Altice USA Inc (ATUS) 2019 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Altice USA Q4 and Full Year 2019 Earnings Presentation.

(Operator Instructions)

I'd now like to hand the conference over to your speaker today, Nick Brown.

Thank you.

Please go ahead, sir.

Hello, everyone, and thank you for joining.

In a moment, I'll hand you over to Altice USA's CEO, Dexter Goei; and CFO, Mike Grau, who will take you through the presentation, and then we'll move to Q&A.

As today's presentation may contain forward-looking statements, please read the disclaimer on Page 2. The slides are available on the company's website, and a replay of the call will be available after the call.

And now I'll hand over to Dexter.

Thanks, Nick.

Hello, everyone.

Thank you for joining.

I'm going to jump right into Slide 3. Revenue growth for 2019 was 2%, with adjusted EBITDA growth of 2.5% or 3.4%, excluding mobile launch costs.

Following our strength in the first half of the year when we were growing north of 3%, we saw a temporary slowdown in Q3 and the first part of Q4 due to a few factors we shared in November, including lapping a prior year rate event, the impact from higher-than-normal promotional roll-offs and some disruption from our recent BSS/OSS integration.

However, we saw stronger-than-expected turnaround in operational performance in December.

Specifically, we saw a significant rebound in customer and broadband net additions, leading to a 7,000 net broadband additions for the quarter with normalized trends continuing so far in Q1.

Even with the temporary uptick in churn in the early part of Q4, broadband and video customer trends for the whole year in 2019 were in line with prior years, as I'll show you in a minute.

News and Advertising growth is still being driven by a4 and Cheddar and the offset we saw from the political cycle is expected to reverse in 2020.

Altice Mobile has been ramping up since we launched in September as we continue to expand our handset lineup and have opened multiple sales channels.

We are excited for the launch of new handsets this year, which we think will drive our strong switching cycle.

Also, we are very happy and supportive of the T-Mo-Sprint decision, which we believe will be a very good now long-term partnership for us.

On the network side, we increased investment to ramp up our fiber build during 2019 and simultaneously deployed DOCSIS 3.1, all of this to serve to drive a differentiated connectivity experience for our customers.

While Mike will take you through the outlook for 2020 in more detail, I want to highlight the anticipated acceleration of revenue growth for the core cable business and even faster for total revenue, including a full year of mobile.

We expect free cash flow to step up, supporting another $1.7 billion of share repurchases, while still targeting 4.5 to 5x net debt-to-EBITDA leverage ratio.

And lastly, we announced today the acquisition of Service Electric of New Jersey, adjacent to the Optimum footprint for $150 million or about 10x EBITDA presynergies.

This deal should close by the third quarter following regulatory approvals.

This is a great bolt-on acquisition for us to be able to expand our differentiated broadband, video, mobile and advertising services to a wider area.

On to Slide 4, we show the breakdown of total revenue growth for both the full year 2019 and for Q4.

Our residential business grew 1.6% in 2019, in line with the prior year despite a temporary slowdown in Q3 and the early part of Q4 due to the issues I already mentioned.

Notably, by December, we had more than offset softness from the early part of Q4 with better volumes from very successful sales and retention activity, albeit with some increased measure of ARPU dilution.

Broadband continues to be the main driver of residential revenue growth with customers consistently using more data and paying for higher speeds.

As you'll see shortly, we have significantly more runway on broadband revenue upside with all the new streaming video offerings being one of the main drivers of greater usage and greater speeds.

We are excited by our broadband offerings and continue to invest in a true fiber-to-the-home network and combined with the upgraded DOCSIS 3.1 experience, we're pushing gig speeds deeper into our footprints and enhancing WiFi performance.

Business Services grew in 2019 of 4.8% was in line with the prior year and the growth of 4.1% in Q4 was consistent with the prior quarter as expected.

Our News and Advertising division declined 2.3% in 2019 and declined 9% in Q4.

Excluding political, news and advertising revenue grew by about 10% for both the year and for Q4, driven by the success of our advanced advertising platform, a4 and Cheddar.

We're extremely pleased with the progress from our integrated news and advertising platform thus far and expect strong performance in 2020 as we are well positioned to benefit from the political cycle coming back this year.

Slide 5 illustrates how the annual residential customer trends have been very consistent for the last few years with broadband customer growth offsetting video declines, even with the temporary uptick in churn we saw in Q4.

Annual customer relationship growth was 0.3% in 2019 with growth in residential revenue per customer of 1.3% supporting the growth in residential revenue of 1.6%, which was in line with the growth rates in 2018.

Broadband net additions of 72,000 in 2019 growing just under 2% year-over-year were exactly in line with 72,000 additions in 2018.

And video customer losses were only 10,000 worse than the prior year, declining 3.3% year-over-year, which is in line or better performance than what we've seen in the industry.

We continue to attribute part of this outperformance to Altice One, which has improved both our broadband, WiFi and video experience for customers and reduced churn.

