Optimum Communications, Inc. (OPTU) Earnings Call Transcript & Summary

Okay. Thank you all for joining us this morning. My name is John Hodulik. I'm the telecom, media and communications infrastructure analyst here at UBS. And thank you all for bearing with us during these technical issues we're having. We have people working on the issues we're having with the video. And we hope to have that ironed out by late morning so that we can go back to video format that we'd hope to use. For the next couple of sessions, I think we're going to just be on audio-only. And we'll see how it goes. Our first speaker here this morning is Michael Grau, the CFO of Altice USA. Mike, thanks for joining us this morning.

Good morning, John. Thanks for having me. Thanks for having us. And thank you, everyone, for joining. Appreciate it.

So we've got about 45 minutes. And I've got a bunch of questions here. I'm also looking at my e-mail and texts. And if anybody has any questions that I'm not asking that anybody thinks makes sense, please let me know, and I'll filter them into the discussion. So Michael, again, thanks for joining us.

And maybe what we usually do with -- I think our conference is pretty much -- is generally thought of as the last conference of the year. We'd take a little bit of a lookout into the future. And if you could just give us a sense for what the priorities are for the company as we look out into 2021.

Yes, sure. I mean, listen, I think there's an element of let's just keep doing what we're doing. I think we had a really strong 2020. Certainly, under the circumstances, we're certainly pretty proud of what we've accomplished in this environment in 2020. So there's an element of, like I said, just keep doing what we're doing to sustain that momentum. I think we're well positioned in terms of the customer gains that we have achieved so far in 2020 to give us, like I said, some nice momentum coming into 2021. On top of that, I guess, if I look at 2021 specifically, there's a couple of things that stand out as priorities for Altice USA. I think we've been pretty vocal of late around our capital expenditure strategy, kind of a 3-pronged strategy around network edge-outs, an increased pace of new-builds, certain upgrades to our Western footprint in certain areas where we think we're under-penetrated and we see opportunity, and then kind of amping up our fiber-to-the-home build-out, which had to take a little bit of a backseat in the pandemic. So all of these are geared towards kind of creating a platform for sustainable, volume-driven growth going forward. And so I think we certainly have a high priority around executing on that capital expenditure strategy. I think one new priority would be to leverage the new relationship we have with Morgan Stanley Infrastructure Partners as a holder of Lightpath equity with the deal that we announced in July and that we closed just last week. We're pretty excited. We think we do have an opportunity to really accelerate growth at Lightpath. We think we have the right partner with MSIP, and that could be a nice growth driver for the business as well. So we'll certainly be focused on that. I think in the News and Advertising space is a little bit different, right? We had a very strong finish to 2020, fueled by political advertising. And now we're going to need to replace that with market recovery in order to have sustainable revenue growth at News and Advertising. But again, we have really good momentum coming out of '20 in that regard. In terms of operating, the priority is all around driving efficiencies, and we have opportunities there as well around digitization, automation. I think in the back half of '21, you'll see us start to really push on self-install and a couple of other areas where we think we can drive some more efficiencies in terms of how we operate our business. So altogether, organically, the priority is just to drive revenue growth, drive EBITDA growth through all these tools that I just mentioned. And then non-organically, we'll continue to look at M&A to the extent that those opportunities present themselves, continue to manage our balance sheet very proactively. We're very well positioned by virtue of being proactive, so we'll continue to take that approach; and then look to return cash to our shareholders, primarily through buybacks. So at a high level, I think that's been kind of the game plan for -- going into 2021.

Great. That's a great place to start. It was comprehensive. And I think we're going to dive down into each one of those individual subjects. Maybe starting with the return of capital. Obviously, you guys are in the midst of a tender offer, a pretty large tender offer. Can you talk about how you landed on this way of returning capital to shareholders? And I think the $2.5 billion was certainly larger than we thought. Just your thoughts on landing on that number.

