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

Hi. My name is Phil Cusick. I follow the comm services and infrastructure space here at JPMorgan as well as media. Happy today to welcome Mike Grau, CFO of Altice USA. Mike, thanks for joining us.

Thanks for having me. Appreciate the opportunity.

Excellent. Listen, so let's just start with, again, overview of where Altice is today in the investment cycle. You've sort of backed off from returning capital. You've really ramped up the CapEx plan anyway. Where are we in really getting into that capital spend?

Yes. I mean we're right on plan, right on the trajectory we expect to be on. We announced in February, I think, concurrent with our year-end earnings, that our historical CapEx envelope, which we've always expressed as $1.3 billion to $1.4 billion, and we tended to be a little less than that, we'd be spending something more akin to $1.7 billion to $1.8 billion this year, so that extra $500 million, $600 million. Lion's share of that increase is in the form of increased FTTH build. I think to date, we probably haven't built as much FTTH as we would have liked when we initially announced it, say, 4, 5 years ago. It's a function of COVID and permitting and different hurdles. So we're aspiring this year to double our fiber footprint. We're about 1.2 million homes at the end of '21, looking to add another 1.2 million homes this year. So I think that's notable. And then we're also going to begin building fiber in the Western footprint this year, which I think was new information to the investment community when we announced that. And so now we've expressed a long-term plan of about $1.7 billion to $1.8 billion this year, driven by accelerated fiber, a little bit of accelerated new builds as well. And then if you look at the kind of the fiber trajectory we've outlined, we would look to increase the fiber build a little more in '23 and '24. By the end of '24, we'd look to be done with our Eastern fiber build, and then by the end of '25, be done with our Western fiber build, ending with about 4 million homes passed by fiber in the East, 2.5 in the West. So to date, we're very much on trajectory with that, and it's kind of where we are.

So help me, just take me back like 5 years ago, I think it was 5 years ago. Altice came in, bought Optimum, talked about building a lot of fiber. And what kept you from doing that? You mentioned a couple of things. And what have you changed in the process that's really going to get that moving now?

There were a couple of things. You're right, we announced it almost right away, this is kind of Page 1 of the Patrick Drahi playbook. And we were committed to fiber from the get-go. We -- some of it is execution, some of it is it takes time to ramp up the machine. We then get hit by the pandemic, which really slowed us down quite a bit. And the other challenge we've run into, which was probably a bigger challenge than we anticipated, was around permitting, especially in New York State. The Department of Transportation, there's been a little bit of a logjam up in Albany in terms of getting permits to build fiber in certain areas in New York State. So mid-'21, we started repurposing some of our stuff to New Jersey and Connecticut. And now we're seeing that logjam release itself, which should help the acceleration of issue. We have a whole bunch of homes where we kind of took it to a certain point then had to stop. So I think there's an opportunity that you have to take a lot of work and process and bring it to completion.

So where are you in Albany now with those permits?

My understanding is a lot of the logjam has cleared and those permits are starting to come in. So we'll be repurposing efforts back to New York State to complete those areas.

Okay. Are there people in the office to sign those and -- or is it -- that hasn't been the issue?

No, I don't think it's been -- well, no, that's been part of the issue, I think, in terms of the slowdown in getting permits in 2021. That's been a contributing factor, and it's just bureaucracy. I think it's more that than anything.

Yes. And the new governor is sort of helping that along?

I guess that as well as we have a pretty robust government affairs department, which has done a nice job with kind of mining what contacts we have in that community.

Okay. So let's think about the existing Optimum footprint, right? So Connecticut you've been working on, it sounds like it's getting -- how close are we to getting Connecticut sort of done?

I would expect, to the extent we're going to overbuild fiber in Connecticut, which is the lion's share of Connecticut, the aerial areas, we would be done in '22.

Okay. Okay. And then the sort of Long Island area, has that -- how extensive is that now?

I believe we started out east. We're moving west. I tell you as a point of reference, I'm in Western Long Island, right on that Queens border, and I'm told I'll be fiberized by the end of this year.

