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

Thank you for joining us for today's session with Charter Communications and for joining us for those on the webcast for the MoffettNathanson Media Internet and Communications Conference, our 12th. And especially excited to invite Chris back because you're one of the very few who has been with us every one of those 12 years.

It's what that says about us.

We're now -- or I guess it says here 13, maybe this is our 13th, and I just forgot the number. But anyway, it's more than I care to admit. So listen, I know everybody is always going to be desperate to hear about latest trends in broadband. I promise I'll get to that. But I want to go back and start with something that you said to me a couple of years ago because it really stuck with me. When you launched Spectrum One, that was the free year of wireless, you told me that it wasn't in your mind, a promotion. It was a new category. It was the introduction of communications everywhere. And you were sober about the idea of being able to persuade customers to think differently about the category given how long they've been thinking about wireless and broadband separately. But you said it was worth the effort to try to push that rock up a hill, if you could. So talk to me about where we are in that process, have you succeeded in getting at least some customers to think about it as a single new category?

I think some customers have started to think about what we call seamless connectivity as a new category. We've branded it Spectrum One is really the combination of Internet, advanced WiFi and mobile altogether. I think you have to sit back and say, where did we come at the mobile business from. And if you think about the mobile business, it's really an extension of wireline broadband. And it's a monetization of WiFi. Why do I say that? Because for us, 87% of the traffic that we have with Spectrum Mobile, which is the fastest mobile service in the country, goes over our network, whether WiFi or CBRS. It's actually -- that's not the most stunning part. The most stunning part is for the 3 national MNO or telco wireless companies, over 80% of their traffic goes over WiFi as well. And so go back to what I just said that mobile is really just an extension of -- or monetization of WiFi for the vast majority. Now there's still 5G macro cell towers, but that's actually the slowest, least used portion of the network that's out there today, and that's why we have the fastest mobile speed. So Spectrum One, which we rolled out probably 2.5 years ago at least, very successful. It's successful because it has product features in there, and it saves customers money. Some of them are starting to, I think, really genuinely realize the benefits of seamless connectivity and exist. But we've got a ways to go and therein lies the upside. I think there's real upside for us to go continue to market that. And so I could be a little controversial and say, is mobile really a product, which is, I think, what we talked about a couple -- 2.5 years ago? Or is it just a feature and extension of broadband? And for us, that's how we've approached the equation, and it's working. We end up with a structural advantage because if seamless connectivity matters, and it does for all of us, none of us are connecting our Internet through our modem anymore directly. It's all wireless. It's all wireless and home, which is what we provide. But it doesn't stop there when you leave your house and I ask you, who's your providers you're pulling out of the driveway, your answer is I don't know, I don't care. It needs to be fast and it needs to be continuous. And if that's what customers are looking for, we're the only provider who can do that 100% inside our wireline footprint to have mobile everywhere we operate and combine those together with WiFi. And we get to do that with the fastest mobile product, and we save customers hundreds or thousands of dollars. And so approaching it from product branding, Spectrum One attributes, but also the ability to leverage that with the ability to save money is working.

So I was having the same conversation with Comcast this morning about, has your thinking about what role wireless plays shifted that is, did it start as this is going to be a way to add value for broadband and protect our broadband and it became a wait, this is a new revenue stream? Or was it from the beginning of wait a second, this is a really big opportunity, and it's the opportunity to create this new category?

I think it started with all of those. First, as you took a look at an ability to have an add-on product, adjunct to the broadband business that could be profitable on its own right, and we saw that. But secondly, because we saw that we had competitive advantages in that space because of the structural advantage we have the most wires, to use your phrase. And then third, I think, developed over time is it -- and not just saying it to be provocative, but really, is mobile necessarily a separate product? And/or is it a combined seamless connectivity service where you have usage on top. And in this case, usage happens to be additional lines. And I think the jury is still out on that. I think the -- but the opportunity for us is real, whether or not that pans out to be true.

