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

[Audio Gap] we get started. I'm showing the top of the hour. So first of all, I want to thank all of you who are here in person, and thank you to those joining on the webcast. Welcome to MoffettNathanson's 9th consecutive -- or 9th Annual Media & Communications Summit. We have a lineup this morning that will include the 3 largest publicly traded cable operators, and I'm delighted to start that conversation with Dexter, who is here for your fifth year, I think. So...

Keep tracking.

Time flies when you're having fun. This has been a pretty eventful year, to use a relatively bland -- since the last time you've been with us, you have announced big reinvestment in your network, an acceleration of that, more OpEx spending, a target for lower leverage. You've suspended buybacks. You've reramped -- revamped your mobile offerings and your -- the market has not been kind to your stock price. I know everybody is desperate for me to sort of ask the question of tell me how broadband net adds are trending in the second quarter or the micro stuff, but I want to start much higher level than that. I want to think about your vision for where you're going, and maybe start with the convergence conversation. Because you've seen a lot in Europe and -- what is your vision for a converged cable operator in the future?

Well, listen, I mean, I think everyone is -- in the cable world who's been talking about mobile or vice versa, mobile operators talking about fixed line have been talking about convergence and the churn benefits and the customer satisfaction benefits. If you go to a European context of this where national carriers are pretty much fully fiberized or on the way to being fully fiberized and have 5G coverage nationwide and there is wholesaling of networks, you're seeing effectively convergence ratios of 55%, 60% of subscribers are taking fixed and mobile. And the churn benefits are, if you go from where we were in terms of single fixed line churn numbers in the low to mid-teens, you're seeing quad-play churn levels in the high single digits. And I'll tell you, like in Portugal today, we're seeing 7% to 8% churn levels on quad-play people. And so that is the play.

Annual?

On an annual basis, exactly. And so that's the play. It's coming to the U.S. a little bit -- much later than it is in -- from a European context, but it's the same theory there. Obviously, we don't have national carriers here and we don't have wholesale of fixed networks. But by and large, the benefits of churn are similar if you exclude moving because from a moving standpoint...

Your competitors can't do it, though. They don't have -- Verizon covers, what, 11% of the country with fiber. AT&T covers 13%. Your competitors don't have the ability to offer a converged offering...

On a national basis. So you got to exclude -- so the churn benefits are really you got to exclude the moving out of footprint from a fixed line standpoint. But the whole experience that you have of having one converged offering, better pricing, supposedly better customer service is really going to drive churn benefits. And you see that in terms of the stickiness of your customer base.

Is there any -- so I understand the sort of the bundling value, but to start bundling with a small B of -- it's all on one bill and why not get it from the same provider. Are there product integration or service integration ideas that say, here's why wireless is much more valuable if you get it from the same provider as your wired or vice versa? Let's say there's an integrated service offering that really elevates it beyond just let's get a discount for multiple products?

I'm certain that some of my peers would like to say there is, but there really isn't. So it's really a function of just being with one provider, feeling good about being with one provider, much more about brand awareness and perception of the network than it is about actual service.

And there is a cost advantage to doing it on your network, and I'll come to that in a second. But I want to use that vision of a converged offering as sort of a segue into your fiber plans. Because I think investors have to see what you're doing in fiber as -- in the context of that vision for the future. Your peers are convinced that DOCSIS 4.0 is the answer, but you've chosen to completely fiberize your footprint. And you're going to go to 6.5 million homes passed, eventually 70% to 80% fiber in your footprint, and that's going to cement your competitive advantage. How does that transform the offer itself? I mean, I think you've got some product vision there that's differentiated.

Yes. I mean it's not so much about only speeds, right? So our friends over in MVPD land talk about DOCSIS 4.0 just in terms of speeds. I think it's very good to take one step back, which is, from a cost standpoint, just from a capital allocation standpoint, our view of going to 1.2 gigahertz to 1.8 gigahertz and going from N+2 that's closer to N+0 on a DOCSIS 4.0 type of upgrade is similar in cost on what we're spending in the East on optimum fiber to the home. So if you take that as a truism that we're not far off, what we've looked at is 2 things. One is obviously looking at what our -- what peers are doing around the world. And there's no one else going to a DOCSIS 4.0 type of architecture in terms of an upgrade. But more importantly, what are the issues in terms of customer experience and why do people have poor customer experience on a coax network than they do on fiber? It's simple math, which is today in our coax network over our 9 million-plus homes, we have about 750,000 active components, amplifiers, CMTSes throughout the network. If we were to fiberize our entire network of 9 million-plus homes, we'd go to 4,000 to 5,000 active components.

