It's my great pleasure to introduce Dennis Mathew for our next session. Dennis is, I think all of you know, is the CEO and Chairman of Altice USA. Dennis is in the middle of a two-and-a-half-year turnaround process at Altice USA that would have been challenging in the best of market environments. It's been made particularly challenging given some of the pressures on the broadband industry and on cable in general. I'm hoping to get, over the course of this conversation, more insight into the path to a sustainable turnaround in revenue and EBITDA growth, and the path to a sustainable balance sheet as well at Altice USA. I'm co-moderating this panel with Peter Pessoa, Managing Director and Partner at BCG, and I'm going to ask Peter to kick things off.
Thank you very much. Dennis, thank you very much for being with us today. Really appreciate it.
Happy to be here.
As we were teeing up, right, you're in the middle of a two-and-a-half-year transformation, and you're doing it in a very competitive marketplace. I would like to start there with your competition. As you kind of, we'll start at the high level, but if you could share a little bit to us of, you look at the overall competitive landscape, you see FWA, you see fiber over builders. How are you seeing that competitive market play out across your footprint, and how are you thinking about the investments that you're making in order to compete?
Yeah, it's been incredible two-and-a-half years. As you mentioned, in any environment, this would have been a challenge. People ask me often, how are things going? I say that it's probably 10x harder than anything I could have expected, but there's nowhere else I'd rather be. It's a lot of fun because even with the competitive environment, we had to really take a disciplined approach on how are we going to compete. As I walked in the door and our teammates walked in the door, first and foremost, being in the industry for a long time, we know that customers are looking for quality and value. Unfortunately, we had eroded trust with our customer base, to the point where we had attorney generals that were after us. We just were not executing.
We were not delivering what people were expecting, and that's fast, reliable quality. The last two-and-a-half years have been all about stabilizing this organization and really getting back to a level of quality that customers expect and demand across both our fiber and HFC networks. Even before we could imagine competing, we had to rebuild trust. We had to rebuild our reputation and just the notion that we could become a provider that delivers that level of quality and value that they expect. We're there. We're winning awards now for our networks, both in terms of our fiber network being recognized by Ookla as the fastest fiber network. We're winning awards from PCMag and CNET for being the best ISP across the West.
That is kind of table stakes to be able to compete because the competitive landscape continues to get more and more aggressive. When we look at fixed wireless, we have that competition across the entire footprint, and they're competing very intensely, particularly in the income-constrained segment across moves. There's less moves than ever, 30-year lows, but folks are feeling massive macroeconomic pressure, and so they're looking for good enough solutions, and fixed wireless is one of them. In the West, we have these fiber over builders, and since I've joined, that level of overbuild has continued to tick up. We rebuilt the brand. We've rebuilt trust with our customers.
We've put in a new culture of collaboration and disciplined execution, and that took building out a new leadership team, over 140 new vice presidents and above, as well as leveraging existing leaders and making sure we had the right people on the bus and putting people in the right seats. I'm confident that now we have the right team, the right networks, and the right products to compete, whether it's fixed wireless, fiber overbuilder, large telco, and we're starting to see that come to life.
Specifically within fiber and fixed wireless access, how are you seeing that competition? Do you see kind of more competition coming there? Do you see that it's kind of already peaked out?
I mean, the fixed wireless folks, as I look at their win share, one, we have been competing very effectively, but I do think that they're punching a bit above their weight class, especially given these macroeconomic times where people are looking to manage their monthly expenses. They're looking at different solutions, including fixed wireless, where maybe that's good enough for a season. We're seeing pressure, particularly, as I mentioned, in the moves. As I look at DSL switchers, there's folks that are looking at fixed wireless, also in terms of the income-constrained category. When we started doing the research and were preparing to launch some new income-constrained offerings in Q2, we found that 75% of folks that we surveyed are having challenges with their monthly expenses. That's a much broader population than we've ever seen in the past.
We are evolving our go-to-market strategy to, one, be competitive in terms of folks are looking for competitive pricing, consistency, transparency, simplicity, reliability. These are all things that we're building into and evolving our go-to-market to be able to compete most effectively with fixed wireless.
When you think about the investments on the fiber side, kind of how is this competitive landscape driving your investment decisions and your fiber deployment?