It's got to make you smile, though, to see AT&T and your competitors leaning into a convergence offer that you can offer everywhere and they can only offer in 15%, 20% of the country.

Look, there's some truth to that. But to be clear, we compete with AT&T, Verizon and T-Mobile in 100% of our footprint, whether that's through mobile, whether it's through cell phone Internet and in many cases, also with wireline overlap. I would rather they -- even if it's limited to 15%, 20% of their footprint, I would rather they didn't follow the strategy. So part of it is a vindication of what we've been saying. The other part is it's a highly competitive environment out there, and we have to compete for customers every day.

So wireless, today, you've got over 10 million lines. And last year, we did an analysis that estimated that cable's equilibrium share of wireless is still probably at least double where it is today and somewhere between 2 and 3x where it is today. And that's if you don't bring churn down. And if you bring churn down, then your equilibrium share gets even higher. I think you've got about a 20% attach rate in your broadband base. How high does that get? And what do you -- how do you think about what your fair share of the wireless market might ultimately be, recognizing that it's not actually a product or market.

Mobile as an extension of broadband. Well, let's start there. Mobile is an extension of broadband, when you think about penetration, why wouldn't it be 100%? And why do I say that? Well, it's a better product. It has seamless connectivity. It's the fastest mobile product, and it saves you hundreds or thousands of dollars. Now I'm not saying that -- I'm not giving an outlook and saying we're going to hit 100%. But from an economic perspective and from a product perspective, it really should be. Voice at its peak, which was -- had a lot less utility than mobile, obviously, but voice at its peak was, I think, over 50% of broadband in terms of wireline phone in a dying category. And mobile is not -- it may be a saturated category, but it's certainly not a dying category. And so I think our potential there is really high to increase penetration. And I think we have years and years of growth in front of us, profitable growth in front of us.

You today occupy the low-price sort of challenger position. That's how you've gone to market. Sampath at Verizon this morning argued that sort of most of what he sees from cable is he sort of lumps into the category of prepaid to postpaid migration and that it's a lower-end customer segment. But is that really right? Because you've -- with your anytime upgrade, you're actually starting to move into a segment that would say that is not a lower-end customer segment.

Yes. Look, some people have gotten really good at talking about our business. We have the benefit of actually being in the business and knowing what's there. So I have the benefit of all of our porting data. And I will tell you, this is not a prepaid conversion strategy, and it's not what you see today. We are competitive in the marketplace across the board, AT&T, T-Mobile and Verizon. And just as much as I can see our port-ins and port-outs, they can, too. So I disagree with that. I won't disagree that it started years ago. I mean, we launched Spectrum Mobile probably in 2017 or so. At the beginning, there was a higher mix of prepaid conversion that was in there, and that was natural. But over time, as the brand reputation has grown, as our product capabilities have grown, as word of mouth has taken place because it genuinely works very, very well, and it's fast and it saves you lots of money. I mean I was sitting and I'll come back. I was sitting outside the hotel here for this conference. And sure enough, I looked down, I was doing some e-mail. I was on Spectrum Mobile. I was on our WiFi. So it's superior because it auto authenticates and attaches anywhere that there's a Spectrum mobile advanced WiFi. And so I was on the Spectrum Mobile network. I was being boosted probably to a gigabit per second on my mobile phone, and yet I was sitting in a car outside this hotel. That's unique, and that's a unique product service. So back to your question, we launched Anytime upgrade, which is part of our Unlimited Plus package that costs an extra $10. It has additional capacity. But in addition to that, really a unique feature in the marketplace, it gives customers the ability to upgrade their device anytime they want. You don't have to wait until you're halfway through your device contract. You can keep on rotating and refreshing your device, and we'll just update your what's called an EIP. It's unique. Nobody else really has that in the marketplace, and so it's a compelling feature. And prior to us launching pricing and packaging, we were seeing a dramatic shift in the number or the percentage of customers who are attaching to Unlimited Plus versus unlimited at an extra $10. We then launched and that continues today. But when then we launched Spectrum pricing and packaging update, at the same time we did our Life Unlimited rebrand in September, we started packaging Unlimited+ in with our very best Internet and video services. So it's now included as part of the gig package when you bundle together as part of our bundles. And so we're driving that additional value, product value, the features of the ability to do anytime upgrade in. And at the end of the day, the way we think about it is, it's not so much about per product ARPU. You can actually have very low product ARPU, high customer value, and have growing revenue per household because you've got deeper penetration of your products with more PSUs and more mobile lines, and that's what we're doing today. And we're moving -- we've moved -- I say that differently. We have already moved upstream in terms of competitive footprint based on the quality of the product we have.

