Liberty Broadband Corporation (LBRDK) Earnings Call Transcript & Summary

Hi, everyone. Thank you for joining today's call. [Operator Instructions] In the meantime, I'm going to read a quick disclaimer. Members of the media are not invited to participate. Any publication, distribution, reproduction, posting, sharing or transmission of this information without the expressed permission of TD Securities is prohibited. As a reminder, we are not interested in receiving and you should not disclose any confidential information. In the event that you inadvertently disclose such information, please notify us as soon as possible. I will now pass the call over to Greg.

Great. Thanks, Jada. Good afternoon, everybody. Welcome, and thank you for joining our TD Cowen call with GCI. For those of you that don't know me, I'm Greg Williams. I cover cable, wireless, and telco at TD Cowen. I'm delighted to be joined by Ron Duncan, CEO of the upcoming GCI spin. This will be a 1-hour fireside chat, I will be asking the questions. We got a whole host of questions, but feel free by all means to e-mail me questions. I've got my e-mail right here for questions that I could very well relay during the fireside chat. And with that, yes, thank you, Ron, for joining us.

Glad to be here, thank you for being the host.

Sure. So we just wanted to -- before we get started, talk for a few minutes about a brief overview of the business and the upcoming spin-off and the timeline for this, going forward?

Okay. Well, the time line for the spin-off is closing down on launch date. The spin becomes effective at the close of business on Monday, the 14th. So we'll see the number we've all been waiting for, which is the opening price on Tuesday morning, the 15th unless there's pre-trading, which may happen. We're awaiting clearance from NASDAQ to do pre-distribution trading, and we will issue a press release when that happens. But the when-issued would be presumably maybe there's only one day left in this week. So maybe tomorrow or Monday will get when-issued trading otherwise, Tuesday morning, you can wake up and look for the stock price and call us up to find out who won the pool up here.

Right. Fair enough. Can you provide a brief overview of those that are less familiar with GCI, whether obviously, we can talk a little bit more about the uniqueness of Alaska. But before I even do that, just on a high level, your business versus consumer mix, homes passed, HFC versus fiber plants? Any overview there would be helpful.

Sure. Well, today, we're the largest telecom provider in Alaska. We started out as a competitive long distance entrant 45 years ago, probably half the people on your call, don't remember when you actually paid for a long distance call. But over those 45 years, we've built out both wired and wireless facilities to almost the entirety of Alaska. Our wired broadband plant passes almost 90% of the homes in the state and 55% of the homes that we pass our broadband subscribers our wireless footprint and it's noteworthy that we're a mobile network operator, not a virtual mobile network operator. Unlike our peers in the cable industry. We own and operate the entirety of our own mobile network. That network covers 100,000 square miles and 700,000 POPs, virtually the entirety of Alaska. The substantial -- a substantial number of the urban POPs are served by 5G, although only about 20% of the geographic footprint is 5G today that will increase to about 30% by the end of the year. And over the next several years, our 5G footprint will span the entire state. But today, we're essentially 5G in the Anchorage and surrounding areas, and we're far and away the best 5G in the state. We typically clock out at about 50% to 75% faster on the speed test than AT&T does on the wireless network. On the wired side, almost all of our broadband customers have access to 2.5G services at the same urban pricing rate. And our plan is to drive that to 5G and then 10G over the next 3 or 4 years.

Got it. And I just want to stay on the wireline landscape. Understanding Alaska is fairly different compared to the Lower 48 states. So maybe you can help us with a brief overview of the uniqueness in terms of geography demographics and, of course, competitive landscape of Alaska.

The primary characteristics of Alaska are that it's -- and again, it's small. It's a huge state, but it's got a small population, that population is fairly dispersed throughout the state. There are obviously urban clusters in Anchorage and Fairbanks, but by Lower 48 standards, even Anchorage which is the largest city in the state is relatively small. It's only 120,000 homes that we have in the Anchorage area. When Liberty announced the spin out of -- well, when Liberty announced the Charter, Liberty Broadband recombination and the spinout of GCI at the subsequent Investor Day, somebody asked Chris Winfrey, the Charter CEO about why he didn't want GCI because GCI was listed as a disposable asset in the Liberty distribution. And I thought Chris' answer was pretty good. He said, "Well, the total population that GCI serves is less than the number of subscribers we have in Charlotte, North Carolina. And they're at the end of 2,000 miles of undersea fiber optic cable, just not in our wheelhouse." And I think that's the characteristic of Alaska, that really pertains to everybody else. Unless you specialize on Alaska, the technology that you need, the assets that you need and the skill sets simply aren't in anybody else's wheelhouse. There's nobody else doing anything equivalent to this business in the Lower 48, we're different from many of our cable peers and that we have a larger commercial business than we have consumer business, that comes about because of how extensive our facilities and our network is in the state. We've invested more than $4 billion over 40 years, building out facilities. So virtually every community in every location in the state, and it's simply not feasible for somebody to come in and say, oh, I'm going to compete with that. I'm going to write my $4 billion check. I'm going to build out new network assets, and I'm going to serve 500,000 people spread throughout the entire state. So we're far removed. We have a higher cost structure than most other places. Physical asset construction up here, costs 50% to 100% more than similar construction in the Lower 48. And by the time you get to the end of the rainbow, the pot of gold is small on a relative basis, compared to what people look for elsewhere.

