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

Hello, everybody, and thank you for joining us for the 8th Annual MoffettNathanson Media & Communications Conference. I am really delighted to have Dexter Goei here from -- CEO of Altice.

Dexter, I want to start right in with the topic of broadband pricing because recently, I published a report that talked about your rack rate pricing and how high it was relative to peers. I want to give you the opportunity to set the record straight because I think you took issue with using rack rate pricing. You said it's not exactly an accurate reflection of the real market. Is that fair?

Yes. I mean, Craig, thank you for that. I don't mean to challenge your assumptions because you write great research. Listen, our rack rate customers, I think the numbers are about 5% of our broadband subscribers and about 7% of our video subscribers are in full rack rates, right? And those are longstanding clients that over time have gravitated towards those levels. But everyone else is significantly lower, and you can see that in our ARPUs relative to the rack rates, right?

So how does the trajectory work then for a typical customer? They come in on a promotional price, how long does it take to ramp up to the rack rate?

Well, it depends. Typically -- it all depends whether we freeze those prices for 1 or 2 years. Typically, it's somewhere between then. As you remember, we had some double promo roll-offs, I can't remember this, this must have been 5 or 6 quarters ago, where one year, we did 1 year; and then the next year, we did 2 -- or one year, we did 2 years; and the next year, we did 1 year. So the 2 and the 1 years came in at the same time. Typically, they are 1 year. And after 1 year, you typically get stepped up $15, somewhere around there, depends on the promo. And then in year 2, you get stepped up another $15 to $20. And after year 2, you still are not most likely at the full rack rates. The rack rates, frankly speaking, just like hotels, are never used. It just is a market ploy to -- for clients to understand that they're getting a significant discount relative to what the true pricing is on rack rate, but no one ever operates off of rack rates, as same thing with hotels in many respects. So that's why we have such a small percentage of our subscribers, many of them -- over half of our subscribers have been with us for more than 5 years, and those guys are not on full rack rates either. So I don't think there is a time line to get rack rate. It really just depends on where your starting point is and what some artificial numbers published on our website is in terms of the rack rate.

And Dexter, there's another topic that I just want to give you an opportunity to clear up also that we had written in a comparison -- in a footprint-specific comparison using Comlinkdata to FiOS. We said that if you held the market size constant, and that's an important assumption, I'll come back to that in a second, that the data suggests you would have lost about 140,000 customers in that footprint. You took issue with that. I think if I understand it correctly because the market isn't actually held constant and therefore, with normal market growth, you actually lost a very small number of customers. Is that right?

Yes. And I think there's a couple of points there. Number one is I think the assumptions where they're based off of ZIP Codes, don't properly reflect the FiOS zone, right? So I can't remember what the data suggested in terms of what the overlap was in terms of competitive overlap. Our overlap on the number of homes that we compete with FiOS is about 55%. We have about 3 million homes, and I believe the data suggests something like 4 million and change, right, more like 80%. And so every ZIP Code is not fully overbuilt or however you want to call it. So that's point number one. And then in terms of just the pure numbers, we lost -- we went back, because I was very surprised by that number that came out of just pure numbers that you were churning, and it was closer to 30,000 subscribers that we lost in the second half, right? So -- which is completely understandable from my standpoint given that they were out of the market for the better part of 4 or 5 months given COVID. The whole second quarter, they were out of the market, into the third quarter. And so in the third and fourth quarters, we gave some of those subscribers back to them as we've been playing a ping pong match with them for over 10 years. And the other thing to remember is that we'll only get 20% to 25% of our gross adds out of those 3 million home footprint. Most of the activity happens in our other zones, our non-FiOS zones.

Well, so that's actually a good setup. And you can -- so first of all, thank you for clearing those 2 issues up. The reason investors pay so much attention to that is that you're sort of perennially measured by this question of, can you continue to grow, particularly because the legacy Optimum footprint is both more overbuilt by fiber or with FiOS and more heavily penetrated because of the demos of Greater New York. What's the right way for investors to think about your growth runway? We tried to talk about it in a couple of slices. One way was the geographies of Optimum versus Suddenlink.