Yeah, the first thing I'm most excited about is that we now have a multi-year network strategy. When I joined the company, there wasn't that strategy. It was kind of a one-size-fits-all, and we're going to build fiber across the entire footprint. I didn't know a lot, but I knew enough to know that didn't make any sense. We had to look at how do we maximize the return on investment and how do we have a portfolio approach to maximize our ability to compete. When you look at the East, we're competing against a large telco, a large fiber provider with a full portfolio of products. I'm really excited about the fact that we have now 3 million homes. When I joined, we had a lot of problems in terms of installing the fiber, migrating people to fiber.
We made it a priority to make that easier. That is going to allow us to compete more effectively against a competitor like Verizon and large telco. In the West, you have all these fiber overbuilders and a whole plethora of different competitors. We have the tools. We have an incredible network that we are investing in, and we have launched mobile. We are launching new video packages, and we can compete very effectively with our HFC network that is very powerful and a powerful set of products that we did not have. We started to focus on building out that portfolio of products so that we could compete most effectively in the West as well.
Great. I love that you started bringing up mobile, video. I mean, maybe we wrap that together, right? As you continue to compete, you're bringing in mobile, you're bringing in video. How is all of this shaping how you're thinking about not only your acquisition strategy, but also your retention strategy?
I mean, the exciting thing is that we have now more products and more value that we can offer than ever. When you look at mobile, we're just making it really simple. You can buy one line for $25. You can buy one, get one free. You can buy three lines at $25 a piece. We just want to make it really easy because folks are looking for value. They're not just looking to cobble a bunch of products together. We launched our new video packages knowing that people's video consumption varies. Some people are really into sports, whereas others don't watch any sports, and they're looking for more just entertainment packages. We're able to provide them Entertainment TV, for example, for $30 a month.
We are able to bring these products together, which allow us to compete more effectively in acquisition, but then also in retention. When folks are calling us, they're saying, "Hey, I'm really struggling right now, and I don't need all this stuff." We have a conversation of, "What are the products and services that you need, and how do we provide you the best value and the best quality?" Now we can say that knowing that that's exactly what we can deliver with our incredible broadband products coupled with mobile, coupled with video, and even more and more products that we're launching every day.
Okay, so a little bit about the competition, the products, how you guys are thinking about it. One of the things that we've been working together on is bringing AI and intelligence to retention, sales, et cetera, with you. Would love it if you could share a little bit with the audience, kind of, I mean, beyond just what we're doing, how are you thinking about AI overall and that focus on personalization and customer lifetime value and doing that in an intelligent way?
Yeah, first and foremost, and this is going to sound ridiculous, but I'm really happy that our tools work now. Like when I started, they didn't turn on, okay? I would go around the country and have round tables, and I just would leave crying. Like they were so up there, like, "Dennis, I love my job. I love my customers. By the way, multiple times a week, I can't even log in. I can't service our customers." The first two years has been all about just stabilize the product, stabilize the network, stabilize the tools so that we can actually sell, so that we can actually take care of our customers. I highlight this to say that there's been, unfortunately, little to no investment historically. We are not tied to anything.
We are very happy to hit Control, Alt, Delete now that it's stable, and we can leapfrog everyone and now lean into digital and automation and AI. We have an incredible partnership. We work together. Our retention team, somebody would call. I don't even know how they had the guts to pick up the phone. They would open up a spreadsheet with 1,000 lines to try and figure out, "Okay, what can I offer this person, and how do I make sure I get them the right product and offer?" Nine times out of 10, it was just like you had to have a PhD in this Excel spreadsheet to be able to service the customer properly. We worked together and said, "That makes no sense." We have computers and internet and technology now, and we have AI.
You have an experience where we put this ABA tool in front of our retention agents, and now a customer calls. They're getting real-time information. How long have they been with us? What products do they have? What issues have they had in the past? What's the competitive landscape? It then produces offers for the customer that are driven by customer lifetime value. It's not just picked out of the sky. This is the NPS for our teammates and has been huge. It's just so much easier to train people, get them up to speed, get them working. The customers have been so much happier because now there's some method to the madness of what we're doing and what we're offering and why we're offering it and provides them the value that they deserve. It's been an incredible journey to launch this in retention.
We've launched it now in our care channel so that as folks are calling us in care, we're able to offer them. We've converted care into also a sales channel where now our care agents can start to offer products like mobile, like fiber, like video. First and foremost, we have to solve their problem, make sure they're happy. Once we do that, they're happy to engage in a conversation. Historically, we had no relationship with these customers. We never had any value that we could offer. Now the tool is making it so much simpler and easier to be able to provide value to our customers and really make it easier for our teammates to do their jobs every day. I'm very happy that it works. It turns on every day. It's great.