Right. So it's a compelling case that you've got a nice moat here. But what about the one competitor you do compete with, which is Alaska Communications. Can you help us characterize them as a competitor and risks there. The way I think about it is, yes, it could be prohibitive to go fiber up and across Alaska, but they can pick their battles. Like you said, Anchorage is 120,000 homes. Can you help us to contextualize the risk of fiber-to-the-home entry like we've seen in the Lower 48.

There's always a risk of competitive overbuild. And ACS is the local telephone company elect for, I guess, probably 70% of our footprint. And they have dabbled in fiber-to-the-home, but we haven't seen any impact in it. We think the number of homes that they've passed is actually quite small and we're not aware of any ongoing construction activity. The challenge up here is that the construction cost for fiber-to-the-home is 50% to 250% more than it is in the Lower 48. Urban fiber-to-the-home can cost as much as $3,000 per passing, not for sub. And in the smaller areas, that can be up to as high as $10,000 per passing. So you're really talking about a business case that's pretty challenged to start with. And yes, the revenues are a little bit higher in the Alaska market, but they're not double what they are in the rest of the country and the market is fairly well served and penetrated today. ACS still has customers on DSL. So there's a broad range of services, but I think the principal reason we don't see fiber-to-the-home competition is that it's just prohibitively expensive to build it out. And there may be areas where you could cherry-pick we originally saw what ACS was doing as kind of trying to cherry-pick the more likely neighborhoods to succeed in but ultimately, we didn't see an impact on our footprint, and they don't appear to be pursuing that strategy. That doesn't mean they couldn't turn it up in the future, and we'd be ready for that with a competitive response. But it's a market smaller than Charlotte, and it's at the end of 2,000 miles of undersea fiber cable. So it's not hanging out there with a big red flag saying, "come build me."

Right. That makes sense. But how about Starlink, they could be a competitor. Obviously, they're more expensive and requires some addition itself. But could you help us understand Starlink as a competitor? And what's the target demographic for Starlink versus you? Or any Starlink for that matter?

Starlink is a vibrant competitor in the rural areas in places that aren't wired or in places where the wired connectivity doesn't provide enough capacity. Starlink took a significant percentage of a very small number of subscribers from us in a number of the rural areas before we were able to get there with fiber middle mile. What we were constricted by our microwave backbone on the middle mile didn't have any fiber connectivity. We had both high rates, low speeds and substantial usage charges because there simply wasn't enough capacity in the middle mile to serve people in those markets. Starlink has been very successful in those markets picking up people there. We do see Starlink cropping up in the urban markets. Some of that is that people just want an alternative to GCI. Some people in the marketplace just don't need the amount of speed that you would get through a wired connection. And I think some of the Starlink motivation comes from people who are really buying Starlink portability. If you subscribe to a primary Starlink terminal, you get substantial discounts on the one for your RV or the one you put on the dash of your airplane and the one you put your back when you want to go out somewhere else. I think that has driven some urban Starlink competition as well. It's not a big number. It's certainly a very low single-digit penetration, but they're definitely there on the horizon. To some extent, you could consider them to be the equivalent of our fixed wireless competition although at a different price point. And we've always seen customers for whom lower capacity was enough. Before COVID, we estimated that probably 15% of our customers were wireless-only, that they simply didn't buy a wired connectors. They had no need for the for the capacity to the speed. And frequently, they were more nomadic so they didn't have a place to deliver a wireless connection or a wired connection. COVID changed that, and particularly with ACP a lot of those customers, I would say, the vast majority of our wireless-only customers connected to a wired connection. Many of them stayed wired post ACP, but the 4,500 customers that we lost following the turndown of ACP seemed to have mostly gone back to wireless only. So there's a market for people at a lower price point and a lower service point in terms of bandwidth and capacity that's always going to be there.

Got it. And you touched on fixed wireless and from what we understand, there's really no fixed route competition or maybe negligible. Maybe help us with that dynamic. Obviously, it goes back to Alaska being a unique geography, but we see Verizon rolling out rural [ EC ] category and the C-band, I guess, is there a fear that you can see some of the carriers to roll out fixed wireless in Alaska, at least in the more dense areas.

