CHTR - Charter Communications

[Liberty]

7-min interview with Rutledge down this page;

 

https://www.cnbc.com/2019/11/21/charter-communications-ceo-cord-cutting-will-begin-to-slow-down.html

[DooDiligence]

Ala carte or linear?

 

It's a win win for savvy operators & consumers.

[vince]

My latest numbers for Charter ending 2021 are..... revenues of close to 50 billion at a 5% growth rate, and ebitda at 19.5 billion at a 7% growth rate.  If they buy back 20% of their shares over 2.25 years, which is consistent with recent activity, they will have 200 million shares outstanding (246 now).  With an extra 15 billion in debt their cash interest expense will be 4.6 billion (90 billion at 5%), their capex will be 6.5 billion and I estimate their cash taxes at 700 million, we are left with roughly 8 billion in fcf, or 40 dollars fcf per share.  Still trading at an attractive price after recent run up and a 600-700 dollar share price in a couple years looks probable

 

Vince, you are right on the money. I also think it's safe to say that your growth measures are pretty conservative. Assuming they can ramp up other broadband measures and ultimately monetize mobile, and capture the remains of their underpenetrated footprint, I have 2021 slightly higher than $40/share. I think your base case will certainly play out. As attractive as it is, it's still an expensive stock (in absolute price) and i'd love to double up on shares.

 

In 2002 Berkshire was 60,000-70,000 a share and One thing that bothered me was the absolute price.  An absolute share price tells you absolutely nothing.

[CookingByTheNumbers]

My latest numbers for Charter ending 2021 are..... revenues of close to 50 billion at a 5% growth rate, and ebitda at 19.5 billion at a 7% growth rate.  If they buy back 20% of their shares over 2.25 years, which is consistent with recent activity, they will have 200 million shares outstanding (246 now).  With an extra 15 billion in debt their cash interest expense will be 4.6 billion (90 billion at 5%), their capex will be 6.5 billion and I estimate their cash taxes at 700 million, we are left with roughly 8 billion in fcf, or 40 dollars fcf per share.  Still trading at an attractive price after recent run up and a 600-700 dollar share price in a couple years looks probable

 

Vince, you are right on the money. I also think it's safe to say that your growth measures are pretty conservative. Assuming they can ramp up other broadband measures and ultimately monetize mobile, and capture the remains of their underpenetrated footprint, I have 2021 slightly higher than $40/share. I think your base case will certainly play out. As attractive as it is, it's still an expensive stock (in absolute price) and i'd love to double up on shares.

 

In 2002 Berkshire was 60,000-70,000 a share and One thing that bothered me was the absolute price.  An absolute share price tells you absolutely nothing.

 

Fair point. I guess that is where my reluctance stands. Is Charter capable of compounding like Berkshire? Can Charter continue to grow 5 yrs, 10 yrs down the line given the rapidly changing environment. I think it's safe to say that Charter WILL somehow benefit with the emergence of 5G, but how will it ultimately transpire?

 

Question. Reviewing my numbers and just curious, how are you getting $90b in debt? Is that assuming an increase in $15b within 2021 to maintain 4.5x leverage?

[BG2008]

Charter reminds me a bit of owning New York City apartments.  It always feels kind of expensive.  But the key is the leverage and the ability to pass through price increases.  My wife and I have personally experienced 4% a year in broadband price increases.  This is similar rate to NYC apt rent in the last 20 years that I can remember.  So your key cost, mortgage interest is fixed, any increases in revenue tends to have a 1.0 + x type of flow through to the EBITDA mostly because the cost is not scaling as fast as the revenue.  This is precisely why Buffet loves pricing power and why my parents were able to see 15 years ago.  I think finance types are not good at understanding that you can pay 12-15x for something where the key cost is fixed (mortgage/debt) and you can increase revenue by 4% a year.  In Charter's case, they can continuously up their leverage up to 4.5x and use the debt proceed to buy back more shares.  You can't do that with real estate as you will have to refinance.  In private real estate, it is a step function.  In a way, the multiple that you are paying for Charter is never stagnant.  I was at the Liberty Investor day and they basically said that there is a price where it is too pricey and buybacks won't generate good returns and they will likely try to find some capital project.  My takeaway is that Greg/John/Tom are some of the best capital allocators that I know of.  If they stop buying back shares or significantly reduce buyback volume/velocity, that's probably the signal I need to exit. 