Over to me. Dennis, you mentioned a minute ago that moves are frustratingly low. We've been worried that household formation is going to start to slow as well. Looking back at 2023, 2024, we now can see that immigration was sort of running at three times the normal level. As it slows over the course of the next few years, we're wondering how that's going to impact household formation and ultimately broadband subscriber growth for the market.
Yeah, we're laser-focused on this. In 2024, move activity was at an all-time low. The headwinds that existed when I joined continued to persist. When you look at interest rates being challengingly high, when you look at fear and uncertainty by the consumer and consumer sentiment being all-time lows and just a challenging environment. We're going to focus on controlling what we can control. The reality is that we're kind of starting from a different spot in terms of this journey that we're on, rebuilding the relationships with our customers, putting in a brand new leadership team, both across sales and marketing and even at the area level. We didn't have that before. We didn't have the competitive insights. We didn't have it was literally a one-size-fits-all that existed in the past.
We have five different areas, and we have leadership teams that are working closely from the field all the way up to headquarters so that no matter the competition, no matter the environment, we want to make sure that we can drive the most effective marketing strategy, the most effective sales channel production. We're seeing yield at all-time highs, productivity in these channels at all-time highs. Can we sit here and think, and can I give you an answer on, "Hey, what does the next 12, 24 months look like in terms of macro environment?" It's challenging, but we're going to be laser-focused on controlling what we can control. That's continuing to elevate the performance of our marketing, the performance of our sales, and our ability to compete at the ground level.
Yeah. You also mentioned that you're really happy to have a fiber product in the markets where you compete against Verizon with their fiber. You don't have a fiber product in the West, but you're facing more and more fiber competition in those markets. What does not having fiber in those markets cost you in terms of penetration and RPU potential?
Nothing. Nothing. It's funny because I'll go to the field and it's like, "Oh, we need fiber. We need this. We need that." I'm like, "We're running a real..." When I first joined, it's like, "We're running a real live pilot. We have fiber in the East. We don't have fiber in the West." When I joined, we were losing as much in the East and the West. Clearly, fiber is not the solution. The solution is delivering great quality, delivering great service, delivering great value, and making sure that we're meeting the customer expectations by providing them the right types of products and services that they're looking for.
One, I'm excited about the incredible network that we have in the East to be able to compete against a large fiber provider and be able to have the best network with 8 gig symmetrical speeds. That shouldn't be an excuse for us in the West. We have an incredibly powerful HFC network. We weren't delivering the level of quality that we should have been, which is why we saw when a fiber overbuilder would come in, they would start to immediately take share. We also didn't have a playbook to deal with that. They would come in, and we just sat there and said, "Man, I wonder why everybody's leaving." We're not delivering great quality. We're not delivering great value.
Now we have a playbook, and we've strengthened the network by leveraging just doing it smarter and doing it more effectively by leveraging technology like OFDM and OFDMA and upgrading the network in a much more cost-effective fashion. We're going to compete on both sides of the house, and we're going to leverage our strengths, whether it's the network or our product portfolio or our ability to act hyper-local so that we can compete most effectively.
Yeah. I get that in each market, you're going to fight with the assets that you've got and figure out how to compete effectively. Is there a difference in the result that you're able to extract in markets where you do and don't have fiber?
In fiber, we absolutely see higher product satisfaction, better churn rates. We see a lot of benefit in terms of just NPS and quality and satisfaction. Part of that is you've got an active network versus a passive network, and there's different strategies you need to employ to manage these networks. We're just starting to catch up on the HFC side in full transparency. We've put this multi-year network strategy in place. There is new and different and more work that you need to do in terms of managing and ensuring that that HFC network is delivering at the highest level of quality. We're building the infrastructure and the tools to be able to do that. There is, of course, when you have fiber, you've got just an incredible experience.
I believe that we can deliver just as an incredible experience by leveraging tools and leveraging AI to be able to deliver that kind of quality on our HFC network as well.
Yeah. The fiber overlap in the East, I think, is around 70%, 45% in the West. What's the end state for fiber overlap?
It's been 70% in the East for a long time. I'm not sure that that actually ever since I've joined and much prior to that. We haven't seen that ticking up a bit or much at all. We've seen it continuing to steadily tick up in the West. I'm expecting it to get to similar levels as the East. We need to have those playbooks and have our go-to-market strategy and be able to compete with our HFC most effectively. Part of our network strategy is also to grow the network. We're doing that via fiber both in the East and the West. We can do that in a cost-effective manner. We're really looking at case by case how we can maximize our return on investment and how we ensure that we can compete effectively in the long term.
