CHTR - Charter Communications

[Shooter MacGavin]

Hey here's a dumb question...

 

I hear this line a lot from Malone and MIke Fries...combining a wireline network and a wireless network has huge synergies.  Why does it have huge synergies? I get the churn reduction argument.  But from a pure cost synergy perspective? 

 

[Liberty]

I agree with both of you, I saw the interview.  But whats your thoughts on first part of my post?

 

It seems to be the direction of things, but who knows how it'll play out... What matters most is that CHTR doesn't need to merge with anyone to get to quad play, and 80% of the bits going through phones are already going through its wifi, not through cell towers, so it's easier for them to absorb that extra capacity than for the wireless players to try to duplicate the capacity of cable.

[Liberty]

Hey here's a dumb question...

 

I hear this line a lot from Malone and MIke Fries...combining a wireline network and a wireless network has huge synergies.  Why does it have huge synergies? I get the churn reduction argument.  But from a pure cost synergy perspective?

 

As you mentioned, reducing churn has big benefits, but there are also synergies when it comes to the backhaul capacity, the billing and customer service systems, etc.

 

Imagine a cable network and a wireless company side by side, operating independently. If you made a venn diagram of everything they need to operate, there'd be a fair bit over overlap. That's where the synergies would come from.

 

But cable is a better business than wireless, so it all depends at what cost you can make it happen. So far CHTR seems to be going the MVNO route, which reduces risk.

[Astrea]

Yes Liberty Global commentary on VOD/Ziggo JV was that the two biggest benefits were higher NPS and lower churn. The cost synergies were 1/4 IT savings, 1/4 redundancies and 1/2 included marketing + sales and termination of rented fibre. I think they discussed this on the Liberty Global Q3 2017 call.

[gokou3]

Perhaps another dumb question, but why would someone like VZ willing to play game with the cable guys by letting them run a MVNO on its network?  Is it due to regulatory requirement that they need to open up their network?  Otherwise, I don't see it beneficial to cultivate a potential competitor for a little incremental revenue.

[walkie518]

Perhaps another dumb question, but why would someone like VZ willing to play game with the cable guys by letting them run a MVNO on its network?  Is it due to regulatory requirement that they need to open up their network?  Otherwise, I don't see it beneficial to cultivate a potential competitor for a little incremental revenue.

 

VZ's customers use Charter's and Comcast's pipes, Routeledge claims 80% of mobile activity occurs over wifi and therefore cable. 

 

Master/slave!

[mbreject]

Perhaps another dumb question, but why would someone like VZ willing to play game with the cable guys by letting them run a MVNO on its network?  Is it due to regulatory requirement that they need to open up their network?  Otherwise, I don't see it beneficial to cultivate a potential competitor for a little incremental revenue.

 

I think it's more about them not leaving money on the table. The customers of MVNOs aren't going to be the same as Verizon's, so it's not like they're losing business. Their networks just get more congested though they do limit MVNOs.

[Munger_Disciple]

Perhaps another dumb question, but why would someone like VZ willing to play game with the cable guys by letting them run a MVNO on its network?  Is it due to regulatory requirement that they need to open up their network?  Otherwise, I don't see it beneficial to cultivate a potential competitor for a little incremental revenue.

 

Comcast & Time Warner Cable owned cellular spectrum in the past and they subsequently sold it to VZ. As a part of the deal, they also received the ability to offer MVNO using VZ network. So VZ is legally required to support Charter's (since Time Warner Cable is now part of Charter) and Comcast's MVNO plans.

[Liberty]

Perhaps another dumb question, but why would someone like VZ willing to play game with the cable guys by letting them run a MVNO on its network?  Is it due to regulatory requirement that they need to open up their network?  Otherwise, I don't see it beneficial to cultivate a potential competitor for a little incremental revenue.

 

I don't remember how that deal came to exist, but TWC came with a perpetual MVNO deal with Verizon that they're now activating.

 

Fromt he point of view of the wireless company, MVNO deals can make sense because it just increases utilization on their mostly fixed cost assets, so it's probably at very high incremental margins.

[Shooter MacGavin]

Yes Liberty Global commentary on VOD/Ziggo JV was that the two biggest benefits were higher NPS and lower churn. The cost synergies were 1/4 IT savings, 1/4 redundancies and 1/2 included marketing + sales and termination of rented fibre. I think they discussed this on the Liberty Global Q3 2017 call.

