Good morning, everybody. Welcome to the Goldman Sachs Communacopia + Technology Conference. My name is Jim Schneider. I'm a telecom analyst here at Goldman. It's my pleasure to welcome Altice USA and CEO Dennis Mathew. Welcome.
Thank you so much. Happy to be here.
Maybe just start off with a very high-level strategic question to get started.
Yeah.
It's been about two years since you've joined as CEO. I want to spend a little time to kind of talk about some of the operational and cultural actions you've been taking to drive better results. Maybe talk about two or three of the most important ones that you see and how those are kind of translating to some hard operational metrics in terms of improvement.
Yeah, absolutely. Well, I can't believe, one, that it's been almost two years. Time flies, and it's been an incredible journey, and we started that journey knowing we needed to transform the culture. And that included bringing on new leaders, putting existing leaders into new and expanded roles, so 130+ folks across every part of the organization to help us drive transformation.
And we put the customer at the center, and we said, h ey, customer experience is going to be primary in all decisions that we make. And when we think about customer experience, customers want quality, and they want value. And so those were two elements of the equation that we were absolutely getting wrong, and we needed to fix it quickly. Quality products, quality network, quality service, and so we really started to put operational rigor and discipline across every part of that organization, and it's translating into real metrics.
One is, of course, we had to rebuild trust with the customer, and we had to rebuild consideration because we had lost trust because we were not executing. We were not delivering the fastest speeds and the best quality and reliability. Now we see and we're being recognized by companies like ACSI and New Street to have the highest improvement in NPS, and we're delivering a level of service that customers demand. We're not there, we're not done, but NPS is at the highest levels it's been ever, quite frankly.
Then, other critical metrics that we had to get it right the first time. So first time right is the highest it's ever been. Completion rate. Y ou know, when somebody wants an install, we need to show up, and we need to get it done and we need to get it done right. Repeat rate, for example, again, if they have a service issue, they don't wanna have to have multiple visits.
And so there's been a lot of rigor around just making sure that we're delivering the right quality from a product, network, and service perspective, and then really driving our channels to perform and making sure that we have the highest level of performance. Jump balls are fewer and fewer just because moves are down and the macroeconomic headwinds are there, but we are improving channel performance in terms of productivity and yield.
And so those channels are becoming more efficient in delivering at a more efficient pace. And then ultimately, you know, that's translating into stabilized churn and really helping us make sure that we hold on to our existing customers and starting to see wins in some of the markets where we had lost considerable share.
Yeah. And maybe at this point, do you think you have kind of all those resources and organizational changes in place to drive that success? And if we're sitting here in two or three years from now at the same conference, you know, what are the kind of one or two key metrics investors should be focused on to determine whether you've achieved that success?
One, I'll never say we're done, but we're 90%, 95%. We've got an incredible team across the board. You know, when I look at my direct report team and, you know, our SVPs and VPs, all the way down, we've got incredible people, people that are helping us drive this transformation from every part of the organization, all in on that, and I'm excited about what the next couple of years holds.
You know, when I look at broadband, of course, we need to stabilize performance and get back to growth, and I am confident as I look across the different markets. We've set up a new regional leadership structure, we have hyperlocal go-to-market playbooks, and that is going to allow us to compete much more effectively.
We're gonna see all-time highs in terms of quarterly performance on mobile, on fiber, growth of B2B both in terms of subscribers and net adds, and we are going to deliver against our goals in a much more efficient manner from an OpEx and CapEx perspective. And so these are areas that I know that we can deliver. They're many within our control, and we are firmly focused on delivering on those to ultimately deliver value for our teammates, our customers, and our shareholders.
Great, and then maybe just another high-level question for you. AI has been a huge topic at this conference, no surprise. Just kind of curious, I mean, I think there's been a lot of discussion about, you know, how it impacts the telecom and cable landscape. A nd clearly, you can say, you know, AI, edge computing. Y ou can say automation of customer service and other kind of related functions on the administrative side.
Maybe just kind of give us your personal view about AI, the role it's gonna play in the industry, and whether it's more hype than reality at this stage. And more specifically, relative to your own business, do you see it as kind of like a revenue opportunity or a cost opportunity or both?