Yes. I mean, clearly, I think you're spot on, and that's been a historical Cablevision issue. And in particular, given the high penetration levels in the non-FiOS zones as well, they look for little amounts of growth. So what we learned last year is, number one -- well, not last year only, but over the last several years is that, number one, the noncompetitive zones or the non-FiOS zones, let's call it, are picking up in terms of activity. We had a huge amount of activity, 30%, 40% more activity in our non-FiOS zones last year. That doesn't surprise anyone given the dynamics in terms of population movements during the height of COVID. And secondly, a lot of our growth historically has been in the Suddenlink areas. Because the new household formation has been high, we are not overbuilt by fiber players by more than 20%. And so we do have a longer runway there in terms of penetration numbers and also in terms of incremental household growth. As you've heard us say for the last couple of quarters, I believe, we're very focused on volume growth going forward. We've been so busy on so many different integration relation issues between the 2 assets, harmonizing things, anything from programming contracts to IT, BSS/OSS, to launching mobile and those types of things that now we're singularly focused on driving incremental volume growth in our business. And so we have 3 pillars. The easiest pillar, and anyone would say this in the business, is by reducing churn, right? So you reduce churn, not only does it help your volume numbers, but more importantly, it's a very, very cash flow positive effect on a like-for-like relative to our gross add. And so we're very focused on accelerating what's been a longstanding project on FTTH in our Optimum footprint. And so we'll see an acceleration. Last year was a nonyear given COVID. We've gotten the troops moving this year. We'll do 500,000 homes plus this year. We'll end the year at over 1.5 million homes. We're focused, obviously, on completing the FiOS zones. So we've got probably another 1.5 million homes. We will get those done over the next 2 years. And then we will continue to expand our footprint where it's economically sensible to do so within the Optimum footprint with fiber. That is showing already, early to tell because the volume numbers are small, satisfaction rates that are significantly higher from customers, NPS rates, obviously. Customer touch point interactions with customer call centers and service visits coming down and churn numbers coming down. Those subscribers, the early ones have only been around for just over a year, but we're accelerating in terms of gross adds, 60%, 70% of our gross adds in those zones are taking fiber and another 2/3 of those fiber customers are taking 1 gig. And so we expect to continue to drive incremental OpEx savings because of the customer satisfaction and then reduction in churn there. And then obviously focused on reduction in churn throughout our footprint. I think from an industry-wide standpoint, nonpay disconnects have been better. So I think you're probably hearing that from some of my peers. Given the COVID dynamics and given how important home broadband is to families and to people, the retention efforts have been very good. And nonpaid disconnects have been very, very good as well as people are prioritizing their broadband bill over or equal to other essential bills. So that's one of our pillars there, and that's just purely offensive and defensive in terms of the network. On the offensive side, we'll be multi-gig ready. We expect to be multi-gig ready by next year. It's all about the chipsets with the modems. As you know, we have a global shortage of chipsets. But if you get your orders in early enough, I think we'll be we'll be ready on that. And we're really looking forward to being offering up to 10 gigs next year at some point. Hopefully, that does not slip into 2023. And then we have the 2 other key pillars. One has been an industry one for many, many years, which is edge-outs. And so we historically have been doing somewhere between 50,000 and 75,000 edge-outs in the Suddenlink footprint, always about 20,000 to 30,000 in the Optimum footprint, just new household formation or new communities becoming more efficient with their space and putting in more units. And we're looking to move that to 100,000 to 150,000 over the next couple of years so that we're overall trending towards edge-outs and new homes in the 150,000 to 200,000 range for the foreseeable future. And that clearly, given the dynamics of the areas, particularly in the Suddenlink area, which are not overbuilt by another fiber or cable operator, we see very, very quick penetration levels over 2 years to get to 50% type levels. And so that's going to drive volume growth there. And then the third one, which is something that we're focused on now and haven't been historically focused, if we have about 700,000 nonfully upgraded homes in the Suddenlink footprint, 400,000 of those are very low penetrated and don't have relevant speeds. We're focused on upgrading those this year. I think we will deliver in the second half of this year 250,000 to 300,000 of those and the balance of them in the early part of next year and then we'll look to upgrade the rest of those over the following years. Those 3 should take us to -- the math will suggest that it takes us to much higher levels of customer volume numbers as they cascade one after the other over the next couple of years.