There is very limited fixed wireless, mostly at the periphery of the wired service area. ACS does some fixed wireless in places where they have basically DSL or almost DSL because the loops are too long and the speeds are too slow. There's a small company that has served a couple of rural communities that has been advertising in Anchorage, but the penetration of fixed wireless is not material. AT&T and Verizon don't do it up here. Primarily, I believe it's a spectrum constraint on the Verizon doesn't have the spectrum up here that they use for fixed wireless everywhere else in the country. And my guess is that AT&T is spectrum constrained, given that it has a super normal market share up here, and it uses its wireless spectrum. I would suggest but based on the speed tests that ACS doesn't -- the comparative speed test where we're faster than ACS, AT&T doesn't have adequate capacity even for its mobile network and you have to remember the size of the marketplace. This is not a very big market to turn up a new service, and you don't get to roll it out as part of -- if you're in Wyoming, you can roll it out as an extension of what you've done in the cities there, but their cities, even they're bigger than ours. So it's a size and it's a location and it's a difficulty of getting here means that it's been a long time before state-of-the-art products really make it here.

Got it. And slightly shifting gears, just your customers, your customer base. Have you seen any change in customer behavior given the macro environment? I assume broadband Alaska is a very defensive product.

Broadband, I think, is always a defensive product. We unfortunately beat you all to the difficult macro environment. We've been in a difficult macro environment for the last 5 or 6 years. Alaska has been a victim of out migration the economy up here is flat to barely growing. New job creation is very low. During the Biden years, we were the victims of targeted resistance to any form of economic or resource exploration, many projects stalled a number of them stalled out. Some of that, hopefully, will change with the current administration, which is plowing the road, so to speak, both to build roads to open up areas for more resource deployment and to create access for mining, which is a potentially significant impact on Alaska as well. We have 95% of the rare minerals that are needed for solving all of the problems that we're dealing with, with China, but we haven't been able to get to them in the past because we haven't been able to build 100-mile long roads across federal property to get to the mine sites. That's all changing now. You probably read that the President has opened up more areas of the petroleum reserve for drilling. That will drive both primary growth in the economy, and most importantly, it will drive additional resource to the -- additional money to the state government, because the state government gets royalties off of the resource development and the biggest break on the growth in the economy in Alaska has been constrained state spending. The state is the largest component of our -- state spending is the largest component of our economy, and that has been retarded because oil prices are down, and oil flows are down. So there's the potential for some of that to change. There's also a potential that a gas line bringing North Slope natural gas to tight water at Anchorage and exporting it to the Far East is probably more feasible than it has ever been in the past. The line is actually permitted. People are working on putting the construction process in place. The key to that is really whether or not the state and the providers are able to negotiate contracts with Japan, Taiwan and Korea, and those are very much in play in the tariff negotiations. One of the potential issues is trading the import of Alaska natural gas to balance out trade deficits with some of those countries. We've been assured it's high on the agenda of the current administration, that would very substantially change the forward-looking economic picture of Alaska, potentially in the next 3 to 5 years.

Got it. Fingers crossed. Before I talk to more about the commercial verticals, you mentioned government and what I'm thinking about is the government subsidies, more specifically BEAD. We've got new BEAD guidelines. And yes, some of it will help out the Starlinks of the world, but there's also some rules and regulations that might help wire line build out some more fiber. So I'm curious if the recent changes by the NTAA have shifted your views on the ability to desire to participate in the program.

We've always planned to participate in BEAD and the changes that strip away all of the fundamental additives that were put on by the prior administration, the low price requirements, the union contracting requirements, the permission and consultation with the tribes. All of those things raise the cost of building what are already very expensive assets. So stripping all that out, makes the program more attractive. Yes, it offers some more opportunities for Starlink, but we don't see Starlink making "Gee, we're going to take the whole state play." In fact, they simply today don't have the capacity to serve the entire rural area in the state. We see BEAD as part of the process of building out and enhancing connectivity in our smallest rural locations. My expectation is that the changes that were recently announced really won't shift the BEAD outcome that we were expecting. We expect that most carriers in Alaska will use BEAD to fill in within their existing service areas to supplement their capital budgets to get to places where the business case doesn't facilitate full high-speed connectivity to the home without the -- I don't see BEAD creating an overbuild of any of the existing providers. One of the original fears, of course, was BEAD would lead to an overbuilding of incumbent providers with free government money. I don't see that happening at this point. We'll know in 90 days because the RFPs are on the street right now, and the state is supposed to evaluate them. The state has a fair degree of discretion in how it evaluates those, but I don't expect to see BEAD change in the nature of the game.

Okay. And then back to the commercial segment you're alluding to, can you help us with the size of the commercial business, who are your verticals, the products and the competition there?

