Thank you so much for coming, Jessica. It's a pleasure to have two of us on, two Jessicas on stage.
Thanks.
My only time.
Right.
So anyway, this is exciting because this is your Charter's first public conversation post the Disney resolution. And I have to say, so I'm really thrilled that you're here, but it was a very un-Charter-like... I know Stefan doesn't like me to say that, but I, I think of you guys as such nice guys, that it just seemed like an unusually public dispute that, you know, with Disney, which we all know was resolved on Monday. So could you describe why this is a good deal for, for Charter?
Sure. I mean, I think we're really happy with the deal. We met all of our objectives. So when you think about what we were trying to do, first, it was about taking the valuable content that had been leaking out of the system and putting it back in our packages.
And we did that. Bringing Disney+, and then when the flagship ESPN goes, ESPN, ESPN+ to our Charter customers who are receiving sports content, or I'm sorry, Charter Select Plus TV customers, and but when the ESPN flagship launches, bringing that ESPN package in with our linear packages, really preventing additional content from leaking out of the system going forward. So bringing that value in was important.
The second thing that we did was that we maintained the flexibility that we were looking for to be able to continue to offer a variety of packages, including the skinny packages that we offer today, and to have flexibility going forward, to be able to offer a variety of packages to consumers.
And then the final piece was around total economics, and there we really exceeded our expectations in terms of our ability to drive total economics that we think will enable us to offer our video packages to customers at a value, which is always our goal. Just because we're really happy with that deal, I see a lot of like, well, who won? I really think everybody wins in this deal. You know, I think it was a win for us. I think it's a win for Disney.
I think it's really a win for consumers. On the Disney side, you know, Disney is gonna get distribution both across all of our linear subs and then in addition to that, they'll have the distribution that we can offer to our broadband subs, so access to a really great distribution engine.
They'll get to add revenue because the DTC that we're bundling in is ad-supported, and the revenue related to upgrades, to the extent that customers who are part of our package want to have ad-free versions of those.
And really, the other thing that we've done that I think was important, a win for Disney and Charter, is that we've pulled together a package that we think can stabilize the linear video ecosystem, and provide a glide path that gets us to the new direct-to-consumer environment. And then in the last place, you have consumers, right?
And consumers win all around. I think we'll continue to be able to offer consumers packages with choice, which is what they want. They're not gonna be asked to pay twice, for content, both in the linear video ecosystem and again, in the direct-to-consumer apps. And we're gonna be able to continue to provide sort of those high-value bundled services that customers are looking for and provide them at a value. And so I think it's a win for everyone. We're really excited to be moving forward.
Right. I mean, that was a lot in there, but, you know, I guess just to, to go back to sort of the first question, which is like, why did you need to go public, particularly against Disney, which of all the media companies, you know, like, seems the, the least egregious in terms of leaking content onto streaming? It seems very-
Yes.
The Disney+ is not the same content that's on Disney.
So, you know, we have tremendous respect for the Disney management team. We have tremendous respect for the content that they create, but they had the linchpin asset in ESPN, right? You couldn't move to a new transformational model, without ESPN.
And so because of that, we needed them to lead, which I think we said often, and it was true. And also because of that, you know, we said in our analyst event, and as we were talking last week, we were willing to accept their sort of market rate increases, but it was really because we knew they had that linchpin asset, and we needed them to be a first mover to get us into this transformational model.
So one of the wins for you was getting access, even if it is at wholesale, right, it's Disney+. So can you talk about your division, and you kind of touched on it a little bit, but how does this play a role in your transition from linear to streaming? Since, you know, we could see the move for most of the U.S., and, you know, could you, how does it tie into, like, other the DTC products?
You know, what we really envision going forward is having the use of our sales and marketing engine and our bundling capabilities pulled together with the highest value content that's available across the industry, where we can offer packages to consumers that fit both their preferences and their budget, right?
So to be able to continue to drive the way we have in the past around being that sales engine and that bundling engine, but doing it with all of the high-value content that's available and in a variety of packages that fit consumers' needs. We're really excited, you know, we're launching Xumo in the fourth quarter this year.