[scorpioncapital]

"I think it's safe to say that Charter WILL somehow benefit with the emergence of 5G, but how will it ultimately transpire?"

 

Why? If you buy a 5G plan for your house and phone together and bypass cable altogether , I see that as a total loss of customer to Charter.

 

On the other hand, this looks very promising - https://www.qorvo.com/design-hub/blog/enabling-10gbps-cable-networks-with-full-duplex-docsis-3-1

 

As someone said, who cares what the technology is if the end result is the same. I'm sure cable will eventually hit an inflection point but it won't be quite yet

[Spekulatius]

Charter reminds me a bit of owning New York City apartments.  It always feels kind of expensive.  But the key is the leverage and the ability to pass through price increases.  My wife and I have personally experienced 4% a year in broadband price increases.  This is similar rate to NYC apt rent in the last 20 years that I can remember.  So your key cost, mortgage interest is fixed, any increases in revenue tends to have a 1.0 + x type of flow through to the EBITDA mostly because the cost is not scaling as fast as the revenue.  This is precisely why Buffet loves pricing power and why my parents were able to see 15 years ago.  I think finance types are not good at understanding that you can pay 12-15x for something where the key cost is fixed (mortgage/debt) and you can increase revenue by 4% a year.  In Charter's case, they can continuously up their leverage up to 4.5x and use the debt proceed to buy back more shares.  You can't do that with real estate as you will have to refinance.  In private real estate, it is a step function.  In a way, the multiple that you are paying for Charter is never stagnant.  I was at the Liberty Investor day and they basically said that there is a price where it is too pricey and buybacks won't generate good returns and they will likely try to find some capital project.  My takeaway is that Greg/John/Tom are some of the best capital allocators that I know of.  If they stop buying back shares or significantly reduce buyback volume/velocity, that's probably the signal I need to exit.

 

I think it’s an astute observations and I would generalize this and state when growth is slow that pricing lower becomes ever more important. It’s going to be easier with pricing power to grow revenues at let‘s say 3% annually and flat volumes than to grow volumes by 3% annually with no pricing power.

 

It is definitely something I look at more and more these days. Broadband has shown good pricing power, DD ( a holding for both of us, I believe ) also has shown pricing power (albeit with weak volumes), liquor and tobacco as well as online advertisement rates (both GOOG and FB has shown good pricing trends digital ads), or even NFLX (subscription pricing).

 

Then on the other side of the medal, we have streaming services offering lower prices to gain market shares (Apple, DIS) where it remains to be seen how it shakes out. We also have no pricing power with Uber, Lyft and food delivery apparently. Interesting times, but I think looking at investment through the pricing power lens will become more important than it used to be imo.

[CookingByTheNumbers]

"I think it's safe to say that Charter WILL somehow benefit with the emergence of 5G, but how will it ultimately transpire?"

 

Why? If you buy a 5G plan for your house and phone together and bypass cable altogether , I see that as a total loss of customer to Charter.

 

On the other hand, this looks very promising - https://www.qorvo.com/design-hub/blog/enabling-10gbps-cable-networks-with-full-duplex-docsis-3-1

 

As someone said, who cares what the technology is if the end result is the same. I'm sure cable will eventually hit an inflection point but it won't be quite yet

 

As with many things, many of you are probably correct with your predictions but overestimate how quickly those predictions come true.

 

My concern is (and its certainly a reasonable one) whether "5G" will be quick and disruptive. As cable co.s continue to raise prices, wouldn't their so-called pricing power make 5G fixed more economical? To argue that 5G fixed doesn't work is nonsense. I think the most common argument is that its uneconomical. 5G networks will -in some form- offer incremental competition to the cable moats; especially when there's only 3-4 major players. Historically, people forget that cable killed DSL. Whats to say that cable wont be vulnerable to some form of next gen tech by disrupting its pseudo-monopoly position?