You're told.

I'm told.

Some guy.

I'm told. I believe him.

Some guy on customer service.

I don't know. He's going to be quoted on.

Okay. Okay. So that's -- so Eastern Queens, Western Long Island.

No, no, Eastern Long Island, I think moving west. We're not in Queens.

Okay. I thought you just you're in Queens.

I'm on the Queens-Nassau border. Nassau side.

Okay. That's what I thought. All right. That makes more sense. All right. So that Long Island build, have you like ramped up what you're willing to pay people to do that? Is it -- because it sounds like it has sounded over time like you weren't willing to pay sort of the -- what needed to be spent to get guys to do that for you.

I don't know that that's a fair characterization. We did have some missteps with one contractor, but that's been resolved, and we no longer use that contractor. We've got a new contractor who's done almost all of our builds through 2021. And through an RFP process, we've secured additional contractors, so the New York footprint. I don't think that's a fair characterization to say that there was an issue around our willingness to pay. We're certainly trying to drive down unit costs like anyone would in our position. And we think with our expertise in leading on our sister companies, we have avenues to do this more efficiently than maybe someone else who's similarly situated, but I don't believe our willingness to pay has been a hurdle.

Okay. So talk about that sort of sister company, Altice Europe, and their experience. What are you doing you think that's different than what like a Lumen or a Frontier is doing as they roll out fiber?

Just it's more around technology. It's around access to suppliers. We have a certain amount of scale and leverage. We're doing 1.1 million, 1.2 million homes this year. That makes us a pretty substantial builder. But when you join us with our Altice sister companies, we become one of the biggest builders in the world. So I think you get a certain amount of leverage there. There's a lot of people vying for limited resources, whether that be materials or labor. And I think that partnership gives us a certain amount of leverage. We have long-standing relationships in this space. So -- and then there are things we're doing on the technology side around the manner in which we attach the fiber to the network that are probably a little different than some other companies might be doing.

Can you expand on that at all?

It's more around latching versus figure 8, but it gets very technical, and I'd probably prefer not to expand too much.

Okay. Okay. But this is -- is this mostly an aerial build at this point?

Yes. To date, it has been almost exclusively aerial.

Okay. And how much of the Long Island footprint is aerial and...

I don't know it's the Long Island specifically, but for the Optimum footprint, we're about 80% aerial.

Okay. Okay. Let's go to the Suddenlink side, where, as you said, you've now talked about building those Western markets. What's the plan there this year and then long term?

Sure. So this year, we're just getting started. In fact, to date, it's more about lining things up and getting the machine going. I feel like, historically, we've been pretty consistent and clear that we were going to overbuild our Eastern footprint, at least to the extent that the Fios overlap, and we take stock then and what to do with the rest of the Eastern footprint as well as what we might do with the Western footprint. So what we did in February, we added some clarity around our fiber build plans in the Western footprint. It's a nominal build this year, 100,000 to 200,000 passing. It's more about getting, like I said, get the machine ramped up and getting -- dipping our toe in the water, but we then look to accelerate that build into '23, '24, '25 to the point we would pass 2.5 million homes, call it 60%, 60-plus percent of our Western footprint by the end of '25.

Okay. So what drives the choice of that number, 2.5 million homes, 60%, 65% by the end of '25?

It's a market-by-market look, it's a function of how many customers we have in a given market. Certainly, very much a function of the competitive profile in each individual market. We've seen an increase in fiber build in our Western footprint. We've seen an increase of fiber build everywhere, right? We've seen an increase in fiber build in our Western footprint from AT&T, Lumen, a bunch of smaller PE-backed companies. And so this, in part, a reaction to that or response to that. Some of it is designed to be a little preemptive in nature. If I was a small PE-backed firm and I was going into a certain market, and I learned Suddenlink was going to be in there ahead of me or right behind me, I might reconsider and invest my money elsewhere. But it's more just a doubling down on our belief in fiber as the right technology for a cable plan right now.