And, as we launch Xumo, I think that you'll see that its content-forward interface, and the easy search and discovery of content, that's enabled through the voice remote, and the capabilities in the platform, are really going to work well with and to set us up for the delivery of those products in a really consumer-friendly way, and in a way that will make that sort of aggregation and deaggregation of content quite easy.
I can't wait for it.
We're excited. Yeah, absolutely.
What does the new deal say about affiliation agreements with other large content providers going forward?
...You know, I think that overall, we believe that going forward in the long term, we'll be able to moderate the growth in content costs for consumers, based on what happened in the arrangement with Disney.
Can you talk about the impact of the blackout with Disney? You know, the brief blackout, but it felt like it felt pretty long. But, you know, what impact did that have on your subscriber results?
Yeah. So, you know, we talked about that we expected that we would lose video subscribers, and we have, though so far, I would say that those losses have been much less than what we initially anticipated. And that impact on broadband subscribers has been very, very small. And so we, we believe that we, we've come out on the other side of this really, still, still doing well from a, from a subscriber perspective.
So let's move on to broadband and start with maybe rural. But, you know, Chris has said, Chris Winfrey said, he, he's compared your, your rural efforts to, and I'm quoting him, "Creating a new cable company." Could you talk about the rural opportunity as a whole and, you know, include in that your rural broadband plans?
Yes. So we believe we have a tremendous opportunity in being able to expand our footprint into rural areas. We've talked about the commitments that we've made there so far, and our ability to generate strong returns off of the investments that we're making, you know, mid- to high-teens on levered returns, so it's really quite good. In terms of, well, like, why, why do you talk about it as being like a separate cable company?
The way that we think about it, and the way that we're trying to get others to think about it as well, is it's, it's almost like you need to separate the valuation, right? So today, you have our existing footprint, and the cash flow and EBITDA that we generate from that footprint, sort of excluding what you're doing in rural build.
That footprint has one valuation model that would be consistent with the way that other businesses in the industry are valued. When you think about then sort of separating out and you say, okay, well, in what you're doing in rural, what you're doing is buying a brand new cable asset, that's starting at 0% penetration and growing extraordinarily fast.
So that rural footprint really has a separate valuation model, and I think if you take the two components, and value them separately and put it back together, then you actually get a much better picture of what the total value is that we're driving from the business, by making the rural investments that we're making.
Can you talk a little bit about the progress you've made on RDOF plans as well as penetration, penetration trends? Are you still getting 40% or so penetration six months post build?
Yeah. So progress on RDOF has been going quite well. We continue to accelerate the pace at which we are building passings, which is consistent with the plans that we had laid out for the year. We continue to see both very high penetrations in terms of the curve, and penetrations of multiple products, so people who are buying not just broadband, but also attaching to that video, and mobile and landline voice.
So, very good penetrations and consistent with our expectations there. We have a cohort now that has been built for more than 12 months, and in that 12-month cohort, we're hitting 50% in terms of penetration.
So even from the 40% that we reported to before, continuing to grow quite well, going into additional time frames with those penetrations that have been built. So we continue to be really happy. You know, the other thing that people talk about, we bid on RDOF back in 2020, and there's been some cost inflation since then.
The thing that we've seen on the other side of it is when we mapped out the RDOF passings, we didn't fully understand sort of all of the homes that you would have to pass just in order to do the build that we were planning on.
While our costs for some of that build have increased versus the original plan, the passings that we're getting as part of it have increased as well, which means that the total cost per passing of the build is actually still coming in in line with our original expectations, which is great from an overall returns perspective.
Can you talk a little bit about the strides you've made so far and, you know, maybe your overall strategy to capture part of the subsidies, provided as part of the BEAD program, as well as your broader plans to extend your footprint?
Yeah. So as I... You know, we like rural build, but we're disciplined in the way that we bid, and that means both disciplined from an economic perspective as well as disciplined in terms of the regulatory framework. So we continue to bid and to be successful in winning state subsidies, and that has gone quite well.
As we move from sort of the state subsidies that are available now into the BEAD program, we're really working closely with states who are developing their frameworks to make sure that the regulatory framework for the BEAD builds are consistent with investment from private capital.