And your average number of lines is about 2 per subscriber today?

I don't think we've published that, but that's not wrong. It's underpenetrated. And part of that underpenetration -- well, there's a couple of reasons. One is getting customers out of their existing device contract is difficult. And so we then launched the phone balance buyout, which is up to $2,500 for up to 5 lines that we will pay to get you out of your contract. That's been very successful of getting the number of lines that attached to increase. The other one is the Spectrum One offer, as you mentioned, is the free mobile line for the first year. Well, that's one line. And so once we've convinced you there, then we go in and try to get the entire household to switch over. And so that's why you're seeing our lines per household increase, but it's far below the national average. And we have runway to go not just in the penetration of households that you talked about. But in addition to that, we have runway to go in terms of the lines per household as well.

Yes. So it's fair to assume that the intake is higher number of lines per household than the current average.

Correct.

Got it. Last question on wireless. And I know you don't report separate financials anymore. But as you know, I've always looked at Verizon's reported change in wholesale revenues to derive the margins or the implied gross margins for what used to be just you and Comcast and now includes Cox. It would suggest that those margins are, first of all, very, very high, but maybe a little lower than they were a year ago. It's harder to tell because we don't know how -- exactly how big Cox is and so how to factor in the Cox portion of that. But I know you can't say specifically what your margins are, but can you at least talk a little bit about the stand-alone profitability of the business if it were a stand-alone business?

Sure. It's not how we manage the business. It's not how we look at it, but we still track it internally. There's still some allocations. But we have not quibbled with your analysis in the past. But I would tell you, based on what you just said, our direct margin if it were a stand-alone product continues to increase as a percent and in dollars. And so does our EBITDA. It's now a major contributing factor to our year-over-year growth potential this year through driving. And so there's probably a lot in the numbers that you're looking at, and I wouldn't take that as a one-for-one read-through to us. I haven't looked at it, so I can't say for sure.

And is it fair to say even with the rate at which you're growing because you're still growing in the 30 -- almost 35%, if I recall.

Yes, that's big.

For revenue, so you've got a lot of weight from customer acquisition cost in there.

Net of that, we're still EBITDA and growing EBITDA.

So even with that?

Even with that, we are still...

And free cash flow positive in excess of the cost of the handsets and...

You'll ask Jessica that question the next time we get together, I want to make sure that I'm not putting my foot in my mouth, but it's certainly very EBITDA positive. It's growing. The reason I'm pausing a little bit is because you have a working capital impact.

That's right. I mean -- and 35% growth rates are...

I'm perfectly capable if I go back into doing working capital, but not today.

All right. I lied when I said last wireless question. This is the last wireless topic, which is CBRS. This is another conversation that I had with Comcast this morning. But you're offloading roughly 1/3 of what would otherwise under normal circumstances go over the cellular network in the example that you gave of sitting outside here on your WiFi network, but that's even before you start CBRS. How much when you start deploying CBRS small cells, can you take that offload number up? Or how low can you get the amount that has to travel over the 5G network?