So that's interesting. There's a lot there in that answer to drill down on. Let me go back to the portion where you were talking about fiber and start there with your FTTH. We talk about this each time you're here, and you talked about it just now as a cost reducer, but the cost reduction was in part due to lower churn and lower call volumes from trouble reports, which suggests that it is both a service quality issue and a cost issue. But how do we think about that? Are customers demanding a higher-speed service that the hybrid fiber-coax plant just can't deliver? Or is this primarily about a cost for eliminating amplifiers, reducing trouble reports and improving customer service?

I think it's both. The analysis that we've suggested historically throughout our global group, where we've got sister companies who have been doing this for many, many years historically, is that the cost, obviously, of maintenance goes down significantly, the cost of power comes down significantly and the stability of the network is second to none relative to coax. I think what we're seeing over the last couple of years, particularly last year, is 2 things. Obviously, speed upgrades is critical. So people want the top speed. As consumers, even you and I, who, let's call it, were well in tune with a lot of the nitty-gritty of our businesses, no one really knows what the difference is between 200 megs, 400 megs, 1 gig, right, in terms of their experience in many respects because sometimes the coax network flutters during the day, depending on the usage in your neighborhood. And when you go to FTTH, you start getting direct capacity right off the backbone, right? And so that unique technology really allows you to have a much, much better service and much better latency, as you know. And then that in itself, plus the market distinction of the performance is not just primarily on download speeds because as we go to multi-gig, we're going to be going out there with much higher download speeds, but as many of you know, everyone on this call today, upload speeds have become very important. Now the average consumer has no idea what that means because it's all marketed on download speeds. But upload speeds, as all of you know, once you start getting 2 or 3 Zooms going in at the same time in your household, you start seeing a significant underperformance of your network. And the HFC networks, typically, I think if you look at operator to operator, we tend to be one of the higher upload speeds in terms of what we provide, anywhere between 35 to 50 megs depending on where we are. But once you get to symmetric fiber speeds up and down, it's a game changer. And some of the analysis that we've done in terms of what the cost is of upgrading the network in order to get much higher, not even symmetric, but much higher upload speeds suggests that the cost is as much as we're spending, if not more, on the fiber-to-the-home overbuild that we're doing on ourselves. And so these are pillars for the business going forward where the performance of the network is going to drive, obviously, revenue opportunities because we'll be able to be 10-gig ready in the next 18 months and deliver that product to consumers. But more importantly, the entire experience where you really are end-to-end fiber and not fiber-to-a-coax drop, which some other fiber competitors of ours utilize, it's really fiber end-to-end where you've eliminated all the coax in your network. And you'll have just a significantly better experience, which really drives all the issues that we talked about, OpEx in terms of customer satisfaction, truck rolls, calls into the call center, but also then the runway on the revenue side.

So when do you come in behind -- right now you're just connecting new customers to that network. When do you come in behind your legacy network and start replacing drops with fiber?

Well, today, we are overbuilding our existing network, right? So the whole question is migrations. So there are customers who are proactively migrating. So they're coming to us saying, "Listen, I understand you have fiber. My neighbor has it. I'd like to migrate." We haven't gone out and proactively gone to our existing coax customers in our 1.5 million fiber homes and look to migrate it because it's an expensive CapEx exercise, right? It's a time-intensive as well as capital-intensive exercise, but we are going to do that. Once we start getting a lot more volume drivers and getting a lot more efficient on the install process, we're going to start aggressively migrating people.