We're mindful of the market backdrop with the increasing number of streaming and OTT services being marketed heavily, but we are positive about our relative positioning, both as a high-quality broadband provider that enables the streaming video services and as an aggregator of linear and nonlinear video services.

That said, we continue to be incredibly thoughtful about balancing volume and profitability.

Like our peers, we continue to pass through more programming cost inflation to our video customers, which is reflected in our recent rate event in February.

However, broadband connectivity is the core of our residential business and increasingly a part of our EBITDA and cash flow, and we are confident broadband growth will remain robust.

Turning to Slide 6. We've broken out the monthly customer trends to highlight the temporary churn we've mentioned impacted the business in October, November as well as the recovery in December, which was stronger than anticipated.

Overall, we achieved 7,000 broadband net adds for the full quarter, as you can see on the right.

December did see some benefits from the reversal of delayed gross adds in prior disconnects following our BSS/OSS migration, and we're seeing more normalized net adds trends so far in Q1 of this year.

On the left, you can see we lost 5,000 customer relationships in Q4, with December, again, offsetting heavier losses earlier in the quarter.

The gross additions remained strong throughout the last few months, supported by simple Price for Life offers we had in the market.

Again, we want to call out the intra-quarter trends this quarter because this proved that we had a very short-lived churn impact on our businesses.

And while it was frustrating to end the year that way, it has not detracted from the growth opportunities in which we have invested heavily, and we continue to see very good trends in Q1.

Slide 7 further highlights the broadband growth opportunity as the number of streaming video options increases and other more data-intensive applications emerged like cloud gaming.

We have significant runway in broadband usage and speed up tiering, which translates to broadband revenue growth.

Our customers continue to take higher broadband speeds and use more data.

And as you can see, the average speeds of our customers take has increased about 3x in the past 3 years to over 200 megabits per second, following all of our network upgrades and the launch of Altice One.

Our average household data usage continues to grow over 20% year-over-year to over 300 gigabits per month.

But more interestingly, we're seeing a big divergence in broadband usage between single-play broadband customers and those who bundle with video, 150-gigabyte per month gap due mainly to increased video streaming among our single-play base.

As usage increases, this creates an untapped and compelling opportunity for us to up-tier our broadband customers.

As a reminder, we're launching 1-gig services across Optimum footprint following our DOCSIS 3.1 upgrade, which we started with the Bronx last month, which replaces our prior maximum speed of 400 megabits per second on the Optimum footprint.

This is in addition to our fiber network upgrade, which is happening in parallel.

We already offer 1-gig speeds over fiber, but we'll be able to provide multi-gig services going forward.

Combining industry trends with our ongoing investments in broadband, we expect our ongoing 1-gig deployment, both on fiber and the DOCSIS networks will continue to be a driver of broadband revenue growth.

Slide 8 underscores our progress related to our network investments, which continue to enhance the customer experience.

On the right, you can see we've now reached over 600,000 fiber homes ready for service, which is about 12% of the Optimum footprint, adding about 0.5 million homes ready for service during 2019 as planned.

This was the main reason for our CapEx step-up in the last year, and we expect the pace of rollout to accelerate once again in 2020, while maintaining the same CapEx levels.

The penetration of Altice One continues to increase, now reaching 17% penetration of our video base, up from just 9% in Q4 of last year.

We continue to upgrade and enhance the Altice One offering for our customers, our latest innovation and the addition of Smart WiFi available now for all the existing and new Altice One customers, which will increase WiFi speeds, improve WiFi coverage and reduce latency solving by network congestion issues.

Smart WiFi's intelligent mesh technology, which leverages band steering across both 2.4 and 5 gigahertz frequency ranges as well as between WiFi extenders using a single SSID across the home.

Smart WiFi also allows for better performance for devices in motion between different rooms.

We already offer Smart WiFi with our 1-gig fiber service.

So this is very much a complementary upgrade.

Now turning to Slide 9 and an update on Altice Mobile.

We are pleased with the traction we've gained in a few short months.

As of the end of Q4, we had 69,000 lines, which is just under 2% of our broadband customer base in just over 1 quarter.

Looking at industry matrices (sic) [metrics], this penetration growth is ahead of what we've seen from other MVNO launches by about 2x faster.

Recall our introductory offer was focused on providing one simple plan with unlimited everything for $20 a month for existing Optimum and Suddenlink customers.

This introductory offer will come to an end next week.

But even with a slightly higher price, we will continue to have the most attractive unlimited plan for single lines, and therefore, we don't expect a material change in the volumes we've been achieving.

During Q4, we broadened the handset lineup online with the addition of iPhones and Samsung handsets around Thanksgiving and expect to add many of the major new handsets coming to market in the next few months.

We remain disciplined on cost and expect EBITDA -- mobile EBITDA losses of no more than $100 million in 2020.

Turning to news and advertising.

On the right-hand side of the slide, you can see the impact of the political cycle on our news and advertising revenue in 2019 with ex-political growth at 10%.