Well, as I mentioned initially, commercial is slightly more than half of our total revenues. And the largest segment of commercial is -- or commercial and business is the service we provide to the subsidized entities in rural Alaska. You're aware that USF-related revenues account for about 40% of total company revenues. Those are principally in 3 buckets. In the commercial segment, you have service to the health corporations, which are usually small clinics or regional hospitals. Alaska's health delivery system is a system of very small clinics staffed by 1 or maybe 2 EMT equivalent. We call them health aides and the village is connected by two-way HD video to regional hospitals and then back to Anchorage, those are subsidized through USF. Those represent about half of our commercial USF revenue. The other half is the school networks in rural Alaska, which again depend on high-speed delivery. And Alaska has led the country really in developing a distance delivery method for rural education. The No Child Left Behind Act required that every school have -- that every teacher and every school have either a major or a minor in the subjects that they were teaching. Well, we have many communities up here that have 2 or 3 teachers, yet we're teaching a dozen subjects. It was simply impossible to meet the requirements for federal funding without deploying a fairly advanced system of distance education. So what we have is a system where the specialized teachers are frequently in the regional centers and then you end up with additional teachers who really become classroom coaches and monitors at the end of a 2-way distance delivery network. But when that network is not there, the school is closed. So that's a highly important area for rural Alaska in an area where we've built out the facilities, and that comprises the other half of the USF revenue that falls into the business. There's a third piece, which is known as the Alaska plan, which pays a contribution to support the build-out of statewide wireless in the rural areas, and that's actually reflected in our consumer revenues. Outside the USF business, the commercial business comprises a traditional commercial business because we are -- we have the largest footprint and the most extensive network in the state. We have significantly the largest share of the commercial enterprise, we serve the stand-alone government customers, the large entities throughout the state with statewide networks, the banks, the oil companies, the transportation companies and those sorts of things. We tend to do very well in that segment because we're the only ones who are able to deliver one-stop shopping for a statewide network. If you want to put together a network that's competitive with us that serves say, a bank that has branches or outlets. Sometimes the branch is only an ATM, but has that in 50 or 60 communities around the state. You would have to cobble together services from maybe half a dozen different providers. You have to be your own network manager, you have to be your own network monitor, and it would be extremely confusing who you got to point the finger at when the network wasn't working, right? We provide a single point of finger accountability, if you will, when that network is down, they know who's responsible and they let us know who's responsible. And our ability to keep those networks up and provide that service has given us a real competitive advantage in the enterprise space.

Right. So the competition just doesn't as ubiquitous they'd have to depend on a lot of the off-net costs and off-net piggybacking.

As I said, we spent more than $4 billion. And my guess is number 2 is probably ACS at less than $1 billion over the last 30 years. So the networks just aren't comparable. And really, nobody else has invested in the long-haul networks the way we have. We have 3,000 miles of undersea fiber, 2,000 miles of middle mile terrestrial fiber and thousands of miles of middle-mile microwave connectivity on top of a satellite network that continues to serve some of the most remote communities and that was built even in a couple of years. That's been built out over a 45-year period, and it's just a very, very difficult asset to compete against unless you -- unless you're serving a very unique customer who only needs to go from point A to point B. But anybody who has a statewide network requirement in some place where they want to be able to look to somebody for integrated services is sort of driven to our door.

Got it. And just a reminder for those on the call, feel free to e-mail me. I probably should give my e-mail address, its [email protected]. Just back on the USF, I guess, with the Supreme Court ruling, are we done? Is it done and dusted and it's just business as usual, and that was a bit of a relief?

It was a bit of a goat rope, getting up to it. We were prepared with all sorts of contingency plans for the very low probability outcome that didn't happen. And the decision resulted in a giant sigh of relief, time to get back to business and continue building out a network to serve those most rural and remote locations in the state. USF is a risk that will have to be managed, the USF structure is always under discussion for necessary changes. Some day, the political motivation to change it will be there. But Alaska's rural situation is such that it's unlikely to change in any dramatic ways. The losers in that Supreme Court lawsuit have already announced that they're going to come back and try again, but it was a 6-3 decision. It was pretty compelling. And while there are some avenues for them, the chip away around the margins, the existential risk to USF is pretty much off the table. So it's full speed ahead for our network construction and lets us continue on with what has been a pretty good year so far and looks like it will continue to be.

Right. Good to hear. Can we talk about underlying unit growth at this point when it comes to residential broadband. Should we expect you to continue to go broaden our subscribers? Or are we reached that market saturation, market maturity, like you said, in the old days, 15% of your subscribers took wireless only. And where are we at broadband subscribers going forward?

Well, unit growth would be easier if households were growing. Households growing would be easier if the state's population was growing rather than shrinking. So fundamentally, that's a headwind to our business. I don't see tremendous upside for share gains on the wired side. We're already materially above 50% for wired broadband. And while there will be incremental additions, I wouldn't look for anything that's going to move the needle there. The opportunity for us, as you know, is more on the wireless side for unit growth. But I also don't think that we're going to wind up like our cable peers in the Lower 48 with the needle actually risks tipping down in any material way. And I quite frankly don't think it's going to tip down very far in the Lower 48, but we're certainly not seeing the kind of erosion potential that they see down there. So our wired business is pretty much stable, if any of the economic projects happen over the next 3 to 5 years, and that led to some population inflow that could be again, not big enough to move the needle, but it could put us back to a couple of percent unit growth on the wired side, which would be helpful. We are challenged a little bit in that -- in Anchorage, the largest market in the state. We're basically play out of land to build housing. We have a housing problem here in Anchorage they are attempting to address it with more multi-dwelling units and those sorts of things, but that's a long, slow process. So even though we want more people, we don't have a lot of space to put them. So flat, basically, I think, on the unit side on broadband upside potential on the wireless.