It's early days, but we're now deploying this year in 23 different markets deploying CBRS, very successful. Tom Rutledge, our previous CEO, mentor of mine, had once said when we were at 85% offload, he said that 1/3 of the remaining could be offloaded through particularly CBRS. Now we've moved up on that just because of a better WiFi attach. But I don't think that wasn't necessarily wrong. The CBRS has taken a little while to get off the ground. And the reason for that is we had to get an entire ecosystem stood up. So we had to get radios. We had to get chip manufacturers, OEMs that we had to do dual SIM dual standby software development and put that into the phones and get everybody to accept it. That's now all done. And so that's why we've picked up the pace. We're rolling out CBRS. It's very good. It's successful, and it's doing everything that we'd like. So we're excited about it.

Will tariffs affect the cost of that materially or affect the timing?

I haven't seen anything that would indicate that we have an issue in terms of timing.

It's because that's -- the most important piece of that is the Samsung radios there.

Correct. Yes. No, that's right. But the ROI for the deployment of CBRS is very high.

So high anyway.

And in some sense, getting the ecosystem stood up while we're at the peak of our capital expenditure cycle was just fine. This is very low capital at the end of the day. It's got a great ROI, and so we're now in full deployment mode.

But if you're -- so if I'm thinking about it right, if you're currently putting about 1/3 less traffic over cellular than you would be, and you could take that to another 1/3 you're talking about a cost structure that is less than half of what a "normal" cost structure would be?

It's not inaccurate, but I would also tell you that we have a very strategic relationship with Verizon. It's important to us. So that 5G network or whatever subsequent network that comes around is important to us. The macro cell towers isn't something that you're going to be able to get away from the traffic moving down I-95 or I-75, very East Coast reference, I apologize. But people generally aren't watching that much videos they're driving down the road, but it does happen with kids in the back, and we need that capacity to complement the full rounded mobile product that we have. And it's always going to be important to us, and we have a good relationship with Verizon, and it's expected to stay that way.

Yes. So let's now move over to broadband. This is -- last year, I think, at least in my view, was a lot about ACP. It was -- we had this super normal growth in the COVID period as all these subsidies flooded into the market and brought a bunch of people into the market first with state-level plans and then EBB and then we sort of -- that all drained away with ACP. Are we finished with that? And so is 2025, at least the rest of 2025, likely to be something like a normal year finally?

Look, 2025 will be a lot better than 2024 for us. Why? Because in 2024, as you mentioned ACP going away. You still had a low mover environment, which still exists today. You had the peak of cell phone Internet net adds and you had a mobile substitution reversion that was taking place. In 2025, a lot of that gets better, but not completely. 2026 will be better than 2025 because the cellphone Internet net add impact should be less at that point in time. And in addition to that, at some point, the moves are going to come back, and we've got opportunity for additional acquisition. But for sure, 2025, better than 2024. I'm actually really bullish and excited about our ability to grow broadband mid- to long term, and so I think each year continues to get better and better as we go.

How long do you think the fiber build runway is? You've actually been in that business. You know what those economics are like. Are we in the seventh inning? Are we in the eighth inning? Or where are we?

I think the inning depends on the rational approach to capital allocation of investors, and I would tell you that I think that capital that's being deployed today in general, because of lower density and higher cost per passing and lower terminal penetrations than what people thought they were going to get, I would venture that every dollar that's being spent today is negative return capital being deployed. I actually think smart investors, the smartest investors know that already, which is why you're seeing a number of these fiber assets come to sale because they realized where this is going to go. And if you're going to sell, sell it while you've got the initial penetration gains of any new entrant of any type of product in the marketplace, and don't wait for the terminal penetration to show out that you're not going to be able to get where you're going to go. And so you're starting to see that. I would sit here, again, another controversial point. My bet is, you will see a flurry of more of these smaller fiber companies that are coming to market to be sold because of exactly what I just described, and there will be new capital that decides they're going to go pay the price and step into that, but it doesn't change the fact that I don't think these are good returns.

And the economics presumably are better for the integrated players because they can at least justify some incremental value from wireless penetration uplift.