Yes. I mean it's -- I think it's fairly consistent. We've consistently been identifying share buybacks as the best use of our capital compared to some of the alternatives. Certainly, compared to delevering, when we're -- we floated -- we issued new debt in 2020 with a handle in the low 3s. And even with the recent runup in our share price, we're still seeing double-digit free cash flow yield on our shares. So it's clearly, in comparison to proactive delevering, at this point in time, I think share buybacks continue to make a little more sense, and that's a fluid thing. As the market conditions change, we'll continue to adapt. But right now, given where our share price is relative to free cash flow, I think it makes a little more sense. Certainly, we've been looking at some M&A opportunities. They really haven't materialized. We're seeing cable assets go for 12x, and some of those are overbuild systems. We're seeing a really light MVNO growth of 13x. We just monetized part of Lightpath at 15x. And at the same time, our own stock is trading at between 8.5 and 9x. So with that kind of multiple differential, and again, with the lack of really opportunities that have materialized on the M&A front, we think the share buyback is a better use of capital in that regard, too. So I think opting for share buybacks as the preferred use of our capital is consistent with what we've been doing. So the next question is, okay, well, why this tender offer? And the reality is just the magnitude of the amount that we have at hand with the Lightpath proceeds and the general free cash flow from the business. We're talking about doing a pretty sizable tender offer that could amount to anywhere to -- anywhere around 13%, 14% of shares outstanding and anywhere from 20% to 25% of Class A shares outstanding. To do that in the open market, given some of the limitations on the daily amount that we could repurchase, would take literally months. So I think we saw an opportunity to really kind of accelerate our share repurchases. We went out -- we'll now do somewhere in the neighborhood of $5 billion of share repurchases in 2020. And this just -- again, given the different options available to us, this was what made the most sense in terms of deploying our capital at this time.

Got you. Makes sense. The leverage, as you said, will be above what have been your -- what is your long-term target of under 5x. When can we expect the company to get back down below that level? And I guess a follow-up to that is, what are the implications for next year's buyback after the $5 billion in total here in '20?

Sure. So as I alluded to earlier, these things are fairly fluid. It depends on market conditions. To the extent our stock continues to be undervalued, in our own perspective, I think we would anticipate to be using -- continue to buy back shares in 2021. I'm not going to get much more specific than that. We will issue formal guidance on our Q4 earnings call, which I think is scheduled for early to mid-February right now. But right now, we continue to think our shares are cheap. We continue to see, again, like I alluded to, low double-digit free cash flow yield on our shares. So in that environment, continued share buybacks is a pretty compelling use of capital. As far as the leverage, getting back to our -- we went out expressing 4.5 to 5x as our medium-term target, and I think we can define medium term as 2 to 3 years. But again, that will be a function of market conditions. Our preferred method -- our preferred path in this environment would be to delever through EBITDA growth, and I think we have a track record of being able to deliver on that. Having said that, if market conditions were to change, where proactive deleveraging through debt paydowns became more attractive, we would certainly look at that. But under current conditions, I would expect to delever back into that medium-range target over the medium term and through EBITDA growth.

Got it. So just to finish up on this topic, so you brought up the subject of M&A. Maybe describe the landscape. I agree with you. I think I know the overbuild that you're talking about at 12x. Is -- are there a lot of potential candidates out there? And is it really just that your -- the valuations have drifted up and made it unattractive to move forward at this point? And I mean -- and so as we look out into '21, do you think -- obviously, you don't have a crystal ball, but do you expect that you'll be back on the sort of M&A sort of train and there could be prospective deals out there?

I think we're always going to have a ticket on that train, John. We've always used -- strategic M&A, we think, is the best use of our capital. You look at Altice, it's really part of the Altice DNA, really Altice worldwide, certainly Altice USA as well. It's an M&A-fueled vehicle, as always has been. It's something we think we're good at, and we think our track record in that regard is very good. So to the extent strategic M&A is available, we're always going to have an interest in that. We're always going to look at it. It is opportunistic. The deal flow can be stronger sometimes and it wanes, and then it picks up again. That's hard to predict. As you say, it's hard to have that crystal ball. We will always have an interest in that. We certainly have retained all sorts of financial flexibility even post-tender offer. So there's nothing to preclude us from continuing to play in that arena, and it is something we're certainly intrigued by. We're most intrigued by cable, but we'll look at maybe some smaller things in the ancillary businesses. So I would say we would continue to be a player in that regard, but you have to have the right opportunity and it has to be at the right price. So we'll continue to be disciplined about it as well.

Got it. Okay. So maybe moving on to some of the cable fundamentals. Obviously, 2020, a lot of surprises this year. And -- but I think one of the biggest ones, if we go all the way back to March, was the strength in the broadband market driven by the pandemic. So let's talk about that for a little bit. I mean, first of all, how much of the strength do you feel was sort of a pull-forward in demand? I mean, obviously, the pandemic drove a sort of increasing digitalization of the economy with people working from home and virtual learning and more video streaming and gaming. I mean do you think that this is sort of some onetime growth? Or do you expect all of these issues to continue to play out and lead to faster growth in that product line for you guys as you look out into '21?