The overall advertising market was weak at the end of the year, which we saw across the entire industry, but 2020 should be a strong political year, and we are excited about momentum with our integrated a4 and Cheddar platforms into this up cycle.

Before I turn this call over to Mike, I'd like to thank our team at Altice USA for their tireless efforts in 2019.

We greatly appreciate their contributions, and we're all very excited by the momentum driving our business into 2020 and beyond.

Thank you, Dexter.

Turning to Slide 10.

You will see our free cash flow in more detail as we generated $397 million of free cash flow in the fourth quarter.

Cash CapEx was modestly lower than Q3 at $323 million, and you will remember, cash interest is lower in the second and fourth quarters because of the timing of coupon payments.

Cash tax payments were just $4 million in Q4 and we still do not expect to be a significant cash taxpayer until 2021 with the remaining NOLs that we have.

You can see from the other operating cash outflow of $95 million that we did not see full reversal of the working capital outflow we saw in Q3.

And this is the main reason we fell slightly short of our annual free cash flow target for the year at $1.2 billion.

In particular, this included temporary outflows related to the BSS/OSS transition; an extra payroll cycle in 2019, which was accelerated into Q4 from January; and working capital outflows from mobile activities, specifically handset inventory and financed handset receivables.

Both the BSS/OSS payments and the extra payroll cycle will not be drags on free cash going forward.

And we expect to see free cash flow growth in 2020, driven by continued revenue and EBITDA growth.

We also have some large bonds becoming callable later in 2020, which should bring further cash interest savings into 2021, if the debt markets remain as supportive as they have been recently.

We do not repurchase any shares in Q4, given our commitments to our bondholders to maintain leverage ratios at close to 5x at year-end.

Even so, we already exceeded our initial target of $1.5 billion for 2019.

Recall, we purchased $1.7 billion of stock.

We repurchased $1.7 billion of stock at an average price of $23 per share last year.

We have resumed share repurchases in January and have already bought back an incremental 200 million of stock year-to-date.

We expect to complete $1.7 billion in share buybacks this year.

Slide 11 shows an annual view of our cash flows.

The left-hand side demonstrates how we've continued to grow adjusted EBITDA and increased margins in excess of our original efficiency targets.

Specifically, Altice USA's adjusted EBITDA margin on a consolidated basis reached 43.7% in 2019, up 20 basis points year-over-year.

Excluding wireless losses, the adjusted EBITDA margin grew 70 basis points for the full year, in line with our guidance and reached 45% in Q4.

You can see we've stepped up CapEx by $300 million to $400 million in the last couple of years, mainly as we've been investing more into our fiber, Altice One and mobile growth initiatives.

Our capital intensity, excluding fiber, new build and mobile remains below 10% of revenue.

Our annual operating free cash flow or EBITDA less CapEx has been fairly consistent during this period at around $3 billion.

On the right-hand side, you can see free cash flow after cash interest, taxes and working capital, including restructuring costs, was down slightly, mainly due to the approximately $200 million of working capital outflow that I touched on previously.

However, EBITDA growth and the steady level of free cash flow has supported the accelerated pace of share repurchases.

Free cash flow growth in 2020 will allow us to continue at this accelerated pace.

Remember, we have authorization for up to $5 billion of incremental share buyback over the next 3 years, which represents a significant portion of the free float.

We've already done about $400 million of this amount.

Turning to Slide 12, is a recap of our debt maturity profile with the balance sheet in a very strong position.

We will continue to proactively manage our balance sheet in the same way going forward.

And as I mentioned before, we should have ample opportunity in the next year to continue to push out maturities and reduce our interest costs.

Our weighted average cost of debt fell to 5.9% at the end of 2019, with an average life of 6.5 years.

75% of our debt is at fixed rates, and we retained $3 billion of liquidity.

We have no bond maturities greater than $1.1 billion until 2025, with none at all in 2020.

Lastly, on Slide 13 is an overview of our financial outlook for 2020.

We expect revenue growth ex-mobile, of 2% to 2.5%, and further adjusted EBITDA margin expansion, again, ex-mobile.

This represents an acceleration in revenue growth.

But we are being relatively conservative here as we want to build momentum.

Cash CapEx we expect at a similar level to 2019 between $1.3 billion and $1.4 billion, sustaining investment in all of our growth initiatives.

Our year-end leverage target remains 4.5 to 5x on the last 2 quarters annualized basis.

We ended 2019 at 5.1x leverage, slightly above this target, and may remain slightly above this range during the year given the normal phasing of our EBITDA generation and the current pace of share repurchases.

And finally, as noted earlier, we are targeting an incremental $1.7 billion in share buybacks in line with 2019.

And with that, we will now take any questions.

And your first question comes from the line of Philip Cusick with JPMorgan.

Thinking about the revenue guidance and the price increase you've already announced, it seems like there's a lot of video loss in the model.

Can you help us think about the model going forward?

Fourth quarter, I assume, was pretty well dragged because of all the things that were dragging, broadband.

I'm wondering if first quarter has rebound from there.