Okay. So flattish broadband. On the pricing side, help us understand, for one, how you think about pricing. When I look at the numbers, I see that data ARPU is $129 and I'm just using data revenue divided by data program subs, you're commanding a very high ARPU when I think about it to the Lower 48. So maybe you can help us contextualize that, and the room for growth in ARPU, if there's any.

That number is distorted because what's reported in broadband revenues include small and medium business. We have moved most of our small and medium business customers into the consumer unit basically anybody that's taking a standardized product ends up in the consumer unit, which is in the business of delivering standardized products. The business customers that are left in the government, health care and education sector, are all substantially larger enterprises that need customized service delivery. So if you need a customized network, if you need network management and those sorts of things, that winds up in the business unit on the company, not the consumer units. So that ARPU is distorted by thousands of small businesses who may be buying $200, $300, $400 a month worth of high-speed broadband. I think the better way to look at our pricing is to look at what we're driving on our bundled ultimately converged pricing where you can buy high-speed broadband at a threshold tier of about 2.5 gigabits plus 2 mobile lines for $129 a month. That's a compelling offer in the marketplace. We sell that to about 1/3 of our broadband customers today it comprises 60% of our wireless customers and our real upside opportunity is driving that product into the 2/3 of broadband customers who don't take it today. It's a very compelling price point compared to what you would pay for a stand-alone broadband plus 2 stand-alone wireless lines it's similar to the play that the cable guys have done in the Lower 48, and we're kind of ahead of them in terms of market penetration, both because we've been at it longer and because we own and control our own mobile network but that's really where the potential wireless growth comes from. We're a little underpenetrated. Given the quality of our network, we're a little underpenetrated vis-a-vis AT&T who still has more than a 50% market share up here. And while I think we'll probably take proportionally from both them and Verizon, just their market share, which is more than double Verizon's, says that you're going to take twice as many customers from them. But what we typically see is -- it's a long sales process because your phone needs to come up for renewal before you switch over and those sorts of things, but we've been making steady incremental progress at moving people from stand-alone, both stand-alone GCI and stand-alone other competitors wireless into that product. And then ultimately, that product will morph into a fully converged product, which includes integration with your whole home WiFi when you get your wired service from us today, it includes one or multiple of need home WiFi nodes on a managed WiFi network, which lets us control the experience all the way to the end devices in the house. And if you do that with the GCI cellphone that can be integrated into that platform. It's the same vision that CableLabs is enunciated that the cable industry is looking at in the Lower 48. It's a little easier for us to implement because we own our own mobile network, and we own an operator on core. So we don't have to negotiate with somebody else for the integration aspects of those services into the core, the Lower 48 cable guys have a plan for doing that but it's a little more cumbersome for them to get to full convergence of wired and wireless than it is for us on the flip side, we're not as big, so we can't buy as many unique boxes at affordable prices. But the long run for us is that basically one-stop shopping for a service, probably ultimately at one price where you get a fully converged wired wireless service that sort of follows you everywhere you go.

Got it. That's a perfect segue into the next categories, which is wireless. So just sort of at the risk of repeating some of this, it sounds like -- from my understanding you have a 30% market share, but it's about double, but Verizon stood around 15% and then AT&T is one around 55%. And the way you're playing is the convergence route, because you're fully converged on both sides with an owned RAN network in an owned wire line now because that's the strategy you're going after in the bundle, of course, it's 2.5 gigs and 2 lines. That's the right way of thinking about it and are my numbers correct?

That's a correct enunciation of the strategy. I can't tell you precisely what the AT&T and the Verizon market shares are because even when you measure those through something like OpenSignal, you pick up a lot of roamers. So it's hard to differentiate what's in the market for roaming versus core subscribers. But yes, I think we're somewhere between 30% and 40%. AT&T has, I'm convinced more than 50%, Verizon doesn't even offer 5G up here, and they really just haven't made a play in this market. They are here. They provide a backbone service that is adequate to serve their roamers. They buy some services from us to support their network. I think they've been diligent about making sure that when their roamers come to Alaska, they are well served. But we don't see them as a significant force in the marketplace. If you go into Costco, it's not the Verizon guys assaulting you to try to sell you a cell phone. It's the AT&T guys who are on the streets competing with us and the combination of the fact that where we've upgraded the 5G, we're literally 50% to 100% faster on the speed tests than they are, plus the bundling with the GCI+ product is over time, eroding the AT&T customer base, although wireless customer bases tend to be fairly loyal and fairly resilient. We've historically had a reputation that roaming wasn't as good on GCI. That's no longer true. We now have a nationwide full 5G roaming agreement with T-Mobile, and we also have secondary roaming agreements with other carriers. So our roaming platform within the Lower 48 is now equal to or potentially better depending on how you rate T-Mobile's network in the Lower 48, but it takes a while to get that message into the market and convince people of that. So wireless is kind of a slow climb. It's not like the rocket ship and take the take a huge chunk of share. It works that way for the first 5% or 10% where you're offering a deeply discounted product like the cable guys have that's of equivalent quality and you can rock it up. But after that, you begin to get some stickiness in it, and it's a place where I think we can eke-out where we can sustain slow and steady growth over the next several years. I don't think we'll ever get to 100% of our broadband base being on our wireless, but certainly, the 30% that's there today is too low. There are customers we know, there are customers we have a relationship, there are customers who obviously are at least in part satisfied with our service, and it's just a question of mining more deeply into that customer base.