 

What I meant by transpire is what will ultimately happen next? Will a cable co. like Charter commit to its end game and acquire a telecom? Or will the reverse happen? I just don't know.

 

That being said, CHTR is one of largest positions.

[wabuffo]

Charter reminds me a bit of owning New York City apartments.  It always feels kind of expensive.  But the key is the leverage and the ability to pass through price increases. 

 

BG2008 - The man himself agrees with you.  From the 2017 Liberty Investor Day Q&A (this was just before the new Federal corporate tax rates went into effect):

 

Unknown Attendee:

Levered equity growth has been key factor of Liberty companies and the cable companies more broadly historically. Do you see the potential changes of the tax with lower corporate tax rates affecting the appeal of a levered strategy?

 

John C. Malone, Liberty Media Corporation - Chairman of the Board:

Well, I don't.  If interest rates were substantially higher and you were banging into these tax-deductible ratios, it would be an issue, but when you're -- if you're out there borrowing long money at sub 4% and you're still buying incremental cash flow at 8 to 10x post synergy, that's a big free cash flow generator folks, and the real issue is the sustainability of those cash flow streams.

 

In the old days, I used to model the cable business very much like you would real estate. It was kind of -- it was low return on invested capital, slow growth but organic growth and you needed leverage to get any kind of decent return on equity. 

 

And I don't think that world has changed. Now, you're going to see lower marginal tax rates maybe and you're going to see caps on leverage. I mean, just rule of thumb if you levered 6x with 5% money, you're at the 30% cap. That's more leverage than most enterprises would feel comfortable with on a long-term basis unless they have a lot of growth. So I don't really think it affects the model that much. ...

 

wabuffo

[scorpioncapital]

"I think it's safe to say that Charter WILL somehow benefit with the emergence of 5G, but how will it ultimately transpire?"

 

Why? If you buy a 5G plan for your house and phone together and bypass cable altogether , I see that as a total loss of customer to Charter.

 

On the other hand, this looks very promising - https://www.qorvo.com/design-hub/blog/enabling-10gbps-cable-networks-with-full-duplex-docsis-3-1

 

As someone said, who cares what the technology is if the end result is the same. I'm sure cable will eventually hit an inflection point but it won't be quite yet

 

As with many things, many of you are probably correct with your predictions but overestimate how quickly those predictions come true.

 

My concern is (and its certainly a reasonable one) whether "5G" will be quick and disruptive. As cable co.s continue to raise prices, wouldn't their so-called pricing power make 5G fixed more economical? To argue that 5G fixed doesn't work is nonsense. I think the most common argument is that its uneconomical. 5G networks will -in some form- offer incremental competition to the cable moats; especially when there's only 3-4 major players. Historically, people forget that cable killed DSL. Whats to say that cable wont be vulnerable to some form of next gen tech by disrupting its pseudo-monopoly position?

 

What I meant by transpire is what will ultimately happen next? Will a cable co. like Charter commit to its end game and acquire a telecom? Or will the reverse happen? I just don't know.

 

That being said, CHTR is one of largest positions.

 

A few points.

 

1. Hopefully we pay Malone at all his entities to figure out the inflection point. They have said they like cable but are not committed to it. Good sign. Most managements will never say their bread and butter is open for disruption and make capital allocation decisions on this basis as they are often blind or do not want to give up the management role.

 

2. There is a lot of discrepancy between Government bridges to nowhere these days with respect to infrastructure. Why is this? Definitely a bad side effect of low rates and need for fiscal spending. The mis-allocation of capital however DOES build the network! You can get the space age network even if there will never be a return. Unfortunately this would kill the incumbent that has good returns. IT's funny indeed. Maybe in this model government owns the infrastructure which will never make a return, taxpayers are on the hook via inflation and taxes and you just have retail level service providers.