But in general, how you're thinking about video losses here?

And also, how you think about 1Q '19 as a comp to this quarter for video and broadband?

Yes.

Listen -- thanks, Phil.

I think on the revenue guidance, it's fair to say that we are being conservative in our guidance, given that 2 big factors are swing factors, one being mobile handsets and the second being political on the advertising side.

2 things which caught us a little offside in the second half of the fourth quarter.

And so instead of being ahead of the curve, we wanted to be thoughtful and build our momentum through on revenue guidance.

I'll tell you that our initial perspectives in the early part of Q1 is we saw a very good performance on the rebound of December, very good performance in January continuing into February.

So it's business as usual.

On the actual RGU guidance on Q1 '19 versus Q1 2020, we did have a stronger-than-expected performance in Q1 of 2019, particularly on the broadband side.

I don't anticipate us matching exactly where we are next -- last year in Q1.

But we do feel very good about the annual number of 72,000 for 2019 and what we did in 2018, also plus 72,000 broadband RGUs.

So I think for the year, we feel very good about that target.

The question really will be how that gets phased in over the quarter.

And since we had such an exceptional quarter last year, Q1, I don't want to necessarily say we're going to hit that number today.

On video losses, we saw the uptick in video losses of some of our peers.

I think it's too early to call that today for us.

But given our revenue guidance, we're being cautious that, that could come through over the year, given what the industry is seeing.

We do know, clearly, as we look at the economics, though, the margin impact, particularly on gross margin is small.

And as we flow through down to EBITDA and particularly down to free cash flow, it actually gets down to positive on a free cash flow basis.

So we'll monitor that and we'll flag it on the revenue side specifically.

But the free cash flows, we feel very, very good about it, irrespective of what happens on video.

Your next question comes from the line of Craig Moffett with MoffettNathanson.

Dexter, can you talk a little bit more about the wireless business and the changes that you expect now that the Sprint T-Mobile deal looks like it will happen.

It looks as though you're ending the (technical difficulty) I'm just trying to get a sense of whether you think the business can be profitable at the current pricing long term.

Or whether the change in the $20 pricing suggests that there's a different picture for the breakeven for that business than you previously thought.

Thanks, Craig.

Listen, I think we feel very, very relieved and very supportive of the decision to approve the merger.

I mean obviously, I guess it's not over until it closes.

So we'll see if there's any subsequent appeals here in the process.

But as we had flagged in our discussions and decisions and commentary around the FCC and DoJ, one, access to 5G was clearly delineated and access to the new T-Mo network; and secondly, the extension of our transaction to the consent period, which is 7 years from closing is a significant win for us.

So we feel really good about the opportunities to work with new T-Mo.

Obviously, there's a bunch of things to work on in terms of the transition of the network and the establishment of the 5G services.

But we're very cautiously optimistic and excited about having a very long-term partnership now with the new T-Mo.

In terms of the economics, our gross margin economics are good.

As you know, as we flagged, the question really is the OpEx dynamics of cost on the distribution side.

And this is where we're going to be thoughtful on our profitability is trying to drive volume by spending more OpEx or trying to balance a much more thoughtful view on cash flow to make sure that we're thoughtful around shareholder value and creation.

So that whole balance of mix, I don't think it's -- I'm going to talk about it today.

I think as we see through the year, and push through on our price increase on the mobile, even though we continue to have a very attractive unlimited package, we're just going to raise prices by $10 will be good.

Your next question comes from John Hodulik with UBS.

Great.

Dexter, could you characterize the price increase you guys put through in January and maybe compared to what you've done in the past and maybe the timing?

And any early reads on what the reaction has been in the subscriber base?

And similarly, Verizon's got some new mix and match plans on the FiOS side.

Any impact or sort of reaction from a competitive standpoint to what that could do to your business and volumes going forward?

Sure.

Listen, on the price increase, I think we had a slight uptick on price increases really driven by pushing more of the programming costs on to our subscribers.

So the range across the subscriber base was a price increase of 4% to 5% as opposed to, on average, about 3%, 3.5% historically.

We have -- obviously, we're about 2 weeks into that price increase.

Letters went out for some of our franchisees already in December.

So we have seen some volume on our call centers, but nothing exceptional.

No differentiator, let's call it, reaction from our customer base so far into mid-February.

So we'll monitor that very closely.

But to date, we've had a kind of a normalized reaction to our price increases.

In terms of FiOS, just to be clear, they went out and separated video from broadband.

And it's had 2 effects.

I mean their headline promotional price looks more attractive on the broadband side.

But if you see through to the fact that they give you an autopay discount of $10 and on top of that, their cost of equipment is more expensive than ours, the price points on their 200 meg prom -- not promo, but the 200 meg everyday pricing for single broadband is actually more expensive than our 300 megabit product today, which is on promo, but as you know, promos tend to be pretty much the existing prices.

So if you look at it, they're at $39.99, plus $10 discount for autopay, so it's $49.99 and another $12, I believe, for their equipment or $15 for the equipment.

