the company. Slide 14 shows our anticipated leverage resulting from the transaction based on Charter's current debt outstanding.
With the $11.9 billion of net debt we assume, which we expect will be structured as peripursuit with our CCO and TWC secured debt, and the issuance of $4 billion in debt to finance the cash payment to Cox Enterprises, the pro forma entity's combined net debt totals approximately $111 billion and yields a net debt to 2024 EBITDA ratio of about 3.9x . Given the overall higher quantum of debt and our continued commitment to the investment-grade market, we plan to be at or slightly under 4.25x leverage during the pendency of a deal. We will change our long-term leverage target to 3.5-4.0x post-close. We expect to de-lever to the middle of the 3.5-4.0x range, within two to three years following close. A note on the tax benefit to Charter shareholders of this transaction.
The contribution of Cox Communications into the Charter Holdings Partnership is intended to be tax-efficient in a number of ways, including if and when Cox Enterprises exchanges its partnership units into Charter Common Stock. When Cox Enterprises does the exchange, there will be a substantial step-up in the basis of the assets in the partnership, pro rata as units are exchanged. That basis step-up will be the market value of the exchanged Charter's stock at the time, minus Cox Enterprises' share of tax basis in the partnership's assets. As we did with Advanced Newhouse, we have agreed a tax receivables agreement with Cox Enterprises in that regard, whereby Charter will retain 50% of the step-up benefits when realized, and Cox Enterprises will receive the remaining 50% of the step-up benefits only when cash is realized on a with-and-without basis, first-in-first-out basis, similar to what we agreed with Advanced Newhouse.
In determining the effective purchase price multiple of well under 6x , including transaction synergies and the tax benefit, we have assumed that step-up is generated in roughly 10 years. We estimate its value to be a bit over $1 billion. If Cox Communications exchanges into Charter earlier, the present value of the benefit would be even greater and vice versa. Turning to governance on slide 15, the combined entity will have 13 board members. At close, Liberty Broadband's board nominees will resign, and Cox will designate three directors. Chris Winfrey will remain the CEO and a board member. Alex Taylor, the CEO of Cox Enterprises, as one of the Cox designees, will become Chairman of the Board. Eric Zinterhofer will become Lead Independent Director of the Board. In addition, there are both voting caps and ownership caps for Cox and Advanced Newhouse, which were summarized on slide 15.
Both parties have general preemptive rights to maintain their ownership. Both parties have entered into arrangements to sell into Charter buybacks and may do so over time. Both Cox and Advanced Newhouse have also accepted transfer restrictions. There will be additional detail provided in our SEC filings, but we think this transaction is a very good outcome for the company and all its shareholders. Now I'll turn it back to Chris for a few brief remarks before we go to Q&A.
Thanks, Jessica. To Alex and the Cox family and team, I really can't wait to get to know the Cox Communications team members even more than we already do. I'm very excited about our potential for a further enhanced growth profile and continued smart long-term capital in our shareholder base. The way to get to long-term shareholder value creation, it's the same. It's great products with unmatched pricing and packaging, consistent delivery of great service to our customers, taking care of our employees and generating tenure and experience, investing and allocating capital well, and being good citizens in our communities. With that, I'll turn it over to the operator for Q&A.
Thank you. At this time, if you would like to ask a question, please click on the raise hand button, which can be found on the black bar at the bottom of your screen. When it is your turn, you will receive a message on your screen from the host allowing you to talk, and then you will hear your name called. Please accept, unmute your audio, and ask your question. As a reminder, we are allowing analysts to ask one question today. We will wait one moment to allow the queue to form. Our first question will come from Ben Swinburne with Morgan Stanley. Please go ahead.
Thanks. Good morning. Can you hear me?
Hey, Ben. How are you?
Hey. Good morning. And congratulations to both the Cox and Charter team. It sounds like a lot of long consideration went into this agreement, so congratulations to all of you. I guess, Chris, we in the public markets are obviously familiar with the Time Warner Cable, Bright House process and integration and sort of what needed to happen with those assets and watched that play out over a number of years. Can you talk about this acquisition, the Cox assets, maybe in that kind of context to help us think? In particular, I'm thinking about the network, the kind of capital needs as we look ahead. You guys have laid out a standalone CapEx forecast that obviously the market's very focused on. So trying to understand how the acquisition sort of impacts the capital spending, capital intensity outlook.