And let me drill down on the edge-out strategy that you talked about, where when you get to 150,000 new homes per year, what's a typical penetration time line for those homes? Is it..

Typically, we see 35% to 40% within 12 months of releasing that home for market and 50% within 24 months.

So that would say that within 2 years after reaching that full peak, if you're getting to something like 80% -- or 70% to 80% penetration ultimately, after a couple of years, that essentially all drops down to the net add line. Is that fair?

That's right. So no -- and just to be clear, I don't know why you're using 70% to 80%. They're not cumulative. I think the overall penetration levels get to about 50% within 2 years.

50%, okay.

And so if you're doing a run rate of 150,000 a year, let's call it, you're getting 75 over a 2-year period, right? And so -- but that starts compounding, and it's just math there. And so yes, that goes straight -- drops straight down to the bottom line in terms of gross adds, right?

And then those 700,000 unupgraded homes in Suddenlink territory, when you say unupgraded, that's plant that is still not even [ 7 60 ] or that's...

It depends across because there's -- these are very small pockets of households across the country in terms of the network architecture. We have only 92% of our entire Altice USA footprint today that's upgraded to 1 gig. So that 8% is part of that 700,000. 8% of 8.5 million homes, the math is 700,000, right? So they're not upgraded to 1 gig. Some of them perform and deliver less than 100 megs in bandwidth. Some of them are upgraded to 200 or 300. We're looking to upgrade all of those up to 1 gig. But more importantly, there's about 300,000, 400,000 of those homes, the first 400,000 that are penetrated on average 25% to 30%, right, on low speeds. And we should be at 50% and mathematically, if not higher, but the minimum threshold should be 50% penetration at higher speeds and higher ARPUs.

And so between that and the edge-out strategy, it would sound like you actually have a number of pockets of really meaningful growth that are sort of up your sleeve separate and apart from new household formation that organically happens anyway.

That's exactly right. They're not up my sleeve, I've been speaking about them for a couple of quarters.

Let's talk about another source of potential growth. Today, the EBB, or the Emergency Broadband Benefit, started for applications. I saw it on your website this morning that you now have your page up. And can you just talk about what you expect or what you've done as a company to be ready and then what you expect in terms of growth uplift from that?

On the first point, listen, the entire organization, the sales organization, inbound, outbound, door-to-door, retail, is going to be offering these to all customers looking to gross add, right? So identifying those customers who may qualify. The process is you go through a third-party verification firm to make sure that they qualify. It's not too hard to figure that out. We provide that subsidy on their bill, and then we get reimbursed by the federal government on that. So the entire sales organization is already prepared to have those discussions with gross add customers and our existing customers that call in and are looking for that subsidy. So the processes are in place. We expect it to go smoothly. We expect the reimbursement from a cash standpoint to go smoothly also with the federal government. The nice thing is $3.2 billion will last, I think there were estimates in the Wall Street Journal I saw, about 6 months out there, but there's a real discussion about it becoming something more permanent out there. So I can't tell you what we think the uplift is. We're not ones to always promote revenue opportunities because we don't want to miss, but it would be a head scratcher if it didn't drive incremental adds or incremental revenue, right?

I want to go back to the topic of broadband pricing for a second. We talked about your broadband ARPU and understanding that it is subject to all the distortions of GAAP allocations and what have you. But how do you think about growing ARPU from what is already a reasonably high level at $74.12, I think, last quarter, how do you think about growing broadband ARPU from here? And how much of your growth comes from pricing versus how much of it comes from voluntary up-tiering into higher speeds and what have you?