You know, I am so excited about AI and the potential it has to help us in our transformation. First and foremost, we needed to stand up a world-class data and analytics organization. We hired a new Chief Data Analytics Officer, and really helping us ensure that we understand our customers.
When I came in, we just didn't have a good understanding of who our customers were. W hat products did they have? H ow long were they with us? What's the ARPU? What's the tenure? We have all of that mapped out across all of our customers now.
And now we're also combining that with competitive data so that we understand who are we competing against town by town, whether it's a fiber overbuilder or a fixed wireless competitor or any other, a mature fiber provider. A nd we have much more clarity. And that is all now translating into recommendations for our frontline teammates in care and in retention.
And this is a great example where it's driving employee engagement because historically they had to peck through spreadsheets and five different screens to figure out, when somebody called, who are they. A nd how do I solve their problem? A nd how do I give them an offer that meets their needs? A nd now, rather than having them choose through a hundred, we give them a recommendation of two or three or five.
And then they can present that to the customer, which would include pricing and products and promotions and offers that are specific to that customer's needs. That is directly translating into helping us stabilize ARPU erosion, and also helping us in terms of our go-to-market strategy. B ecause when I joined, it was one size fits all. That's not the way it works from an acquisition offer perspective. We need to have the ability to compete town by town and ultimately, you know, honestly, street by street and house by house.
AI is helping us evolve our offer strategies as well, both from an acquisition and a retention perspective, so that we can maximize what we are providing to our customers but then also maximize the value to the business so that we can be a bit more aggressive in those markets that are more competitive and a bit less aggressive in these other markets.
The other thing I'm excited about AI is that it's gonna transform the way we just deliver service, and it's gonna help our teammates, both in the call center and the field, solve issues faster and just elevate that CX, which will ultimately translate into efficiencies for the organization.
Both revenue and cost.
Yes.
Okay.
Yes, revenue and cost.
Right.
I didn't say that specifically, but yeah, revenue and cost. He got it.
Yes, g ot it.
Revenue and cost.
So you mentioned the competitive dynamics, and you've competed against fiber companies for a long time.
Yeah.
More recently, we've seen some incremental actions by some of your competitors. T-Mobile has talked about some JVs to get more aggressive, not that it's, you know, different, change in environment, but we've got the Verizon acquisition of Frontier that's been announced. So maybe just talk about kind of the incremental competition within your various parts of your footprint from these players that you've actually been seeing.
Yeah. S o in the East, it's fairly stable. We have about 70% overlap, primarily with Verizon, a little bit with Frontier, so I guess it's now all gonna be Verizon. And so that's been stable, but fixed wireless has come onto the scene, obviously, in the last couple of years. In the West, since I've joined, you know, it's continuing to increase. It's gone from, you know, mid-teens to up to 40% now, and I see it continuing to increase as we go forward.
And so that's the world that we live in, increased competition, but I feel really good that we have a robust product portfolio so that we can compete very effectively against either fiber overbuilders who typically only have one product. We have opportunities to bring the full product portfolio to bear and be able to provide customers with incredible value with a full set of products, including broadband, mobile, video, and new products that we've just launched. That's really what we're focused on.
These folks are coming in very aggressive, especially as they enter markets. They're competing at the low end, and so we do see pressure from an income constrained perspective. We're not gonna do a race to the bottom. We are gonna be very disciplined in the way we go to market.
A nd I don't think that kind of a strategy is long-term sustainable. We have a plan. We're gonna deliver great- quality service. We're gonna deliver great value, and I'm confident that that's going to translate into broadband stabilization as it's already translating into mobile growth and fiber growth.
Mm-hmm. Does the Frontier acquisition change the competitive environment in your view at all?
You know, we know Verizon very well, and our ability to compete against Verizon is improving as we've stabilized our ability to deliver great service and rebuild consideration and rebuild trust with our customers. I do think there's a level of potential rationalization that will occur. We've seen Frontier in the market, very aggressive, competing on price, and so, you know, we'll see what that evolution looks like because that's not the way that, you know, we've seen Verizon competes.