So they are around closer to $65 for standard, single 200 meg broadband versus our 300 megabit broadband, which is $39.99, plus $10 plus $3.50 for our network access charge.

So we're at more like $53.50 versus their $65 or if you take the autopay, it's $53.50 versus $55.

So we're not seeing any impacts on volume today.

And as I've mentioned, we had a very good January, and we see good trends here in February.

And then when you put the bundle together, our bundle pricing is a lot more attractive than their bundle pricing when you add their single broadband plus their single video.

So that's really not been today a competitive impact on our business.

Your next question comes from the line of Doug Mitchelson with Crédit Suisse.

Two questions.

One is just looking for a little bit more detail on the fiber rollout, the timing of the triple play box, how many homes you're marketing today.

I don't think you're doing much.

But I do think customers can sign up, right?

And any experience you've had so far?

But when do you really light up those 600,000 households?

And then separately, the comment about the wireless losses for the full year, I think you've previously, Dexter, said that you would be breakeven or profitable late in the calendar year.

Is that still accurate?

Is there sort of quarter-to-quarter improvement in losses that head you towards that prior target?

So on the fiber rollout, we're really trying to drive that in the second quarter of this year, and it will be across the entire 600,000 footprint.

Actually, it will be more than that at the time of launch, given that we continue to light up homes ready for service every month pretty much at a pace of 50,000 plus a month based on 2020.

In terms of today, we are marketing our single-play fiber product across several hundreds of thousands of homes, really continuing to test the network, test the drop dynamics and the efficiency of it.

We don't really talk about the number of subscribers we have there.

But we feel very good about the performance of the network and so we're ready to launch that triple play once the triple play box is available, which we expect to be able to do that in the second quarter of this year.

In terms of wireless losses, I think I touched upon it a little bit in my answer to Craig, which is we like the gross profit dynamics we have right now.

It's really a question of how hard we're going to push on the OpEx cost, which is really sales and marketing costs, right, both distribution on the sales side and how heavy we want to be on the marketing side.

And so that guidance in terms of when we are going to be breakeven is really going to be driven by our desire on volume and how we think that impacts our fixed line business.

So I think we'll continue to monitor that and happy to continue to answer that question every quarter here as we get through to the end of the year.

If I could just follow-up on that, Dexter.

Is that based on needing more experience with wireless and the benefits in terms of churn and sort of operating dynamics?

Or is that you sort of already have an idea in mind and you just -- you sort of want more proof around the market effectiveness as you go forward?

Yes.

I think it's really the second.

We've got plenty of experience on the wireless and what we think the wireless impact is on our existing subscribers on fixed line.

I think the real question is the cost dynamics of distributing our mobile, which has various different elements, which are a little bit different than some of the other markets that we have.

So as we continue to push forward, we're 4 months into this, and we're penetrating at a pace that's 2x what our peers did when they launched.

So we are ahead of the curve, but we also are mindful that we don't want to spend the amount of money that we've seen some other people spend early on.

So we're being mindful of being very good -- having a good balance there on our numbers.

Your next question comes from the line of Brett Feldman with Goldman Sachs.

And just maybe to come back, talk a little bit more about residential customer ARPU, you highlighted in the presentation, you've had 2 consecutive years here where you've grown at a pretty steady rate.

You just talked about some of the rate adjustments and the up-tiering on broadband.

Is it fair to say that your outlook for this year assumes steady type of growth performance in that metric, like we've seen the last 2 years?

And then just one more.

You've always talked about capital returns like buybacks kind of being the best way to drive value, absent an opportunity to invest in the business, for example, through M&A.

You announced your buyback, but you also announced a deal.

So first, I'm wondering, should we be thinking about the combination of those 2 amounts as really being the total capital you're putting to work?

Or in other words, the buyback could have been bigger if you didn't have M&A?

And then, can you maybe just give us an update on what the M&A opportunity set looks like out there right now?

That's a mouthful.

It's like 10 questions, Brett.

One long question.

Listen, I think on the ARPU side, very consistent.

We saw ARPU grow 1.3% in '18 and 1.3% in '19, right?

And so the mix of the ARPU is pretty much the same trend where video ARPU was flat to slightly down, down by 0.8%, and broadband ARPU up 9.7%, right?

So I think we're forecasting in our revenue guidance to be pretty consistent.

I think, as Phil mentioned in his first question, we're mindful as to what revenue impact video could have, even though from a cash flow standpoint, it's got probably a positive effect on things.

So I think that's why we're being cautious on our revenue guidance, just as we kind of want to see and feel through the first couple of quarters here to see where we think video trends are there.

But on a profitability standpoint, we feel very good about that.

In terms of buybacks, yes, listen, we -- the numbers are pretty straightforward.

I think as you go through your model and you lever our EBITDA growth and you look at our free cash flow, the buyback number is there to maybe even slightly higher.

Then the question really is on M&A.

Yes, we announced this deal.

I mean if we had hundreds of these deals, we'd love to have them because they're very, very profitable and accretive to us.