That makes sense then. So further penetrate your broadband base with convergence. You mentioned, I guess, T-Mobile is your nationwide roamer for the Lower 48. I guess last week, they said they now have the #1 network per, Ookla, I think, was there third-party measurer. And but yes, to your point, perception lags reality, but we'll see. I'm curious when it comes to Alaska then, do you own your own towers then? And does At&T own their own towers because you're in the Lower 48, they lease from Crown Castle, SBA, American. How does that work, like you versus like AT&T?

We sold our towers off 10 years ago maybe, I guess, 10 years because we're just coming up on the first renewal of that. AT&T and Verizon lease most of their towers. We lease towers wherever we're in an area where there are multiple providers. So in the areas where we're competitive with AT&T and Verizon we go to the tower companies and lease tower space. There are a number of towers that we've had to build for ourselves because they're in the rural areas where nobody else serves and the tower companies are not interested in towers, of course, where there can't be multiple tenants. In some of these places, they will never ever be multiple tenants, but you still need the tower. So we own a number of rural towers. But of the 500-some-odd cell site towers that we have, 90% of them, more than 90% of them are leased facilities.

Got it. And then just back on the convergence strategy you're talking about, it seems like the bigger play is to go from 30% to something way higher than that. I assume you see the churn benefits and like the CLV, customer lifetime value benefits. I think AT&T says they have 15% boost when it's converged. I've heard numbers that 400 bps higher [ SOGA ], churn and wireless cut as much as half, if you believe, Verizon. What kind of sort of conversion do we see?

We track pretty consistently at 40% lower churn on both the wired and the wireless side for the converged product. That was -- the reduction in churn was a little lower -- a little more initially when we first were stepping into the converged business, we saw a greater than 50% churn reduction I think that's because the early adopters were loyal GCI customers anyway. I think we were selling our converged product into the base initially of people who really like GCI, and we're less likely to churn anyway as we penetrated more deeply into that market, we're picking up more customers who are closer to the margin. I would be surprised if we went much below the 40% churn reduction, but it doesn't bother me if we increase our market share by 50% with the bundled product and the churn savings goes down a little bit because as you're milking that market you're getting into customers who don't have as much brand loyalty, but it's clearly a benefit. And it's really the price point of that plan is so compelling that it really is an impediment to people changing carriers, people switching their wireless phones away would pay twice as much per phone for the best product that the wireless competitor offers, people who wanted to switch broadband away would suddenly find they doubled the price of their wireless phone by not getting it in the bundle. And when you start to look at that or if a customer calls in and says they're thinking about switching or tells us they're trying to switch. We say, okay, well, you realize now that we're going to have to move either your broadband plan or your wireless plan, whichever you think you're going to take away from us to a much higher price point. And most people can do that math and conclude that it's better to stay where they are.

Right, right. Save the money. Why don't we shift gears just talk about capital and capital allocation. Maybe we'll start with sort of CapEx. What's the general capital intensity of the business? You mentioned how expensive is out there, greenfield expansion, et cetera. What stage of the CapEx cycle are you in right now? You mentioned the Alaska plan, et cetera?

Historically, CapEx for us has run 15% to 20% of revenues. We are in a CapEx hyper cycle. Right now, we've guided to $250 million for this year. And we see next year as the peak year in that cycle. So obvious implication there is more than $250 million and then falling back over the next 2 years to a more normal CapEx cycle in the 15% to 20% range, probably scaling down longer and closer to the 15%. Right now, we're in a heavy investment cycle for rural Alaska, the Alaska plant, which is part of the subsidy mechanism that we talked about is paying for upgrades to the rural areas that ultimately will lead to statewide 5G wireless everywhere we serve. That's a very heavy CapEx cycle. That will taper off. Next year, it will peak, and then it will fall fairly rapidly as we have completed those build-outs there'll be some deep contribution to the capital out in the final build-out phases of the wired platform. But then we think we're pretty much back to steady state. We're in a 3- to 5-year transition on the hybrid fiber coax plant where typically today, 1 gig low split with nodes of 200 average although the dispersion in net average the SKU is very, very wide from much bigger nodes to substantially smaller than the average size we are moving to 1.8 gig high split with extended spectrum DOCSIS which will ultimately where ultimately is by 2030, support 10-gig symmetric. And we think the market is losing its focus on speed when we first moved to a gig in all of our urban systems, everybody flock to the gig. And when we move to 2.5 gigs, there was less enthusiasm about stepping up to the high end of the package because people seem to have discovered that something in the 1 to 2 gigs adequately meets their need. We're designing the network to let us get to the 10-gig symmetric, but that doesn't seem to be as much of a market driver anymore. But our CapEx, our urban CapEx and our wired CapEx really will represent a gradual transition to the 1.8 gig high split DOCSIS platform, and we're -- we're at the front end of this deploying DOCSIS 4.0, we're able to get to 2.5 gigs with the right node sizes and 3.1 or 3 wherever we are in the 3s. I lose, which extension we're on sometimes.