I'd say there are elements of both. I do think there was a onetime surge there in the first half of 2020 that was fueled by all the elements you mentioned. Certainly, the utilization of the broadband product has never been higher, right, because of work from home, because of telemedicine, because of remote learning, what have you. And so we did see record -- we saw -- first quarter, we set a record for customer gains for Altice USA, which lasted all of 3 months until we blew those numbers out of the water in the second quarter. So there was this aberrational surge. Having said that, I don't view this as a pull-forward in the sense that we're now going to give it back. I don't think we necessarily borrow from the future to create those customer gains. I do think we've broken through what we previously perceived to be certain penetration ceilings. When we look at this internally, I think the cleanest place to look at it would be the noncompetitive footprint in the East just because there's less moving parts. And in certain areas, certain neighborhoods where we were 65%, 70% penetrated, we thought we had kind of hit a ceiling there. And the remaining 30% were either mobile-only or DSL or what have you. I think in light of the utilization of the broadband product being so highlighted under these conditions, I think those penetration ceilings are as much as 5, 10 or more points higher, and I think that is a permanent change. So you did have this onetime surge, but it's not something that we're going to be giving back over the -- in the future. So it wasn't a pull-forward in the sense that we're going to really give those customers back. I think we can sustain those gains and then get back to a business-as-usual pace of customer growth going forward. And then in order to be able to beat what I would refer to as historical business-as-usual growth rates over the longer term, we will implement some of those capital expenditure network strategies that I alluded to earlier, especially around the new-builds in the Western footprint.

Got it. Can you talk about what you're seeing in terms of trends in the fourth quarter here? Has that kept up with what you saw in the third quarter? And maybe touch on a little bit on the competitive environment.

Sure. So I think what we started to see in the third quarter was something more akin at least to business as usual or call it -- maybe call it a return to business-as-usual trends. And so that's consistent with what I think I was talking about previously as we -- I don't think the growth we saw in the first half of the year was something we would be able to sustain over the long term, but we're not seeing it reverse. We're not giving it back. I think the fourth quarter will be more consistent with that, something more akin to business-as-usual growth trends. We do have certain challenges that we'll have to confront in the fourth quarter in the arena of customer gains. We do have the storms in our Western footprint. We're still feeling the remnant effects of Hurricane Laura and then Hurricane Delta coming right behind that. So some of our Western systems have been pretty hard hit by that. We will -- that will impact some of our customer gains in the fourth quarter. And we are still -- we will see some impact from kind of flushing out some of the programs we saw during the pandemic, specifically the FCC Pledge program and the New Jersey Executive Order, which precluded us from doing certain disconnects. So we have a little backlog of disconnects, which we've disclosed those numbers. And we'll start to flush some of that out in the fourth quarter. Having said that, we're not running this business 3 months at a time. We look at this over much longer time frames. This will be our strongest year ever by quite a bit in terms of customer gains. We will sustain those gains in the fourth quarter. There'll be some recalibration, but we're not going to be giving it back in that regard. So I think we're very comfortable. And like I said earlier, that gives us a really, really good momentum going into 2021 and should be a really nice way to enter into the year. So I think we're in pretty good shape in that regard. As far as competition, I mean, certainly, a lot of people are asking about FiOS. I mean FiOS went pretty quiet in the second quarter. We saw that change in the third quarter when they started to really get a little more proactive about sending texts to homes and doing installs, and they got a little more aggressive around their marketing. And so we saw that, and we feel some of that. But I think it's worth noting that our customer gains in the first half of the year were not heavily in the FiOS area. In other words, we weren't -- the customer gains were not a reflection of FiOS standing down as much as you think. In fact, when we look at our net adds and the percentage that took place in the FiOS overlap area versus the proportion of our network that represents, we actually under-indexed in the FiOS area even in the second quarter. So it wasn't as material a driver to our customer growth as some people would suggest. But certainly, we're seeing some pushback in that regard as they have become a little more active and more competitive.

Got you. So I guess if you look out to 2021 here, is 2019, I guess, a better baseline from a comparable standpoint? If we just look at sort of net adds, right, 2020, pandemic-driven, a lot of raising the penetration ceiling. We should really be looking at 2019 as sort of more of a comparable quarter all-year round?

I think '19 and '18 were actually pretty similar in terms of broadband net gains. And I think as a starting point, if I were modeling our business, I would use that as a starting point and then recognize starting in '21, but becoming more pronounced in '22 and '23, will be the benefits we're going to realize from the capital investments we're going to be making in new-builds and in system upgrades as well as fiber-to-the-home. And that will -- as I said, that should accelerate volume-based growth and create a little more volume-based, sustainable growth, probably more in the '22 and '23 when we start to reap those rewards.

Right. So yes, let's pivot to the fiber-to-the-home rollout. If I remember correctly, you guys ended the quarter at about just under 1 million homes pass with fiber-to-the-home infrastructure out of a little over, I think, 5.5 million at least in the old Cablevision territory. So anything you can tell us about -- you said that looking into '21, you expect to ramp up some construction there. Either where the bills are going to be or what kind of increase in the footprint we should be expecting over the next year or 2?