Mm-hmm. And in terms of fixed wireless, which is a technology you mentioned before, what are you seeing in terms of kind of incremental competitive intensity? Is it getting more intense, less intense than it was? And how have you adapted to sort of compete better against fixed wireless?
Yeah. Fixed wireless, we see as a competitor that's here to stay for years to come. You know, it's clear that they are taking kind of the DSL switching segment, and they've continued to win that segment over the course of what we can see over the last few years. And, you know, they are also taking a portion. Movers are down. M oving activity is down, but they are taking some portion of that switching activity.
That being said, you know, we have high-quality products and services and the ability to compete very effectively. Historically, we have not done a great job of telling our story. And so as folks are trying that product, they're finding that it's not meeting all of their needs, and we're making it easy for them to come back and try our products at a great value.
You know, I think fixed wireless historically has made it very simple and has provided some price consistency that's made it effective in terms of competing, and we have the ability to do all of those things, you know, make it very simple with our self-install kits now. Now we're providing self-install at a much higher rate than we have historically. We've grown that by 100% since I've joined, and we're gonna continue to grow that and make it easy for customers that just want to be able to do it themselves and then provide much clearer and simpler pricing.
This was also a challenge when I joined. It was very, a bit more art than science in terms of the pricing and how rolls were happening. We've used our data analytics team to make sure that we have much more science so that we're providing great value to the customer while also being disciplined about our pricing.
Yeah. One thing I'd love to understand is just a little bit more about your own network strategy.
Mm-hmm.
Maybe talk a little bit about the competitive dynamics. Y ou see them, but really what's the level of urgency you see for building fiber today? And how does the kind of local dynamics affect, you know, whether you decide to drive fiber or DOCSIS 3.1 into those markets?
Yeah. When I joined, there was an aggressive push on fiber, and the plan was to build fiber across the entire footprint, and we wanted to take a pause and really pause that program in the West and then really assess the program in the East. And what I would tell you is that, that fiber, not fiber, for us, was not the linchpin to what it would take to win in the local market.
First and foremost, we had to deliver great quality and great value to be able to compete effectively, and we weren't doing that. We weren't doing that where we had fiber. W e weren't doing that where we didn't have fiber, so it didn't matter. You know, the results were all the same. And so the first and foremost, we had to rebuild the trust with the customer and rebuild the performance of the network. And you're seeing that we are doing that as Ookla and PCMag and CNET and others have recognized that we are delivering the fastest speeds in a reliable fashion.
And that was all about really making sure that we were managing the network in the right way and investing in the right spots to deliver and maximize the performance of both the fiber network and the HFC network. And we're doing that in a much more effective way where customers are experiencing that speed and that quality that's allowing us to compete.
And then, of course, we had to deliver the right quality of service which wasn't happening. And so we've rebuilt our operational teams, teams that are providing care and field across the entire spectrum, so that, if there is an issue, we get it right the first time and we're able to do that in a much more consistent fashion. And so as we look at going forward for our new build, we do like fiber a lot, and where it's cost effective to do so, we're gonna lean in on having a fiber-rich build-out, fiber to the prem where available.
And then, you know, when we look at the overbuild in the East, we're gonna do that in a very surgical fashion. We're on a path to having 3 million fiber homes by the end of this year. A nd we'll continue to invest where we think we need it to be able to compete most effectively, b ut we are finding the ability to compete with our product portfolio and the networks that we have.
Got it, and then maybe just, you know, so I think last year, this time, your fiber penetration was, I believe, 9.4%.
Mm-hmm.
It's around 15% now, if I'm not mistaken. How do you think you're kind of executing relative to your medium- to longer-term goals? And I guess, you know, as we see more penetration, what is the impact on your overall kind of subscriber base gonna be? Is it gonna be showing up in new customers through gross additions? Is it gonna be translating to lower churn in your existing base?
Mm-hmm
Or in some other way.
Mm-hmm. Mm-hmm. Well, I'm really excited because we have solved a whole host of technical issues that will allow us to accelerate the migration strategy. You know, we had a whole host of technical challenges that made installing fiber and migrating existing customers over to fiber very challenging.
You know, even with those challenges, the team, you know, we were able to see some acceleration. In the first quarter, w e did over 50,000 fiber net adds. Last quarter, we did pause a little bit to fix these issues and did about 40,000, but I'm confident that we will eclipse those levels in the quarters to come.