Yeah. Is that network expansion enough to get you back to positive subscriber growth within the next two to three years, given the pressures that you've got, particularly in the West?
I'm very confident in our ability to drive growth in subscribers and RPU and EBITDA in the medium to long term. Part of that is the network strategy. Historically, we were delivering new network passings, but unfortunately, it was very inefficient, and we were doing it very delayed. We were oftentimes number two or number three in the trench in a new development. We have revamped that process completely, and we're seeing a much differentiated result where when we're moving into a new development, we're able to deliver 50-60-70% penetration levels versus much lower historically because we weren't able to get there in time, and we had a lot of bureaucracy. We've cleaned all that up. Now going forward, I'm confident that our network growth strategy will power us to broadband growth as well.
Yeah. Give us some more sort of context for the steps in the path and when we get back to sustainable EBITDA growth.
Yeah. We were excited to announce on our Q4 call that phase one is complete, and we delivered $500 million of value back to the organization through stabilization, through financial discipline, through the work that we've done to stabilize our core erosion and really add discipline in our pricing and packaging. I really view the next 24 months as critical as an opportunity for us to deliver even more value. Another, we said $400 million in terms of value and ultimately free cash flow through continuing to drive efficiency in our operations and also by launching new products and new services and driving penetration, accelerating growth of mobile to 1 million. We're on a very consistent path of growth in mobile, continuing to drive the growth of fiber.
I view the next 24 months as an incredible opportunity for us to accelerate our pace of growth and really start to see these initiatives deliver material benefits.
If the next 24 months is about getting through that inflection point to positive revenue growth that ultimately drives EBITDA growth without the need to continuously take costs out of the business, what does the sort of steady-state growth for this business look like on the other side of that?
Yeah, I think there's more work for us to do. We stood up a transformation office, and we're really taking a disciplined approach at looking at every part of this organization. When I joined, unfortunately, our OPEX was up and to the right, and it was on a trajectory to be at $2.7 billion. We immediately stabilized that because I really didn't see the return on investment in some of the investments that were being made. We implemented some financial discipline. Our commitment was to keep that OPEX line flat in this first phase and really drive investment through driving efficiency into the business. That was taking out a lot of calls and truck rolls and just a lot of noise.
We stood up this transformation office because now we have an opportunity to leverage digital, leverage automation, really enable customers to self-serve some of these simple things, make it easier for our teammates to service the customer. Why should it take four or five screens for a teammate to figure out how to solve a customer issue? I am excited about AI and this journey that we are on that will allow us to drive OPEX down in an efficient way, but also while raising and really improving employee experience and customer experience. Not just cutting costs for the sake of cost, but elevating those experiences while driving efficiency. These new products are really in their infancy in terms of very low penetration because we have just launched them. I do think that is going to help us drive growth.
B2B is another growth engine I'm excited about. I think over the next couple of quarters, we'll be able to provide a bit more transparency into what that looks like longer term.
One of the concerns that I think investors have is under the old management team, the initial approach was to eviscerate costs and create a bunch of EBITDA that way. Then they discovered they'd cut too far. As you mentioned, when you came in, costs were heading in the other direction. I think there's some concern around we're now back in a mode of cost cutting. What's the potential for that to impact some of the positive momentum that you're creating on the top line and in your relationships with customers negatively?
None. Because we have an incredible team, and this is not about cutting costs for the sake of cost. This is all about how do we elevate customer experience, elevate employee experience by leveraging digital, leveraging automation, leveraging AI, doing it in a smart way, making it easier for our teammates to service our customers, and making it easier for our customers to do business with us, and really enabling that through our e-commerce site, through our apps, through the tools that we're implementing. It is not about, hey, cut costs and sacrifice the future. It is about improving these experiences so that it'll power our future growth. That is what this transformation office is really helping us do.
We will be able to provide more information and a more detailed plan even as early as the next earnings call where we are inventorying all those initiatives, and we will be able to outline where the biggest opportunities are and how we are going after them to be able to deliver long-term sustainable growth.
I think you mentioned that you've got these new products in their infancy that are important drivers of future growth for you. What do the incremental margins on mobile and stream look like relative to where you're losing revenue?
Yeah. We are really focused on customer lifetime value and how these products help us expand customer lifetime value. One is I'm really proud of the teams helping us continue to expand the margins on these products, especially on the video side. We have way more science than art as we go into these programming negotiations. We know the value of the content that these content providers are providing us. We are having really hard conversations because we are taking a stand for our customers. We no longer believe it makes sense to include garbage content that nobody wants to watch with content that people actually want to watch and force them to pay for it. We have to have a different outcome going forward in the video industry. Those conversations have been productive for those that are ready to partner with us.