Got it. High splits. So it seems like that's sort of took the Charter out too. They do the high splits with ASP. And then an eventual because of that, that's like so DOCSIS 3.1 where you want to call it -- to get to, I guess, 10 gigs, you're saying 10 gigs by 2030 or by 2030, you'll have the availability to do like a sort of a 10G solution. But again, to your point, it doesn't sound like we're going to need it from a market perspective anytime soon?

Until we start broadcasting holographic robots or something to do the work around your house or until we can perfect teletransportation, it's hard to see what's going to drive the 10 gig. But -- and we will start deploying our first 1.8 gig actives and taps next year. And after that, we'll build out all of the expansions with the 1.8 gig plant. But with the 1.8 gig and DOCSIS 4.0, that gives us the capability to go to 10 gigs. If there really was a demand for speed, we'd go there more quickly, but there doesn't seem to be that much demand for speed. So I expect coming back to your original question, the CapEx will be much more measured once we get past this bolus of capital that we're expanding in the next 2 years to complete the Alaska plan.

And on capital allocation or CapEx, I guess the next question is, I guess, buybacks would be interesting if you need to or even M&A, we talk about both of this, but I found it interesting on the previous call, whether it was yourself or from John Malone saying that you think you should command a higher multiple than a charter, which makes sense given the financial profile, especially when the CapEx cycle ends. But if it's -- if you don't get it, you consider I interpreted it as buying back shares. Is that probably the right way of thinking about it?

Yes. I think the capital allocation model is putting the free cash flows wherever you think they have the highest return. I've been in business one way or another with Dr. Malone for the last 45 years. And I know that there is an intense capital discipline when you're involved with John. The Board of the new company hasn't really even had its first formal meeting yet. So it's a bit early to tell you, okay, well, with a multiple of x-point-y, we will buy back stock. And below that, we will, above that, we won't or that we've targeted these M&A acquisitions. I think the message is that GCI will be a prodigious generator of free cash flow over the next 5 years, and you're going to have to trust Dr. Malone and the Board to deploy that free cash flow in the places that we think make the most sense. But John has a track record of pretty successful deployment of those kind of assets. We -- in addition to the CapEx falling we will basically end up being a very minimal cash taxpayer with the new bill that passed and 100% expensing, we obviously get our CapEx off the top each year as a full deduction. So while we're running [ 250 ] plus on CapEx, that means even before looking at any benefit from the tax step-up that we will get as a result of the spin that we're very low on cash taxes anyway, and the spin will give us a step-up of $1 billion to $1.4 billion in basis depending on the equity value of the company post spin that will be measured based on the first 20 days of trading and then we'll get allocated back to the existing assets, which will become depreciable once again. So we'll be down on the floor on cash taxes. CapEx will be dropping and the EBITDA will be slowly growing. So you're going to be throwing a lot of cash. It will be up to John and the other 4 of us to figure out what those opportunities are. We will be supported by the existing Liberty staff and their M&A skills and opportunities. So I think John views this as an opportunity to build yet another enterprise that probably start further down the road, produces more spinouts, but for today, where the cash generation anchor and the tax asset that provides the foundation for the next building blocks. And obviously, if it trades down dramatically because people don't like Alaska, then you have to look at a buyback opportunity to shrink it in.

Right. But if the stock does trade well and you mentioned it yourself and Dr. Malone would do sort of M&A and that also caught my ear last call as well, can you tell us a bit like what would be on your wishlist for M&A? Is this stuff in Alaska? Or it would actually look down to Lower 48? Can you help us there? What kind of opportunities we explore?

There's very little left in Alaska to buy. So I wouldn't expect significant M&A in Alaska. There are some potential opportunities, but they would be flushing out the existing network. So by definition, any truly significant M&A needs to be out of Alaska. And probably not in the core space that we're in today. I think we're looking for more unique opportunities where we can provide or deploy some of our expertise, but I wouldn't expect to see us moving into Lower 48 cable or Lower 48 wireless. I think those markets are pretty crowded and they're pretty mature. I think we'll be looking for more unique opportunities. I think if you look at the track record of what Liberty broadband or take the whole Liberty mobile thing and look at the Liberty Media thing, look at how they expanded over time at the opportunistic things that they bought and created that weren't necessarily in line with a core business. So I think we're open to all opportunities, obviously, an ability if you have a taxable income generating entity and ability to use our tax asset to create value there and looking for sort of unique opportunities, probably niches where we can add some unusual value to the equation. But as I said, we -- while the Board all knows each other and they are all people I've dealt with in the last 40 years, we haven't had our first sit down yet and said, "Okay, guys, here's the product cash flow. What are we going to do with it?