Look at this article - https://www.forbes.com/sites/patrickgleason/2018/07/31/the-high-tech-bridge-to-nowhere-that-is-government-run-broadband/

 

3. Do we know what 5G pricing will be like? If Government is building it you can be sure it will often kill private business since government tends to underprice and overpay for construction. In some parts of the world this is the case. The latest cable-fibre hybrid standards suggest you may be able to go up to 10GBps (docsis 4.0) - https://www.cablelabs.com/technologies/docsis-4-0-technology

This is quite competitive with fixed 5G without the latency issues. Do we have an analysis which will cost more to build? Probably 5G as the high speed mixed cable is already (almost) here.

 

4. Lifestyle and consolidation . 5g fixed pairs well with your 5g mobile plan. All one bill. Of course, a cable operator could easily have a MVNO for 5g. In that respect it's just marketing. In fact , someone else builds the network and you just use it, wholesale! Already this is done in Europe and Charter does it too. Will these companies become just marketers, affiliates, and service providers with scale? Really the major reason USA broadband works and other countries does not is one single feature: wholesaling. USA gives some companies a monopoly on their network. Outside the USA there is more wholesaling. You can then just be a marketer or affiliate and have a revenue-share.

 

5. There is some question of 5g health issues that the fixed fibre or cable doesn't have but this may be a minor issue.

 

Overall, I see a lot of jumping the gun. Unless some disruptive technology and use-case comes along where consumers (vs Industry, e.g. tele-surgery) suddenly need more than 10GBps, then we are pulling demand forward. Notice that the entire theme of the last decade has been pulling demand forward by virtue of low rates. Should rates go higher, companies will be much more careful about capital allocation decisions in a premature fashion (although governments will always seem to spend recklessly).

If rates remain as they are, someone will pay even if the networks are built. And that someone is you and I via higher taxes , usually inflation tax. But if that inflation jacks up rates fast enough you may have a half-constructed network which is why governments are keeping rates so low for so long. I don't think it will end well. It's almost a completely global nationalization carried out in secret. In this world, the market and stocks and companies become almost like state-owned entities. The consequences for returns and productivity are huge.

 

 

[cameronfen]

^ The main issue is with 5g is not the fast that it is faster than cable, in fact it will likely be slower than cable, the issue is it is cheaper to build than cable.  You don’t need last mile fiber to the home, you just stick a small cell in every city block and then charge anyone who wants to use it a fee.  The question really is will it be reliable enough and have enough capacity to support data usage that is increasing 35% a year, and will telecos build their own infrastructure or buy out cable companies because it’s going to get built in urban areas one way or another. 

[BG2008]

^ The main issue is with 5g is not the fast that it is faster than cable, in fact it will likely be slower than cable, the issue is it is cheaper to build than cable.  You don’t need last mile fiber to the home, you just stick a small cell in every city block and then charge anyone who wants to use it a fee.  The question really is will it be reliable enough and have enough capacity to support data usage that is increasing 35% a year, and will telecos build their own infrastructure or buy out cable companies because it’s going to get built in urban areas one way or another.

 

I doubt it will be cheaper because the Honeycombs will be spaced closer to each other.  If it is really much cheaper, you will likely see the acceleration of the build out. Either the NIMBYism, cost, performance, or a combination of these factors is forcing the V, T, and TMUS, and S of the world to slow down their roll out.  It is also interesting that John Legere is choosing to step down as the TMUS and S merger is coming to a finish line.  I thought he represented the biggest risk to CHTR with a merged entity.  Digging trenches and hooking up wires are very costly. 

 

I rent mostly to blue collar folks in NYC.  I recently got a carpenter guy who showed me a paystub for $80k as of end of October.  Plumbers, electricians, and other highly skilled crafts, get paid $600 a day.  Blue collar is the new white collar. 

 

The other thing that people don't talk about is attenuation.  It's a pain in the butt to deal with.  When I'm on the phone and I can't hear people right for 10 seconds, I get irritated. 

