CHTR - Charter Communications

[rogermunibond]

Scorpion - in my mind, AR/VR would be the killer app.  Or something even more futuristic like what was used to produce the Mandalorian...

 

For the Mandalorian, Disney and Lucasfilm through ILM used a virtual production set called Stagecraft.  One camera person goes to the site and shoots digital data and then they recreate the site with full parallax and perspective on a soundstage using OLED screens.

 

https://www.ilm.com/stagecraft/

[glorysk87]

Sure we can disagree but I do feel compelled to respond to your points since you are seeming to attack not only my arguments but my character.  If you think I’m not worth your time, feel free to not respond.  I appreciate you being respectful although you clearly think I’m an idiot and maybe I am as I haven’t admittedly worked 3 years on this. 

 

I was very careful to choose my words so that it would not come off as an attack on you. Apologies.

 

So maybe attack on character is a little harsh, but you may think I’m an idiot which is fair, but you were respectful.  I guess it was more the idiot part I felt I wanted to address as I felt you implied that I was getting my arguments from thin air (which sometimes is a bad habit of mine I admit), but in this case I think I felt I had sources (who could be wrong) but I wanted to put it out there that I’m not always just spouting nonsense.  You were entirely respectful though in my mind.

 

No, apologies again - I don't think you're an idiot. I do think you're wrong, but like I said, each is entitled to their own opinion/research/process/etc.  I appreciate you laying out your argument and the sources from which you got it. Now I say we clear the way for some discussion from others in the thread.

[Jurgis]

Regarding killer app, it all depends on price. If I could get 1G/10G speeds at <$100 per month, I'd take them. (Currently I am paying something like $80 for 50M speed - US cable oligopoly sucks and must die painful death... or fund my retirement through outsized stock returns. 8) Yeah, I know value investors gonna suggest switching provider or calling and begging for discount every 12 months. Screw that. )

 

Being able to download 30-100G size game in couple of minutes is good enough killer app for me. I may not do this often, but when I do it, it sucks to wait couple hours.

[CorpRaider]

Guys, the killer app is always porn.  In this case VR porn.  Dur.

[scorpioncapital]

It's funny because often with even a 300Mbps connection I have a too old computer and my wifi router gets clogged up by neighbours or something so in the end things are kinda slow but through not much fault of the pipe itself. I wonder how many millions of customers are also having the same bottlenecks.

Is there a utility function of broadband, a kind of solution to the Petersburg paradox. Is it like wealth? Is there a number after which even in your wildest dreams you won't have much extra utility for? Or is it more like Moore's Law where apps and software just keeps bloating and expanding to suck up the available resources?

[vince]

Sure we can disagree but I do feel compelled to respond to your points since you are seeming to attack not only my arguments but my character.  If you think I’m not worth your time, feel free to not respond.  I appreciate you being respectful although you clearly think I’m an idiot and maybe I am as I haven’t admittedly worked 3 years on this. 

 

I was very careful to choose my words so that it would not come off as an attack on you. Apologies.

 

So maybe attack on character is a little harsh, but you may think I’m an idiot which is fair, but you were respectful.  I guess it was more the idiot part I felt I wanted to address as I felt you implied that I was getting my arguments from thin air (which sometimes is a bad habit of mine I admit), but in this case I think I felt I had sources (who could be wrong) but I wanted to put it out there that I’m not always just spouting nonsense.  You were entirely respectful though in my mind.

 

No, apologies again - I don't think you're an idiot. I do think you're wrong, but like I said, each is entitled to their own opinion/research/process/etc.  I appreciate you laying out your argument and the sources from which you got it. Now I say we clear the way for some discussion from others in the thread.

 

Glory, DTV (satellite) 8-9 years ago and then the cable industry after DTV was acquired have been by far my largest positions.  So I have been studying the industry for a long time, but with no professional office guidance or research resources.  But the knowledge gained from the research I have done is very consistent with your comments.  I would truly appreciate some more of your conclusions around the cable industry in general and Chtr specifically and also if you see anything I have posted that you don't agree with. I understand if you don't want to but it is great to have an industry professional chime in.

[cameronfen]

Sure we can disagree but I do feel compelled to respond to your points since you are seeming to attack not only my arguments but my character.  If you think I’m not worth your time, feel free to not respond.  I appreciate you being respectful although you clearly think I’m an idiot and maybe I am as I haven’t admittedly worked 3 years on this. 

If it means anything, it’s not just Vince.  I would like to hear too despite being somewhat adversarial. 

 

I was very careful to choose my words so that it would not come off as an attack on you. Apologies.