 

ok thanks. I listened to the call, but didn't quite catch that part.  Thanks.  the one I didn't think of is the termination of rented fibre. 

[Shooter MacGavin]

Hey here's a dumb question...

 

I hear this line a lot from Malone and MIke Fries...combining a wireline network and a wireless network has huge synergies.  Why does it have huge synergies? I get the churn reduction argument.  But from a pure cost synergy perspective?

 

As you mentioned, reducing churn has big benefits, but there are also synergies when it comes to the backhaul capacity, the billing and customer service systems, etc.

 

Imagine a cable network and a wireless company side by side, operating independently. If you made a venn diagram of everything they need to operate, there'd be a fair bit over overlap. That's where the synergies would come from.

 

But cable is a better business than wireless, so it all depends at what cost you can make it happen. So far CHTR seems to be going the MVNO route, which reduces risk.

 

Yup.

 

I get the billing and customer service, but you could then make the argument that you should merge netflix with a cable company or anything with a billing department and charter. In other words, merging SG&A costs isn't unique to wireless and cable.  But definitely the backhaul piece is.  I guess maybe the telcos stops leasing cell towers in  some instances because the footprint overlaps with a cable operator and they can simply plug cells to the cable backhaul.  I'm not an engineer but in my simple mind, this is maybe how it makes sense?  Not sure, which is why i asked the question.

[walkie518]

this is wild ... maybe a merger would never be approved by the antitrust regulators, but this can happen

 

https://www.fiercecable.com/cable/comcast-and-charter-to-jointly-develop-common-mobile-operating-platform?mkt_tok=eyJpIjoiTmprMk5EZGlNRE00WW1ZMyIsInQiOiJsNHNLWXY3VHhySGhXTkFzeFloNmpFNWM1VzNXUkxvdVFRazZmSWtTQUlMVk04NjFjamd3em04RmZ5V25GS1FHZmIydHVubHlWQVZVYkY5VG1tYm1GNSt6ZWZwUkhLRzl6UTE1N1RDUWV6UnR4cCt1UW5BT3M1cDVHQXlvTU5xVyJ9&mrkid=60566399

[BG2008]

this is wild ... maybe a merger would never be approved by the antitrust regulators, but this can happen

 

https://www.fiercecable.com/cable/comcast-and-charter-to-jointly-develop-common-mobile-operating-platform?mkt_tok=eyJpIjoiTmprMk5EZGlNRE00WW1ZMyIsInQiOiJsNHNLWXY3VHhySGhXTkFzeFloNmpFNWM1VzNXUkxvdVFRazZmSWtTQUlMVk04NjFjamd3em04RmZ5V25GS1FHZmIydHVubHlWQVZVYkY5VG1tYm1GNSt6ZWZwUkhLRzl6UTE1N1RDUWV6UnR4cCt1UW5BT3M1cDVHQXlvTU5xVyJ9&mrkid=60566399

 

Yes, this is wild.  The fact that CHTR and Comcast would work together is not surprising to me at all.  This is largely a function of having read Cable Cowboys.  Malone was a bit of a mentor to the Comcast guys, Robertsons?.  Malone talked about how cable and media companies tend to collaborate together against industries/companies they view as threats.  I think characteristics like this is what makes the cable business better than say the airlines (pre-merger).  It's a lot more clubby than a prisoners dilemma type of decision making. Clubby means higher returns on capital for shareholders. 

[marazul]

Yes, they cooperate because they don´t compete but own basically the same assets (just in different geographies). Makes perfect sense to work together to develop better products and reduce costs. On fixed-mobile convergence, it makes less sense in US vs. Holland (Ziggo-Vod), or other parts of Europe for example. In US, cable assets are not nationwide providers while mobile providers are...in Europe, Cable assets cover larger % of a country.