[vince]

My latest numbers for Charter ending 2021 are..... revenues of close to 50 billion at a 5% growth rate, and ebitda at 19.5 billion at a 7% growth rate.  If they buy back 20% of their shares over 2.25 years, which is consistent with recent activity, they will have 200 million shares outstanding (246 now).  With an extra 15 billion in debt their cash interest expense will be 4.6 billion (90 billion at 5%), their capex will be 6.5 billion and I estimate their cash taxes at 700 million, we are left with roughly 8 billion in fcf, or 40 dollars fcf per share.  Still trading at an attractive price after recent run up and a 600-700 dollar share price in a couple years looks probable

 

Vince, you are right on the money. I also think it's safe to say that your growth measures are pretty conservative. Assuming they can ramp up other broadband measures and ultimately monetize mobile, and capture the remains of their underpenetrated footprint, I have 2021 slightly higher than $40/share. I think your base case will certainly play out. As attractive as it is, it's still an expensive stock (in absolute price) and i'd love to double up on shares.

 

In 2002 Berkshire was 60,000-70,000 a share and One thing that bothered me was the absolute price.  An absolute share price tells you absolutely nothing.

 

Fair point. I guess that is where my reluctance stands. Is Charter capable of compounding like Berkshire? Can Charter continue to grow 5 yrs, 10 yrs down the line given the rapidly changing environment. I think it's safe to say that Charter WILL somehow benefit with the emergence of 5G, but how will it ultimately transpire?

 

Question. Reviewing my numbers and just curious, how are you getting $90b in debt? Is that assuming an increase in $15b within 2021 to maintain 4.5x leverage?

 

If you look at BRK's performance it comes out to roughly 10% over that time frame which isn't great but respectable given the risk profile and the fact that we are using an end point that just happens to be a pretty low multiple of book value.  I think the probabilities are pretty high that Charter's future returns over the next 10 years will be north of 10% even with a lower Ebitda growth rate than what they are producing now.  I am more concerned about regulatory intervention than I am about 5G.  Yes, you are exactly right about the leverage question.

[vince]

Charter reminds me a bit of owning New York City apartments.  It always feels kind of expensive.  But the key is the leverage and the ability to pass through price increases.  My wife and I have personally experienced 4% a year in broadband price increases.  This is similar rate to NYC apt rent in the last 20 years that I can remember.  So your key cost, mortgage interest is fixed, any increases in revenue tends to have a 1.0 + x type of flow through to the EBITDA mostly because the cost is not scaling as fast as the revenue.  This is precisely why Buffet loves pricing power and why my parents were able to see 15 years ago.  I think finance types are not good at understanding that you can pay 12-15x for something where the key cost is fixed (mortgage/debt) and you can increase revenue by 4% a year.  In Charter's case, they can continuously up their leverage up to 4.5x and use the debt proceed to buy back more shares.  You can't do that with real estate as you will have to refinance.  In private real estate, it is a step function.  In a way, the multiple that you are paying for Charter is never stagnant.  I was at the Liberty Investor day and they basically said that there is a price where it is too pricey and buybacks won't generate good returns and they will likely try to find some capital project.  My takeaway is that Greg/John/Tom are some of the best capital allocators that I know of.  If they stop buying back shares or significantly reduce buyback volume/velocity, that's probably the signal I need to exit.

 

Be careful of putting too much weight on that last assertion.  I think Malone wants them to slow buybacks now so they can have some firepower to navigate changing circumstances.  So a significant slowdown in buybacks could mean that they see something developing that will require some capital.  Excellent thoughtful post.

[scorpioncapital]

^ The main issue is with 5g is not the fast that it is faster than cable, in fact it will likely be slower than cable, the issue is it is cheaper to build than cable.  You don’t need last mile fiber to the home, you just stick a small cell in every city block and then charge anyone who wants to use it a fee.  The question really is will it be reliable enough and have enough capacity to support data usage that is increasing 35% a year, and will telecos build their own infrastructure or buy out cable companies because it’s going to get built in urban areas one way or another.