It's at least an equity story. I don't know whether it's enough to make some of these purchases. I would also say once the fiber is deployed, purchasing these companies out of bankruptcy also makes sense. And by the way, those that have been around for decades, the story of an overbuilder, go back to RCN or others, this is not new territory, and that's why I think there's always a peak. People sell -- smart money sells at the peak and you find out where things are. But I think -- go back to your original question, I think for the most part, the vast majority of what might have been arguably had a decent economic return, it's already been built.

Comcast has said that there is also a rise of mobile substitution that is phone substitution. I admit I've always struggled with that explanation because to me, since every home is a mobile home, saying mobile substitution is another way of saying there's houses with broadband and houses without broadband, and that's all there is. But tell me whether there's some evidence that says, no, there's actually some causality there.

There's huge evidence. Comcast is right. Pre-pandemic, give me a little bit of latitude here, but pre-pandemic, the mobile substitution rate, believe it or not, was probably 11%, 11.5%. Once the pandemic hit.

And that's causal. That's not just...

I think that's economic, having to choose between one type of product or the other and the other one is portable and the other is not. And the other one is the transient nature of certain people in terms of high move rate, lack of steady home. All of that contributes to the mobile substitution rate. Then comes the pandemic, you have this large conversion into wireline households that brought that number down closer to around 8% or even less than 8%, and so what you've seen not just from the removal of ACP, but even prior to the removal of ACP is the steady regression back to the pre-pandemic level of mobile substitution. And you could say, well, geez, Chris, that's pretty isosteric in what Comcast said as well. But it's true. If you take 3% of the market, which is the spread, it's pretty meaningful, and we're late in the stage of that reversion. I don't remember if it's 10%, 10.5% that's reverted back. But most of it is now behind us, and it's meaningful, not just for us, but for the entire marketplace for traditional in-home broadband.

But it's -- to me, again, maybe this is semantics. But to me, that's saying ACP brought those people into the market because they could afford it and now they can again and so they're back out. It's not that, hey, I find that my phone is so good that I don't need broadband.

I think that's -- all of that's generally true, except knowing you, you're going to go back and you're going to go take a look at this curve that I just described. And what you will find...

I've already published it.

Yes. Okay, fine. What you'll find -- what you found then I'm assuming, is that it was already starting to happen before ACP went away. So I think it's a little bit more than that. I think it's customer habits and where they are in terms of moves and affordability generally. And now over time, can we get that 11% back down to 8%, I would hope so. That's certainly not in our business plan. But I think that could be an upside as the utility, as we've seen of not just the in-home broadband, but the combination with mobile, seamless connectivity becomes higher, higher. And because we can offer it at a lower value -- lower price, high value all in, that will be an area that we try to win back over time.

So I want to talk about the ARPU side of the broadband equation. Some of your peers are seeing negative ARPU growth, the smaller ones. Yours is trending higher. Some of that's the roll-off of Spectrum One promos. But some of it is, I think, reflects a sort of different strategy that you've -- over a long period of time. And the desire to grow price sometimes at the expense of units or the preference to grow units at the expense of price. Can you just talk about that a little bit? Is it fair to say that you are now seeing some of that excessive price taking from some players being exposed as for what it was?

You're talking around it a little bit. Let's just be blunt. The Altice way did not work. And they're trying to fix that now. I give them credit.

And have they fixed it?

No, I think it's too little too late. But I think they're -- kudos to them, they're trying to...

And you could say the same thing about Cable One, right?