It's contiguous to our business, a great area in Sparta, New Jersey and its surrounding areas.

There are no over builders in that area.

And it's also an underdeveloped broadband network, so we can continue to upgrade those networks and drive increased speeds.

So we think the synergy opportunity on the cost side and the revenue side is significant.

Even if you take that $150 million and you take it out, but you have to add some type of pro forma EBITDA coming in once we get that online 3 months from now, the impact is not going to be a significant reduction in our buyback capacity.

And obviously, we think that on an LTQA basis, if we can drive the synergies quickly, we may have a limit -- very limited impact on our buyback capacity in terms of our guidance of $1.7 billion.

We don't have a pipeline of a lot of these.

They come -- they are -- if they're available, we pounce and we try and go very quickly.

But I think we're very much like our fellow brethren in cable, which is there are not a lot of sellers out there.

And when there are, they're interesting.

But in terms of size, we don't see anything sizable right now that's available.

Your next question comes from the line of Michael Rollins with Citi.

When you look at the broadband business, can you unpack a little bit of the mix of rate plans that your broadband-only subscribers are taking relative to those that are on bundles?

And are you seeing any resistance points in what customers are willing to spend on broadband regardless of their bandwidth consumption?

If I could just tag on one other question, if there's an update on the explorations for the fiber infrastructure business that you own.

I'm not so sure I understand the first question fully.

If you could just give me some more pointers there.

Yes.

So you mentioned earlier in the call that the broadband customers, the broadband-only they're consuming a lot more gigabytes per month than the bundled broadband customers.

And so I'm curious if those customers that are broadband-only that are consuming more bandwidth are on a different mix of rate plans in terms of the speed tiers that they're taking relative to what a, your bundled customer might take?

And then as you look at what customers spend over time, are there just resistance points that customers hit regardless of what bandwidth they take, they just don't want to spend more than X dollars a month on broadband?

Okay.

Sorry.

That makes a lot of sense.

I'm just a little thick.

On -- listen, I think the -- there's 2 dynamics.

One is, one we start cord shaving of people from bundled to a single broadband.

Those people are up-tiering automatically because of the tremendous amount of savings they're getting from a revenue standpoint on video.

They're spending that extra $10 to $20 to go up to the next tier pretty much automatically as they down tier and cord shave.

So by definition, the single broadband player who is cord shaving is going to a higher speed.

In terms of the adoption on the gross add standpoint, most of the gross adds who take a bundled product take a promo bundle, which tends to be a 200-meg product or a 300-meg product.

Very few go in for a 1-gig product on a bundle.

And where we see the higher tiers of people on gross adds on the single bundle perspective are in singles -- single data.

So people will take 3, 4, 1-gig on single products much more often they do on a bundled basis.

So we will always -- we are seeing definitely higher speeds taken for people on a single data subscription, whether it's someone who cord shaved or someone who gross added just on a single basis.

Do we see resistance levels?

No.

We've consistently seen very nice growth in our broadband.

We're on average broadband ARPU of about $65, and we continue to see that 9% to 10% growth year-over-year here.

We don't see any slowdown going to -- particularly as we drive now on the Optimum footprint to 1-gig.

And then with the fiber footprint and Optimum to be able to do 1-gig and beyond, we think we've got a very good revenue broadband road map to continue to push ARPUs on broadband further.

And just on the fiber infrastructure business, if there's an update on the exploration.

Yes.

Listen, we're in talks with a couple of guys which we continue to work on there in the diligence phase on that.

So I mean I can't call it.

We've been asked about this and updated people regularly that this is something that people have been quite proactive and reaching out to us.

And so we'll talk to them if they hit a handful of parameters that we're looking for.

And so there's a couple of people who are doing that right now.

And so I think that we'd be in a position to talk about this probably a couple of months from now with more clarity as to how far they get to.

Your next question comes from the line of James Ratcliffe with Evercore ISI.

Two, if I could.

First of all, it looks like you re-upped MSG in the quarter and/or just early this year.

What are your thoughts on RSNs in general?

You have the most expensive RSN market in the country here in New York.

And what sort of returns those are -- that sort of investment is giving you?

And secondly, on broadband, we're seeing across the industry, cable providers trying to compete on more than just speed and adding advanced WiFi.

Any thoughts on offering a, things such a cord cutter integration product stand-alone something like Comcast Flex to -- so that you could be the front end for somebody who's just buying video from multiple providers?

Sure.

Listen, on the broadband side, you're right, we are competing with other things in speed so the Smart WiFi product has been very, very successful in its early stages, and we think we'll continue to drive that.

It's something, particularly on the SMB side, that is getting very, very strong early adoption.

So we'll continue to drive that and see how it's going.

But I think from the residential customers, that's something that -- speeds continue to go and you continue to attach more and more devices to your network.

The Smart WiFi is going to be very popular.

I think on the video side, yes, we think the Flex product is very interesting.

We obviously are developing a similar type product as well.