So from 750,000 to 4,000 to 5,000?

4,000 to 5,000, exactly. And so you can be the biggest engineer, smartest person in the whole world, you can get 1,600 in your SATs all day long, just knowing that you're going from 750,000 active components that can fail and that can create contention issues into your network, going to 4,000 to 5,000 is going to drive a much, much better customer experience and overall lower cost to serve -- massively lower cost to serve. And so when we look at that just pure equation, if I were to go to DOCSIS 4.0, I'm still going from 750,000 to probably around 250,000 active components. And that removal of 500,000 active components is why the cost of upgrading to 4.0 is so expensive relative to -- or very similar in cost relative to what we're doing with fiber to the home.

And so I think -- that's one of the things that I think is a constant debate probably more about your stock than any other in the sector, which is your capital intensity is going to be higher while you're doing this but theoretically lower when you're finished. And so the terminal value of your stock should be based on a lower capital intensity assumption. What is that assumption? Do you think that this is a long-term less than 10% capital intensity...

Yes. I mean it's not presumably, it will be, right? So if we look at today our capital budget and you just try and figure out how much we spend on CPE for customers in terms of gross adds and how much we've put into a maintenance view, that's about $1 billion: $400 million CPEs for customer growth; $600 million of maintenance, of which $100 million of that is Lightpath. So $500 million for the cable network. That $500 million number goes down to about $300 million because you're no longer splitting nodes and you're not doing the maintenance that you're doing in terms of maintaining your coax network, in terms of replacing amplifiers and those types of things. So you're doing $300 million of CapEx on the network and another $400 million, let's call it, on customer growth and -- assuming customer growth is the same thing, and you're still at the same price points in terms of your gateways in your CPEs, that's $700 million, right? We don't see it spending -- and that's before, obviously, any planned extension in terms of edge-outs or anything like that. But those are the numbers we're looking at.

And we'll talk about wireless in a minute. I know everybody is desperate to get to broadband net adds. But I'm going to make people wait a little bit longer because wireless is really the other piece of the story of the future Optimum, future Altice. First, it seems like there have been so many fits and starts of getting the wireless business up and running on the new T-Mobile contract. Now that you're there, sort of paint the picture of where we finally are and what that offer is going to look like and what you think happens to your business now.

Well, if you may have seen yesterday, the ACSI named the Optimum Mobile as the best full-service mobile operator. So not that J.D. Power or PCMag or ACSI are the end to all ends, but the service is a good service. We finally can say that. We've been on the T-Mo network now for about a year, and we signed a new T-Mo MVNO agreement about a couple of months ago. And so you've started to see us being a lot more promotional, a lot more aggressive in terms of how we're thinking about attracting new mobile subscribers.

And by the way, it's interesting that you're advertising actually names T-Mobile.

Yes. We're allowed to do that.

It's just a contract term that I've not seen in the industry before where you get to say who your carrier is.

Amazing negotiating team on my side.

Yes.

So -- but you're right, which is we're able to talk about the fact that we're in a great network, that you've got the best 5G coverage in the country. And on top of that, obviously, we've been a lot more promotional as you've seen on Optimum Mobile as we're starting to rebrand as well. So the whole rebranding exercise where mobile is becoming the forefront fibers, you're going to see, particularly for those of you who go out to the Long Island, fiber, fiber, fiber. We launched this morning multi-gig announcement that will start in June out in Long Island, and then that will continue to the rest of the footprint for the whole year. So the whole marketing element of mobile and fiber is going to start getting a lot more aggressive and hitting the airwaves. But at the end of the day, we have a very good service. We have a very good contract. We're very happy with our partners at T-Mobile, and we're going to be pushing mobile a lot more, to your point about convergence.

And so fair -- is there any reason why your ramp, now that you're finally at this stage, will look meaningfully different than what we've seen at Charter or Comcast?

It shouldn't. Give it the rebrand exercise this year, but 2023 should be a big acceleration here. 2022 is already a big acceleration here.

Interestingly, you started with an offer that is available even to nonbroadband subscribers for a year. Do you see wireless as pulling through broadband in addition to the other way around?

Yes. I mean we're allowed to market, as you may know, 20 miles outside of where we've got assets. And so we are going to pick up certain subscribers, which are nonfixed line subscribers today. We absolutely expect, particularly as we drive the fiber product aggressively and we start getting more and more coverage, for us to have a pull-through on potentially having mobile -- naked mobile subscribers pulling through some fixed line subscribers because the same discounts apply.