I mean I know less about them, but Altice is obviously in our home market here. So I know a little bit more about that. But it's pretty clear. If you take your pricing up significantly and at the same time, you obliterate your service function, you don't have to be an economist to know that, that may create short-term cash flow, but that's pretty bad and you don't invest in your product and you really don't deploy DOCSIS 3.1 and put yourself on a path to DOCSIS 4, all those things come back to haunt you. And we're seeing that real time. And so maybe I'm a little scared because we had a lot of smart hedge funds that were trying to tell us that we should be following the Altice way for a number of years, which we disagreed with. So there's a little bit of schadenfreude there, honestly. But I think you have to step back and say, why did we do it? Why did we hold to our guns the way that we did? Because it isn't just about the competition that you have today that you take your pricing. We knew overbuilding activity was already taking place and it was going to take place. So if you keep your product pricing low, you can add more products to the household and have growing revenue per household, growing margin and growing cash flow per household at the same time, staying competitive with your core broadband product. But you also reduce service transactions, which lowers your operating cost, which lowers your churn, which means your return on investment for the capital you deployed is higher. Your penetration gets higher over a fixed set of assets, which then has another compounding effect that increases your EBITDA margin and your cash flow margin. And at the same time, your employees are proud of the product that they're selling in the community, proud of the product they're servicing in the community, competitors take a look at your footprint and realize that's a less desirable place to go because your pricing is lower than others who have really taken up their price and probably taken down their service quality at the same time. And if you think about our historical aspirations of growing both organically and inorganically, that's a really wholesome strategy where you put the consumer first, you think about your employees, you think about your communities. And that's just fundamentally who we are. And this has been a tough couple of years for broadband and cable, but we're faring well, and we have the real likelihood of growing here soon in broadband, all because of the strategy that we've deployed over the years.

Yes. I will say I see bigger divergence in the value that's being offered to customers within cable than I have in the past. And that it's much -- it's less appropriate than ever to lump all cable operators together because the value proposition to customers is pretty different.

I think it comes down to -- not to speak in corporate finance talk, but it comes down to terminal value, right? What's your growth rate today and what's your terminal value? And that's a function of how did you invest in your employee, your networks, your products and really your customer through the way that you treated them from a pricing, packaging and service perspective, and we've made those investments.

Does that divergence, though, that we're seeing between operators who give a better value and operators who give a less good value, does that expose that there's actually greater price elasticity in this segment than you might have thought?

Look, the economic theory is interesting, but I don't think you have to be an economist to go where I did before. If you take your pricing all the way up and you drop your service levels all the way down and you drop your investment.

It doesn't go well for you.

It doesn't go well. And so is that -- I can't remember the Greek letter for elasticity, but is that, that? I don't know. I think it's more common sense.

So Comcast is now -- with their new plans, they've gotten rid of or at least they're weaning themselves from the deep first year promos, 2-year promos and to something closer to an everyday low price model. Is that the right model for the cable industry across the board?

I think minimizing your pricing at promotion, minimizing your retail, and minimizing your step-ups is all very smart. So I think they're moving in the right direction, slightly different from what we're doing, but I think it's going to be very interesting to watch, and I think it's great.

You still do some of that...

We do some, but if you think back what we did in September, what we really said is we have a unique ability to combine mobile and video assets in a way that none of our competitors do the same way that we do, and so that we're going to make better use of them, and so we have promotional pricing that includes gigabit service at $40, it has moderate step-ups, but only after a price lock period that can be up to 3 years. So you can have $40 gig, you can have it up to 3 years as long as you take 2 mobile lines and/or video -- actually and video to have the 3-year price lock, and then it goes up by a lot lower amount than it did in the past, and it has a much lower retail price steady state. So I think that's a very viable strategy, both to drive acquisition, to have retention at retail rate, and not to have service transactions because the step-ups are too high along the way. And at the end of the day, no matter where you are in that journey, recognize you cannot replicate the product speeds and the value that we provide inside of that bill anywhere else inside of our footprint, and that's our strategy.

There's another piece of your strategy that I don't want to overlook here, and that's the network evolution. So the next step in the plant is DOCSIS 4. But your -- so you go -- entire plant goes from 1.2 to 1.8 gigahertz. Eventually, you've got symmetrical speeds of up to 10 gigabits per second. Talk about -- so you're finished with step 1. So you're at 1.2 today and about 15% of your footprint.