It's not something that we are spending a huge amount of resources doing given the amount of OTT product that's out there.

But the Altice One platform really is the platform that is in place to allow for a lot of OTT integration that -- to the extent that a customer is not a video subscriber can have a very good experience through the Altice One platform.

And as we go on to the fiber, have this gateway configuration that will be even more attractive in terms of the way we'll be able to interact and adopt OTT platform.

So I'm not saying that we will have a Flex-like product or Flex, but very, very focused on making sure that we're open and making all the OTT products available to our customers in a very seamless and user-friendly way.

On the RSN side, just on the RSN side, yes, well, listen, we had a very good reup with MSG probably better than we expected.

I do think that, that model, and I've probably said this historically, is under pressure.

It's just -- it's a little unnatural in general to have that in the basic package.

But it's New York and New York likes their sports, and we want to be good partners to our local sports teams and to our fans and customers.

But if you ran the statistics, the power ratio is just not a very attractive power ratio in terms of the amount of people who spend a lot of time watching live sports relative to the cost of the live sports.

So that's a model that is challenging.

I think you've seen it in some of the numbers where affiliate fees are up, but the subscriber numbers are probably falling faster than the affiliate fees growth.

And that's a challenging model over the long term.

Your next question comes from the line of Kannan Venkateshwar with Barclays.

So Dexter, on broadband pricing, the 9% to 10% growth that you're able to get on ARPUs, I guess, there are a couple of components to that.

You, of course, have upgrades to faster speeds and you have price increases, and you also have downgrades of people who are cutting the cord and therefore, have to take faster speeds.

If you could just help us understand the breakdown in that 9% to 10% of how much of it is driven by upgrades versus downgrades.

And then I guess the second question is, when you think about the Verizon offer, they've obviously made it easier at the lower end of the market to get a broadband-only product.

And like you mentioned, video is free cash flow negative.

So losing video was actually accretive overall.

Why not replicate that offer more widely, so that your back book, which is forced essentially to take a bundle, can also be more competitive versus the new Verizon offers?

Well, on the first part on broadband ARPU growth, it's really twofold.

The vast majority is up-tiering of people, whether it's proactive up-tiering or people cord shaving and up-tiering thereafter.

And then secondly, as you may know, when you start doing the accounting allocation for broadband ARPU, if you are giving a -- let's call it, a $69.99 promo on a double play, that's onboarding at $120 on 200 megs, and you change that promo to a $69.99 at 300 megs, that allocation of the revenue increases to broadband and decreases the video.

So dollar amounts don't change, but the accounting makes us push more revenue towards the broadband because you've got 300 megs instead of 200 megs.

And so that's something that's very difficult for you guys to model.

And so -- but that is one of the effects as you see us and our peers come up with larger broadband packages in our bundles, the accounting allocation becomes heavy on broadband.

So it's not real true ARPU, let's call it, but it's accounting ARPU, and it's reflective of the rack rates versus the bundled rate and you're giving -- allocating more.

In terms of your FiOS comments, I think I mentioned to one of your colleagues who talked about it, they are not more competitive than we are today.

On the broadband single play, they're more expensive than we are, and they're much more expensive on a bundled double play.

So we feel as if our price points are in the right spots, cheaper than theirs both on the single and on the double play side.

Your next question comes from the line of Andrew Beale with Arete Research.

I was just trying to get a better understanding of the M&A trends.

So I was just wondering if you could help us with the revenue contribution from Cheddar in the fourth quarter.

And what the full year revenues might have been there.

And then secondly, just also wondering about the process that you expect and time line for going from the Sprint MVNO agreement to a new T-Mobile agreement as that deal closes?

And do you expect any change in the core per gig pricing there?

There seems to have been some commentary from their side that they think you might pay more for better coverage, but the court papers yesterday seem to suggest that the DoJ was insisting on DISH having a relationship between T-Mobile's expanding capacity and lower wholesale pricing.

So I just wondered if you had any thoughts as you head into that negotiation.

So on the M&A side, just off the top of my head, I think Cheddar contributed about $10 million of revenue in the fourth quarter and for the year, somewhere around $20 million, $25 million.

And that's not the full year, that's the accounting year.

So we close in June.

So I guess on a full year basis, it's probably closer to $35-ish million, $40 million as to what it would contribute.

In terms -- and just to maybe give you a heads-up in terms of the revenue contribution of the small cable operator, Service Electric of New Jersey, that's a $45 million to $50 million revenue for a full year.

So whenever that closes, we'll get the pro rata for that year coming into our accounts.

That's not in our revenue guidance.

So you can add that to whatever -- whenever that is, it's probably somewhere around 20 bps of additional revenue coming in this year.

In terms of or -- I think I didn't catch the entire length of your question, Andrew, on the second relative to the DoJ and DISH.

Yes.

In the court papers, it basically said that DoJ had insisted on a sort of a -- of lower wholesale prices.

The capacity of the new T-Mobile network increased.

So just sort of weighing that up against some of the things that we've heard, T-Mobile will talk about on the agreement as it migrates to them.