Okay. So talking about the overall penetration in your footprint of broadband, if we take Morris out, the broadband number has been coming down in the overall footprint. How does that split between Optimum and Suddenlink?

I would say, in Optimum, our penetration in terms of -- and I'll express it as broadband customers as a percentage of homes passed probably in the low 50s, 51%, 52%. And in the Suddenlink footprint, maybe 10 points less than that. And then to further bifurcate the Optimum footprint, in areas where we overlap with Fios, we're probably in the high 40s, 46%, 47%, something in that neighborhood. And in areas where we don't overlap with Fios, we're probably now jumping in 70% penetration.

Okay. And yet, your unit numbers have been coming down. Is that an increase in competition? Do you think there's a sort of backing out of some of the big growth that you had in 2020 if customers are pulling back from being fixed broadband customers?

I think there was a pull forward into 2020, for sure, in hindsight. I think there's an element to that. We had a very robust year, as did everyone, in terms of broadband customer growth in 2020. So when you have that pull forward, then '21, we had to give some of that back, I guess, in a manner of speaking. I think on top of that, I think it's fair to say we probably lost some share to Fios over the last 4 to 6 quarters.

Okay. In particular, in 2021, they were really aggressive and you sort of backed off. Talk to me about what's happened in the last 6 months in terms of that competition with Fios.

Yes, they were extremely aggressive. You might remember at the very beginning of the pandemic, Fios sort of left the marketplace. They weren't doing customer installs for a while. They came back in the third quarter of '20 in a very robust fashion, and they've remained uber-competitive, almost nonstop since then, which is not what we've seen from Fios in the 17 years we've been competing with them. So it's a little bit of a different profile. I guess, in hindsight, I think we were slower to react than we should have been. We did react in the fourth quarter. We came out and matched their level of aggression in terms of our acquisition offer. Now our headline pricing was always roughly on par with Fios, but we started to match them in terms of the Visa gift card or the free OTT service for 12 months or what have you. And I would say, Fios sort of blinked in the first quarter, they did raise some of their acquisition pricing. We've remained pretty aggressive on that par up until about earlier this week where we raised acquisition pricing in certain portions of our footprint, but it feels like a return to a more rational competition.

Have they -- and now you backed off on some of those gift cards and things like that?

I think, in our case, the change was more around the headline pricing. The gift cards has always been -- there's always some give and take on that. At one point, you're offering $200 to everyone. Then maybe a month later, it's $200 to the highest speed tiers and $100 to the lowest-speed tiers. So there's always been some variability on that month-to-month or quarter-to-quarter. But the change we made of late was we did raise the headline pricing by about $10. And again, only a certain subsets of our footprint.

Like what? Like what subsets?

Well, internally, we define hot zones or competitive zones versus non-hot zones or noncompetitive. So for the most part, we did not raise acquisition pricing in the so-called hot zones, for the most part.

Okay. Okay And that was acquisition pricing...

Acquisition pricing. That's...

And raise this year?

No, we have not made any -- listen, we put through promo roll-offs and things of that nature on the base -- on a steady basis month after month after month, but no, we did not raise base pricing.

Okay. A couple of years ago, you made a change from going from like Comcast goes and rolls the whole base and raises prices in December every year. You started doing that sort of on a rolling basis. Are you still raising prices on a rolling basis? Or is that sort of over?

No, we still do it that way. But those price raises you're alluding to encompass promo roll-offs. It's not just straight out that your bill is higher this month.

Got it. Got it. Okay. And then what about competition in the Suddenlink footprint. What are you seeing there? I mean it's a much more widely varied footprint.

It is. We're definitely seeing more competition. I mean that's not a surprise. I think we're -- we would estimate internally 20% to 25% overbuilt by fiber in our Suddenlink footprint right now. And I think if you look at the various projections that the different players have made, I think it's reasonable in 5 years to think that number sort of doubles to the 40%, 45% range. And we're seeing elements of that. Currently, AT&T, of course, is the most prominent, but there are announcements. It seems like once every couple of weeks, there's an announcement that someone, MetroNet has just released this town for fiber, or Vexus has released this town for fiber. So we're definitely seeing an increase in competition, mostly for fiber, less so for the fixed wireless.