Yes. Sure. I mean, listen, 2020, as with so many other things, was a little bit of an aberration. We really had to slow down our fiber-to-the-home buildout relative to what our initial plans were just as a function of being able to get permits to put crews out there. So I think we will begin to pick momentum back up in '21. I think we would aspire to build about 0.5 million homes or pass 0.5 million homes and then ramp that up to about 1 million homes per year starting in 2022. Our initial focus is on areas where we overlap with FiOS. And I think maybe the FiOS overlap area, I would look to that we would maybe complete that buildout somewhere towards the end of '22 into early '23. Somewhere in that time frame, I think our build-out as to the FiOS overlap area should be about completed. And then we will continue to build out the rest of the Optimum footprints over the ensuing couple of years.

Got it. Okay. Anything you can tell us about the economics? So there's a couple of questions I get a lot is both the cost per home passed and maybe why Altice is pursuing this, and you don't really hear that from sort of other cable companies. Yes.

Yes. I actually get those questions a lot, too, John. So listen, the fiber-to-the-home buildout is very much part of the Altice playbook. It's something that's been implemented by Altice in France, in Portugal, in Israel and so on. So it's something we have a lot of experience at. I'm probably not going to get into the unit economics in terms of our cost to pass a home. It certainly differs area by area, but that's fairly proprietary. But the economics, overall, the economic justification, we can justify these fiber-to-the-home builds solely through future projected expense savings. Once we have a fiber-to-the-home plant in place, it's a plant with a lot less moving parts, a lot less power needed to run the plant, a much more reliable plant with far few outages. And so that translates into a lot of savings in terms of plant maintenance. It also translates to really material savings in terms of customer contacts. We've seen evidence of some of our sister companies, the payoff in terms of a fiber-to-the-home buildout in terms of fewer phone calls, fewer truck rolls, fewer service visits, it creates a lot of expense savings for us and creates a really better customer experience for all of our customers. So that's the real economic justification, but there's a lot of gravy on top of that in terms of revenue opportunities. We will have a future-proof, state-of-the-art fiber network. I think our network will be the network of choice in every area in which we have fiber-to-the-home. We'll be able to offer fully symmetric speeds up to 1 gig up, 1 gig down. I don't know if anyone else would be offering that at that time. So it's kind of a sizable OpEx savings and really CapEx savings once that plant is in place and then real opportunity to start to upsell our customers into products that will be more and more valuable with the continued proliferation of video conferencing and other applications that require that symmetrical up and down speed that we will be able to offer at really high speeds. So we'll end up with this future-proof network, really big expense savings, we think revenue opportunities as well. So I mean, really, that's kind of the economic thesis for the fiber-to-the-home overbuild.

Right. And you've got, like I said, about 1 million homes passed now. I mean I realize it's early, but is there anything you can tell us in terms of either penetration differences or ARPU differences that drive that potential upside to revenue from rolling out fiber-to-the-home? I mean do you have higher penetration in these areas than you have in other parts of the footprint?

It really is a little early to talk about that. I mean we really only began actively marketing the fiber product. So we -- it was only in July that we were able to make final steps around some of the consumer premise equipment actually offer a triple play. Prior to that, we weren't able to offer video over the fiber-to-the-home. We now have a triple play product. And even now, I think we really haven't revved up the marketing engine around that. So I will say, it is a little early to tell. The sample size may not be as significant enough. We certainly are seeing modestly higher ARPU from -- amongst our fiber-to-the-home subs versus our coax subs. I think the most material difference we're seeing is the take rate on the higher-speed tiers within our fiber-to-the-home area. We are seeing a 60% take rate on gross adds, about 1 gig, and that's probably a little less than half of that on coax. So I think that's, again, early days, but I think that's a pretty positive indicator of what we'd expect to see. And certainly, again, if we go back to some of our sister companies and see what their experiences have been, we have been able to see that they already monetized the fiber-to-the-home through higher ARPU, through lower churn. It's a stickier customer because it is a better customer experience.

For sure. And then what about on the cost side? The -- again, early days. You probably don't have any sort of real-world experience to share with us, but can you just maybe size the magnitude of the cost savings from fewer truck rolls, less maintenance, that kind of thing?

Yes. I think the answer is similar. It's a little too early to say what the savings we've seen to date because the sample size is small. Again, we look at our sister companies over in Europe and elsewhere, and we see that they are seeing those savings. So we have a very high confidence level that those savings will materialize in terms of lower truck rolls, lower phone calls and lower just plant maintenance even outside the home, the guys finding the telephone poles and what have you. There's just -- again, given the nature of the network, there's just less need for that. And so very high confidence level that those will materialize. But again, given the magnitude of the customer base we have right now, I think it's a little early to give specifics on that.