 

How does 5G capital deployment cost compare to incremental adjustment to existing cable (e.g. Docsis 4.0). I would imagine it's the incremental cost that should be compared.

[vince]

^ The main issue is with 5g is not the fast that it is faster than cable, in fact it will likely be slower than cable, the issue is it is cheaper to build than cable.  You don’t need last mile fiber to the home, you just stick a small cell in every city block and then charge anyone who wants to use it a fee.  The question really is will it be reliable enough and have enough capacity to support data usage that is increasing 35% a year, and will telecos build their own infrastructure or buy out cable companies because it’s going to get built in urban areas one way or another.

 

How does 5G capital deployment cost compare to incremental adjustment to existing cable (e.g. Docsis 4.0). I would imagine it's the incremental cost that should be compared.

 

Rutledge has very clearly said that 5G drops are at least as expensive as last mile fiber.  That in itself would not make me feel comfortable that Charter is bulletproof.....you have to assume that at least some irrational uneconomical infrastructure will be built, especially if a company like Amazon can monetize the build with benefits that flow to other parts of their business.  So the next thing to look at is the relative performance of 5G vs cable coax.  Cable has a theoretical path to speeds of 25 gigs, and at low incremental cost....they recently went from 200 mgs to 1 gig for 7 dollars a passing, and completed the project in under a year.  I guess what I am saying is that even a motivated uneconomical over builder will be heavily deterred from building something that is not very clearly competitive with the existing plant while taking into account the time it will take to build it.  For instance, lets assume it will take roughly 5 years to build out a national 5G infrastructure.  Well in 5 years your 10 Gig speeds will be inferior to what cable can do at low cost and at scale quickly.  And this is one reason Rutledge continues to say not only is 5G or fiber expensive, it takes a lot of time to build.  And to top it off, as of now, 5G performance in practice is falling well short of what cable can give you already.  I think what we need now to cement cable infrastructure superiority are applications that are very data intensive.  This will magnify the relative value of the cable plant and further deter any overbuild.  I will admit tho that I havent thought thru diligently any potential negatives from rapid speed demands so there may be something i am not seeing that could offset the benefit

[cameronfen]

^ The main issue is with 5g is not the fast that it is faster than cable, in fact it will likely be slower than cable, the issue is it is cheaper to build than cable.  You don’t need last mile fiber to the home, you just stick a small cell in every city block and then charge anyone who wants to use it a fee.  The question really is will it be reliable enough and have enough capacity to support data usage that is increasing 35% a year, and will telecos build their own infrastructure or buy out cable companies because it’s going to get built in urban areas one way or another.

 

I doubt it will be cheaper because the Honeycombs will be spaced closer to each other.  If it is really much cheaper, you will likely see the acceleration of the build out. Either the NIMBYism, cost, performance, or a combination of these factors is forcing the V, T, and TMUS, and S of the world to slow down their roll out.  It is also interesting that John Legere is choosing to step down as the TMUS and S merger is coming to a finish line.  I thought he represented the biggest risk to CHTR with a merged entity.  Digging trenches and hooking up wires are very costly. 

 

I rent mostly to blue collar folks in NYC.  I recently got a carpenter guy who showed me a paystub for $80k as of end of October.  Plumbers, electricians, and other highly skilled crafts, get paid $600 a day.  Blue collar is the new white collar. 

 

The other thing that people don't talk about is attenuation.  It's a pain in the butt to deal with.  When I'm on the phone and I can't hear people right for 10 seconds, I get irritated.

 

I think it is likely 5G is cheaper than cable: basically, the cost of building one small cell in a neighborhood is way less expensive than building fiber from that one waypoint to every premise.  Yes you have to build fiber to the small cell, but you have to do it anyway with cable.  @Vince says Rutledge says I'm wrong and I could be but at least the literature is mixed on that if you surf the internet.  Rutledge also has personal interest in saying that.  You alls have the fact that 5G infustructure for both mobile and broadband (spreading costs over more RGUs), and even if it is similar in cost structure or a bit more, this allows new entrants into the broadband game.  Cable margins are oligopoly/monopoly level high and so even a cost disadvantaged competitor could challenge for market share and make returns lower going further. 