You mentioned MetroNet and Vexus, and not them in particular, but how often do you see a fiber company come in and sort of struggle either to get penetration or with their operations and things like that?

I think in general, and we're guilty of this as well, most of these fiber companies do not hit their initial projections. It just takes longer and cost a little more money than what they anticipated. That might be more true in this environment where, again, there's just a lot of different people vying for the same resources.

Right. And customers aren't moving much.

Customers are not moving much.

Do you think that coming in with fiber is -- creates a lot of new churn? Are they more feeding on the back of what sort of comes up right now?

No, I think it's the new kid in town, so to speak. So it definitely -- it creates a little bit of a splash upfront, for sure.

With moves low, have you gone in and sort of incented people to come over, especially in the Fios footprints?

Well, again, we did that, like I alluded to earlier, to be our acquisition pricing and then the perks that go with the different specs that we put in place. We're certainly using that as levers to try and move people over to our side, for sure.

Okay. How often do you put customers on like some kind of contract, 1 year, 2 year?

We don't have contracts.

You don't?

We do not have contracts.

Yes, T-Mobile talks about they're going to buy people out of contracts, and I'm not sure who's on contracts.

I'm not sure either, but it's not Altice customers.

Yes. It's not you. I didn't think so. Okay. That's what I thought. All right. So can you help me think about the difference in your pricing for like Fios footprint versus non-Fios, so competitive versus noncompetitive?

The principal difference might be, and it's not professional, it's not at all times. There might be instances where acquisition pricing is a little more aggressive than what I was alluding to earlier, the hot zones or the competitive zones. And the hot zones or competitive zones, it encompasses more than Fios. So they might encompass some of these municipalities we're talking about in the Western footprint where a Vexus or a MetroNet or an AT&T has launched service, it's a little more encompassing than just Fios. We do differentiate certainly in terms of acquisition pricing between competitor zones and noncompetitive zones.

Okay. Have you seen fixed wireless come into any of your footprints in a real way?

Not that meaningful. The visibility here is not great. So what we're not seeing is any sort of migration of note from our service to fixed wireless. And I wouldn't expect to see that. I just think our service -- our product is superior to fixed wireless in a lot of different ways in terms of throughput and the ability to handle that throughput. And we talk a lot about our broadband-only customers use about 600, 650 gigs per month on average, whereas a mobile customer uses 10 gigs per month on average. So a broadband-only customer at those usage rates is going to create a lot of congestion on a fixed wireless network. So we're not seeing people leave our service going to fixed wireless in droves. What could be happening, and there's less visibility on this, is to the extent people are leaving DSL or leaving mobile-only and they're going to fixed wireless, those are gross adds that might otherwise have come to us, and now they're going to fixed wireless, it's hard to tell. You don't see what you don't see, which you don't get. But I do think, overall, fixed wireless, to me, it has certain use cases that maybe make sense in very rural areas. I think, in urban areas, I hear stories about fixed wireless already running into congestion where they won't even take on new customers in Brooklyn or Manhattan right now because they do the address check, and they say, "That part of our network is already congested. We're not going to jeopardize this [ sacred ] account to bring on fixed wireless customers." So I do think it has real constraints over the long haul, fixed wireless certainly competing with our current product, much less so our fiber product.

And Frontier has been overbuilding you in Connecticut.

That's right.

One of many fiber overbuilders. What are you seeing from them in those footprints?

Not so different from what we talked about earlier, when a new player releases such and such down in the Western footprint. Frontier has definitely made some noise, and we definitely are seeing a difference in the competitive intensity in the areas where we overlap with Frontier in Connecticut. Having said that, I think it's temporary in nature because we will be fiberized in Connecticut in full by the end of '22, as we talked about.