Correct.

What are you seeing in those markets? How are those markets different? And are you seeing competitors respond differently in those markets?

We have not seen a major competitive response because we haven't been marketing it heavily at this stage. So it's only 15% of our footprint. As you mentioned, it's a 1.2 gigahertz DOCSIS 3.1 high split upgrade allows us to offer 2x1 speeds, which we're now offering. The physical upgrade is complete. The speed implementation is there for 1x1. We've now implemented 2x1 inside of those footprint. But we're not making a lot of noise at this stage until we've got more of the footprint really converted to multi-gig and upstream gig speeds. So no dramatic impact so far other than, obviously, the throughput is higher. Once a market has been fully through the high split upgrade, it's actually disruptive temporarily as you go through the upgrade. Those physical upgrades taking place in the overnight, things settle back down. We put in additional software called PMA and you end up with service rates that are lower than what it was before. I think that will generate long-term better satisfaction, lower churn, higher sales.

And higher margins.

And higher margins. So I think it's well worth the investment, and it gives you, over time, really good marketing claims and protection. And to the extent that, that upstream bandwidth becomes really critical, which hasn't been the case today, but it will, we'll be prepositioned having already made that investment. So it's going well. We're excited about what it can do.

Last thing before I quickly touch on video is just are you seeing any impact from Starlink in your footprint?

I think Starlink is a great product for a deeply rural environment where you're never going to have fiber being built out or it hasn't been built out as of yet. And so it works well in low density. I think it also works well in disaster scenarios. So given its newness, we saw it -- unfortunately, we've been the victim -- our markets have been the victims of a number of different natural disasters from the hurricanes in Florida, Carolinas and now with the fires in California, and so we saw a pop-up of Starlink there, not just for some of our customers to temporarily use, but for ourselves using it. And I think it's actually a really good product for those type of environments. I mean you've written about it. The ability to take on an urban or suburban environment, I think, is a whole different ball of wax, and we don't today see customers moving in and out of the satellite broadband space inside of those markets for that very reason.

Let's talk about video. Your new service showed some real promise in the last quarter already, and you could argue that it was -- if it was going to show up, that was actually pretty early for it to show up. It's really only fully implemented now. But are we seeing that affecting the churn rates of video and the attach rates of video?

Yes. Video churn is down. In some sense, it might be a little bit of a head fake. I think a lot of the outsized performance is, one, video churn being down; and two, a much higher sell-in rate from our -- just our pricing and packaging. It is not yet, I would say, the fruit of our seamless entertainment strategy because a lot of those apps had not even been launched yet and much less marketed and the sequencing that I've talked about putting that into a video store and have it properly serviced. So during the course of this year, as that service experience for customers through activation and existing subscriptions continues to get better, you'll see us deploying more and more marketing against it. And then I think that can be a real driver for video acquisition and for existing customers who benefit from those same value inclusions, really an additional way to drive down churn. I think our biggest challenge right now is customers believing that this is for real, that these apps, Paramount+, Max, no particular order, Disney Plus.

HBO Max, you mean.

Now HBO Max, I'm actually pleased by that, all of these apps are included for free and it's not a negative option. It's not a gimme. It's not in 3 months, which going back to the '80s was always the HBO for free, but it would expire after 3 or 6 months and then it would be on your bill. That's not what we're doing. This is included for free as part of your service. And I think that's a service reputation that we got to get through for people to know we really mean it. It's part of your service, take it and there's not a got you at the end. And so we're working with our programming partners because in some sense, I think they have better IP, better characters, better brand that could actually convince people that this is not a gimmick. It's really good for us. It's good for the customer and it's good for programmers, too.

So you've talked about the deceleration in your rural build strategy because there just aren't that many attractive BEAD opportunities and you've exhausted a lot of the opportunities within your footprint because you've already done them. There are a lot of smaller operators now, some public, some private that are at least in the public ones, trading way below replacement value. Is there any attractiveness to say, I can just -- I can buy cable assets cheaper than I can build them today?