 

Attenuation is going to be a problem and perhaps throttling, although 5g will have more capacity.  Speeds will could be lower but it may not be a problem (or it may with increase video watching and if AR takes off (which it doesn't seem to be currently but maybe IoT)).  Reliability is problematic with 5G. 

 

@scorpioncapital again the incremental costs for 5g is likely lower.  Telcos are building 5g anyway for mobile devices, incrementally it costs nothing to add another device.  Docsis 4.0/3.1 will likely be be relatively cheap for existing cable users, but in order to connect a new house still requires building fiber.  But again the new technology after 5G will be generally software based and not hardware based: better compression etc.  So like future cable upgrades, those upgrades will be cheap to roll out. 

 

The main question is reliability and able to handle the amount of data. 

[scorpioncapital]

So there is no difference between cost of 5g wireless while roaming and while at home? Also, from what I understand of full duplex cable broadband is that it is a hybrid solution which requires no modification to the copper wire going into the home. Thus the cost, if any, is in some hardware upgrades and any fibre to the corner , which I assume is already mostly built?

[NotSoWise]

Given so many unknowns and dynamic environment (5G, regulations, etc), why not just follow Rutledge's money?

 

His highest strike price is close to USD 560, above which he will try to max out his package at some point in time. If there is no take over anytime soon, then he might sell on the market. Given that he is one of the best cable operators with probably much better insights into the cable business than probably everyone on this forum, how wrong can you be selling along him (or few days/ weeks after him)?

[vince]

So there is no difference between cost of 5g wireless while roaming and while at home? Also, from what I understand of full duplex cable broadband is that it is a hybrid solution which requires no modification to the copper wire going into the home. Thus the cost, if any, is in some hardware upgrades and any fibre to the corner , which I assume is already mostly built?

 

I agree that it's not guaranteed that 5G is more expensive than fiber but I think anyone would have to admit that it's going to be close.  In addition, every other potential 5G builders DO NOT have the fiber backhaul that cable has.  In other words cable is advantaged in a 5G world.  As I have said before that doesn't mean 5G will not come with inferior economics to cable, even if they are well positioned.  But it does suggest another layer of defensibility.  Another thing that I mentioned that hasn't been addressed and is much more important than the comments around it is the time advantage.  And I can guarantee that the 5 year example I used is WAY too low.  Lastly, 5G for wireless is not the same as 5G broadband.  The average monthly wireless usage is around 10 gigs a month.  It's laughable to suggest that the capital cost, time to implement, and the local regulatory constraints are similar to 5G broadband where monthly average capacity usage is somewhere between 300-450 gigs per month.  That is precisely why Verizon, while praising their 5G abilities in marketing is really only committed to 5G wireless.  I don't want to suggest that cable is absolutely bulletproof but I think the 5G threat has to be put into perspective.  It is potentially an alternative to the cable plant but will more likely be used in specific applications rather than replace cable.

[vince]

I cut this out of an article that was linked in a previous post......It has been demonstrated in Salisbury and now Kentucky that state and municipal governments are not well-equipped to provide a state-of-the-art broadband network. They often overlook the fact that, in addition to the costs and complications of initial construction, frequent and expensive technology upgrades are necessary throughout the network’s life in order to remain current in such an innovative field.

 

Along with underestimated costs, demand for GONs is often grossly overestimated. This was the case in Salisbury. Despite having access to a GON, most consumers chose to remain with their trusted private sector provider.

 

Over and over I continue to see failures around competing broadband infrastructure (and please don't attribute the failures to gov't incompetence, google and verizon have both thrown in the towel).  And the way some authors seem to think that you pay someone to complete the project and then you flip a switch and BAM....you have a competitive service to cable.  Satellite was supposed to be the end of cable, and despite having a vastly superior tv service vs cable, cable continued to thrive with pricing power intact.  Finally, while many pundits continue to predict the end of cable I think they may have missed the fact that their stocks have gone up between 50-100% over the last year and Charter is up 5 fold in 7 years and is arguably still undervalued.