Okay. It's interesting, as we've talked to other cable companies here, there's a difference in who's seeing sort of seasonality come back versus, last year, we didn't see that sort of 2Q downtick, and we didn't see the 3Q business coming back either. I think Dexter talked last week about sort of seasonality in your business. What do you see?

I think just overall, globally, there's a continued return to whatever normal means, which does increase visibility. I mean when we -- internally, we look at whatever metric it might be, and we're looking at it versus prior year, we almost have to go back to '19 to do that comparison because '20 and '21 were so aberrational. I do think there's a return to normalcy now, a continuing return to normalcy, and part of that is seasonality. What would have been typical seasonality in the cable business, which was thrown out the window in '20 and '21, it feels like it's coming back.

So remind me what's seasonality for you, because Optimum and Suddenlink are very different. What's the net?

The net-net is second quarter tends to be our weakest quarter, and that's a reflection of the fact that we do have a pretty good exposure to universities in our Western footprint. So right around now, late May, early June, when students leave campus, we do see a certain spike in churn around that. And then in the third quarter, that reverses itself. And then this is more western footprint-oriented, but that tends to be -- that tends to override any seasonal trends at the Optimum side.

I think Dexter said last week, he expects the second quarter to be the worst quarter of the year in terms of broadband.

I think that's fair.

Okay. And then you've talked about being positive on broadband in the second half, and I can't remember, is it the whole second half? Is it a particular quarter in the second half? Or is it at some point?

I don't think we've made a specific commitment in that regard, Phil. But when we look at the initiatives that we're putting in place in order to return the company to customer growth, these initiatives, you don't turn the ship on a dime. These initiatives take some time to execute on and then to resonate in the marketplace. So I'm talking about investments in distribution channels, we've talked about that a lot, in terms of adding more door-to-door salespeople. It takes a certain amount of time, especially in this market to recruit those people, train them up and make them turn into productive reps. We've talked about increasing our retail footprint. That's a really good example, actually. The amount of time it takes to find a store and then open it between site selection, permitting, lease negotiation, construction, that's a 9-month time line. So these things take some time to get momentum. Similarly, the investments in customer experience, we were clearly making strides, and all those metrics are getting better. That one, very comfortable trajectory on, we'll be where we need to be in the very near term, but I don't know how long that takes to resonate in the marketplace and change brand perception a little bit. And then some of the capital initiatives like fiber-to-the-home and new builds probably have longer sales than these other ones that are rebranding. So all these things kind of cumulatively, they take -- they just take a little time and they do accumulate to build momentum. The hope is that we gain enough traction behind all these different investments that, in the second half, we are broadband customer positive. I don't know if that's third quarter and fourth quarter, if it's just a net of the 2. I don't want to give anything that specific around that.

Right. Sure. Yes. Right. That's fair. We've talked in the past about as you roll out fiber when the Sprint -- sort of small cell network was running over HFC, you talked about keeping that for the long term. Now that, that small cell network is gone, is there any reason to keep the HFC network once you have fiber out across these footprints?

I think there -- well, one, it will take some time to migrate the entire customer base. At some point in a given neighborhood, you just start doing forced migrations. The other thing is we do have a pretty robust WiFi network running on that HFC network. So there's a lot of -- there are savings that can be realized from shutting down the HFC network, of course, most principally would be power, which we spend about $60 million a year to power up our HFC network. That's not a small number. But in the grand scheme of things, the real savings to be realized from fiber are not a function of shutting down the HFC network, the real saving is on the OpEx side or around our customer interactions, the incidence rates that we see with fiber customers, whether that be phone calls, service visits, what have you and then the CapEx savings we could realize. So on the OpEx side -- and a lot of these things are things we saw with our sister companies in Europe, anticipated them happening here. But now that we're seeing it actually manifest itself in our own results, there's a certain validation there, a certain comfort. So we're seeing -- we track our fiber customers, relatively small base versus our HFC customers. We look at a number of phone calls per customer per year, number of service visits per customer per year. Those instance rates are down anywhere from 30% to 40% amongst the fiber customers versus the HFC customers. That's a really material cost savings opportunity. In terms of CapEx, if we exclude our growth capital, fiber and new build, we spend about $1 billion a year, call it, $400 million in CPE, I don't think that number changes too much in a fiber environment. And about $600 million on just maintenance of the plant, $100 million of that is Lightpath. So call it $500 million. I think we can cut that number in half. Once we do away with node splits and some of the capacity augments that are necessary in the HFC network. You can keep the HFC network up, but you don't have to do more node splits. You shouldn't have to do more capacity augments. So there's real material cost saving opportunities on the CapEx side as well. So most of the cost savings we're chasing with fiber-to-the-home are not a function of shutting down the HFC network is the point I'm trying to make.