 

So maybe attack on character is a little harsh, but you may think I’m an idiot which is fair, but you were respectful.  I guess it was more the idiot part I felt I wanted to address as I felt you implied that I was getting my arguments from thin air (which sometimes is a bad habit of mine I admit), but in this case I think I felt I had sources (who could be wrong) but I wanted to put it out there that I’m not always just spouting nonsense.  You were entirely respectful though in my mind.

 

No, apologies again - I don't think you're an idiot. I do think you're wrong, but like I said, each is entitled to their own opinion/research/process/etc.  I appreciate you laying out your argument and the sources from which you got it. Now I say we clear the way for some discussion from others in the thread.

 

Glory, DTV (satellite) 8-9 years ago and then the cable industry after DTV was acquired have been by far my largest positions.  So I have been studying the industry for a long time, but with no professional office guidance or research resources.  But the knowledge gained from the research I have done is very consistent with your comments.  I would truly appreciate some more of your conclusions around the cable industry in general and Chtr specifically and also if you see anything I have posted that you don't agree with. I understand if you don't want to but it is great to have an industry professional chime in.

 

Sorry I don’t know why my comment didn’t go through (or was it modded out?) I would also be interested in hearing Glory’s research despite arguing with him or her.  I feel like it would be beneficial to learn from the research that has been done. 

[Munger_Disciple]

A good article on cable & 5G:

 

https://www.cnbc.com/2019/12/01/5g-broadband-is-a-threat-to-cable-companies-but-execs-arent-worried.html

 

I think Craig Moffett nailed it:

 

The bottom line, according to Craig Moffett, a telecommunications analyst at MoffettNathanson, is 5G simply won’t be a panacea for those looking to ditch their reliance on cable.

 

“For now, it looks like 5G won’t pose much of a threat to wired broadband,” said Moffett. “Coverage is too limited to make the economics work when using high frequency spectrum, and capacity is too precious when using midband spectrum. That will change over time, perhaps, but the early fears that 5G would pose a direct competitive threat have abated dramatically as investors have come to understand 5G’s limitations.”

 

[vince]

A good article on cable & 5G:

 

https://www.cnbc.com/2019/12/01/5g-broadband-is-a-threat-to-cable-companies-but-execs-arent-worried.html

 

I think Craig Moffett nailed it:

 

The bottom line, according to Craig Moffett, a telecommunications analyst at MoffettNathanson, is 5G simply won’t be a panacea for those looking to ditch their reliance on cable.

 

“For now, it looks like 5G won’t pose much of a threat to wired broadband,” said Moffett. “Coverage is too limited to make the economics work when using high frequency spectrum, and capacity is too precious when using midband spectrum. That will change over time, perhaps, but the early fears that 5G would pose a direct competitive threat have abated dramatically as investors have come to understand 5G’s limitations.”

 

I love this quote by the Altice Ceo........“We are building fiber to home in the New York tri-state area now, in a region where we already have permits and local relationships. From when we announced we were doing that in 2017, it has taken us two years to get up and running before we could connect a single home. That’s purely the permitting process in our backyard. But we were haggling with these communities one by one to lay more fiber. If it takes us two years to get up and running, imagine trying to hit the 50 top markets in the U.S. coming in without the relationships. It’s impossible.

 

Obviously we have to take into account his motivations and I'm sure many will just put aside what he says based on his biases but I think that would be a big mistake.  Because there are others that have faced these hurdles before and it's a big reason why the costs are so high and why cable is in the position they are in at the moment. Take a look at Liberty Global's Lightning efforts in the UK......WAY behind their original projections.  Also, in another part of the article it talks about how much Fiber is needed just to attempt 5G.  I can't imagine widespread 5G overbuilding unless they have a truly superior product and they are not even at that stage yet.  And to top that off, it's not like 5G is exclusive to telecoms......if they are having some success with it, nothing stops cable from putting in their own 5G infrastructure which will be way cheaper and way quicker.  I could be dead wrong but the idea of 5G doesn't strike me as an imminent threat, if it's a threat at all.

[BG2008]

Going on my soap box of how Cable is very similar to real estate.  Think about all the homeless problems in SF, LA, and NYC.  Frankly, the technology and ability is all there to build more housing.

I mean we've literally been building houses for thousands of years.  There are houses built in Rome that are still standing today.  Think about it.  It's just bricks and mortar and voila, we will solve the homeless problem.  But does it get built?  I think a lot of investors and particularly tech investors think that you can just dig up the street and run wires.  Tell that to someone in the real estate business and they will get it immediately.  I had to negotiate for carpenters to lay 600 sqft of tiles for my boss at a Class B building.  600 sqft of tiles cost $7,000.  This was 10 years ago.  Plumbers in NYC make $500 to $600 a day.  We're likely talking about skilled labor who can climb up on utility poles and run power cords.  The neighbors hate these ugly 5G boxes.  I think this is why business that are 100% software based can scale very quickly.  But anything that requires zoning, permitting, and blue collar labor are a pain in the butt to pull off. 