Got it. That's helpful. So it's interesting, so you wouldn't necessarily leverage the GCI platform. It would be something unique and niche you are saying maybe using the tax yields that Dr. Malone has done in the past, the media or something else.

You've got a long track record that you could look to.

I guess with the last few minutes, I have a couple of questions coming in, and I apologize if they're a little bit all over the place. But what I see is like, do you anticipate the -- or what do you anticipate the impact of earnings would be as you exit the consumer video service in the near term? What do you think the impact would be on subs if you pull video?

We have lost so many video subs that there really aren't any bundled subs left to lose that relate to the video, I think -- there will be a slight negative impact in the 2 quarters that we facilitate the exit. And then over time, we'll make more money. Our decision to leave the video business was based on multiple factors, but it wasn't contributing free cash flow, and it was on the cusp of not contributing any EBITDA because we're too small to be in the video business. We don't have to be able to negotiate the charter style video arrangements. If we could have done that, if we could have gotten their programming agreements and wrapped the core services, the streaming services into the package. I think that's a very compelling offering. But we were just too small. The programmers wouldn't even talk to us. We are in a take process when it comes to programming contracts. And the platform that we need to deliver was just getting more and more expensive. We're so subscale that building that stream platform wasn't feasible. So we will make more money in the long run by being out of the video business, we will sell more data by being out of the video business because when you buy YouTube or Disney or anybody else over the top, you pay for data when you bought video from us, you didn't pay for the data. That will help a little bit to drive bandwidth requirements. So it's -- it's definitely a positive impact on the company over the next 2 or 3 years. There's probably a little bit of a split, not big enough to see, but you won't see the positive benefits in year 1.

So maybe become video agnostic and partner with a virtual MVPD like YouTube TV or Sling or yes...

We have tried that. And again, it's the size problem that if you had 1 million -- if you had an addressable market of 1 million video subs, you could get in the door to talk to them. But when you're saying, Oh, well the addressable markets maybe 150,000 subs, they look at you and laugh.

Okay. I have another question coming in saying, some of the recent earnings growth has been driven by lower expenses due to lower distribution costs. I think it's like temporary cost savings from fiber break on the network where GCI used capacity. I guess -- when it comes to EBITDA, I mean, is it inflated from the temporary benefit? And do you expect this to normalize?

The answer is yes and yes, at the margin, we disclosed in the first quarter a number of onetime events, some of which were revenue related and some of which were expense related. So Q1 is probably not a good extrapolation for the year as a whole and there will be an ongoing small benefit from the fact that the fiber asset is out of service for 6 months and one of our important leased fiber assets that has adverse ramifications on the customer base. But the amount by which that will go back up in the fall when that is hopefully reconnected will probably be mostly lost in the noise. It's low single-digit millions that we're talking about there. And I think that will be covered up by other things. We are continuing to drive cost control. We move to a new structure with a Chief Technology Officer and organizing all of our technology and technology programs under a single head, that's led to some organizational streamlining. It's led to an increase in organizational capacity. And I think over the next several years, you'll see us making some progress on truly disciplining total operating costs.

Got it. And last question, if I may. What's the long-term goals and ambitions here for GCI, sort of the end game? Where do you see the company 3 to 4 years from now? And then what keeps you up at night?

Well, I don't stay up at night anymore now the Supreme Court has ruled. That one was keeping me up at night. And we had contingency plans to how we're going to go 6 months without 40% of our revenue coming in. So I'm sleeping a lot better thanks to 6 justices on the Supreme Court. What's the long-term plan? What I see is that we will provide a platform that delivers substantially accelerating free cash flow growth and has a tax asset that can be levered possibly along with levering the existing cash flow if the right opportunity comes about to pursue unique acquisitions that will add value to the company and not necessarily in the core business. I think it's the John Malone business plan of being an opportunistic buyer, bundle them together, minimize taxes for as long as possible. And then when you get to the end of the road where somebody wants you to pay taxes, you scramble the egg and spin them all out and start over again. I was not expecting to start over again this time. We had merged in, as you know, to broadband in 2017, I did not expect to become a public company CEO again. But I've learned over 45 years that when John Malone asks you to do something, it's generally the right decision to say, yes. I think everybody on the board is enthused at the chance to use this as a platform to build another John Malone entity.

Got it. Well, Ron, we're a little bit over time, actually. So thank you very much for your time. Good luck with the spin and look forward to following the journey.

Thank you, Greg. Good to see you.