Okay. And last thing on broadband. Just one of the questions we get a lot and I'm sure you guys hear is the threat from 5G, whether it's traditional 5G with households being -- going mobile-only or fixed 5G with some of the flavors you're hearing from both Verizon and T-Mobile. Just what's your view on the sort of threat level to your broadband franchise from these wireless solutions?

We're not anticipating a really material risk to our fixed broadband business from the 5G rollout. The 5G rollout is -- that's not an easy thing to pull off. I mean we've seen in terms of the efforts have been made to date to roll out 5G networks, there are technology issues around propagation and reliability. It's a very cumbersome thing to build the 5G plant and to roll out a 5G service. I think if we look at our legacy Cablevision footprint, where we're overbuilt by FiOS already in a substantial portion of that footprint, FiOS has already said they're not going to overbuild themselves in 5G in this area. And I don't know that a third player, given 2 sort of incumbents already, I think a third player would have a tough time justifying the economics to roll out a 5G plant. Then we go to our Western footprint, which is a little more rural and spread out, which again creates somewhat adverse economics, I think, for our 5G provider. It is very cumbersome to roll out a 5G service. I think if you look internationally, you see a lot of companies that have -- the kind of converged fixed wireless companies, where the wireless element of the business can leverage the fixed infrastructure to roll out a 5G service. That dynamic doesn't exist as much here in the United States. And so right now, our fixed broadband product, we think, is as good as any out there. And we think it's only going to get better as we roll out fiber-to-the-home. So we're pretty confident that we're going to have the network of choice for the foreseeable future once we have this kind of future-proof network out there. And we're not anticipating a material risk around 5G wireless for fixed service.

Got it. Maybe talk about the efforts to expand the network. You said that you're looking to increase the pace of expansion in the West. Is there any way you could sort of frame the opportunity or give us a sense on how quickly you guys can expand and add to the number of homes passed?

Yes, sure. I mean, listen, we are going to look to accelerate our builds into new homes passed and vacant lots. And the opportunity is pretty plentiful, especially in our Western footprint, most notably in Texas, but in other areas in the Western footprint as well. So historically, we've done 20,000 to 30,000 new-builds per year in the Eastern footprint. I don't think that number will change materially going forward. There's just not enough new household formation in the New York DMA to justify doing much more than that. In the West, I think this year, we'll do between 15,000 and 75,000. But this year is again an aberration. Maybe historically, we'd do close to 100,000. I think you'll see in '21, we would target to ramp that number up to somewhere in the neighborhood of 125,000. But over the ensuing years, we'd like to get to a point where we're doing 200,000 homes passed a year, which would be a meaningful acceleration versus what we've done in the past couple of years. And the goal there, again, as I mentioned, is just to create more sustainable volume-based growth versus what we've seen historically. Some of that is a function of looking at our peers and trying to understand why our peers trade at certain multiples and what the multiple gaps versus where we're trading. And some of that, I think, is the growth profile. And so this is a means of tackling that. So we have a couple of capital strategies to tackle that. The edge-outs -- the increased edge-outs is probably the most prominent. The economics are very compelling. I mean we -- historically, within a year of releasing a home to sales, we see penetration to start to approach 40%. And within 3 years, we start to target kind of a sustainable penetration rate of 60% in these new-build areas. And so the unit economics in terms of the cost per home passed and the return you see, we can see a breakeven within 2 to 4 years. And the areas are different -- aerial versus underground, certainly a very different profile, but a breakeven between 2 to 4 years, depending on the specific market we're talking about. So really, really strong returns in the new-build area, and that's why we're going to really -- we'll focus on different markets that we think -- where we think the opportunity is great. Certainly, DSL market is very attractive to us in that regard. But really, really strong economics and opportunity to create a platform for sustained growth going forward, a sustained higher growth going forward versus what we've been doing historically. So we're pretty excited about the opportunity there. And as well, as we talk a little bit about the kind of network upgrade strategy, which is a little more Suddenlink-specific. We have about 600,000 homes in the Suddenlink footprint where the network quality is just not up to par versus the rest of our Western footprint or Eastern footprint for that matter in terms of the services we can offer. And in some instances, we'll tackle maybe the first 2/3 of that, about 400,000 homes in 2021, where the unit costs are a little more attractive. These are areas where our penetration rates are much lower than the balance of our Western footprint. We're talking penetration rates in the neighborhood of 30%. And I think if we upgrade those plants at very reasonable cost, there's real opportunity to increase penetration to 50%, 50% plus, something more in par with the rest of the Western footprint. So again, an opportunity to create kind of an opportunity for sustained volume-based growth going forward.

So those -- I hadn't heard that, the 4 -- the 600,000 homes in the Suddenlink territory that was not up to speed. So how much are we talking about the investment to get at least the 400,000 in '21? And is it just that the speeds are slower? Has it not been updated to 3.0 or 3.1? Or what needs to be done in those markets?