Well, we've been speaking about this quarter-over-quarter, which, typically, in our historical quarters up until the last first quarter, we've had 1/3, 1/3, 1/3, right? We've been about 12% to 14% broadband ARPU growth. 1/4 -- sorry, 1/3 of it has been accounting-based, 1/3 of it has been rate-based and 1/3 of it has been up-tiering-based, right? And so in the first quarter, as you saw, our broadband ARPU numbers, I think, went up 8%, 9% because the accounting issue is no longer affecting our broadband ARPUs. It was more affecting now the video ARPUs in terms of the allocations. So it's about half and half in terms of the growth is coming from rate and half of it's coming from up-tiering.

Okay. Let's move to wireless for a minute. And if I think about kind of where you started, you were very aggressive out of the gates with wireless, with super aggressive pricing and you've moved to more moderate pricing. There's a sense that you're still sort of finding your way in wireless and finding the strategy. Is that fair? Verizon -- the Verizon contract for Comcast and Charter is supposedly a higher variable cost than your deal with T-Mobile. And yet, they have sort of been a relatively steadier growers. Talk about kind of the -- where you are with the wireless business.

Yes. I mean, Craig, I think all of the commentary is fair. We went out with more aggressive pricing off of a network that, let's call it, was an underperforming network, right? And so the confluence of going out with an underperforming network where the U.S. customer is not savvy on the e-commerce side of subscriptions on mobile, particularly on the MVNO side, and other IT-related issues that we were dealing with and, obviously, all the locked phone types of issues that are out there, it all became a let's wait till we gravitate to being on the T-Mobile network because we were seeing extremely high levels of churn because of network performance. That is behind us. I mean not all of the churn is behind us, but we've been rehomed on the T-Mo network now since the fourth quarter in the beginning of this year. Our churn rates have come off 20%, 30%. And every month and every week, I look at the numbers, they're coming down. We saw no sense, and the advantage of our colleagues over our Comcast and Charter is that they were on a very stable network since the beginning and went out there and promoted heavily their mobile service and have seen, obviously, the numbers grow in terms of subscribers. We also, though, care about money. And so we're really focused on getting to profitability and finding that right balance between volume and profitability. And so now that we're back onto a T-Mo network, that's a great network, we're starting to see the trends where churn is coming down. We're not doing any heavy promotions yet. We've rightsized our pricing. Because the market is accepting it, you don't need to be overly aggressive on pricing. And we're seeing the results. The numbers are small, they're tiny quarter-over-quarter. But I want to get all the kinks out of our business if there are any things left before going out in a bigger marketing campaign, right? And so today, I think you should expect us to be focused on profitability and not necessarily on volume and making sure that all the technical sides of the equation are working well. And then at some point in the near future, we will go out and be more aggressive on the marketing side.

Is it reasonable to guess that, that some point in the near future would be before the next iPhone launch, assuming that's typically an October, November time frame? Is that -- do you think that you'll be sort of operationally ready to be more aggressive by then?

It's right around there. I think that maybe we missed the date specifically, but it's around the fourth quarter, right, is kind of our perspective.

Got it. Okay. And your strategy for a while, particularly back when it was a Sprint contract, was very skewed toward offload, with a somewhat different concept for small cell offload than what people think about today with Comcast and Charter's Verizon MVNO. Can you just talk about what role small cell offload plays in your vision for the T-Mobile relationship?

Well, it's -- you should speak to our friends over at T-mobile. I don't want to get ahead of them, but their 5G strategy is critical to them. The usage of that spectrum that they acquired from -- the mid-band spectrum that they acquired from Sprint is critical. So I think they're going to go a completely different path than Sprint was in terms of their very, very deep small cell offload strategy and really start releasing that spectrum more for their mid-band 5G strategy, right, which I think is the right thing for them to do strategically out there. So where Sprint was willing to go deep into neighborhoods and hang a lot of small cells, I suspect our friends over at T-Mobile won't be doing that type of strategy going forward. So our offload strategy relative to our existing WiFi network continues to be good. We see about 20% -- a little bit less than 20%, 15% of our traffic gets offloaded onto our WiFi hotspots in our backbone. The remainder is roaming.