So I mentioned before the cost advantage of the converged offering because even if there's not a cost advantage for the individual subscriber, having both of them on the same provider, they're certainly one as a provider for what you can -- the way you can leverage your physical plant for lower cost in wireless. Talk about that a little bit. The Sprint-AirStrand deal, as I understand, it worked pretty well to do what it was supposed to do, but that ultimately T-Mobile had interference issues between their macro towers and the small cells that made them back off of that strategy. But the concept is still there, right? The off-loading on...

The concept is still there. I mean I can't speak for T-Mo. But T-Mo is literally just repositioning that bandwidth for its 5G rollout, and it's FWA. But what we continue to utilize well is our Optimum WiFi network, which is very dense throughout the East here. And we're off-loading about 10%, 15% of our traffic onto our WiFi network. And so that will continue to be an advantage.

That is just out-of-home traffic?

Just out-of-home traffic. And it's not -- I mean, it's not massive numbers, but it is something. And it is good to get that coverage, particularly in certain areas that are more rural and less dense out in our footprint, particularly in the East. That's helpful, right? So -- but it's not a meaningful number at the end of the day in terms of being able to get a massive cost advantage. We're very happy with the network how it is. We're just enhancing the network in certain areas.

And is there -- you didn't buy preferred access licenses for CBRS the way your larger peers did. But did you -- is it -- will you do strand-mounted small cells anyway over the unlicensed CBRS or is that just a question mark?

Yes. I think it's more of a question mark. I don't think we're very focused on that. We're -- I think we're focused on making sure that the experience on the T-Mo network is a very good one, which it is, and continuing to push penetration and not really looking about extending our coverage or densifying our coverage yet.

All right. Okay. So now we're going to get to what everybody was waiting for. They want to talk about broadband competition. First, if I think about -- we tried to characterize your business as having sort of really discrete segments to it of there's an -- legacy Optimum where you overlap with Fios, a legacy Optimum where you don't, a Suddenlink -- upgraded parts of Suddenlink. As I think about those different pieces and the way your broadband business is trending, talk about each of those separately, if you would. What are you seeing in those different cohorts competitively?

So the way we think about it is we'd probably add a fourth cohort to your list, which is on the Suddenlink footprint, we look at the competitive zones, which are about 20%, 25% of our footprint in the noncompetitive zones. So as you would imagine, the noncompetitive zones both on the Suddenlink side or the less competitive zones, if you want to call them, and on the Optimum side continue to produce good results. And in the more competitive zones, it's really talking about Suddenlink competitive zones and Optimum Fios zones. On the Optimum Fios zones, I think you'll -- I don't know what our friends over at Verizon are saying, but I think we've stabilized that base nicely. We're back to hand-to-hand combat. We think we potentially have a nice upper hand here for the next couple of years as we launch multi-gig and really start delivering a lot more homes passed on the fiber network. It's going to take them time to upgrade themselves to a true multi-gig experience and upgrade their network. So I think we're going to have a little bit of a time advantage there. So we're feeling good about our Optimum Fios network in the going future, but we definitely are not seeing the same losses as we saw last year in that space. Where we're seeing some pressure is in the Suddenlink competitive zones, whether that be AT&T fiber, whether that be some of the smaller operators out there. It's natural when you're at 60%, 70% penetration and you have a new competitor coming in with a fiber network, which is that experience, at least intellectually for consumers before they even get onto it, is a better experience. We're going to lose market share, right? So we are losing market share in certain parts. They're not massive numbers, but a couple of percentage points here and there over 15 markets really that we've kind of identified as our 20%, 25% overlap areas, we start losing some market share.

And the penetration in those areas is not as high as it is in legacy Optimum. So there is still some market growth. So are you losing market share and losing net subscribers? Or are you losing market share, and therefore, sort of those are playing to something like a stalemate?

I think you're losing market share and losing some net subscribers, particularly as people launch extremely aggressively on price levels. And we're not incentivized to match necessarily. But we've got a better product offering when it comes to mobile and TV. So we're able to compete with them, but you are going to lose market share.

So you -- it was interesting that when you talked about the competition you're seeing in the Suddenlink footprint, you mentioned fiber, but you didn't mention fixed wireless access. Are you seeing fixed wireless access? It's sort of the raging debate in the sector right now.

Yes. It's a question we continue to get asked. We don't. Do -- might we be losing some gross adds? Potentially, I'm sure. But we're not seeing anything...

So losing DSL subs that otherwise would...