Maybe you can layer on anything we should be thinking about in terms of pricing and packaging or the way you think about the way Cox has gone to market versus Charter that might impact how we think about the new company going forward.
Sure. Look, inside the prepared remarks, I talked a little bit about how we're going to approach the residential and small business segment, which is as quickly as possible get out with Spectrum pricing and packaging. That means utilizing the existing systems that exist at Cox today, which are significant and powerful, similar to what we did with TWC Bright House, very quickly get out with Spectrum pricing and packaging. Part and parcel to that is to make sure that our customers do not feel the difference between a market in the state of Washington, for example, versus Virginia, and that when they interact with the company, the portal, My Spectrum app, Spectrum TV app, the presentation and content on Zoom is all similar, if not exactly the same, and that they would not know the difference.
The other piece is to make sure that through an abstraction layer behind the scene that our customer agents, so if you have a call center in Phoenix, that as quickly as possible, they're able to service customers nationwide. That is a great example of a market where I think is a good candidate for onshoring and insourcing into that footprint to drive additional jobs. We want them to be able to service the entire national footprint that we provide. That is kind of the operational priorities that are there, all of which is captured in the normal way we go to market. We've had a lot of success in migrating pricing and packaging all the way from Bresnan, well, really legacy Charter back in 2013, Bresnan and whatever year that was, maybe 2014, TWC Bright House to your point.
We're in the midst of doing that right now with Spectrum pricing and packaging to ourselves inside of the new pricing and packaging bundles that we announced late last year at the same time we did the brand refresh with Life Unlimited. We have a lot of experience to how to go to market with new pricing and packaging and migrate the existing base in a way that is customer-friendly, that can lower their overall rate per product, but still preserve the overall RPU per household. That's the strategy we'll execute there. In terms of the network, Cox is largely through an upgrade for what we would call a mid-split upgrade, and they have 2 Gb capability essentially everywhere. The difference between a high split and mid-split is the upstream capacity, but it's pretty significant given what they've already done.
There is no rush for us to go try to harmonize that into a high-split footprint. In our planning, that eventual conversion to a DOCSIS 4.0 with a DAA does not take place for years out, and it will be done at a lower cost as a result of them having already completed the mid-split and because of the scale that we will have at the time that we are completing our own DOCSIS 4.0 and DAA upgrades and be able to move quicker and faster. That gives the company the time from an integration standpoint to fully migrate pricing and packaging, back office systems in place, which you really do need before you go do something bigger like that.
There will be some capital attached, and it's inside of our own internal forecast, but it's going to be pushed out later on primarily because of the significant investment that's already been made by Cox that sits behind us and will benefit from that. It makes it easier for us to not have to really worry about that anytime soon. It is part of our planning. It's part of our thoughts, and it's part of our financial planning. The capital that's been deployed here is significant at Cox, and we are not stepping into a business that needs to be recapitalized in any way. It's been well invested. It's got employees that love this business, love the industry, highly committed, and we value that. We look forward to integrating all that into a single company.
Thank you.
Leila, will take our next question, please?
Our next question will come from Craig Moffett with MoffettNathanson. Your line is now open.
Hi, good morning. Can you hear me?
Hey, Craig.
Good morning. First, congratulations to both parties. I know this has been a long time coming. Two or, I guess, one question regarding the MVNO agreement with Verizon, but also your affiliate agreements with your programming partners. Are there any limitations to forwarding either the Verizon agreement over to Cox at the terms that you have today at Charter and the affiliate agreements for programming that you've developed at Charter over to the new entity? Would that happen right away when the deal closes?
Look, I want to be respectful of both the agreements that we have with really important partners to us and respectful of the conversations that will take place over time. We do not have any—if I step back, as it relates to all of our, call it the vendor-partner relationships, I do not have any concerns of any material way of our ability to ultimately integrate this over time. I do not want to get into contractual terms. I plan to make some of those phone calls today because, as you know, the fundamental nature of these relationships has really changed over time. We have a great relationship with Verizon and our MVNO today. I do not know how public Cox's MVNO relationship is, so I am going to pause and not say anything more there other than to the extent it is public, you will know what it is.