I think we've always been capable of doing both, and so -- and based on the opportunities that present themselves to us. When you think about inorganic growth opportunities, all the cable operators in the hands of private family companies, really, even if public, it's still private family control. And so they'll decide if and when they're going to make a move. On the other hand, the organic opportunities, think about RDOF, BEAD, the ARPA grants, it was there, and we executed on those when those were available to us at an attractive return. The BEAD has issues with it, as you know. And so we'll be a lower participant in that space just because of the regulatory provisions. But we've always taken a look at it from an allocation of capital saying, first for organic opportunities because that increases your terminal value. Two is for M&A to the extent it's better than buying back your own stock. Three is stock. And one day, if we have no better place to deploy your cash as shareholders, we would do a dividend, but that's a bad day for us because it says we don't have good investment opportunities, and we do. We have great investment opportunities.

So you mentioned buying back stock as one of those investment opportunities. How do you think about buying back stock in the open market over and above what you already are going to be buying back under the Liberty Broadband transaction?

We've always managed to a target leverage. We're buying back stock in the public market today.

And is it opportunistic? You dial it up or dial it down? Or do you try to be more programmatic about it?

We apply discipline to it in terms of the level of buying based on where things are. That's about as far as I'll go with that. But we also don't sit back and say we're traders. And it's very hard to be a very good trader as many people in this room knows, but it's even harder for a cable company to be a trader. And so we don't pretend. And we say really the way we take a look at it is we have a long-term view about the value of the company should be. That, I don't think we need to be a trader. We have high conviction of what the value of the stock can and should be over time, and so we evaluate our stock buybacks in that context and in the context of our leverage, and that's really more how we manage it.

So I want to close with something else you once told me that stuck with me, which is, we were talking about the moment in sort of the late, call it, 2005 to '10 time frame when the market was convinced that video was going to hell in a hand basket and no one cared about broadband. And you were leaning into growing your broadband business really aggressively and that you were drawing the parallel between that and where we are today, where the market is obsessed with broadband, but your strategy is leaning into trying to grow your wireless and mobility business. Can you talk about the parallels between those 2 time periods? And what are the -- what's the same and what's different?

I think the parallel here is that instead of broadband, we're really talking about seamless connectivity, the theme, I think, of your conference, convergence. And to a lesser extent, call it, option value, seamless entertainment. I do think there's real option value there, if nothing else than the ability to support our seamless connectivity business. And so I think there's some parallel there. But what I'm about to tell you would say that it's actually a much bigger moment. I know this has been a challenging couple of years for cable investors. I understand that deeply on a personal level. However, I would also tell you it's probably one of the most exciting times to be inside of cable. Why? Because we're on the back end of completing the largest extension, the largest network build that's been done since the 1980s. We're right in the middle of a relatively low cost, but very significant network evolution program that takes our speeds up at a dramatic rate at a fraction of the cost of an overbuild, like a small fraction. We're deploying convergence in a way that none of our competitors can because they don't have the structural assets that we have, and we've invested in our employees in a way that drives customer service, something that's always been lacking inside of cable, and then finally, video transformation, which is the option value that I talked about, the first time in a couple of decades that we've taken a really very different view, whether it's flexibility in packaging, whether it's the inclusive nature of all the apps inside of our seamless entertainment package or even Xumo, which is really high utility product. So if you sit back and think about those expansion, evolution, investment in customer service, video transformation and the theme of your session, convergence, and you ask a real cable person, if you got to do any one of those inside your cable career, you'd be thrilled. And here we are, we're getting to do all 5 of those. I think this is a transformational moment that will look back and say this was a complete repositioning of the asset, of the growth opportunity and hopefully, the valuation as well.

Well, I share your enthusiasm for this moment. This is one of the most interesting and exciting moments as a cable investor that I've seen in what is getting to be too long a career. But thank you very much for being here, too.

Thank you.