Exclusively the public WiFi hotspots you're talking about?

Yes. Public WiFi hotspots. And also, obviously, all of the SSID codes that are on your modem are not all yours effectively.

The dual SSID codes.

Exactly. Yes.

Yes. So you talked about T-Mobile deploying small cells and that your expectation is they probably won't. What about you doing it yourself with unlicensed spectrum, say, to just try to offload as much traffic as you can from your network so that you can lower your marginal cost?

The problem with that, with us, specifically, Craig, is that we're small, right, in terms of our footprint. And so particularly in the New York area, where people are moving or will be moving again in between various areas, you go from Long Island to Queens, you drop off of our network, right? And so to go out there and spend quite a bit of capital, either on licensed or unlicensed spectrum, where the coverage is very spotty, given that we've got donut holes in certain parts of our footprint, for us doesn't seem or feel like a good use of our capital, right? To the extent that we could team up with someone who's building a network or wants to allow us access to their spectrum in our region, in the greater region, let's call it, the Tri-state area, then that's something that's more interesting for us. But to just look to do coverage in certain parts of our network is probably not a good use of our time nor capital.

So let's transition to video. It seems like almost an afterthought sometimes, but still a large part of your business. How do you think about the video attrition problem? Is it just a matter of just sort of managing the runoff of that business? Or is that a business that you really actively want to retain? Because there are customers where you're making money, right?

Yes. It's a profitable business for us, not only on the pure video business, but obviously, it plays into our news and advertising business as well, given the inventory that we get there. The attachment rates have pretty much halved on our gross adds, which is a good thing because it's a great enhancer to cash flow that those subscribers tend to be cash flow breakeven when you put in the CapEx and the install after 3 years. And you would be remiss to think that most of your video subscribers are going to continue to be video subscribers 3 years from now given the trends, right? And so we're focused on keeping our customers, our longstanding customers, very happy. Obviously, it's all in the economics on the pricing dynamics for us. The industry, I saw Charter came out with their second video price increase within a year, right? I think they did one in August and they just did one right now. And so -- and everyone is looking at rightsizing their video cost base by pushing rates higher and pushing that on to consumers. And if consumers would rather go to a vMVPD or a direct-to-consumer type of approach, that's fine as well, by the way. And I think the entire dynamics on this endless runway of high single-digit, double-digit price increases on programming is coming to an end, right? Because ultimately, every single one of the large content providers or even some of the medium-sized content providers have direct-to-consumer offerings. And many of them would like our industry on the cable side and the distributor side to continue to finance their rollout of direct-to-consumer. But I think at some point, we probably won't want to do that anymore because people are...

So what does that look like? If you go into a negotiation with a programmer that is making their best content available on DTC platforms, potentially including even NFL football for broadcasters, and is seeing 20%-plus declines in their Nielsen ratings, what does a renewal look like for those? Are we -- should we start to expect big down renewals?

I think that's a question you should be asking all of our brethren for the next 12 months because I think we're just getting into that, right, which is I think we are supportive of helping our content providers on their direct-to-consumer offerings, right? So that becomes part of the discussion is how to push those offerings on to our consumers. The easiest way to get to our consumers is through your cable operator today and your wireless operator. At the same time, maybe pausing in that negotiation, saying, "By the way, that number that you're throwing in terms of your first offer on price increases just looks wrong," right? And I think we're -- we've seen that in several of our negotiations already. I think you're going to continue to see that. But I don't think it's just the rates are going to flatten or to drop, I think channels are going to get dropped overall, right? Because as you say, Nielsen ratings are coming down dramatically. Direct-to-consumer offerings are readily available. People are getting used to swapping between apps on their Roku or Apple TV or whatnot. And so there's very few people that I know today who are actually sifting through their EPG guide on their cable box. You know your sports channels, you know your news channels, and you probably don't watch anything else on your live cable anymore. And so this is going to be -- this trend we've been speaking about it for a bit of time. You've seen the numbers where the entire industry is in high single digits in terms of the churn or the video losses in terms of units. I think that's going to continue. I don't know whether it -- all of a sudden, it accelerates where you start getting very rapidly to under 50% penetration of your subscribers if you're coming from something very high like we are. But yes, I mean, we think it's a good trend.