If it is not, it is not. I do not want to breach accidentally along the way. We at Charter have a great relationship with Verizon. It is strategic to us. It is strategic to them. Cox is really underpenetrated because of the later start in mobile, and I think that is a great opportunity for the combined company, and it is a great opportunity for our MVNO partner as well. On the programming relationships, we have a lot of experience in agreeing assets over the years, even prior to what I would call a relationship reset that we have had in the past two years or so. I think that if you step back and have me not get into contractual discussions on programmers, the relationship has changed in that the programmers understand we are trying to grow this business.
There's no better economic way for them to have programming delivered to customers than through the MVPD relationship that we offered and the integration of seamless entertainment. We've been provided some additional flexibility in the ways we package and go to market. As a result, while we're not neutral yet, our video losses are probably the best in the MVPD industry, and we intend to improve that. That means that we're working together, and that's new. The relationship we have with the programmers now is not to battle an oar every three, four years. It's really about how do we work together along the way? How do we do quarterly meetings to evaluate how we go to market better and help each other so that it works better for the consumer and save customers actually lots of money, which we're doing now with seamless entertainment.
I don't know if you want to jump in.
Certainly, I mean, you talked about the lower penetration in mobile because of early stages that will allow us to grow on the mobile side. In video, Cox has also become less penetrated from a video customer perspective over time, and with what we can do around pricing and packaging and what we've done with the programmers to build a more valuable video product, I think there's a lot of potential for us to create value in a different way for the programmers here than.
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To wrap it, I agree with that. We just intend to be a good partner. We have been, and it's not always easy, but it's in our mutual interest. I think this will work out just fine. To reiterate what I said before, we don't have any material concerns over the agreements that we have.
Operator, will you take our next question, please?
Our next question will come from John Hodgwick with UBS. Please go ahead.
Hey, thank you. And again, congrats on the deal. Chris, maybe could you just elaborate a little bit on the regulatory process, just what you foresee and sort of the timing there? And then can we talk a little bit about the sort of competition in Cox's footprint and how that compares to Charter? I mean, do you guys have a sense for what the fiber overlap is at Cox? And any comment on the difference in RPU, specifically high-speed data RPU between Cox and Charter? Thanks.
Sure. There's a lot in that. From a regulatory standpoint, we're going to go through a Folsom process, as you'd expect. We respect that process, and we're going to do everything we need to to demonstrate why this is really good for America. It is. This is a great transaction for the American consumer, and it's a great transaction for American employment. That being said, we'll have to demonstrate all of that in front of the regulators, and we feel good about that. We don't have any real overlapping footprint between the two companies. We'll have the ability to create jobs, good-paying jobs with career opportunities and even stock ownership opportunities. We have the ability to offer lower prices per product to the Cox consumers in that footprint. I think we're well set up for that process.
I think the timing on it, it's hard to say, but we think that could be mid-next year. Of course, we'll follow the lead of regulators and work with them productively. From a competition and footprint perspective, not that dissimilar from Charter. It's about over 50% overbuilt with fiber. I think the more important piece is we have—and it's the same applies for Charter and Cox—we have robust competition everywhere we operate. If you think about mobile broadband as a competitor, we have AT&T, Verizon, T-Mobile in 100% of our footprint. We have satellite everywhere we operate. We have fiber overbuilders. We have cell phone internet, home-based version of that mobile broadband connectivity competition. It's significant, and we have competition in every single piece of the footprint that we operate and we have for some time.
The video space, if you think about competition in that footprint, it's huge. It's InShift, it's DirecTV, it's YouTube TV, it's all the different apps that are available. It's SVOD. This is a highly competitive space. There is no overlap between the two companies. I think from a competition standpoint, this is good because it allows us to actually invest more into the footprint, to have better products, have better service, invest more in AI, and invest more in US-based jobs. I think it'll lead to more investment, which makes the transaction good. The final piece of your question was related to RPU, and I don't know if you want to start, but.
Yeah. So we've thought about where we fit in RPU in a couple of different ways. Certainly, Cox has a somewhat higher HSD RPU than Charter has. When you look at the total revenue per customer inside of the Resi business, it's actually quite similar to ours. I think what that gives us confidence in is that by using the overall Spectrum pricing and packaging structure, we'll be able to navigate customers into bundles of products that add value to the services that they're receiving from the company, but then on an aggregate basis, enable us to sort of maintain a good RPU trajectory through the transaction. With that, I think we believe that our overall revenue growth will be higher with the combined businesses than it would have been on the standalone business.