It's principally a function of lower speeds. We're not able to offer the speeds in those segments that we are able to offer to the rest of our footprint. And it's relatively cost-efficient to be able to upgrade those plants to the point where they can offer speeds more on par with the rest of our Western footprint is offering. We've kind of tiered it out, as you might expect, kind of -- we'll hit the lower-hanging fruit initially. So maybe there's 200,000 homes that we can tackle at a cost of X and then another 75,000 homes at a cost of X plus 10% and so on and so forth. And as I said, we'll tackle 400,000 of the 600,000 homes in 2021. It should create a nice opportunity. Those 400,000 homes are currently about 30% penetrated. There's really no reason that can't get to 50%-plus penetration in the relatively near term if we can upgrade those plant -- those homes. And again, those homes can be upgraded in a pretty cost-efficient fashion.

Got it. And then lastly on the network expansion. The -- I guess, what are the qualities you look for? I mean when you guys build out, is there typically a cable company operating in those markets? I mean are you going up against a telco, which is probably more likely not DSL-based, and then there is a cable company? Or is it areas where there's no cable company? That's number one. And then number two, what are you guys actually building? Is it HFC? Or are you actually putting fiber in these, what I would I imagine, are pretty rural areas?

So I think there are probably some instances where we're overbuilding competitor, but I think in the most part, this is new household formation. These are new developments. And oftentimes, it creates a little disconnect between what we measure as expansion internally versus externally because we will build -- we're not building on spec. We're not just building pass an area waiting for it to be developed. We're building areas where there's commitment for them to be developed. And when the conduits are open, when development is taking place, we will lay out fiber as well. And then -- so we're passing empty lots that become homes passed in the ensuing 6 months, 12 months, what have you. So it creates that a little bit of a dynamic. And we have a certain amount of work in process that's already in the pipeline. These are instances where we've laid the plant already, and we're just waiting for the homes to be built, and again, not on spec. These homes are in process. So we're looking at a lot of new development areas where we'd like to get in there first and be the first provider and then probably a limited amount where we're actually overbuilding others. And it's probably a combination of fiber and the coax hybrid. It's just a function of the area and what makes the most sense in each instance.

Got it. Okay. Maybe pivoting to the video market, just your latest thoughts on what you're seeing there. Obviously, the industry declines have actually been better than we expected. I think it actually improved in the last quarter or 2, especially here in the third quarter. What are you seeing in your footprint and sort of if you could give us a sense of your expectations as we look out into '21?

Yes. I mean you're right, the pace of video decline has accelerated, and I don't think that changes going forward. So certainly, we're starting to look at video. We're starting to become -- looking at video, we almost look at it as a little bit binary, right? When we talk about -- we have this kind of core customer base of video customers who have been with us for a long time, who are paying something at or very close to full-rate card. Those are very profitable customers. Certainly, there's very -- there's strong empirical data showing that those customers, those legacy -- those longer-term legacy customers who take video tend to be stickier and churn at a materially lower rate than a single- or double-play customer. Those are really valuable customers. We're really sensitive to those customers and monitoring that customer base very closely. Then kind of sitting on top of that, you have the kind of the younger video customers, I mean younger in terms of tenure with us. And there's a lot of -- there's a little bit of a washing machine there, right, with the customers coming on and then customers churning out when they roll off promo 12 months later, 18 months later, being replaced by a new gross add. Those customers are only marginally profitable customers. If that -- you can see from our public filings, our video ARPU and our programming cost per customer per month. And the margin on those -- on the customer base overall is about -- I think it's about $25 per month, and that number is diminishing. Now -- but for the new customer, the new customer comes on at a deep discount promo, that margin is even less than that. And so we're becoming more and more indifferent to the video attachment rate on gross adds. And that's what we're seeing our loss with video customers most significantly. It's just a lower video attach rate to gross adds, which is down as much as 10 or 15 points in our Eastern footprint just over the last 12 to 15 months, really. So a pretty material and pretty fast decrease. Those customers are not that valuable to us. It certainly creates revenue challenges to the extent we're not getting those video customers on gross adds any longer. Because it is about 3 products -- about 3 core products, it is the one that offers the highest ARPU. But the challenge on a gross margin basis, as I just explained, is considerably less than that, on EBITDA, less than that because the video customer can be a much more expensive customer to service. And then on a free cash flow basis, I think not having those video customers over the shortfall is probably accretive when you think about the CPE cost of arming up a new video customer. So very, very sensitive to the long-term profitable video customer, more and more indifferent to the short term kind of churn as we like to toggle back and forth between us and other providers just to stay on promo kind of perpetually. And those customers exist, and those customers are not really profitable. So that's kind of how we're thinking about the video market in kind of in those 2 different tranches of customers.