DSL subs who would -- otherwise. But we're not seeing people voluntarily churning from us over to FWA. It just is not something that has hit our radar screen as -- I'm sure there are pockets where we lose 50 subscribers, 100 subscribers, something like that, but it's nothing that has rung a bell in any shape or form.

So you said about 1/4 of Suddenlink is now overlapped by fiber. Where does that get to?

I think it probably -- in the next 4, 5 years, I've spoken about it on our earnings calls, probably about 40% is kind of what we're estimating. We see where the pockets are. We know where AT&T is upgrading. They're at about 300,000, 350,000 homes in our footprint, which is about 10%. We expect that to go to about 600,000 homes. We don't see them building more than that yet. So it's really then about smaller upstarts all over the place, and you see pockets of that in various areas. Frontier has got a West Virginia footprint in the Suddenlink footprint, and it's got some Texas footprint as well. So we'd expect Frontier to be some of that overbuild as well. So we kind of look around and we look at the math and we see the pace of people. Probably in the next 5 years, we get to 40%.

So the, I think, central debate right now that I hear from investors in the sector, not just in your stock but across all of the cable operators, is whether the deceleration in cable broadband net adds is a function of competition or nearing saturation and sort of more organic slowdown. You've talked a lot about low move activity, and you've actually had some tough demographics, particularly in the Optimum footprint, where people have just been leaving the New York area during COVID. Can you talk about those demographics and just sort of what's happening in the footprint in terms of move rates and population growth and that sort of thing?

So we had a little bit of a boomerang, where everyone moved out to our suburbs effectively from the city. So they moved into Westchester County, moved into Long Island. And that was great for business in 2020. 2021 saw a reversal, a lot of that people coming back into the city. And to your point, we do see a lot of exits from New York. And that typically has been in our Bronx and Brooklyn footprint, where our urban area people are moving not just out of the city but out of the state into other areas of the country. And we've seen some slowdown in activity. There are some empty MDUs, not fully empty, but our refill rate numbers are lower. And so that's really -- it's not really been only a Fios issue from a competitive standpoint but 2000 -- end of 2021 really saw a lack of refill rate or a slowdown in refill rate. And so the activity levels in the East are lower by definition because of that, but much more stable today than they ever were.

So I know this is the question everybody wants us to ask. So can you share any insights into how your broadband business is trending at the moment and through the second quarter?

Sure. I mean, for us, and which is probably a little bit different than some of our peers, Q2 is always our worst quarter. We're heavily university-driven footprint, particularly in the West. And so you see that natural churn in May and June, which are 2 worst months of the year. And so by definition, we're probably going to trend a little worse than Q1 for Q2. But we are seeing renewed activity on the gross add side. I think the rebrand activity has done wonders already in small numbers. The launch of fiber and the discussion around our mobile product has been very good. So it's a little too early to tell as to where we're going to end up relative to Q1 numbers, but it is going to be the weakest point of the year.

So with that in mind, the other big concern that investors have is not just broadband net adds, but that with a challenge to broadband net adds, there will be pricing pressure because you will inevitably feel compelled to be more aggressive on pricing. Can you talk about your competitive playbook for when a competitor gets more aggressive within your footprint? What do you do? And is the response always the same? Or do you respond differently depending on whether you're competing against...

I think we respond very differently. I mean, just as a side note to the comment about pricing, we raised prices on May 16, so just 2 days ago. So across all of our footprint that's -- what we viewed as noncompetitive, we've been raising prices. And even in all the Fios zones, we've raised prices. And so to your point is -- our competition with Fios, it's been going on for over 10 years. I think we well -- we know each other extremely well. We react well to each other's promos. And so we're not sitting there saying, because we're seeing competition from them, we should deviate from our pricing strategy for the year. So that's particularly for Fios, but that's 4 million of our homes, of our 9 million homes. And so it's a big chunk of our footprint. For the areas that we view as new competition, so that would be Connecticut with Frontier or certain markets in the Suddenlink market, we have not raised prices because we're going to be thoughtful about competing against the fiber overbuilders there. So it depends. On the AT&T side of the equation, they just raised their prices.

Yes. But that didn't get as much attention as what was actually a faux price increase from them on wireless, but it was a real price increase in broadband.

It's a real price increase on broadband. I think they're realizing very much like our friends over at Verizon that them leading on price is probably not the smartest thing that they're doing relative to also the competition that's happening in the wireless sector. And so they've raised prices. So we're going to be thoughtful about maybe moving the AT&T type of competitor into a Verizon type of competitor, but we're monitoring that closely. But we're going to be thoughtful around it. I think the upstarts of new overbuilders who've got either negative free cash flow characteristics or balance sheet issues but are being super aggressive on price, we're going to be thoughtful about our pricing and probably match them there.