If we are successful in securing those regulatory frameworks that make sense for us from an economic perspective, I think we very much continue to believe in the rural build and will continue to invest in those areas. Ultimately, I think that we'll be successful in making that happen with state regulators.
So staying with broadband, but maybe switching gears a little bit, but, you know, fixed wireless operators have been the largest broadband share gainers in the, I don't know, last several quarters.... What do you think it will take to get Charter to, you know, what, what does it take for you to regain, your position as the most significant share gainer in broadband, in your footprint, as, as kind of has been historical?
Right. So the thing that benefits us the most is that consumers continue to consume more broadband and have more bandwidth desire, right? We have better speeds and better reliability than fixed wireless today. There's always been a market for people who are willing to accept sort of lower, lower speed, lower quality products because they're in the more price-sensitive end of the market.
But on the other side of that, as you have both organic growth in the usage in bandwidth usage, and you know, we're getting ready to do this network upgrade, and when we do the network upgrade, we'll seed the next generation of products that use high bandwidth applications across the market. And so the drivers of those, you'll have continued additional capacity usage by consumers.
I think the fixed wireless operators have widely acknowledged that their product is capacity constrained. And so as those user needs increase, and as their capacity constraints sort of pull in on the other side, I think eventually, those customers come back to us.
And so our ability to continue to derive our share of the market in the long term, I think, remains intact. And our ability to continue to compete well against fixed wireless based on the great products that we offer continues to be very strong.
Fiber competition has also been increasing, so what are you seeing in terms of the pace of fiber builds? Have you seen any slowed down on fiber builds? And, you know, I guess the second part of that would be: How do you actually differentiate your offering from that of a fiber operator?
Yeah. In terms of pacing, what we did is we have seen slowing in the pace of fiber overbuild. I think, I think we said it in our second quarter, and it continues to be the case. We see it both in terms of the tracking that we do of what fiber is being built across our footprint, and we see it also in terms of the availability of labor, so contractors, and availability of supply when we think about what we're looking to do in our rural builds. We see the freeing up of that labor and supply sort of coming out of fiber build.
It doesn't mean that that slowdown is forever, so I don't want to get ahead of myself in terms of what they will end up doing in the long term, but certainly what we're seeing right now has been slowing. In terms of differentiation, I think this is where our mobile and our video product become truly valuable, right? If you think about our mobile product, we have the fastest speeds or the fastest mobile service.
And we have that because of what we're able to do with offload, right? The 13% of the time that our mobile customers spend riding on the 5G network is actually the slowest component of the service that they get.
The 87% of the time that they're riding on our network and our Wi-Fi is the faster piece, and over time, we're growing the piece of that connectivity that's offered over our network versus being offered over the 5G mobile network, both by expanding the access to our Wi-Fi and by increasing the speeds that our mobile customers get when they connect to our Wi-Fi in various ways.
And by working through things like the deployment of CBRS radios, the advantage of CBRS being that those radios are quite inexpensive, and so we can see geographically where they need to be targeted.
We already have a very dense wired network, so if you attach those CBRS radios in the spaces where they are necessary, you can get a high ROI and drive traffic back through the Charter network. That differentiated speed and differentiated product makes mobile really just sort of an extension of our connectivity services, but one where we can provide tremendous value at a very high-quality product to consumers.
We'll load onto that then, so you differentiate through mobile, but I think we can also differentiate through video. I have to say, I've talked about video more in the last two weeks than I have in quite a while. But that's because we're in a really transformational time for video.
I think that, with what we've been able to do with Disney, we really have the ability to continue to drive those high-value products to consumers and to offer them to consumers at a price that makes sense, and that then sort of provides value back into the bundle. Ultimately, by providing that high-value product to consumers, that's how we continue to grow our business and to differentiate versus our competitors.
Well, you kind of alluded to this, the network, but what are the next steps, and what are your investments to enhance the plans?
Yeah. So we announced back in our December Investor Day that we were planning to upgrade our entire network to multi-gigabit speeds in the downstream and at least gigabit speeds in the upstream, as well as offering success-based fiber to the home products, as part of that upgrade, and that we would be able to do the entire thing for $100 per passing.