Got it. It makes a lot of sense. So...

It's very much about retaining the longer-term ones with more indifference towards gross adds and probably getting a little more aggressive, as most of our peers have, about passing programming costs through to our video customers.

Okay. Good. I'll get to that in a second. But it sounds like the gross adds are -- if there's a change in trend in the subscriber growth, it sounds like it's more on the gross add side. Has churn been relatively level or maybe the pandemic is even lower churn, given all the time people are spending at home in front of their TV sets?

I think that's right. We've seen lower customer churn in 2020 by virtue of the -- it's by virtue of the pandemic, to a lesser extent. But I think a contributing fact as well is programs like the FCC Pledge and the New Jersey Executive Order, which have essentially precluded us disconnecting certain customers for a period of time. But nevertheless, overall, churn has been lower in 2020 overall. But if we're talking specifically about video, the biggest driver by far in the change in video trends is the attachment rate to gross adds.

Got it. Got it. And then you mentioned price increases. We've recently seen announcements from Comcast, from DirecTV. Hulu Live actually announced a pretty meaningful price increase, I think, that just went into effect. How do you think of -- you said you might be more aggressive passing through programming cost increases. So I mean can we expect another sort of similar price increase or maybe larger than what we've seen in the past for you guys as we look out into '21 on the video side?

I think it would be similar. I think that element of getting a little more aggressive on the video side was probably characteristic of our February 2020 rate event. We've recently informed our customers of our next rate event, which is really starting in the November, December time frame. I think in terms of the magnitude of that rate event, it will be pretty similar to what we saw in '19 and '20. It's a couple of months accelerated. I think we had rate events in February of '19, February of '20. This one, we're initiating a couple of months earlier. But in terms of magnitude, it will be similar. On the video side, we're going to continue to drive those -- we're going to continue to try and pass through those programming costs to our customers -- through to our customers maybe more so than we have historically, but mindful of retaining the longer-term profitable subscribers and less sensitive to the unprofitable shorter-tenured video customers. On the data side, I mean we have to be thoughtful on price increases in this environment. But given the investments we made in our plant and that we continue to make, we do have a premium product that we think is differentiated from the rest of the marketplace. And so we're -- that's kind of an offsetting factor in terms of the way we tackle the data rate event. So listen, I mean I think over the longer haul, we'd like to drive more volume-based growth. And I've talked about that quite a bit in this conversation because that is part of our longer-term growth strategy. But we do have room on rate, and we'll continue to monetize that. And like I said, probably similar magnitude to what you saw in '19 and '20, which were fairly similarly sized as well.

Got it. Great. Maybe let's switch to wireless, just give us an update. Obviously, there's been some disruption from the, again, from the COVID pandemic. Just give us an update on the strategy. And do you expect, coming out of the pandemic hopefully next year, that we could expect to see some faster growth on that side of the house?

Yes, listen, you're 100% right. We did see some headwinds on wireless growth, mostly as a function of retail closings. We had to close a lot of our retail stores. And most of them have reopened now. We're still in the process of reopening some of them. So as those retail outlets are opened up and are back on -- running at full steam, we would see -- expect to see some acceleration. But we're going to continually monitor that. We're taking a slightly different approach to this, I think, that maybe some of our peers have in terms of our discipline around growth, very mindful of a path to profitability. So really focused on zoning in on profitable customers with positive gross margins. So you saw maybe within the last month or 2, we did launch 2 new products, kind of 2 newer by-the-gig products. We have -- we continue to offer the unlimited product. Now we have a 1-gig and a 3-gig product, both of which are very profitable. And we'll continue to focus on creating profitable customers and solving for that. Once we've truly solved for that is when we would really expect to accelerate growth. So we're going to be very mindful and disciplined, probably consistent with kind of the Altice mindset, right? We'll be very disciplined about profitability. It's not going to be volume at all costs.

Got it. So given the -- can you give us a sense on sort of when we can expect to see profitability in that new business?

I think we're targeting to be breakeven on a run rate basis probably somewhere early 2022 and profitable shortly thereafter is a reasonable time frame for us to be profitable. Wireless, we've been consistent all along. Our goal is to build a wireless business that is a stand-alone profitable business on its own. The fact -- it will provide, I think, churn benefits to our fixed business, and that's really valuable. But we're not going to justify this economically solely by reference to churn reduction. We expect -- we're trying to build a wireless business as profitable on a stand-alone basis. And then the churn reduction we would get on the fixed side, while material, would be almost like an ancillary benefit.