It is helping us expand the margins there. On the mobile side, we are just in the early phases of launching products like insurance products and selling accessories and really having bundles that will allow customers to take more and more lines in a very simple fashion. Our focus is to continue to grow margins on those products. We know the churn benefit by just attaching those products is tremendous in delivering customer lifetime value.
Yeah. I think you mentioned that one of the other important areas of growth for you is business services. I think you mentioned that you've got a backlog or a pipeline of $1 billion in AI-driven business services revenue. Can you give us a sense for over what time frame that might be turned into revenue? Is there CapEx required to turn that pipeline into revenue as well?
Yeah. The team has done an incredible job with this sales funnel. Some of these things take some time. They have long lead times. The team is working hard to translate this funnel into revenue. I know that we've been able to get some wins in Q4 and deliver already $110 million of sales. I think we'll see that continue to come to life. There's a strong pipeline. The team is working hard. Some of it does take some CapEx that's getting pre-funded by the customer. I'm excited about the fact that we're in the early innings and we're starting to bring that to life. That being said, we also have a very strong enterprise business unit that's continuing to put points on the board.
The growth in 2024 was fueled by that team in terms of recurring revenue business and really converting sales into installs into recurring revenue. We now have these two business units. The enterprise is kind of the larger unit. We now have this growth engine of hyperscaler and data center to data center business that we are excited about that is going to start to come to life this year.
Yeah. The enterprise piece of it grew at a phenomenal rate in 2024. It accelerated to 6%.
Yeah.
Is that level of growth sustainable?
The team has really done an incredible job, really continuing to put points on the board and continuing to drive the sales funnel. I don't want to commit to a specific growth trajectory, but I'm very optimistic that the team will continue to drive growth in that business unit.
Drilling into EBITDA a little bit, you've guided to stability this year. Is that stable with 2024 levels, or at some point during the year, you sort of hit the inflection point? If so, when? How much of the $110-$165 million in cost-cutting opportunity is captured inside of 2025?
I'm very close to sharing lots of details. What I'll say is on the next earnings call, we're really doing a diligent process of making sure that we can deliver what we commit to. We'll be able to share a much more detailed timeline. There are initiatives that we're pulling into 2025. We do believe that we'll start to see some of those benefits, and we'll outline where those big opportunities are and how they start to come to life. We are very committed to having a disciplined approach. When we started at this company, we said we were going to deliver quality, and now we're winning awards for our network and for our service. We said we were going to launch mobile, and now we are increasing the pace of mobile every quarter.
We said we were going to fix fiber, and now every quarter, we are accelerating the pace of fiber. We have made these commitments to stabilize EBITDA, to ultimately grow and get back to long-term growth. We will share a plan, and then we will deliver it.
Yeah. Lastly, just on the balance sheet, over the course of the last couple of quarters, you've completely shifted your capital allocation from expanding your fiber footprint to penetrating the fiber that you've already built. You're hoping to get to a million customers.
Yes.
Strategy makes all the sense in the world to us. That million customers on our sort of rough math suggests a sort of an ABS opportunity of maybe like $7+ billion , which would certainly help with the upcoming maturity wall in 2027. Are we looking at it the right way in terms of the ABS capacity that you create with that asset?
The team has done a great job really making sure that we look at all of the options. I'm excited about the work the team has done. ABS didn't even exist when I started. We'll start to share some of that in future calls. We're laser-focused on making sure we have the runway to operate. Turning around the operation will give us even more options. Being able to deliver broadband, deliver EBITDA, will ensure that we have all the runway we need.
Ultimately, the balance sheet just needs to be reduced to get to a point where it's sustainable. Looking at what your majority owner has done in France with liability management exercises, we're sort of wondering what the opportunity is to follow a similar path in the U.S., what the prospective debt for equity might be.
Yeah. What I would say is that the French operation is a separate entity and, quite frankly, exists in a very different environment, different regulatory environment, different competitive landscape. I don't know that that is the right corollary necessary, but we are looking at all options. We have some really, as we continue to deliver on the operation, we will have more options.
I think we're out of time, guys. I didn't get through all my questions, but this has been a great discussion. I really appreciate it.
All right. Sorry. I kind of, I'm passionate and long-winded and a lot of hot air.
No, we love the passion. It's great.
All right. Thanks.