[BG2008]

This is my little rant regarding my short thesis on CHTR on the "what are you buying today" thread

 

My CHTR thesis is something along the line of:

 

Some business' replacement value is very real and compounds over time.  This is typical of businesses that require a lot of blue collar construction labor, materials cost, political zoning, scale, and right-of-way.  One way of looking at CHTR is kind using a railroad analogy.  No one in their right mind today will go out and build another railroad.  It simply can't be done.  Railroads has structural advantage over trucks (although self-driving cars may erode or even usurp this advantage) due to lower cost.  You can't go through towns etc because they are not the wilderness anymore.  They are populated and you can't use eminent domain and get all the politics lined up to build a railroad.  My thought is that you can't do that with cable today either.  Imagine going to residents and say "I'm going to dig up your roads and bring in all this loud noise etc" to build a competing network"  Please give me permission to do it.  Also where do you find the labor?  Apparently we don't have tough blue collar guys left who knows how to work with their leathery hands.  We have a bunch of wimpy millenials these days.  They have no efficiency in digging ditches etc.  What this all implies is that as time goes on and populations get denser and more buildings get built and the roads gets traveled more, it becomes ever more difficult for people to go out and dig up roads and climb up poles and connect coaxial cables or lay down fiber optics.  This is a true case of a replacement cost being real, tangible, and compounding over time.  The 5G stuff that could be a threat, if I remember correctly from my "physics of waves" in college.  Basically, lower wavelength can't penetrate buildings unlike long radio waves.  So you need lots of little antennas and you need lots of power.  If you want to build it from scratch, how do you get access to buildings?  How do you get permission to mount stuff on buildings, light posts etc?  Where do the labor come from?  What if YOU ARE the cable company.  You have the access point already.  You are sending a tech out to repair something already.  I think these are overwhelming structural advantages that only compounds over time.  This implies price hikes over time.  If I learned anything about owning real estate in a land constraint location (NYC) is that if you're able to pass through 3% price increases a year and you leverage your assets the right way, everything else takes care of itself.  Rant over.   

[Shooter MacGavin]

This is my little rant regarding my short thesis on CHTR on the "what are you buying today" thread

 

My CHTR thesis is something along the line of:

 

Some business' replacement value is very real and compounds over time.  This is typical of businesses that require a lot of blue collar construction labor, materials cost, political zoning, scale, and right-of-way.  One way of looking at CHTR is kind using a railroad analogy.  No one in their right mind today will go out and build another railroad.  It simply can't be done.  Railroads has structural advantage over trucks (although self-driving cars may erode or even usurp this advantage) due to lower cost.  You can't go through towns etc because they are not the wilderness anymore.  They are populated and you can't use eminent domain and get all the politics lined up to build a railroad.  My thought is that you can't do that with cable today either.  Imagine going to residents and say "I'm going to dig up your roads and bring in all this loud noise etc" to build a competing network"  Please give me permission to do it.  Also where do you find the labor?  Apparently we don't have tough blue collar guys left who knows how to work with their leathery hands.  We have a bunch of wimpy millenials these days.  They have no efficiency in digging ditches etc.  What this all implies is that as time goes on and populations get denser and more buildings get built and the roads gets traveled more, it becomes ever more difficult for people to go out and dig up roads and climb up poles and connect coaxial cables or lay down fiber optics.  This is a true case of a replacement cost being real, tangible, and compounding over time.  The 5G stuff that could be a threat, if I remember correctly from my "physics of waves" in college.  Basically, lower wavelength can't penetrate buildings unlike long radio waves.  So you need lots of little antennas and you need lots of power.  If you want to build it from scratch, how do you get access to buildings?  How do you get permission to mount stuff on buildings, light posts etc?  Where do the labor come from?  What if YOU ARE the cable company.  You have the access point already.  You are sending a tech out to repair something already.  I think these are overwhelming structural advantages that only compounds over time.  This implies price hikes over time.  If I learned anything about owning real estate in a land constraint location (NYC) is that if you're able to pass through 3% price increases a year and you leverage your assets the right way, everything else takes care of itself.  Rant over. 

 

1. I 100% agree with you.

 

2. I thought this was "your short thesis." 

[BG2008]

This is my little rant regarding my short thesis on CHTR on the "what are you buying today" thread

 

My CHTR thesis is something along the line of:

 