We're very much still in line with and expecting to meet that goal in terms of the cost of the upgrade. Excuse me, and by doing so, you get you know you get the benefit from a competitive standpoint of having those higher speeds in the market. You get...
You get this benefit from having seeded, as I said before, you know, when we do an upgrade, we do an upgrade across our entire network, so where fiber availability is limited in terms of its scope and footprint, and that means that somebody who's developing products can only develop products for part of the market if they're reliant on there being fiber capabilities in order for customers to be able to utilize the product.
When cable upgrades and we upgrade everywhere, then those speeds are, in fact, available everywhere, which means that someone who's developing products that would utilize that higher capacity and speed can rely on being able to sell them all across the market, which is important.
We think that by upgrading our network, we will drive those new products to market, and by driving the new products to market, you actually drive the need for our product in the long term, in terms of driving that higher bandwidth utilization, which requires then high, high-speed connectivity, which is what we're able to offer to consumers.
Switching gears to kind of like the here and now, like some recent events, can you talk about the impact the hurricane in L.A. had on your operations and systems there?
Yeah. So two major events, probably-
Fires.
Yes, worth talking about in the quarter. Yeah. So, we were impacted both by the hurricane in L.A., and by the fires in Maui. In both of those cases, from a subscriber's perspective, the impact has been very small. So I don't anticipate any sort of material impact in the quarter on that side. There was a lot of plant down, and so there will be capital expenditures that will come through to bring the network back in those areas. To the extent that they are material, we'll call them out.
Is it not covered by insurance?
It's an interesting question, but I... Most of those expenditures, I think, will be things that do come, that you'll see full of your CapEx rather than get covered on the other side.
When you put all of the broadband stuff together, there's a lot of moving pieces. How do you think broadband growth will look over the next, let's say, 3-5 years for the industry? And then for Charter specifically, you know, how do you think your growth will compare to your peers and your competitors?
Yeah. So if you start out on the industry side, there will be growth to come, right? There'll be household growth, there's demographic shifts that drive continued penetration of broadband into the market. And actually, I think that the, that what's being done in terms of build on the rural side will expand the number of households for whom broadband is accessible, which therefore expands the market. I think we have an ability to take an outsized share, of all of... Well, yeah, I'll say all of those things. We continue to compete really well all across our footprint, right?
With what we've been able to do in terms of driving differentiation for our product by bundling it with mobile and with video, I think that we will continue to be able to drive broadband growth across, you know, the existing footprint.
We also have come out and we're big in the rural build, and because of that, I think we'll take an outsized share of the growth that comes from footprint expansion. And even in addition to the rural build, you know, we've always built a bit more across our footprint than some of our peers, and we continue to do that.
We're always looking for the opportunities inside of our footprint, to expand, the customers that we're able to connect, particularly when we can do so with good economics, which very often we can.
So what do you think will be the greatest source of Charter net additions as you go forward? Will it be footprint expansion into the rural markets, housing growth, or market share gains across already established plant?
You know, it's funny, we don't control some of those, and so it's hard to say which one takes the largest share, and certainly in different periods of time, I think, I think you end up in different spaces. But I think that the real answer is, we can grow from all three, right?
We'll grow from market expansion, we'll grow in terms of taking increased share in our footprint, and we'll continue to grow other areas of the business as well through things like mobile, where we're extremely underpenetrated and we can have a real opportunity to go take additional share in the market.
Let's move on to mobile.
Yeah.
There's clearly greater convergence occurring than ever, as exemplified by your Spectrum One offering. When you think about Charter's economics versus your competitors, what gives you confidence that your cost structure enables you to retain or even gain share on broadband while also capturing share on mobile?
Yeah. We have advantages in cost structure across both spaces, right? So if I start in the broadband space, and we talk about the network upgrade that we're planning, we're going to be able to get to multi-gigabit speeds in the downstream with gigabit in the upstream, and the opportunity for success-based fiber to the home, which means your marketing claims match sort of what's available anywhere in the market. And we're going to do it for $100 a passing.