We are embedding this as part of our base management strategy so that, every time we have a conversation with our customers, whether it's in our retail centers, in our care centers, in retention, we talk about fiber and the benefits of fiber and the speeds, and the product portfolio, and really get folks moved over to fiber in a much more accelerated fashion as we move forward.
The business benefits, you know, really speak for themselves. We see higher ARPUs, higher customer satisfaction, less calls, less truck rolls, better churn, and you know, we wanna take advantage of this incredible network that we've built that is winning awards. We need to get our customers, new customers there and existing customers there as well, and that'll be a big focus of ours as we move forward.
Yeah, and I guess, on your last earnings call, you talked about the fact that you're overbuilding one of your cable competitors.
Mm-hmm
In a few places like Montclair, New Jersey. I can't recall myself any historical examples where you've actually done that. So maybe what drove that change? Is it, I mean I'm assuming it's a quite purposeful change. So, I mean, how do you think you benefit the most? Can we expect you to do that in more places across your footprint? And what kind of competitive response do you expect to see?
Yeah, this is very opportunistic. You know, when we looked at the return on investment, we have infrastructure nearby, and so the capital cost to be able to extend that into those towns was efficient, and we're excited to continue to expand our footprint into New Jersey.
You know, we looked at those demographics and higher ARPU opportunities, and so we feel very comfortable that we can compete very effectively. And we imagine that there will be competitive response, but we have a great go-to-market strategy and product portfolio and an incredible team on the ground. And so, you know, we're gonna compete hard. This isn't a wholesale shift in our strategy but an opportunistic. I t was opportunistic, and so we're gonna move forward and launch in the next several weeks.
Great. Now, on the smartphone side of things, we had the iPhone launch yesterday.
Yeah.
I think there's a lot of people who are excited about the AI features that
Yeah.
Enable new customer features, and at the same time, we've seen smartphone upgrade rates about as low as they've ever been.
Yeah
For the industry. So how do you think about this as an opportunity for Altice? Do you think there's a potential opportunity for you to sort of, you know, pick up switchers in the market and be a little more aggressive, potentially, in [subsidy ] to kind of get there? Or how are you thinking about this particular cycle?
Yeah, this is a great opportunity for us. Our, you know, we're in a little bit of a different position where we, you know, we launched mobile about a year ago, and awareness is still low. And so switching is a great opportunity to have this conversation.
And folks are, you know, 90% of our existing customers, 90% of the traffic in retail is existing customers, and this is a great way to have that conversation as they are already in that mode. You know, the buying cycle for mobile is very different than broadband, and so we have to, you know, understand what that journey looks like and make sure we're having those conversations at the right time, and this is one of those times.
And so this is an opportunity for us to, one, continue to drive awareness but drive awareness at a point in time where there are folks that are looking for making a switch. This is literally when they make the switch, literally when I'm looking at making the switch. You know, I'm like, "Hey, that iPhone 16 looks, you know, pretty interesting."
And so people are just more apt to have that discussion in this season, and we're gonna have. We had offers that were as aggressive as the major carriers last year, and we're gonna do the same this year. We're gonna compete hard, and it's just a great way for us to continue to raise awareness and drive mobile into the base.
Mm-hmm. Maybe just kind of talk about some core trends in your kind of core business. I think, on your Q2 call, you referenced that you expect some negative seasonality to occur in Q3 due to some specific headwinds you're seeing. Can you give us any color on how gross additions or and activity levels have sort of been tracking so far this quarter?
Yeah. To be quite frank, they look flattish to Q2. You know, when we look at where we see the pressure, continues to be in that income-constrained segment. And you know, as I mentioned, the fiber overbuild activity continues, and they're coming in at a very aggressive pricing price point. And so that level of aggressive price point has caused some headwinds in terms of gross add activity. The good news is our churn continues to remain stable.
And you know, as we continue to deploy our hyperlocal playbooks, it's allowing us to blunt some of that initial loss that occurs in the West, in particular, when a new entrant comes in. We're seeing much more rapid stabilization, and now we're starting to see some wins across these towns, where we're starting to win back some customers as we're showing up in a different way.
