Charter Communications, Inc. (CHTR) Earnings Call Transcript & Summary

I'm cutting of that angle because I'm going to get there. I want to hear that, about the other stuff.

So other things that we're putting around it, we always -- we have the same product set that we've always had. There's still customers in the market who are interested in buying a high-quality, fully provisioned video product. And for those customers, we're there for them and attaching that product, and that is still valuable for a lot of people. Oddly enough, landline voice is still valuable for a component of the market as well. And then you have things like our advanced Wi-Fi, which actually adds value both to our broadband products in terms of security services that you can advertise to consumers as well as to our mobile product, which I won't talk about any more than that a little bit.

We'll get there.

No. So I think we continue to drive a collection of valuable products for consumers and to do that in a way that drives value to them, drives revenue as well.

So Comcast this week launched their NOW TV product, sort of a, I don't know, Peacock Plus Philo it kind of looks like. Are things like that, like skinnier bundle, ways, just things that you can offer to people to sort of tighten down churn and add value? Is that interesting?

So people ask us this question a lot as to why we've had lower churn out of video than other video providers. And some of that has been that we're migrating customers into bundles that are consistent with what they actually want, which includes lighter packages. And those lighter packages have been really successful. The ability to continue to do that. The question in video always comes back to the programmers, right, and how you can -- how you buy content from them and how you can aggregate content in such a way that the consumer is still willing to buy it and the programmer is still willing to sell it to you. So that is always a constraint. But we do, we have lighter packages that have been really successful. That's been a part of the reason that our video business has shrunk more slowly than others. And so we did not just launch it last week. We've had products like that in the market for...

Are they that skinny in terms of some of those video bundles?

So I'll admit that I haven't gone into the details of what all is inside of...

There's not much in there.

There's not much in there. We have some products in the market that are relatively small. So you think about on something, we have a choice product that Choice 15 where a customer can choose 15 channels from a set of channels. It's a fairly successful product and that is -- I mean, as you said, it's pretty small. So we have lighter as well, lighter packages in the market. It doesn't mean that's the limit of what we'll do. Obviously, as the market evolves, we continue to try to pull together packages that are valuable to consumers. And so we'll continue to try to do that. And it's interesting, Comcast packaged with their direct-to-consumer product with Peacock. When you think about what we'll be able to do with something like Zumo, which is an integrated platform that will enable our customers to have sort of seamless access to our product as well as DTC products. I think that there's opportunity to do those sorts of things in a more interesting way than maybe than what we've done before.

Okay. And despite those skinnier or whatever you want to call them products, the pace of video for you has started to accelerate to the downside. Now you passed in some programming cost increases. But are you seeing customers just less interested in video? Or are you pushing wireless that much harder in the sales process and so the attach of video is sort of naturally eroding?

So I think that the biggest issue in video has been and continues to be a cost issue. It relates to programmers wanting to pass through price increases in the linear business. The linear business shrinks, and they try to pass through additional price increases and it's sort of a vicious cycle.

I don't know why it doesn't work.

Right, shocking. But the -- I mean, to the other question, do we -- we certainly sell multiple products. We've always sold multiple products in our sales process. We were a landline voice, video and cable TV -- wait and broadband bundled before. We're now -- there's 1 more product in that mix now with wireless. But I think that the greater factor is the vicious cycle of video and absent finding a way to sort of break that cycle. And I think it's difficult to not have losses of video customers. And so we continue to advocate for consumers to try to get packages, as you said, that they want to buy that are slimmer in nature, and therefore, more cost effective, and we'll continue to do that.

Okay. Well, let's go to wireless for a minute. So we've had Comcast yesterday, all 3 of the wireless guys over the last few days, everybody says that the industry is fine. They're maintaining share and yet your numbers are exploding upwards.

Yes.

Help me understand the value of the customers you're adding in wireless and the sustainability of that customer as they come to the 1-year mark and, in theory, are supposed to be priced up to a full price?