Yeah, John, if you remember back from 10, maybe even closer to 15 years ago, when we talked about the operating strategy in a financial context, we've often said our strategy is to lower our product pricing everywhere and to invest more in OpEx through high-quality onshore in-house employees and to significantly invest in the network. Investors usually scratch their heads and say, "How is that good for cash flow?" The answer is because you have lower product pricing, you can sell more of that product per household. Therefore, the revenue per household is higher because you earn for it. Your margin per household is higher. Because you do that, you end up having more penetration across all of your passings, which means that every customer on the increment costs you less to service than the one prior.
It also means that your marketing and sales costs are being used to acquire net new additional customers as opposed to ones that you lost because your pricing was off or your service was off. You can invest in your onshore in-house service infrastructure at a higher cost per transaction but have lower transactions, which results in less churn, which means you have a better return on investment for the customers you acquire. Again, your subscriber acquisition cost is used to acquire new customers, which improves your margin as opposed to replacing the ones that you just lost with poor offshore service.
If you put that all together, you can have lower product pricing, higher invested OpEx through service per transaction, and have higher capital spend, but across a large fixed base that improves the quality of product and have a better cash flow output and return and ROI over time. That has always been our strategy, and that is going to be the strategy here. There is an RPU difference on the internet. We will offer packages with lower internet prices to the Cox footprint entirely as quickly as possible. As a result of doing that, we think we will have the same, if not higher, RPU per household. We will have higher penetrations, and we will have lower operating costs per customer, and the same thing applies to capital. That is the strategy at this point. Thank you.
Thanks, John. Leila, we'll take our next question, please.
Our next question will come from Jonathan Chaplin with New Street Research. Your line is now open. Jonathan, your line is open. You're now able to unmute yourself.
I think we'll start by—
Sorry, can you hear me now?
Now we got you.
Oh, we can hear you now, Jonathan. Go ahead.
Sorry about that, guys. Congratulations to all on this deal. Just one question from me on synergies. I'm wondering if you can give us a little bit more context on cost to achieve and how that sort of flows out over the course of the next couple of years. Chris, based on your comments on still needing to talk to partners to figure out implications for the MVNO and the affiliate agreements, does that mean that the benefits from those potential benefits there are not included in the $500 million of synergies? Lastly on this topic, with Time Warner Cable, there was a huge incremental benefit over and above synergies from bringing your operating processes to the asset. I think that was a much less well-run asset than Cox's.
I'm wondering if you can sort of help contextualize the economic benefits that could come from the same process with Cox. Thanks.
Sure. Let me start that in reverse order. I want to be really clear. The Cox network investment has been fully made. If anything, they have a reputation for decades of being the gold-plated standard of the willingness and ability to invest in the network and to create something of quality. On one hand, the need for us to invest significantly more is going to be low, and the upside of doing a better job there will also be lower as a result because it's been well cared for. The same thing, despite everything that we've talked about on onshoring and insourcing, the quality of Cox service is very high and always has been. It's a very well-run asset.
They've always put a premium on high-quality service, make sure that customers are well cared for, and they've gone out of their way, and they've not skimped in terms of making that happen. It doesn't mean that there aren't things that we could do to change around pricing and packaging and onshoring and insourcing that I talked about before, but this is a highly qualified management team with a deeply committed set of employees who have been very well cared for, and we intend to do the same thing. We'll learn some things along the way as well. I'm just talking now about residential and small business. If you think about the broader business, medium and large enterprise, they've historically been the best. I think there's an opportunity to accelerate the growth of the pro forma company based on all the experience that they have there.
I'm just going into when you compare to other situations that we've been in, including legacy Charter, which we inherited and went through an operational restructuring, that's not the task at hand. We're kind of looking forward to that. We're looking forward to incorporating all the significant talent that exists at Cox and having them be of the broader Spectrum brand family and soon to be named Cox Communications family as the new combined company once we get through close. It doesn't mean I'm not watering down the operating synergies that will come out of the prior question that I outlined, where we can still lower transaction costs and we can still lower product RPU but increase overall RPU and margin at the household level. All those things remain true.
It's just the things that needed to be fixed in some other assets is not the case here with Cox. On the MVNO, I don't want to get dragged into contractual beasts. Like I said, I owe it out of respect for our partners to have conversations with them. I don't think there's any material issues that exist in our agreements generally from a procurement standpoint. Also, just to technically answer your question, because of the later start in mobile, there's not a day-one synergy opportunity from an MVNO perspective that would exist if they were fully deployed on mobile. It's relatively new. Mathematically, it's just not that big of a day-one contributor either way.