I want to go back to that because you were talking about those little upstarts. Are they more or less successful than the ones that most of the investors think about all the time, the AT&T, Frontier, Lumen, the big ones that are -- have got their fiber programs versus the ones that probably no one has ever heard of?

I think you have to identify each one, one by one. I think by and large, I think it's fair to say that everyone's business plan, whether it be Frontiers or some of the smaller upstarts, have changed dramatically relative to their hockey sticks that they probably were presenting a couple of years ago as they were restructuring the balance sheets or raising capital. The cost of rolling out is much more expensive. ARPUs...

Cost of capital is a lot more expensive, too.

Cost capital is much more expensive. ARPUs are lower, right? And so by definition, the free cash flow matrices are materially worse. I suspect we'll see some restructurings in that world over the years to come. So when we think about the overbuild side, we think -- assuming all the balance sheets of these guys are solid, we'll probably see 40% overbuild activity over the next 5 years in the Suddenlink footprint, but we may see less than that if some people fall by the wayside. I think it would be interesting to see how those balance sheets -- because I looked at some of these numbers, and they're clearly not anywhere close to where they were marketing their business plans before.

Yes. I think that's -- we've had the same expectation. So let's go back to your pricing strategy for a second. As you know, we've been sort of critical of your pricing strategy in the past as potentially being too promotional with really aggressive promotions upfront, but then therefore implying pretty steep increases afterwards. You interestingly teased on your last conference call that you're taking a fresh look at pricing. Can you give us any update on that initiative and your strategic thinking about pricing?

Yes. I think there's 2 things: this rate event, let's call it; and then there's -- two is gross add pricing. On the gross add side, I think we're revisiting that from soup to nuts as to being -- trying to be very upfront and clear with our subscribers and our customers as to what's going to happen over the next couple of years. Either nothing is going to happen or something is going to happen in defining that number. So it's no surprise. I think one of the biggest issues that subscribers have in our sector in general is that surprise. That once-a-year surprise, they have no idea what the number is. It just happens to be some haphazard number. They have no idea why, and they're calling into the call center as a reaction. So clarity upfront as I think -- a theme of our industry broadly, not just cable guys but telecom guys as well, being very clear as to what rate actions can be in the near future over the next, let's call it, 3 years, what's going to happen. So that's something that we're visiting very aggressively right now, and you probably will see something in the next month as to how we approach that. On the rate action side, very focused on trying to push video pricing and trying to improve those economics and being very light on broadband rate increases. So again, it depends on our competitive footprint. It depends on the tenure of your subscriber. It depends on what ARPU levels. You don't want to hit a guy who's paying $250, other than maybe you out in the Hamptons, with another big rate increase. But other than that, we're being very [ grateful. ]

I don't think that you can raise it any more.

Just watch.

So -- but you have taken a broadband price increase already in this month. But that's not something that you do every year. That's...

It's not something that we do every year. And we really look at our cohorts, to your point, is we're very, very focused on managing the cohorts, very, very focused at keeping our subscribers that are tenured at 3-plus years happier. I don't want you calling -- even though you're in a less competitive zone, I don't want you calling every 2 seconds to sit there and say and complain about your price increase. We're going to be a lot more thoughtful about those types of things.

And obviously, price is only part of the ARPU equation. There's voluntary up-tiering, there's video bundling mix as people drop video and customer aging and out of promotions into regular prices, all those kinds of things. How should investors think about the ARPU trajectory? As I think about those -- kind of those different layers of what drive ARPU, is -- how confident are you that ARPU actually -- just first, that it's -- the arrow is up instead of down over time? And then second, where -- is it sort of mid-single digits or 3% to 4%?

I think it's up. It continues to be up. In a year where we were super promotional at the end of last year going into this year all the way until this Monday, there was an expectation, I think, even from you and from other people in The Street that we may be down on broadband ARPU or flat. We were up, as you saw, and I think we'll continue to drive upwards. We've moved our pricing upwards on our gross add promotions. And our road map, our product road map, all of a sudden, we announced this morning 2 and 5 gig, which will be available in the second half of June in Eastern Long Island, will move to Western Long Island. By the end of the year, we'll have 2.5 million -- 2.3 million homes on multi-gig. And so all of a sudden, our price point levels are going further. And no surprise, but we've gotten already a lot of incoming calls for multi-gig. And those price points at 2 gig at $120, $180 for 5 gig, very much in line with what AT&T announced 3, 4 months ago. And so that product road map is going to continue. We're currently at a $75 broadband ARPU. We continue to only have 50% of our subscribers doing north of 200 megabits. So you expect to continue to be able to up-tier people and have them pay more over time. When that stops and at what pace? I can't tell you. There is obviously a mathematical algorithm, but you have to be extremely precise as to how you're reacting to your promos and your promo periods, and I think that is something that tends to be reactive in many respects. You plan on something and then you've got to be reactive during the year.