Yes. So when I think about the value of those customers. First off, I would say, as I said, we're still an emerging brand in the market. And so getting in front of the largest number of customers that we can is important. And I think that we've been really successful in the Spectrum 1 product in connecting additional mobile customers to our product. I know that people have sort of made some statements about the quality of those ads. So I would say on that front, we -- more than half of our net additions in both Q4 and Q1 are paying lines. In the -- if you think about our port-in data, right, the number of port-ins that we're getting from other carriers as a portion of our gross additions is essentially the same today as it was prior to Spectrum 1. So the quality, when you think about incoming customers, is maintained over that period of time. On the other side, and this is another like you think about the growing pains of being a mobile provider. Our port outs are actually essentially the same on an absolute basis, not on a percentage basis, this year as they were last year. So even with a hugely growing customer base, the absolute number of customers that were porting out to other carriers has stayed steady. So that means our net porting ratios have come up fairly dramatically across the market. We've looked at the usage data. We're comfortable with what's happening on free lines. And ultimately, when those customers get to the 12-month mark, they're coming out into the fastest wireless product in the market and a price that is not being beat across the mobile space. So we're pretty confident and pretty happy with the set of customers that we are bringing into our mobile business. And if you think about what it drives in the long term, I mean we have this base, we certainly have the opportunity to be a big player in mobile. Like the fact that we can create a price-competitive product is one thing, but to be able to create a really high-quality price competitive product, gives you a lot of power to then go push into a market. And it takes time to get market acceptance and to continue to grow in that space. But we've been through that before. It's what happened to us in wireline voice as we were growing in that market. And so we think that over time, we can continue to take larger and larger sort of shares of revenue out of that market. We do it by driving value for consumers by bringing them a higher quality product and ultimately, use that to drive financial growth at Charter.

Yes. I think your competitors disparage you for going after the low end, but that doesn't mean that's the only thing you ever go after.

Right. And ultimately, as you gain market acceptance, and we've seen this over time, the composition of the customers that you bring in changes over time. And if you have a high-quality product, that product eventually sort of brings customers from all across the market.

I'll ask, but it's been answered, but I'll just -- in case any incremental thinking on the cellular offload versus Wi-Fi offload, where you are in that sort of calculation?

I don't think of them as one versus the other, right? So offload for us is good. If we can offload customer data onto our network in one location by driving customers on to Wi-Fi connections in those locations, and in another location by setting a CBRS radio that's very looked, and that gathers enough traffic to sort of generate a good return, we should do both. And I think that we'll do both. So we're being really successful in offloading to Wi-Fi. Today, our CBRS trial is going well. And so I think we'll continue to offload more data over time with sort of deployment of our CBRS spectrum as well.

Okay. So we've talked about broadband and the pieces you put around it, but talk about competition. What are you seeing from your competitors? Is there a generally rational view of pricing in the world? Or are they coming -- or are you seeing sort of silly things out there?

From fiber competitors, I think that they have a capital cost that they have to cover, right, whether they're continuing to do new build or whether they're sort of looking for returns on the existing fiber that they've built. That sort of embedded capital cost is driving sort of behavior that's consistent with what you would expect of appropriately pricing products in the market. Fixed wireless is a little bit different in that respect. They're selling their product as though it has no quick capital cost, right, because they've said that it's excess spectrum in their network. What's interesting about that is if you drive -- if you have a network that essentially what you have in the network is capacity and you have growing usage in that network over time, when you try to sell that excess capacity, what happens is 1 of 2 things, either you have to treat those customers back out at the end of the day or you have to go spend capital to create additional capacity once you get to that excess capacity point. We've seen one of those providers actually came out last week and said, "Oh, well, now we're thinking about maybe spending capital to create additional network for these," but they're pricing the product as though it has no capital cost. So that's not a path that works over time. And so I think in that space, it's an inferior product. There's not a reason to sort of price it against it. Ultimately, what we do is we provide high-quality products to customers and we provide them at a value. And I think that from an overall sort of market perspective that, that is still working. And so on the competitive side, sort of, that's what I would sort of see.

Okay. As you look at the fiber builders, we've seen sort of a steady progress from them. Do you see any sign of actually any pulling back from the market or slowing?