That's interesting. I always thought that there was real cost of just maintaining that and keeping it sort of running healthily.

Well, they're -- again, we will have to continue to power up that network, as I alluded to, the $60 million, which I don't want to dismiss, $60 million is a big number, but in the grand scheme of things, there's still very material savings to be realized. And so yes, because you realize a lot of savings if you can start shutting down hubs and head ends and things of that nature. You could, yes, but it's not necessary to get the returns we're looking for, for fiber. And I don't see a path where we're shutting down the HFC network necessarily. I think the Sprint case is an interesting one in that while Sprint -- or T-Mo, I should say, went away from that solution is an interesting use case that you could replicate and get -- use that as a use case for the HFC network in a forward state.

Right. So remind me, you mentioned the WiFi network. Remind me where are you with WiFi these days? It's been a long time since we talked about that.

Where are we in...

Like is that -- I mean I see it all across Long Island. But has it been sort of stable in terms of number of nodes for a long time?

Yes, I don't think we've been adding too much in the way of access points. I mean we have the densest WiFi network. I think among our peers, for sure, and some of that has the benefit of being in the footprint we're in, in Optimum. We haven't been densifying it too much...

Customers use it a lot.

Oh, yes. Sure.

So it's worth keeping the HFC network up, at least in part...

Oh, I think so. Yes. No, I think it's a powerful element of the service offering.

Okay. So as you get fiber...

It would be hard to take that away.

Yes. Yes, that would be hard. As you get fiber out into the networks, is there sort of a natural migration of customers over to that? Or do you want to just -- do you want to push people on to fiber to get them off HFC and a better experience?

To date, almost all the fiber customers we've gotten have been as a function of gross adds in the fiber footprint. We've done some migrations more to accommodate a customer's request. Within the last 3 to 4 weeks, however, we're launching a much more proactive migration effort, kind of outbound calls to different customers and explaining the value prop and starting migrate customers to fiber on a more proactive basis. So I think you'll see our fiber penetration grow by virtue of that as well as increasing acceleration on the gross add side.

I imagine you start with the people with 20 TVs in the house and a $400 bill?

Yes. Something like that.

Not bad.

Did they call you yet?

Nobody's calling me. I don't spend enough money. So you've talked about distribution a few minutes ago. Tell us where you are and where that needs to go.

Sure. So -- and when we talk about sales distribution channels and the investment we're making, we're really talking about 2 things. One is the door-to-door sales force. So in -- at our peak, we probably had about 500 door-door salespeople across our entire footprint. You gave me a funny look. It is odd in 2022 to be talking about door-to-door sales and...

I know it still works. It's amazing.

It's a very antiquated sales channel. It's actually a more expensive sales channel than others, but the customers we get are -- they have higher ARPUs and they're stickier. And that's been the case as long as I've been in the cable business. So it is a good economic return. We were at 500 by virtue of the pandemic, and we couldn't even send door-door salespeople to different people's homes. Some people are put on furlough. We had some layoffs. It's a high attrition job as well. We got down as low as 250, and that was just too low. And so we aspire to get to between 400 to 500 this year. As of the end of the first quarter, we're right around 350. So we made a lot of progress there. On the retail stores, we're at about 100 retail stores now. Our year-end target is somewhere around 150 to 170. That would be an addition of, say, 75-ish this year. That's been slower than hoped, I think, and it's a function of that longer time line that I explained earlier. It just takes some time. So I think we will be a little back-ended in terms of adding stores this year.