So if you compare that to, say, someone who's out there overbuilding themselves with fiber, and they're paying 12, 15, maybe 20 times that much per passing to get those upgrades done, oftentimes before we even start talking about, you know, so getting the drop to the home and the cost of in-home wiring and equipment, our structural cost advantage in broadband, because of the network that we have that already exists, is extremely valuable.
So then you move from that into mobile, and they say end-to-end. In mobile, what we're able to do is to take the areas where you have the most usage, right? If you think about usage today, a very large percentage of mobile usage is sedentary usage.
We have a very dense wired network with a whole lot of radios attached to it in the form of Wi-Fi that can cover a huge portion of those sedentary use cases. And that really is why, when you look at the amount of offload that we have back to our wired network versus our peers who are MNOs, we're able to offload significantly more traffic than they are and get it back to our network more quickly and with a set of radios that already exist or that exist as part of our broadband connectivity. And that is a really valuable part of the mobile cost structure.
And so then you say, "Well, what about that piece that you're paying for?" Well, the piece that we're paying for, where we have this very strong relationship with Verizon, and an overall arrangement that I think that we're really happy with.
And I would tell you that we wouldn't have been as aggressive coming into the mobile space as we were if we weren't fully confident in our ability to continue to utilize that agreement to provide our customers with the connectivity that they need at an overall in a way that is economical and allows us to drive pricing in the market, which ultimately is part of our DNA.
It's what we do, that we believe that by driving high-quality products that have value to consumers, that you can penetrate more into those markets. We wouldn't have been there if we weren't confident in our arrangement with Verizon.
We continue to believe that we have a great partnership with them. We think it's good for us. We think it's good for them. Okay, back at the beginning, but it's a win-win, that we're able to utilize their network, and it's an efficient part of our cost structure, which means that we can deliver across all of our products at a cost structure that makes sense.
It feels like this is a never-ending source of debate, like, what's actually in that MVNO?
Right.
Let me just, you know, I guess, you know, it's, I guess, you know, the argument is that it's, you know, there's some, you know, variable price component that ultimately becomes some significant disadvantage to you guys.
Mm-hmm.
Can you just address that point, and ultimately, what is the proper level of owner economics that you need to have long-lasting mobile success?
Yeah. If you think about the price per gig across our converged product, we are by far better situated than anyone else, right? If you think about because of the cost, because of the structural advantage of having the dense wired network that we have today.
and so we believe that we can continue to be competitive, particularly if you think about mobile connectivity as just an attribute of the broadband connectivity that you're delivering, that by having this sort of hybrid approach to the network, where we provide connectivity services in the spaces where it's most utilized, and where we rent a network in those in-between spaces, you think about like the driving down the road versus sitting and watching a movie, like that it's okay, we think, to have that in the less utilized spaces that we'll continue to rent a network.
And ultimately, we think that that drives the most efficient sort of total cost profile for our mobile business as we look at it today. You know, never say never, but I think we continue to be really happy, and in terms of our ability to drive the mobile business going forward, we're confident that we can continue to drive what we've been doing in mobile, given where we sit now.
Now, what actually gives you the confidence that promotional mobile subs will remain with Charter?
Yes.
Once the free promotional rates begin to roll off later this year?
Yeah, the free lines. I would tell you that I'm more confident today than I was when we delivered our earnings a month ago. We had in Q3 of last year pilot programs going in a handful of markets where we had piloted our 12-month free offers. We've been watching those subscribers very closely as to what happens when they reach the 12-month window.
And I think right now, we're exceeding our expectations in terms of the number of those subscribers who are rolling to paid and doing so successfully. We always believed that we would be able to do it. You know, we've had very good usage on the free lines. We have a device mix that looks very much like the device mix in our broader mobile business.
And those customers, sort of by virtue of the way that we sell, are paying internet customers, so you know that they're able and willing to continue to pay a bill. And the combination of those things, I think we were pretty confident going into it. What we're seeing in the pilots is reinforcing that confidence that we'll do well in converting those customers to paid.
Can you talk a little bit about the current trends in your small and medium business operations?
Yes. So growth in small and medium business has been slower. And the reason for that, I think, the biggest one is probably related to some of the same things that you see in the resi space, in that fixed wireless has been able to target some businesses that have lower bandwidth needs, and are more price sensitive and has been able to move some of those customers onto fixed wireless solutions.