We have seen what seems to be some slowing of fiber builds in our footprint. It's a -- it's early in that sort of view. So I don't want to put too much certainty on it. But certainly, I think it's reasonable to say that we have seen what looks like there could be some slowing.

Okay. Let's talk about -- while we're talking about broadband for a second, you and I have talked about seasonality in the past, and you haven't said either way what you expect in terms of seasonality, and I understand that. Any view you can give us on sort of where we are here at mid-May?

I'm not going to give additional color on the quarter at the...

I had to ask. All right. Well, let's talk about business. The SMB side, we've been sort of waiting for this to come through. And it's hard to tell whether that is the economy overall or the same problem in consumer, which is just more fiber competition. Which do you see?

So there's a few things going on in SMB. One, broader economic impacts, higher interest rates and somewhat less healthy consumers. I think that there is some sort of macro happening in the SMB space. The second thing, similar to what we see in the resi market. We do see fixed wireless sort of taking a share of those price-sensitive, more price-sensitive business consumers who also have sort of lower data needs that similar to other spaces with fixed wireless, I think, ultimately, over time, as usage needs increase and as their capacity is more constrained those customers potentially come back our way. And then the other thing that it's hard in SMB revenue, businesses today are taking fewer phone lines than they took in the past. So what you can get from an individual SMB customer is actually changing over time, sort of related to how they're upgrading their own technologies. So you have the combination of those things. On the other side of it, we continue to have great pricing, great packaging for SMB customers. We continue to be under-penetrated in SMB across our footprint. And so I think we continue to have the capacity to grow SMB in the medium to longer term. But in the short term, there is some pressure on the SMB market.

Nothing changing there.

Yes.

Okay. I forgot to ask on wireless. You said on the call that you expected neutral working capital this year, except for handset receivable working capital. We've estimated that, that might be as much as $0.5 billion. I don't expect you to comment either way. But most of your peers will sell those receivables and capture some of that. Is that attractive to you?

Yes. It is an interesting idea. I don't have anything to announce.

Okay. I don't know why you [ wouldn't ] instead of leaving that capital outstanding. Okay. Let's talk about margins instead. Charter has invested a lot in the employee base in the last few years with training and trying to drive a longer tenure and better employee force. Where are we in that process? And the -- I don't want to say, drag on margin, but the upfront investment in margin, where are we on that, that sort of continuum?

So ultimately, our plan in the long term is to drive down cost of service customers on a per customer basis. And I think we've been clear about that. What we saw that we needed to do in the interim is because of some issues that we were seeing an employee tenure to address some pay issues as well as some job structure issues. And the impact to those you would have seen in expense in cost to serve, sales and marketing and even a little in other expense late in the year last year. Once you make those investments in employees, it takes a period of time for that to bake. So you've got 6 to 9 months between the investments we made, which were to drop attrition. And I would tell you, that was really successful. We dropped attrition sort of faster even than we expected to. And now we're sort of going through a period of seasoning those employees. And so I think when you get to the sort of 6- to 9-month mark coming out of that seasoning that we expected to see some transactional efficiencies, which is why sort of some of the things that we've said about expense later in the year that you have some expense moderation there. But it's not all sort of cash and transactions out. The other piece in field operations, in particular, we invested in upskilling our field operations employees. The advantage of doing that is that we think that we'll be able to use a lot of internal labor to drive our network evolution plan. Using internal labor that gets the projects done with higher quality than I think we would otherwise get. And it normalizes for some of those labor force issues that you otherwise have when you're dealing with contractors. And so we're ultimately really happy about having made those decisions. I think they'll be the right decisions financially for the long term in terms of driving growth in the business.

So cost of service and SG&A have come up. There is an investment in growing the business, which is going to be a sort of natural increasing costs. How should we think about the pace of cost growth from here? Can it flatten or just sort of inflect lower?

So I certainly think when we look at some of the line items that I was talking about, and I know I gave some more specific sort of notes on them in our first quarter call. But the pace of growth of most of those items moderates pretty significantly even as you get into the late part of this year.

Okay. Okay. I think we're out of time. Thank you very much, Jessica.

Thank you.

Nice to see you. Thanks, everybody, for joining us.

Thanks, guys.

Have a great day.