And move rates, reaccelerate means that you are back to having more people in promo periods again. The numbers don't change.

That's exactly right.

Some numbers don't change very much.

So the dynamics are a little bit difficult, but we are continuing to see upward trends on broadband ARPU. We like our product road map. We know that we're going to be able -- the next generation of XGS-PON is NG-PON2, where you're going to 40 gigs symmetric. So you know that you have -- in 3 years' time, you've got another upgrade that's going symmetric, probably 10 gigs to north of 10 gigs on your product road map.

How would a recession change this? It's relatively new to the radar screen of people talking about cable as -- well, what happens in a recession? If we do get a recession in the U.S., do you expect that, that would put downward pressure on broadband ARPU just because of the natural tendency of companies to try to get more aggressive with lower-income customers? Or does subsidy sort of offset that?

I mean we technically hit a recession a couple of years ago, right, during COVID.

But with huge subsidies thrown at the problem, too.

Yes. But the subsidies didn't really drive any material changes at that point in time. But yes, we had some low-income housing subsidies, which drove subscriber numbers but not really ARPU. It wasn't really a big revenue generation -- regenerating activity for us. So we technically ran into a recession during COVID. I think it's fair to say that we believe that this product -- the broadband product is pretty recession-proof. It is that which you probably give up your hot water or your electricity first before giving up your broadband. And so we -- if we go into a recession here, which people are potentially calling for, we don't think that slows down the activity level. Does it slows down people up-tiering? Maybe. So it may slow down ARPU growth, but we don't think it will slow down activity.

I am kind of astounded by the numbers for the broadband affordability program under the Jobs Act. So I think 48 million households are actually eligible for a subsidy. I mean it's just...

It's a massive number.

Inconceivably large number of households that are theoretically eligible. I mean the challenge is always making sure they know they're eligible so that they sign up because the hard part is...

Well, you'll see it in our advertising. We're very -- going to be very aggressive on ACP-related advertising. You start seeing it -- if you're watching the playoffs, our Optimum subscription media is all about fiber, mobile, and we also talk about ACP.

And there's an interesting battle for that, right, because it's -- I think where the FCC and probably Congress originally thought that, that would be mostly for broadband. About 2/3 of it has been going for mobile instead.

That's right. And I think it's logical. Their distribution tentacles are a lot more efficient.

And it's about twice as big an industry.

That's correct. So I mean when you have a shop on every corner and you can just walk by and they have an ACP sign, you don't really know what it means. The last time -- I think if you talk to people and try and figure out when's the last time they were in a cable store or actually saw a cable ad, it'd be a lot different in terms of how they think about mobile. So...

So while we're on the subject of our government and broadband, 2 years ago, you participated in the RDOF auctions but ended up not liking the prices that things got to. We're now with the infrastructure bill starting to see the money not actually flowing yet, but it's starting the process to move through the snake. And it's getting out to the states, and the states are starting, the wheels cranking. It's, again, just an inconceivably large amount of money. I think people sort of forget $42.5 billion for build-out is just the government piece. If you lever it 5:1 with private capital, you're talking about just inconceivably large amounts of money being aimed at rural broadband. Talk about how you see participating in that and engaging with the states for -- does that become a meaningful part of your business over the next few years?

So we are actively engaging in areas that have gotten started. I'll tell you, to your point, specifically on the federal infrastructure bill, that money is probably not going to come in until the end of the year is our understanding. And if you know anything about local politics, I think the allocation of that capital probably creeps into next year in terms of the early things. We're still dealing with COVID infrastructure money right now. And that subsidy activity has started at the end of last year. We announced that we got a contract in Arizona for about 20,000 homes. We've applied for another 150,000 homes. We have not received responses yet on all of this. And we'll continue to be active. We think that over the next year, we'll probably be applying from the 500,000 homes or so. And where we're applying is those areas which are quite adjacent to our footprint, primarily in the Suddenlink footprint. So we have a cost advantage in terms of it. So we'd expect to get a definite hit ratio, maybe 1/3 of the subscribers -- of the subsidies that we're trying to get, we should get. So if we're applying for 500,000, I'd expect to get 150,000-type levels, and that's a meaningful number.