[cameronfen]

^ sure Vince I think we are more in agreement then not from reading what you say, certainly more than last time we discussed.  The biggest question is whether 5g can handle the data and whether it is reliable enough.  Those are big ifs.  I think if you compare cost required starting from nothing I think likely 5g broadband has a cost advantage due to less last mile costs but also because of the ability to spread the costs to more RGUs (ie 5g broadband is almost incrementally free).  That because being said cable is in a better position with the infustructure that is in place now because much of the fiber is needed both for cable and for 5g internet while cable companies don’t need the telcos network of towers.  That being said it’ll probably take 3+ years to build out 5g infrastructure for both mobile and broadband and then another 2+ years at least to convince people to switch to broadband if it works effectively.  So being in a cable company you have a lot of time you just need to watch the action and be intellectually honest about the potential of disruption. 

[scorpioncapital]

I know that now it is hidden by low rates and high liquidity but 'return on investment', 'return on capital invested' - if the world is rational in the long run should imply that a business that has good returns on invested capital will be more profitable and valuable to shareholders. That's why the argument that 5G is cheap to implement is interesting, as that would make it very lucrative, even if cable offers the same product.

[vince]

^ sure Vince I think we are more in agreement then not from reading what you say, certainly more than last time we discussed.  The biggest question is whether 5g can handle the data and whether it is reliable enough.  Those are big ifs.  I think if you compare cost required starting from nothing I think likely 5g broadband has a cost advantage due to less last mile costs but also because of the ability to spread the costs to more RGUs (ie 5g broadband is almost incrementally free).  That because being said cable is in a better position with the infustructure that is in place now because much of the fiber is needed both for cable and for 5g internet while cable companies don’t need the telcos network of towers.  That being said it’ll probably take 3+ years to build out 5g infrastructure for both mobile and broadband and then another 2+ years at least to convince people to switch to broadband if it works effectively.  So being in a cable company you have a lot of time you just need to watch the action and be intellectually honest about the potential of disruption.

 

Cam, I'm curious if you have information to support your assertion of 3 years to build out 5G infrastructure.  Do you mean starting from now? Or do you mean starting from a point in time where they have practical proof of a competitive product?  Thanks for the reply's.

[cameronfen]

^ sure Vince I think we are more in agreement then not from reading what you say, certainly more than last time we discussed.  The biggest question is whether 5g can handle the data and whether it is reliable enough.  Those are big ifs.  I think if you compare cost required starting from nothing I think likely 5g broadband has a cost advantage due to less last mile costs but also because of the ability to spread the costs to more RGUs (ie 5g broadband is almost incrementally free).  That because being said cable is in a better position with the infustructure that is in place now because much of the fiber is needed both for cable and for 5g internet while cable companies don’t need the telcos network of towers.  That being said it’ll probably take 3+ years to build out 5g infrastructure for both mobile and broadband and then another 2+ years at least to convince people to switch to broadband if it works effectively.  So being in a cable company you have a lot of time you just need to watch the action and be intellectually honest about the potential of disruption.

 

Cam, I'm curious if you have information to support your assertion of 3 years to build out 5G infrastructure.  Do you mean starting from now? Or do you mean starting from a point in time where they have practical proof of a competitive product?  Thanks for the reply's.

 

I got it from this quora answer which had answers ranging from 2 years to 5 years:  https://www.quora.com/How-long-will-it-take-for-5G-to-be-fully-implemented (see the second or third answer).  You can also refer to this source:  https://www.digitaltrends.com/mobile/verizon-5g-rollout/ where they say several years.  Other people say it will take longer, but I'm trying to illustrate the worst-case scenario for cable which is still a 5 year wait (3 years to build 5g 2 years to take a share in 5g broadband (that I just made up but I think 2 years is probably on the low side to take significant share from a market leader)).  My point and I think the point you are making is even in the most optimistic case cable still has 5 years become the competition will be problematic if it does end up being problematic.