You know, in the East, again, we are competing better, particularly in the non-mover segment, w hen we look at how we're competing against Verizon. We're competing better against fixed wireless, but we have been on a journey of reestablishing ourselves as a trusted provider, and I believe the stabilization is going to yield even stronger results as we move forward.
And how do you feel about the kind of current trajectory of subscriber growth? And when do you think the changes you've talked about earlier across the organization are gonna be enough to sort of pivot you to sort of positive subscriber growth again?
Yeah, you know, I feel really optimistic. I think our ability to compete at a hyperlocal level, deliver best-in-class quality, deliver a rich product portfolio is really going to enable us to be the connectivity provider of choice. Everything that we can control, we're gonna continue to control in terms of sales channel performance, in terms of being able to get it right the first time and make sure that we're delivering the absolute best speeds in the most reliable fashion.
You know, there are some things that we cannot control in terms of the macroeconomic headwinds and the move activity, but I'm confident, as we continue into, you know, the coming year, that we will get back to stabilization and be able to drive a different result. We're seeing that on mobile, we're seeing that on fiber, we're starting to see that on B2B. A nd I'm confident that we'll start to see that on our core broadband, consumer broadband, business as well.
Mm-hmm. And then just, you know, I think ARPU has been the kind of a key kind of variable in all this through the changes you've made, the speed up- tiering, some rate adjustments through the back book and so on. How are you thinking about the sort of overall landscape of kind of promotions, rate adjustments over the rest of this year and going into 2025? A nd what does the shape of that look like?
Yeah. T he good news is, as I mentioned, we have a lot more science in terms of the way we're doing promo rolls and making sure that we're disciplined and delivering maximum value. We had a lot of value leakage that was occurring because there was much more art than science, and then we were seeing elevated levels of churn and obviously high dissatisfaction because there wasn't transparency and predictability.
And so we're gonna continue to deploy that strategy as we continue into the rest of the year, r eally a disciplined approach on promo roll and a disciplined approach in terms of our acquisition strategy and making sure that we have the right offers in the right markets so that we can maximize ARPU.
Historically, we were being too aggressive in some markets where we had less competition and not aggressive enough in other markets. And now we have complete visibility into 250 of our markets, and we know exactly what offers, what competition. W here are we struggling? W here are we gaining ground? So that we can maximize volume and rate. Like that's ultimately what we're trying to do, right, maximize volume and rate. And we have now the tools to be able to do that in a much more surgical way as we move forward.
Yeah. A nd business services is an area that's, I think, 16%, 17% revenue for you. That team saw some deceleration last year but, I think, because of some of the economic slowdown. But maybe since then, I think you've talked about seeing more traction and some positive SMB broadband net adds in the quarter. And you plan to do more in terms of managed services additions on top of that bundle, s o give us an update on the latest trends you're seeing. A nd how do you think about Altice's growth opportunity in that business segment?
Yeah, I think my team is probably sick of hearing me say it, but I am extremely bullish on the opportunity in B2B. When we joined, we were really just a connectivity provider, and we weren't selling a rich portfolio of products. We didn't have a national or accounts team. We didn't have a focus on different verticals, s o we built a new team. We have a new leadership team that really knows what great looks like.
And so they've been fixing and have done an incredible job just fixing the operational execution of, you know, from sale all the way to install, and also doing a much better job in terms of customer retention and making sure that we're delivering the right level of quality. As we enter into the end of this year and early next year, we're gonna be launching a much richer portfolio of products, e verything from cybersecurity products to LTE backup to Wi-Fi pro.
You know, we had a product in our portfolio that provided Wi-Fi solutions, but by the way, 85% of the time when we installed it, it didn't work, or that we had an issue on the install. We cleaned all that up. We're gonna relaunch that in the November time frame. A nd I'm confident that it's gonna resonate much better, one, with the sales folks, because they'll have more confidence, the technicians, to install it, and the customers will see the value.
We launched mobile earlier this year, and we're seeing great traction just by having that product in the portfolio. And we also expanded to ensure that we have voice in all of our markets. You know, I'm not sure how we can be in a market and not have voice for, you know, in the B2B product portfolio. And so we filled that gap.