I think you had shut down a lot of those stores and you're sort of refreshing locations at this point?

Yes. We -- even pre-pandemic, we were shutting down certain stores in the Suddenlink footprint that were more storefronts. You might go there and play -- drop off your payment swap out your remote, and we've been replacing them with what we internally refer to as experience centers. It's a bigger footprint. It's a much nicer facility, it's a better platform for selling mobile. Then the pandemic came, we shut down yet more stores. And we reached a point where we just didn't have enough stores to support this footprint. That's important as a sales channel. It's also important, I think, to create this local community presence amongst the various communities we serve, especially out west. And so like I said, we're in the midst of addressing that.

Okay. Talk to me about mobile. We've heard Altice get excited about selling mobile in a different way a few times. And now you've got a new refreshed deal with T-Mobile. How are you going to sell this product? And why are people going to buy it from you this time?

Yes, I don't know that narrative about Altice selling mobile in a different way is pretty old. I mean, when we initially went into the mobile business, we did have a different, more European aspiration of a very low-touch business, all digital ads, digital customer service and what have you. But we found out relatively quickly that doesn't really work in the United States, where so many consumers have, quite frankly, never changed the SIM card and they need assistance to do so. And so we went to more -- I think we went to a more conventional sales model pretty early on. Now we've -- definitely, our mobile launch has been characterized by a lot of stops and starts. Some of that was -- a lot of that was driven by the pandemic. We did take that as an opportunity to step back and look at the business. We came out with very disruptive pricing. You might remember $20 price for life, unlimited. And that made a splash, and that was the design there, but those are not profitable customers. And so we reached a point, we said, "Okay, we want to rejigger our pricing." So every customer comes on as gross profit positive, and this promises to remain so going forward. So we repriced our offerings. We offered a 1 gig and a 3 gig product to accompany the unlimited. We got everyone migrated to the T-Mobile network, which has definitely been a difference maker and a much better customer experience. Customers churn has come down accordingly. And so now we're in a position, having kind of cleared those hurdles, we were starting to turn the marketing machine back up in January. We cleared some IT hurdles. So for the first time, we have a converged offer out in the marketplace, puts us on par with Fios, but we were not on par with them previously. So now if you come in and take fixed and mobile simultaneously from us, you get $15 off both sides, same as Fios is offering. We had an interesting offer out there in the market still today, you have the 1 gig product for free for 12 months, and hopes, clearly, that customer would graduate to be a paying customer. And so you'll see us become much more active in terms of sales, promotions and marketing around mobile. I think you're already seeing it, and that should sustain through '22 and beyond.

Is it still mostly a SIM swap-type market, a bring your own device market?

No, no. The device -- I think the device attachment rate to gross adds, don't hold me this, but I think it's in the neighborhood of 40% to 50%. It's substantial.

Okay. It's about what other cable companies are seeing. Okay. And can mobile be like a big business over time?

Oh, I think so. Sure. I think we've always said, and we consistently say, our intent is for mobile to be profitable on a stand-alone basis. And the churn reduction we've realized on the fixed side would be on top of that. That's meaningful. That's not just gravy, so to speak, but we've always maintained that we think mobile -- and we continue to maintain we think mobile can be a sizable growth engine and a profitable business in and of itself.

Okay. You've talked over the years about the value of being able to sell mobile outside of the wired footprint, sort of I think it's a 20-mile radius around them. Why would you do that?

I don't -- I actually don't remember us ascribing a lot of value to that. That is the terms of our initial contract with Sprint. I think it has survived into our renegotiated package with T-Mo, but I don't know that we view that as overly meaningful. I mean it is a fairly skinny perimeter, 20, 25 miles.