And presumably, a very high percentage of those convert to subscribers because this is the first time that...

It is underserved areas or unserved areas. Obviously, the unserved areas, you're going to get massive penetration levels very quickly. In the underserved areas, similarly. You probably were the provider in your underserved areas, which is some of those Suddenlink footprint numbers where we were -- had 700,000 unupgraded homes that we've been upgrading. We've upgraded 300,000 of those homes. Of the remainder 400,000, there's about 50,000 to 75,000 of those which are underserved. And we were just sitting there saying "Well, should we upgrade them? Or should we just wait until a subsidy program comes along," right? So those are the pockets and there's those types of big pockets across the country of those -- of that money.

And the ROI on those projects, is it about a push? Is it ultimately the bidding -- or does it vary so much now by state for each state's process?

Your payback period is probably 3 to 4 years. I mean it is expensive CapEx, but it is -- no one is going to overbuild you forever. So to your point about terminal value, this is great terminal value money upfront. It's probably not a cash payback for another 3 years.

So you're already doing a lot of fiber building in your own plant just as part of your rehab project. You're also going to be doing that. So is every Tom, Dick and Harry in the world. One of the obvious questions is, how does the labor supply and the equipment supply flex enough to allow all of these fiber projects to happen over the next 5 years?

It's a great question. Two things, though. Not every Tom, Dick and Harry is going to be able to do fiber because there's a lot of cable providers who are not providing fiber in terms of solutions because that will create issues relative to the network today. So every place where you are applying for subsidies, they're looking for symmetric speeds. And so as you can imagine, a lot of the MVPDs out there who have upload speeds of 20 to 50 have problems bidding for some of these subsidy programs. But to your point about the supply chain is there's going to be a supply chain crunch. We're not seeing it from our standpoint today. We've been working on our fiber rollout for the better part of the last 3 years. We got obviously massively interrupted during COVID. But we also have our relationships on a global basis that allow us to have preferential treatment, whether it be chipsets on gateways or the glass itself. So as I think I've mentioned on the last call, we're there. We feel good about the next 12 to 18 months on our supply chain, and we're continuously pushing to get the supply chain extended, but as is everyone. So I'm certain we're going to run into some slowdowns, either slowdowns or cost expansion in terms of what's going to cost us to build stuff. But that's going to hit everyone, right?

Yes. I mean I would imagine hiring crews is already starting to get hard.

Absolutely.

And we -- and as you said, you really haven't seen the money in the states start to flow yet. But there's going to be an awful lot of calls for a pretty constrained labor pool.

I think that's right. And I think we have an advantage as to all the big MVPDs of having in-house workforces and working with subcontractors in the areas which -- where you're going to be bidding for these subsidies against some upstarts who have to start from scratch and are trying to -- in the RDOF process, we saw some guys go out there and say, listen, they won all these contracts, but had no capital behind them and had no supply chain behind them, and that whole thing got unwound. So I think states are going to be a lot smarter as they allocate the infrastructure money. And incumbent operators, such as ourselves and other MVPDs and some telecom guys, are going to be -- are winning -- going to win a disproportionate amount of this money.

So we haven't talked about business services, but I just want to briefly hear about business services where you started to see some acceleration there again post-COVID.

Yes. So I think on the SMB side, we're seeing very good results. We've got an aggressive budget this year in terms of net adds. I suspect we may even beat our net add budget. So that's a 2% to 3% growth business there. That's trending very nicely year-to-date. And on the Lightpath side, which is our enterprise business, they had their best sales ever last quarter in the history of LightPath. So that bodes well for the next couple of quarters as they -- you have a lag period of about 6 months for installations, that you expect those numbers to accelerate over time. So the business side of the equation is doing well.

And the Lightpath conversation sort of brings us back full circle to -- now let's sort of put all this together and think about where you are. So you've announced your reinvestment. Your margins were taken down. Leverage ratio is actually up, but you talk about bringing it down. There's all these kind of moving pieces. The macro environment has changed a lot, though, since you announced those strategies, higher cost of capital, in particular, but also clearly a more risk-averse capital market and debt-averse capital market. Does any of that change the way you think about the capital structure of your business and change the way you think about the pacing of your restructuring?