I think the total addressable market in terms of people who have that profile in the small and medium business space is somewhat limited, so there's pressure while they're able to convert some of those, but that pressure will be limited by the number of customers who have that profile.
And in addition, I think small and medium businesses have sort of the same growth, but not many of them have that same growth and connectivity needs over time. And so eventually we will get some of those back.
We continue to be under-penetrated in small and medium businesses across our footprint. We have great pricing and packaging. I think we have a good strategy for trying to go capture more of that market. So in the long term, I expect our growth there will come back. But certainly, in the shorter term, it has been slower.
Let's at least touch on advertising. Can you talk a little bit about the expectations for the local ad market? And, you know, what are you seeing now? How do you, you know, as you look out for the next year, obviously political and hopefully, better economy, we'll see.
We all hope.
Yeah.
Yes. So, you know, the local advertising space is challenging, less so than the national advertising space, but still a challenge. And I think we've been more successful than others, because of what we're able to do with addressable advertising, and because of what we've done in kind of monetizing the long tail inventory in our packages.
But as you said, you know, as you get into late this year and going into next year, I think we do expect a very strong year for political next year. And so that'll be a tailwind both to the advertising business and more broadly to our growth across the business. And we continue to execute well against the opportunity that's there.
So if the economy does come back, I think we have all of the right tools to be able to be really successful in continuing to grow that advertising business.
But you... It's, it's interesting because you are or you have grown faster than many of your competitors-
Yeah.
Whether it's, you know, broadcast or cable or just many of the local competitors. Could you talk about what differentiates your advertising?
Yeah. I mean, it's I think it's really the investments that we've made in technology and in understanding our audience, right? So you think about what we've done around addressable advertising in selling there and in terms of how we deliver our product to consumers because the Spectrum TV App is so widely used, it's highly rated in terms of linear viewing hours per household.
We actually have more linear viewing hours per household than any other app, which means that what we've done to sort of convert our inventory into addressable inventory, I think, has been really powerful. And the other thing is that we we've worked very hard on understanding the audience.
So when I talk about sort of monetizing the long-tail inventory, being able to understand on those channels that don't have Nielsen ratings, so that don't have, that are more difficult to talk to someone about how many views are you actually getting on this station? We've worked at collecting that data and being able to really create the data that allows you to sell advertising that was much more difficult to sell in other markets.
So what... I mean, that's just kind of the tip of the iceberg. I think our ad sales group has been leading in terms of leaning into understanding how to monetize our inventory well and to get CPMs that are appropriate. And yeah, and so it's been really good.
Yeah. No, you do seem to have a very differentiated approach. Okay, last question on capital returns. Can you talk about how you're prioritizing capital returns, including reinvesting in the business, you know, share repurchase, M&A? I mean, is M&A even a subject anymore for you?
It's always a subject. No, you can't take your eye off the ball, right? So the first thing that we always try to do in thinking about our free cash flow is say: What can I do to reinvest in the business in a high ROI sort of way? And quite obviously, we're doing a lot of that right now in terms of cash that we're reinvesting in rural build, overall footprint expansion, as well as our network upgrades.
But then you look to the second piece and you say, okay, like, where out in the market from an M&A perspective do I see assets that I can run and create value by bringing them together with ours? And the opportunities in that space, you know, I think we're a very, we're a very cable, like, cable-centric business. We, we think that the assets most interesting to us are cable assets.
The opportunities to acquire cable assets are somewhat limited, but we are always open to them and to having those conversations. And we believe that we have the right strategy to drive value from cable assets, where we can acquire them at an appropriate price. And then you get down to the last component, which is that we continue to target our leverage at the high end of our 4-4.5x leverage range. And we do share buybacks to continue to have our leverage sit in that space.
And through the combination of those strategies and thinking about them in that order, our goal is always to drive continued value and growth to shareholders, which we believe that we can do both by growing our existing business and by continuing to reinvest the capital that we get from our existing business in these high ROI opportunities that are available to us.
Great with that. Thank you so much.
Thank you.