Right. I mean it's -- I would say the other larger-game companies are using -- seem to be using wireless to sell more broadband. I mean is that part of the strategy? Is that the new sort of bundle that you guys think as you look into the future? And again, probably pretty early at this point, but are you seeing any of those churn benefits when you tie wireless into the bundle?

I think it is too early to tell. As far as the churn benefits we're seeing today, I'm not sure we have enough critical mass to make that evaluation. And again, at the risk of sounding like a broken record, we do have the experience of some of our sister companies to lean back on. And certainly, they've seen that churn reduction. There's no reason we wouldn't expect to see the same. I mean as far as your initial question, is using wireless to sell more broadband is a part of the strategy? Yes. Certainly, it's part of the strategy, but it's not only to be the way that we justify wireless economically. We're going to justify wireless economically by virtue of stand-alone wireless results. And then to the extent we can drive increased broadband penetration, lower churn on the broadband -- on the fixed side, those will all be material but ancillary benefits.

Got it. Okay, maybe switching to advertising. We started off the conference here with our ad panel. And even these ad experts were surprised at just how quickly the U.S. TV advertising market came back and how robust it continues, a lot of it due to political. But anything you can tell us about what Altice is seeing in terms of fourth quarter trends or both with political or ex political and sort of what the outlook is for '21?

Yes, the political tailwind has been substantial in the fourth quarter. We had a really strong October and a little bit of remnant stuffed into November. So the political absolutely -- which did materialize as expected and has really fueled our News and Advertising division in the fourth quarter. I'm not going to get specific around numbers. It's a little premature for that, of course. But I think if you talk big picture, I think this year, you look at the impact of the pandemic, very hard to quantify that and put a number on that. But if you look at globally, the impact of the pandemic would certainly hurt our second quarter quite a bit, and we started to see some bounce back in 3Q. And then you look at the political, they sort of offset to the point where right now, our aspiration, which we've been pretty clear on, is to come out flat on revenue, flat or modestly up for our News and Advertising revenues in full year 2020. I think we will hit that target. Going into 2021, the challenge is to replace that political growth, which will not replicate itself in '21, but I do think we'll see market bounce back as well as continued product expansion, such that we would look to be modestly flat or show modest growth in '21 in a nonpolitical year versus a political year in 2020. I think we really do have some good and ample momentum. Clearly, everything has to be caveated by the notion of any sort of second wave of shutdowns that would materially impact this element of our business, of course. Not seeing that right now. So absent that, I think we would be in a position of growth in News and Advertising for '21.

Got you. So that's got to be -- the strong political in the fourth quarter is going to be obviously good for margins, overall EBITDA growth. The company has talked about seeing accelerating EBITDA growth in the second half of the year. Are you guys still on track from that? And do you think you could see total revenues and EBITDA continue to grow nicely as we look out into '21?

Well, yes and yes. Yes, we are very much on track to hit our second half targets in 2020 as to EBITDA growth. And we certainly -- again, I'm not going to start issuing guidance on this one. We'll do that in February, but we certainly expect revenue and EBITDA growth in 2021.

Got you. And then lastly for me before we wrap up, just on CapEx. Obviously, CapEx dipped this year amid the pandemic. Is it fair to think that we're going to get a rebound or closer to historical levels next year? And then once we look out to the end of the fiber build, what do you think is sort of a good number for sort of capital intensity in the sort of broadband fiber-driven world where you're seeing less and less sort of impact from the overall video business?

Yes. I mean, listen, John, I think we've been somewhat consistent over the past couple of years. We've consistently guided, at least initially each year, to CapEx in an envelope between $1.3 billion and $1.4 billion. As you point out, in 2020, given some of the permitting issues I alluded to earlier about the new-builds arena as well as on fiber-to-the-home, we will come in -- I think we've revised guidance, I don't remember, maybe around the second quarter, it's something less than $1.3 billion. I think on a go-forward basis, I think it's reasonable to expect us to be back into that $1.3 billion to $1.4 billion arena. I think given some of the initiatives we've been talking about around new-builds and network upgrades in Suddenlink, reaccelerating fiber-to-the-home, maybe we operate a little closer to the higher end of that envelope in 2021. But certainly, we think we can accommodate those growth initiatives within that historical $1.3 billion to $1.4 billion envelope. And again, we'll get more specific around that in our year-end earnings call. As far as to your second question, once the fiber build-on ends, I think we would expect to be running a CapEx at $1 billion or less and probably CapEx intensity of 10% or less, probably below 10%, high single digits.

Got it. That's fair. Well, Mike, again, thanks for the time today and for bearing with us with our technical issues. We hope to get worked out, but this is a really informative session, and I appreciate your time today.

John, thank you very much for the opportunity. It was great talking to you.

Okay. We'll talk to you soon. And thank you all for joining us, and we'll be back soon. Thanks.