Yes. I want to poke on that for a second because you said something potentially really interesting a minute ago when you said that you couldn't assume that 3 years from now that customer that you're signing up is still going to have video. Is that because the churn rate on individual customer relationships is such that the average customer doesn't keep it for 3 years? Or are you making some much bigger strategic observation that the video business may not survive for much more than 3 or 4 years?

I think the big fat bundle where there's no transparency on pricing for clients and where the experience is not great relative to many of the direct-to-consumer offerings that are out there is something where clients are sitting there and going, "What's the point? I never watch it anyways." And if live sports, as you mentioned, more and more are going to direct-to-consumer offerings. News, the way we consume news and the way I consume news has completely changed. I don't watch live television, other than maybe over the last couple of days because of what's happening in the world or presidential elections or those types of things. But you're not consuming your news the same way. You're getting alerts on your phone and then you're curious to see whether or not you're going to look at it or not or someone is tweeting something or whatnot, right? So the whole average minutes that you're watching television has come down dramatically, and it's going to continue to linear television, and it's going to continue to fall. And so the reason why I think that in 3 years' time, it's going to be a bet that you may not want to take that your customer is still going to be a video customer is because behaviors are changing rapidly out there. I always quote that I don't know one 30-year-old or less who has a linear cable subscription. I bet you that number probably is 35 years old. Not that I hang out always with people that are much younger than I am, but no one that I know who's got children subscribes to a video bundle, to a linear video bundle. And so it's just a question of math, right? As the population ages and behaviors are changing dramatically, even amongst those who grew up with cable bundles like myself, you watch it less and less. And even for those people who are economically insensitive, just getting rid of a cable remote may just be an incentive to get rid of your video subscription out there. So we're going to continue to have a focus on it because our existing customers, particularly our longstanding customers, are very profitable for us. We are going to continue to pass aggressively rate increases on to our customers, particularly our gross add customers. And for those who potentially -- who are in promo or rolling off promo are still very skinny gross margins. And let the consumer speak with its feet. We're very focused, obviously, on the broadband product, which on a margin basis, as you know, is significantly different. It's very, very profitable. Our EBITDA margins we expect to continue to rise, just as the mix shift continues. Forget about even just what we think is going to happen in terms of churn reduction and OpEx costs reducing as our network continues to improve. But the video business in itself doesn't look like it's something that you would stick your own money into start up today in terms of business.

So how high can your margins get? Everybody has sort of known that your margins were going to expand and yet they keep beating expectations anyway to the point that now you're -- and you're seeing margins in the industry at Cable ONE, for example, that are already flirting with 55%. What kind of margins can this business generate?

I mean let's look at the bookends, right? I think today, we're at 44%, 45% with still a decent video penetration number. Our video penetration numbers have got to be 3x higher than Cable ONE, right? And if we had the same penetration levels as Cable ONE on video, we'd be higher than 55%. And if you were to take a broadband-only business, where it's 100% gross margin, but call it a 95% gross margin if you're allocating some direct cost into that, how much OpEx do you really need, particularly as you start continuing to move into more of an e-commerce type of interaction and a self-install basis, I don't want to spook anyone, but you're talking 65%, 70%, 75% EBITDA margins you can think about because your OpEx base starts to shrink. Obviously, competition is increasing and those types of things, which may put some pressure on those margins. But that's the high end of a broadband-only consumer business out there. Today, at our 44%, 45%, just on mix shift -- I'm sure your model, I know you well enough, Craig, is very detailed. But as you continue to play with your churn rates on video, and you're just punching in we talked about what the gross add incremental gross adds could be and you backsolve for some churn number, your number, I'm sure, is spitting out high 40s, low 50s in the next 5 years. That's just mathematical.