Well, listen, I think we've gone to an agreement in place with Sprint.

We expect that agreement to move on to the new T-Mo.

We obviously have price discussions -- we had on 5G.

So I don't -- we are obviously going to work through our contract and also work through the DoJ and FCC directives with them on stuff.

But I don't think anything to do with DoJ and DISH is reflective of what our expectations are necessarily.

Your next question comes from the line of Peter Supino with Bernstein.

Two related questions both on marketing.

So the improvement in November and December of Internet subscribers, did that come more from sign-ups or from churn improvement?

And what did you do specifically to achieve that sharp improvement?

And then looking forward, could you discuss marketing from kind of a more philosophical perspective?

We've really struggled to reconcile Price for Life in 2019 and some of the 2-year promos that we used in 2017 with the company's broader focus on driving price and cash flow maximization.

So I appreciate your thoughts on both.

Sure.

In terms of the December impact, one, we saw churn normalized relative to what we saw in December of 2018.

The increased impact, and that's probably, let's call it, December of 2018 was an 8,000 to 10,000 broadband net add month as opposed to a 17,000, which we saw in December.

That incremental 7,000 to 9,000, let's call it, some of it, as I mentioned, was backlog related to BSS/OSS.

So we lost customers on BSS/OSS for things like we didn't bill them because we lost their credit card numbers or the transfers of credit card numbers didn't go as seamlessly as it should have gone, and then obviously, they reconnected.

And some of it was just better retention going to December as the promotional roll off volumes fell off dramatically.

And so we saw continued trends similarly to that in terms of like-for-like performance year-over-year being very good in January of 2020 versus January of 2019, and we didn't have any more really BSS/OSS impact there.

So that's really the one-off effects of December, which is catching up on some of the effects -- of the negative effects on October and November.

In terms of the marketing, our view on Price for Life is not so much trying to hamstring ourselves relative to the ability to grow ARPUs with our clients.

It's really to allow our clients to feel good about not being hit with a big promotional roll off sequentially year-over-year.

While at the same time, we know that a lot of our clients are proactively upgrading their broadband.

So whenever you do change your broadband or change any mix in your video package, if you're a bundle then your price changes and goes back to a new price.

So our anticipation, we see that even with some of our early Price for Life people that started in June as the people are proactively changing their packages and lose the Price for Life.

But they like the fact that they know they're not going to get hit by that $15 to $20 promotional roll-off, which is a lot higher than the price increase that happens on an annual basis, off-cycle relative to the price increase, which becomes a double whammy, right?

And that's something that drives a significant amount of call volume, which we're trying to eliminate.

And your final question comes from the line of Ben Swinburne with Morgan Stanley.

Two questions.

Dexter, on the 1-gig rollout, can you give us a sense for sort of how much of your footprint you are marketing that service?

I think you mentioned the Bronx and your fiber footprint within Optimum and kind of what that goes to in 2020.

Just trying to get a sense for how much that may be a tailwind to customer growth.

And then secondly, I think earlier in the call, you mentioned you expect revenue per customer growth in the 1% to 1.5% range for '20.

I just want to come back and confirm that, given the price increase of 4 to 5, I thought more might convert over to ARPU yields.

I just wanted to make sure I heard that correctly.

So just to hit on your second question first.

I don't think we talked about volumes growing 1% to 1.5%.

No.

I mean ARPU.

If I said volumes, it's ARPU per customer.

Okay.

Yes.

So ARPU trends, right?

We had an ARPU or at least, let's call it, B2C revenues of 1.5%, 1.6% growth in the last 2 years, which was broken out 1.3% in price and 0.3% in volume.

I think it's fair to say to talk around those same numbers, excluding any acceleration of video losses.

So that would be our anticipation.

You're right in saying that our price increase is higher and assuming we get the same retention numbers in terms of percentages of that going forward, we could see some higher impact on the 1.3% maybe being a little bit higher.

So -- but again, we're being a little bit conservative here relative to -- we just want to see what the impacts of video will be throughout the year.

In terms of the 1-gig rollout, the Bronx is, what, 800,000 homes passed, and we have about half of that market in terms of penetration.

And in terms of the amount of fiber footprint that we have rolled out 1-gig through today that we market to, it's about 200,000, 250,000 homes.

So today, we're marketing around just over 1 million homes on 1-gig.

I don't think we are modeling in, let's call it, expecting a dramatic improvement in penetration of 1-gig that's driving broadband revenue growth this year.

But the rest -- the entire Optimum footprint will be 1-gig ready this year.

So we will be marketing 1-gig across the entire Optimum footprint this year.

This concludes the question-and-answer session.

I would now like to turn the call back to the presenters for any closing remarks.

Thank you very much for joining, everyone.

Do let us know if you've got any follow-up questions, and we look forward to catching up with you in the next few weeks.

Thank you.

Thank you.

Ladies and gentlemen, this concludes today's conference call.

Thank you for participating.

You may now disconnect.