 

Blue collar is the new white collar.  You can drown yourself in student loans and graduate into a $50,000 job in NYC doing pysch or office work or you can become an electrician and get paid over $100k and never go into debt.  Plus you will be making a living from 18 to 22 rather than getting hammered and accumulating debt.  Okay, enough of my old man rant. 

 

Legere stepping down is interesting.  He is about to pull off the T-Mobile and Sprint merger and now he's stepping down?  All that talk of 5G and etc.  But he's not staying on to execute.  Hmm. 

[scorpioncapital]

https://arstechnica.com/tech-policy/2019/12/bernie-sanders-vows-to-break-up-huge-isps-and-regulate-broadband-prices/

 

https://www.theverge.com/2019/12/6/20998849/bernie-sanders-rural-broadband-access-internet-cable-monopolies-antitrust-election-2020

 

Any thoughts on these calls to dismantle cable monopoly in USA? Would it affect Charter?

I do note a similar trend in the UK and with wholesaling and whatnot has led to some pretty low stock prices .

Same with Canada, Australia, EU...

 

I can't imagine a higher stock price if these things come to pass.

 

[vince]

https://arstechnica.com/tech-policy/2019/12/bernie-sanders-vows-to-break-up-huge-isps-and-regulate-broadband-prices/

 

https://www.theverge.com/2019/12/6/20998849/bernie-sanders-rural-broadband-access-internet-cable-monopolies-antitrust-election-2020

 

Any thoughts on these calls to dismantle cable monopoly in USA? Would it affect Charter?

I do note a similar trend in the UK and with wholesaling and whatnot has led to some pretty low stock prices .

Same with Canada, Australia, EU...

 

I can't imagine a higher stock price if these things come to pass.

 

It would be a disaster for Charter's business, their stock price and the whole industry. 

[scorpioncapital]

You know I think so too although if we take a 10-11x OCF multiple it seems even in the countries where this was done (canada, uk) the multiple is not much less at around 10x OCF. I haven't looked lately where Charter is trading at the moment though.

[vince]

You know I think so too although if we take a 10-11x OCF multiple it seems even in the countries where this was done (canada, uk) the multiple is not much less at around 10x OCF. I haven't looked lately where Charter is trading at the moment though.

 

Charter is trading at just over 11 times ebitda.  In Europe they are trading well below that level.  I agree though that if there was zero chance of regulatory intervention Charter would be trading at a higher multiple than that.  An interesting fact is the multiple that Cabo is trading at.  And I dont see why they are trading at a 25% premium.  Yes they are smaller and can create value with some tuck in acquisitions but scale is a significant factor in the cable business.  And Malone, in his recent CNBC interview supported the suggestion I made in a previous post that the larger cable companies could get their multiple up (way up) buy simply shedding video subscribers FASTER while making it part of their strategy.  This will increase their margins dramatically.  In fact, during the last 12-18 months you can clearly see Comcast (read their conference call transcripts and you will see what I'm talking about) and Charter to a lesser degree, start to test those waters.  It's still questionable from a long term value creation perspective whether larger cable company's (larger cable co's have higher video profit per subscriber than smaller ones) should aggressively pursue that strategy. 

[scorpioncapital]

I think you're right. I looked at european cable and seems to be a p/ebitda of 3x.

 

 

[vince]

Comcast's cable EBITDA margins for 2019 are going to be 42%.  And an analysis of their drivers makes it very clear that it will climb going forward and 45% is certainly within reach.  Assuming no further capex/revenue benefit, and applying these figures to Charter along with 5% revenue growth, I am now confidently predicting 13 billion of pre-tax free cash flow in 2023.  And a share count well under 200 million shares WITH NO additional borrowings.  If you play around with capex intensity and taxes we could rationally conclude 65 dollars of fcf per share.  And this assumes only minimal pricing.  Keep in mind that mobile, which is not factored in will probably be a drag on margins but a tailwind on revenues.  Please God just keep the regulators away!!

[vince]

From Comcast's 3rd qtr CC.....We now expect Cable CapEx intensity for the full year 2019 to improve by at least 150 basis points compared to the 13.8% in 2018.....In case you are wondering Charter will come in around 15% for 2019

[scorpioncapital]

Does anyone know how the regulatory environment for cable broadband works in the USA? Specifically, do the major duopolies of charter and Comcast get the right to operate certain states or cities exclusively so that there is no or little overlap? I imagine this is a key reason for the good economics if so. In other countries that don't have states or have just major cities it seems to be a free for all with 2,3,4 competitors all allows to operate in the same spot.