Yes. I think that's right. You almost certainly get above 50% within any reasonable time frame for a 5-year model. So let's wrap up on the topic of M&A and capital structure. The last deal that you did, Morris, but in general, the deals in the market have gone for very high multiples. Now your post-synergy multiple was actually quite low on that deal. There were a lot of special circumstances that made that pre-synergy number look a bit misleading. But I do wonder, has the private market expectation for exit multiples, or what are for them exit multiples, gotten so high that it sort of makes it difficult to get any deals done?

Well, listen, I think purely on M&A, I think we've proven our stripes that we -- when we look at things and we think we can integrate them well and we could help grow the business, but at the same time, harmonize the cost basis, we've overdelivered every time we've done that. And so the headline numbers may look spooky. You got to also tax-effect it for the accelerated depreciation, right, as you take the step up. So they become a little less spooky. And then our views on how we can enhance the business, both from a cost standpoint, a footprint standpoint and a revenue standpoint, we've got certainty in our ability to do that. I think the whole issue here is that people are looking for growth and our value and growth sometimes on a short-term basis as opposed to a long-term basis. And you who runs your very extensive DCF models, it may be very difficult for you to see massive value on certain M&As at certain price levels because ultimately, things normalize and stuff. But we do think that given the dynamics in the sector, given what we think we can do with third-party assets that these are very accretive use of capital. I don't think it's escaped anyone in the market that in the absence of us being able to deploy capital efficiently in the M&A side, we think our stock is super cheap. And so when you see private cable operators or private multiples for sizable cable businesses going for 13x, which are much less attractive than our business, and I'm trading at 9x, well, I'm happy to continue to buy my stock and do that, right? And take the...

That's a great place to maybe wrap up with one last question, which is I think over the last, what is it, over 4 years, you've bought 1/3 of your shares outstanding back or something like that. And if I just look at the shares not owned by Patrick Drahi, it's getting close to half now. Is this just a sort of creeping privatization story? And is there a point at which you'd say it doesn't need to be a creeping privatization, we should just go all the way private and buy in the rest of the stock.

Listen, we generate a significant amount of free cash flow, right? And on a like-for-like basis, we generate -- we convert a lot more free cash flow than our peers do. We've taken out about -- we bought back about $7.5 billion of stock over the last 3, 4 years. We had 737 million shares. I think we're close to about 450 million shares today, right? And that's all come out from the public float out there. The public float is less than 50% today. And in terms of what really truly trades, if you take out index funds, you probably are dealing with a public float of 30%, 35% of liquid public float out there, which off of a $17 billion market cap takes you somewhere around $6 billion-ish of true public float. The math is quite simple. We've been buying back -- if you exclude a onetime tender in December of last year, we've been buying back $1.5 billion to $2 billion a year. So at price constancy today, that's your answer. In 3 years, there's no more public float that's tradable and the index funds will have to exit as well, right? So I think we are content today doing what we're doing, but we're opportunistic. So when we think it's -- so when the stock was trading at $31 and on a like-for-like basis, infrastructure funds are buying stock at $60, and you sit there and you go, "This makes no sense. Why don't I buy at $30 and then if I own the whole thing, I could sell at $60 or $90, right?" So that hasn't escaped us. We want our shareholders to make as much money as possible. But if shareholders want to sell at what we think are cheap multiples, then we're happy to buy it back in the absence of being able to deploy our capital elsewhere efficiently. So maybe time will tell.

It's a great way to leave the conversation. It leaves lots of things to think about. Dexter, thank you for being with us today. Always a pleasure. I look forward to next time being able to do it in person.

Craig, thank you so much for having me.

Been a terrific discussion. Thank you.

Bye now.