Yeah. I think when you look at the $500 million that we talked about, that's really sort of procurement and operating that will fall entirely outside of the MVNO or other sort of or the operating. It's really focused on overhead and procurement benefits there. In terms of cost to achieve, I think that you can expect cost to achieve to be in line with similar previous transactions of this scale. Nothing outsized relative to what it would typically take to integrate a business with that.
Thanks, guys.
Thanks.
Thanks, Jonathan. Operator, we'll take our next question, please.
Our next question will come from Jessica Reif Ehrlich with Bank of America. Please go ahead.
Thank you. I was hoping that you could maybe drill down into some of the revenue opportunities as you gain closer to national scale, advertising, other things. Because Chris, you mentioned a few times that you have both national and global competitors. Just wondering how you're going to approach that and anything you can do leading up to this long regulatory process.
Sure. In no particular order, the business-to-business opportunity that I articulated of having a larger footprint, the better ability to compete against our national, sometimes even global competitors as it relates to business telecom will be enhanced. The ability to combine different products that exist at both companies and different go-to-market there, as well as the enhanced economics that come from the national footprint, I think give us a real advantage to growing top line and B2B. From an advertising perspective, I know that's near and dear to your heart, Jessica, is I think, while not the most material piece of our business, it's still big.
I think the investments that I know we've made at Charter for addressable advertising and the ability to operate across different platforms, our own and third-party platforms for an integrated advertising solution that monetizes the long-tail inventory that gets the value from addressability, the amount of connected TV spots that we have through Spectrum TV app, which is the largest, if you were treated as a virtual MVPD, I think it would be the largest in the country. It will now be larger. Having that take place on our own platforms in Zumo, but also on third-party platforms like Roku. The relationships that we have, including relationships with Amazon that we've announced before as well, I think that plus any opportunities that we see inside of the Cox advertising business could present a real opportunity to accelerate not just Cox's advertising growth, but the pro forma company.
Then video, when you think about it, the way we're deploying Zumo is for every customer, every new video customer on the increment who wants a platform for us that we deploy Zumo. The ability to use that and seamless entertainment and the flexibility that we have in our packaging, I think it offers a real top-line video revenue opportunity. Now, whether that means just less losses on video or more video growth, I'm not in a position to go forecast that today, but I think it can be better than what it is on its current trajectory. That is a revenue enhancement opportunity as well. The most material is what we've already covered, which is the ability to drive mobile for sure together inside of pricing and packaging, which then ties into internet.
I don't want to repeat everything I said about the residential and small business pricing and packaging, but that for sure is the biggest opportunity in front of us in terms of top-line growth.
Yeah. In addition, inside of B2B, I think Cox has made some interesting investments in new product categories that we haven't had available to our customers previously. Businesses like RapidScale, which will give us a managed service and cloud business that's currently growing quite rapidly and that we'll be able to deploy across both the Cox and Charter customers.
Segra, which we're excited about as well.
Operator, we'll take our next question, please.
Our next question will come from Jim Schneider with Goldman Sachs. Please go ahead.
Good morning. Thanks for taking my question. I just wanted to maybe address, going back to the network question previously, the rural opportunity within Cox's footprint, to what extent you would expect to exploit that to the same extent you have done with RDoF in your own footprint. Maybe talk a little bit more about some of the longer-term network upgrades aside from the DOCSIS 4.0 that you might make within that footprint. Thank you.
Sure. Cox has been a material player in the substantial rural build-out space. They have certain markets like Los Angeles and San Diego, of course, where there's going to be less of that opportunity. In markets like Kansas and Oklahoma, they've been a participant, not just in RDoF, but more importantly, with state grants. Most of that commitment period is now behind us for sure for RDoF. I think they're near completion on all their RDoF builds. I think the ARPA is still in flight, and they've been a big participant in ARPA state grants, including just to name one, for example, Northern Florida. As it relates to BEAD, they've been a participant, that's public, that they've been a participant in some of the BEAD footprint.
I think collectively, as a cable industry, we're all a little concerned about some of the rules and regulations that were applied to BEAD. That opportunity for all of us, I think, has been less than we would have hoped. It's unclear where the BEAD process really goes, whether it should be scrapped, rebid, or new rules applied is all a little bit up in the air. I don't think that BEAD is going to be the most material piece for any of us, unfortunately. It may have a, frankly, I think if you were to design it today, you'd say it'd be fundamentally much smaller and be applied in a very different way than what's taken place. We're watching it. I just don't think it'll be as material as some of the other grants that have taken place.