[DooDiligence]

Does anyone know how the regulatory environment for cable broadband works in the USA? Specifically, do the major duopolies of charter and Comcast get the right to operate certain states or cities exclusively so that there is no or little overlap? I imagine this is a key reason for the good economics if so. In other countries that don't have states or have just major cities it seems to be a free for all with 2,3,4 competitors all allows to operate in the same spot.

 

If I remember right from Cable Cowboys, it was mostly dealt with at the municipal level.

[dwy000]

Does anyone know how the regulatory environment for cable broadband works in the USA? Specifically, do the major duopolies of charter and Comcast get the right to operate certain states or cities exclusively so that there is no or little overlap? I imagine this is a key reason for the good economics if so. In other countries that don't have states or have just major cities it seems to be a free for all with 2,3,4 competitors all allows to operate in the same spot.

 

If I remember right from Cable Cowboys, it was mostly dealt with at the municipal level.

 

Municipalities deal with right-of-way issues and licensing/permitting.  The bigger broadband regulation is at FCC level.  The telecom providers have broadband regulated under Title II which given gov't ability to regulate every aspect of it - right down to pricing (although when they applied Title II they claimed they had no intention of touching that.....right.)

[scorpioncapital]

So FCC is no worse than other countries regulators? Is there some nuanced regulatory principle in US vs outside US because it sure seems like US cable does better than anywhere in the world. Perhaps it is US growth and the entire economy that works and it rubs off on broadband, is another theory.

[vince]

So FCC is no worse than other countries regulators? Is there some nuanced regulatory principle in US vs outside US because it sure seems like US cable does better than anywhere in the world. Perhaps it is US growth and the entire economy that works and it rubs off on broadband, is another theory.

 

This may be a little controversial but it's my belief that Malone is at least partially responsible for the favorable industry structure.  He did have a very clear vision of the ideal characteristics and was driven to implement them.  You could also argue that he is partly responsible for some of the negative perception of cable's business practices in consumers and gov't officials eyes. 

[glorysk87]

So FCC is no worse than other countries regulators? Is there some nuanced regulatory principle in US vs outside US because it sure seems like US cable does better than anywhere in the world. Perhaps it is US growth and the entire economy that works and it rubs off on broadband, is another theory.

 

lot of different regulatory structures around the world. UK for instance has a regulatory body named ofcom, which requires fiber owners like BT to provide access to resellers (like Sky) at wholesale rates. would assume that disincentivizes further investment in cable infrastructure throughout the country, thus the service suffers. similar structures throughout much of europe.

[Liberty]

Greg Maffei on 5G:

 

I think when we were here last year or maybe it was CES this year, we were at the absolute peak of

expectations for 5G. And these are the quotes from one of our competitors about how it was going to

revolutionize the world in a very short period of time. In the rush to be first to 5G, actually another

carrier displayed a 5GE logo on upgraded parts of its LTE network. The phones that were connecting had

nothing to do with 5G, but so be it. We have moved forward, I think, to today, where expectations have

appropriately come down. Why? First, there are some technical challenges around 5G. Deployment has

been slow even in high-density networks. Some of the trials haven't gone as people would hope or asked.

There have been issues around if you're not exactly in the right spot, you're blocked by a tree, you lose

the signal. Longer term, there's some issues around how millimeter waves propagate and how they can

be blocked and the number of devices that will actually be able to be carrying and put pressure on the

network.

 

I think there's some similar issues which have caused some of the disillusionment with 5G from those

heightened expectations. It's how will it pay for itself. First, the cost estimates are enormous, and some

of the carriers are strapped by either financial leverage or high dividend requirements. So it's not clear

where that capital is all going to come from. And some of the new players are speculating on entrants

who will fund them, technology companies and the like. It's not clear that's going to happen. But a larger

problem, perhaps, is it's not clear exactly where the return is going to be. The history is, is when wireless

is upgraded more recently, it hasn't always translated into more revenue, continued downward pressure.

And you've seen data consumption rise while ARPUs have been actually pushed down. There are dreams

of lots of idealistic applications, which may not actually require mobility and may not pay for themselves

and might well be better served by wired connections.

 

That is not to say that we think, and Tom can say his own words, but we think that 5G is all either bad

news or bad news for cable. There clearly are cases where 5G is going to dramatically increase speeds,

capacity and lower latency. But cable will be a part of it. First, the cable has all the infrastructure needed

in many markets to provide the backhaul and the radios that 5G requires. In a lot of cases, actually traffic

will be offloaded onto those DOCSIS 3.1 networks, which are way faster than what 5G is and far more

efficient in a lot of markets and is already existing in a lot of markets. So while we're excited about the

long-term prospects for 5G, I think we look at it more as an opportunity long term than a threat near

term.

[BG2008]

What are people's thoughts with CHTR trading here?  I just lightened up my position this morning.  Thoughts on threat of low orbit satellites?  Apparently cost is decreasing quite rapidly.