Yes. Okay. Not something to get excited about. All right. So we've seen varying reports of sort of softening economic activity. And we talked about the seasonality a few minutes ago. But have you seen anything in the market, whether it's on the cable side or the advertising side, that would be helpful to sort of give us some picture of the market?

Not so much on the cable side. I mean I think broadband has become somewhat recession-proof, so to speak, and not that we're in a recession, I understand that. But it is somewhat immune to those cyclical ups and downs. On the business side, I think any softening in the economy has probably been overwritten by just a continuing return from COVID, so on the business side. On the SMB side, we're adding customers, we're ahead of our own internal plans, doing very well there. Lightpath had a kind of an investment year with a new management team in 2021 and spent a lot of money increasing sales staff. We expanded. It's actually right up here in Boston. The first quarter saw relatively flat revenue growth at Lightpath year-over-year, but they had their best bookings quarter they've ever had and up 70% over the same quarter of the year past. So that does promise -- I think some of these investments are yielding rewards. The time line from a booking to installing the customer at Lightpath is certainly longer than the cable business, but clearly augments that. We will see accelerated growth at Lightpath going forward. And then on the advertising side, we're way ahead of expectations. And the big driver there, quite frankly, has been legalized gambling, legalized sports gambling in New York. If you watch sports on TV, you can't get away from these ads from Caesars and BetMGM and so forth. So that's created a really nice tailwind for us on the advertising side, even despite the fact that the auto advertising remains very soft, and that's a big part of our business, but advertising is doing really well.

Right. And no change in that over the last sort of 2, 4, 6 weeks?

No.

Okay. Okay. Margins -- Altice, when you -- when the company came into the U.S., you talked about a lot of opportunity in cost-cutting. Margins were a standout ahead of Comcast and Charter. Do you think you went a little too far in terms of cost-cutting? And now you just sort of -- you talked about distribution, you talked about stores. Are you sort of bringing some of that cost back?

I think there's an element of that. There may be some instances, some isolated areas, like the ones you just alluded to it. Some of that was driven by the pandemic. There may have been some instances where we overcompensated. But those -- I would also point out that in the grand scheme of things, those things are sort of fixable in a relatively short term.

Right. Is there still a goal of -- aside from the video dilution versus broadband, there's still a goal of margins where it used to be?

Probably less pronounced than where we used to be. We used to have this magic mantra in our heads of getting to 50% margins in the cable business, probably a little less fixated on that 50%. But certainly, we're looking to improve margins. I think the revenue mix you alluded to is probably the biggest driver around that.

Okay. Okay. There was a question here, but I can't prove it because it blew up, but -- about the balance sheet and sort of doing the 180 from where we were a year ago of buying back a lot of stock to now pouring that into CapEx and investment. And does it make sense to sort of moderate that a little bit given the stock at $9 or $10?

I don't think so. Listen, we're -- our first use of capital is going to be returning the company to a growth trajectory. I would say that's our first, second and third use of capital. That's our highest priority is to reinvest in the business because we see opportunity for really good returns there, especially around fiber. To the extent we have excess free cash flow after that, and we do, even at these elevated CapEx levels, given the investments we're making and the pressure on EBITDA this year, I think we're going to use that cash to delever. That's what we did in the fourth quarter of '21. It's what we did in the first quarter of '22. It's what we're continuing to do. And that would be the default path going forward.

EBITDA is down pretty substantially this year, at least in the first quarter, and that's bringing the calculated leverage up quite a bit. Do you expect that EBITDA decline to be sort of done this year? Or are we looking at another year of that given all the investment going in?

The hope is that, with the investments we're making this year, that we return to EBITDA growth in '23. Listen, we'll get into our '23 budget process in the August, September time frame. We'll get very granular around it, but that is the expectation, yes.

Okay. I think that's a good place to stop. Thanks very much, Mike.

Phil, always good to talk to you. Appreciate the opportunity. Thank you.

Nice. You too.

All right.