No. Because as you may know, we don't have any meaningful refinancings in our portfolio until 2025 or 80% fixed rates pre any rise in interest rates, so really benefiting from a very attractive cost of capital today. We've got a big unused revolver that allows us to refinance anything that comes due over the next 3, 4 years. And so we're not that exposed. Obviously, our bonds trade up and down and those types of things. But we're not exposed here in terms of constraints on our capital because of what's happening in the interest rate market. So we're very focused on deploying the capital as quickly as possible, changing the dynamics in our subscriber base and our mindshare and our branding and really delivering what we're already seeing as the more fiber subscribers we have, the better results we're seeing in terms of the experience of the client. Churn rates are coming down. ARPUs are higher. NPS scores are higher. All the things that you would think of that we've been speaking about for several years about fiber is -- we're seeing it on every monthly cohort today. And so we're really focused on accelerating as much as possible the deployment of capital and the migration of our subscribers.

And so we're still a little more than a year, call it, 18 months away from the sort of a real taste of this future Altice, which is largely fiberized, capital intensity coming down significantly, back to positive net adds in broadband, stable broadband ARPU growth and with that low capital intensity, presumably back to being a very, very significant free cash flow generator. Is that time line about right? And how confident are you that, that promise land 18 months from now, 24 months from now is going to look like what you've promised?

I think on the free cash flow side, just to be clear, we're going to finish our program end of '24, beginning of '25. So the free cash flow from a CapEx standpoint dramatically improves...

A little more than 24 months, yes.

Yes. Just boom, you'll see a massive inflection point as we're slowing down the fiber build-out. I think in terms of cost to serve matrices or improvements in churn or growth in ARPU on cohorts, I think by the end of this year, we'll be closer to about 200,000 subscribers on fiber. I think that meaningfully ramps in 2023. I don't want to call it budget, but probably somewhere around 500,000 is probably a meaningful number. And you'll start -- we'll be able to talk very precisely about all the benefits of the numbers and you start seeing them in our OpEx numbers and in our revenue numbers there. I think from a near-term standpoint, talking about 12 to 18 months, we're calling for back to broadband growth at the end of this year, the second half this year. I can't tell you exactly whether it's going to be which month there, but we see that trend coming nicely, and we think we're very well positioned for 2023.

And at the end of the rainbow, presumably -- you've always been a company that was pretty aggressive about buying back stock. And so it was sort of a shock when you stopped at exactly the time that the stock price got as low as it is. I think investors understand why that was a necessity given the capital program, but how do you think about resuming share repurchases at some point?

I mean to the extent that we're back to our leverage targets and we're generating all this free cash flow, and the numbers are significant, as you know. Yes, it wouldn't surprise me if we went back to buying back shares.

Last thing that we'll end on is this convergence vision that you -- that we started the conversation with. What's the right set of assets for you? I mean there was a time when you and Patrick came to the U.S. market envisioning that this was going to be the beginning of a sort of major play to be one of the very largest cable operators. It's not clear that's an option that's open anymore. So how do I think about the right set of assets and strategy?

It's a great question. I mean at the end of the day, the most strategic geographic asset we have is Cablevision. And that is also going to be the first fiberized 4 million-plus homes done probably by sometime in 2024. So you'll see a pretty much fully fiberized Cablevision network done by then. Suddenlink in itself is a great asset, great growth matrices, underpenetrated markets, less competitive areas because they're very rural, but strategically is not a footprint that makes you just sit there and say, "Wow, I've got the most strategic footprint out there." So are we sellers or restructurers of certain of our assets in other areas outside of Cablevision? We're always open to listening to people out there if it made sense for us to trade, swap, sell certain assets. Similarly, with Lightpath, the transaction we did 18 months ago, should we own the 51% of Lightpath? It's a great asset. It's going to -- it's accelerating in growth. We know that it's worth more than what we sold the first 49% for. But if someone came around and wanted to do something, we'd be open to it. At the end of the day, if I had a fully fiberized Optimum network, Cablevision and the #1 DMA, that's the most strategic asset. You'd imagine that there's a lot of players, both on the MNO world and on the MVPD world, who would want to have that asset. So it'd be interesting to see what happens in the next couple of years.

It will be interesting indeed. Well, Dexter, I really thank you. I think all of us wish you the best of success in the project that you are embarked on. And...

You can get fiber out in the Hamptons.

I have it. I have...

It's good experience?

It's a good experience. I have fiber to the home. And...

Craig said it.

I do wonder, if you started offering 2 gig, whether -- even somebody who is presumably reasonably technology-reliant, what the hell I would need 2 gig for. But...

I suspect you may call. And even if you don't know what you need it for, you may actually want it.

It will depend what the promotion is. So let's find out.

Okay. Thank you, Craig.

All right. Thank you very much. Appreciate it.