The longer-term network, as I mentioned, this is a very well-invested network. It's been very well cared for. The mid-split upgrade is well on its way. I don't see they're deploying CBRS. We're deploying CBRS. As it relates to the organic capital that's in place there, if anything, there's duplication of capital spend that'll be eliminated as a transaction synergy on the CapEx side between the two companies. I don't see anything that's major that needs to take place beyond what we already talked about before, eventually harmonizing the networks on a D4 platform, which Cox will benefit from at that point because of when you come back around with a cheaper and better ubiquitous deployment of D4 over time.
Thanks, Jim. Operator, we'll take our next question, please.
Our next question will come from Sebastiano Petti with JPMorgan.
Thanks for taking the question. Just a couple of quick just follow-ups. Congratulations on the deal. Many years probably in the making here. Congratulations to both the Cox family and Charter. If we have to think about just quick follow-ups here, in terms of deal timing contemporaneously with the Liberty transaction, does that suggest mid-2027 still is the timeline there? Thinking about the $500 million of synergies, not to delve into programming and MVNO and Chris, I understand sensitivity there. Is that net of perhaps any tier-two wholesale costs between the company that you guys might have on the business services side as well, just kind of sharing of the network and what have you? Lastly, could you unpack what's included or embedded within the $452 million add-back to the transaction EBITDA on slide 19?
Just some questions around what that might be. Thank you.
Did you get the last one? I didn't.
Yeah. Maybe I can take a couple of those, Sebastiano. The agreements provide for the Liberty Broadband closing to accelerate to coincide with the closing of the Cox transaction. Our expectation would be that this transaction will actually close sooner than the Liberty Broadband transaction otherwise would have closed, but that the Liberty Broadband transaction, based on the agreements we have, will accelerate to close at the same time. Inside of the $500 million of synergies, we did not look at the tier-two question. There probably is a bit of that, but it's not that material.
No, because both of the companies typically tend to sell on footprint. A lot of times we'll use other cable operators for some of the or some of the tier-two circuits. You can just have a wash to the extent some of that's taking place. There may be some that you would expect that's material.
Yeah. In the expenses not included in transaction and management adjustments on slide 19, what that is, a good chunk of it is long-term incentive program and pension costs that when those programs are transitioned over to Charter will not be something that would be deducted in the computation of adjusted EBITDA because they'll fall below the line in share-based compensation expense. A chunk of it is a management fee related to the Cox structure that falls away from the business when it becomes part of our business. There were a couple of very minor adjustments for sort of one-time type items and, yeah, a business under management.
The vast, vast majority of what's in there is what, Jessica?
Yeah. The first two items are the lion's share.
I don't know if it's in the plan, but we might as well say that similar to other transactions, the pension remains with the Cox Enterprises family.
Correct.
That's why we're appreciating the expense.
Thanks, Sebastiano. Operator, we'll take our last question, please.
Your last question will come from Frank Lu with Raymond James.
Great. Thank you. Appreciate the time. The leverage that you're talking about, the shift there is notable. You've always looked at running it over four times. Is there a change in the philosophy that you have now with the combined companies to be running at lower leverage going forward?
No. All of the things that we believe about the business today continue to be true and we continue to believe that we can grow the business. Actually, I think the transaction is accretive both to future share price and to leverage-free cash flow per share. Leverage-free cash flow per share if you exclude transaction costs inside of the first year. Our beliefs around being able to grow the business and the value of having leverage as part of our overall strategy going forward has not changed. What has changed is how big the balance sheet itself will be. We had always sort of believed that at some point you would stretch to the limits of what you could do in total size of the balance sheet while maintaining our sort of split-rated structure and at the higher multiples that we have been at.
I think when you put these two businesses together, the more prudent strategy is to come down a bit in the range to manage against just the overall size.
The interesting thing is, which I'm smiling because Cox pointed that out to us during the course of the negotiations as well, the accretion here remains positive despite the fact that there's a shift in the balance sheet strategy. Less levered equity, and yet we still have good accretion for shareholders in this transaction. I think that's a positive.
Thanks, Frank. Operator, that concludes our call. We'll pass it back to you.
Thank you all for your participation today. You may now disconnect.