So there's a whole host of gaps that we've had to fill, and we're continuing to, you know, plug those gaps. And I'm confident, in the quarters to come, it's gonna really help us continue to drive growth of broadband but also help us drive growth on the top line.
Yeah. Financially, on your last conference call, you indicated that, you know, you think that the year-over-year EBITDA declines are gonna start to moderate versus last year. In that quarter, Q2, you delivered pretty strong cost controls, improvements in operations, less calls, truck rolls, et cetera. Can you help us understand what inning we're in with respect to the additional cost actions you're taking to kind of eventually get to EBITDA growth?
Well, maybe we're in a new game now. B ecause what we're, you know, the game that we've been playing, or I don't know what analogy we want to use, but, you know, to date, we've been taking those cost savings and we've had to. So my commitment when I joined was w e're gonna stabilize OpEx. OpEx was going up and to the right. We had to stabilize it, and we did it.
And we continued to drive down calls, you know, 1 million less calls year- over- year, hundreds of thousands of less truck rolls, and we've been able to take those savings and reinvest them to continue to ensure that we deliver best-in-class customer experience and quality and all the things that I've talked about.
As we move forward, we're gonna drive further transformation of the business to lean into digital, lean into automation, lean into AI, which will help us now reduce our structural OpEx as we go into the years to come. And so it's a bit of an evolution, you know. S o what inning? You know, we're making progress, and we're kind of in a new phase where we're gonna now take that, those efficiencies, and drive them into EBITDA growth.
Got it. Capital structure. And your leverage is now around 7.2x, I believe. You've previously talked about kind of being proactive in managing those debt maturities. How are you thinking about the options you have at your disposal to restructure debt load to help drive that sort of medium- to long-term operating goal you have?
Yeah, well, one, the team has done a great job of clearing out the maturities and giving us one way to operate the business. And we're gonna be very disciplined of continuing to drive across every area of the organization to get back to long-term revenue, subscriber, and EBITDA growth. And I think that gives us even more options and more ability to transform the capital structure.
And we're gonna drive fiber and drive adoption of fiber, and there's solutions that that makes available to us as we do that. It's good for the customer, it's good in terms of operating metrics and ARPU, and it's also gives us options to look at when we want to transform the capital structure.
And so that. Also, you know, I'm a glass- half- full person. I feel like, you know, the interest rate environment has been at a certain level to date and that, you know, there could be changes in the interest rate environment that would give us even more options.
And so we are. Y ou know, to channel my inner Marc Sirota: We're looking at all options. A nd we're gonna continue to drive disciplined execution of the business and then take action at the right time, but we have the runway to do that in a very thoughtful fashion versus having to, you know, take some reactive approach.
Mm-hmm. And last question, really just around your sort of CapEx profile and envelope. You've previously said that CapEx is gonna start to go down in 2025 and then more materially in 2026. How should investors think about sort of the shape and duration of your fiber kind of CapEx intensity? And have you started to see kind of either OpEx or maintenance CapEx savings as a result of your fiber deployment you've done to date?
Yeah, the good thing is, on the CapEx side, you know, you've seen us bring that intensity down year- over- year. A nd we're gonna continue to do that. And that's really all been about deploying that capital in a much more efficient and effective manner. The team has done great work in terms of how we're able to deploy that capital to drive maximum value of our networks and products and services and just do that more efficiently. And so we're gonna continue to do that.
We're gonna continue to look at what's the right number of passings that we need overall and in the East. I don't think there's a magic number, y ou know, but we are looking at what's it gonna take to compete most effectively. A nd I wanna first invest in driving penetration of our existing 3 million homes and then make sure that we're competing with all of our products and services.
And then we'll deploy at a much more moderated pace as we move forward, b ut we are seeing tremendous benefits, less calls, less truck rolls. A nd the fiber network is best in class, as Ookla and others have stated, a nd so we have a lot of motivation to get people onto that network.
Very good. I think, unfortunately, we're out of time. That was a great tour de force of the business, so thanks so much, Dennis, for being with us today. We appreciate it.
Great. Thanks for having me. Great to speak to you today.
Okay.
Thank you.