Some business' replacement value is very real and compounds over time.  This is typical of businesses that require a lot of blue collar construction labor, materials cost, political zoning, scale, and right-of-way.  One way of looking at CHTR is kind using a railroad analogy.  No one in their right mind today will go out and build another railroad.  It simply can't be done.  Railroads has structural advantage over trucks (although self-driving cars may erode or even usurp this advantage) due to lower cost.  You can't go through towns etc because they are not the wilderness anymore.  They are populated and you can't use eminent domain and get all the politics lined up to build a railroad.  My thought is that you can't do that with cable today either.  Imagine going to residents and say "I'm going to dig up your roads and bring in all this loud noise etc" to build a competing network"  Please give me permission to do it.  Also where do you find the labor?  Apparently we don't have tough blue collar guys left who knows how to work with their leathery hands.  We have a bunch of wimpy millenials these days.  They have no efficiency in digging ditches etc.  What this all implies is that as time goes on and populations get denser and more buildings get built and the roads gets traveled more, it becomes ever more difficult for people to go out and dig up roads and climb up poles and connect coaxial cables or lay down fiber optics.  This is a true case of a replacement cost being real, tangible, and compounding over time.  The 5G stuff that could be a threat, if I remember correctly from my "physics of waves" in college.  Basically, lower wavelength can't penetrate buildings unlike long radio waves.  So you need lots of little antennas and you need lots of power.  If you want to build it from scratch, how do you get access to buildings?  How do you get permission to mount stuff on buildings, light posts etc?  Where do the labor come from?  What if YOU ARE the cable company.  You have the access point already.  You are sending a tech out to repair something already.  I think these are overwhelming structural advantages that only compounds over time.  This implies price hikes over time.  If I learned anything about owning real estate in a land constraint location (NYC) is that if you're able to pass through 3% price increases a year and you leverage your assets the right way, everything else takes care of itself.  Rant over. 

 

1. I 100% agree with you.

 

2. I thought this was "your short thesis."

 

Short as in length, haha

[Shooter MacGavin]

This is my little rant regarding my short thesis on CHTR on the "what are you buying today" thread

 

My CHTR thesis is something along the line of:

 

Some business' replacement value is very real and compounds over time.  This is typical of businesses that require a lot of blue collar construction labor, materials cost, political zoning, scale, and right-of-way.  One way of looking at CHTR is kind using a railroad analogy.  No one in their right mind today will go out and build another railroad.  It simply can't be done.  Railroads has structural advantage over trucks (although self-driving cars may erode or even usurp this advantage) due to lower cost.  You can't go through towns etc because they are not the wilderness anymore.  They are populated and you can't use eminent domain and get all the politics lined up to build a railroad.  My thought is that you can't do that with cable today either.  Imagine going to residents and say "I'm going to dig up your roads and bring in all this loud noise etc" to build a competing network"  Please give me permission to do it.  Also where do you find the labor?  Apparently we don't have tough blue collar guys left who knows how to work with their leathery hands.  We have a bunch of wimpy millenials these days.  They have no efficiency in digging ditches etc.  What this all implies is that as time goes on and populations get denser and more buildings get built and the roads gets traveled more, it becomes ever more difficult for people to go out and dig up roads and climb up poles and connect coaxial cables or lay down fiber optics.  This is a true case of a replacement cost being real, tangible, and compounding over time.  The 5G stuff that could be a threat, if I remember correctly from my "physics of waves" in college.  Basically, lower wavelength can't penetrate buildings unlike long radio waves.  So you need lots of little antennas and you need lots of power.  If you want to build it from scratch, how do you get access to buildings?  How do you get permission to mount stuff on buildings, light posts etc?  Where do the labor come from?  What if YOU ARE the cable company.  You have the access point already.  You are sending a tech out to repair something already.  I think these are overwhelming structural advantages that only compounds over time.  This implies price hikes over time.  If I learned anything about owning real estate in a land constraint location (NYC) is that if you're able to pass through 3% price increases a year and you leverage your assets the right way, everything else takes care of itself.  Rant over. 

 

1. I 100% agree with you.

 

2. I thought this was "your short thesis."

 

Short as in length, haha

 

ah!

[Liberty]

I thought the same thing because of the wording. I was expecting a twist at the end..

[Jurgis]

Dis why I never say "short writeup" or "short thesis" anymore.  8)

[vince]

I agree with both of you, I saw the interview.  But whats your thoughts on first part of my post?

 

It seems to be the direction of things, but who knows how it'll play out... What matters most is that CHTR doesn't need to merge with anyone to get to quad play, and 80% of the bits going through phones are already going through its wifi, not through cell towers, so it's easier for them to absorb that extra capacity than for the wireless players to try to duplicate the capacity of cable.

 

Well you never know exactly how the future unfolds but what you said in the rest of your post (basically supporting what I was referring to) makes it highly likely that it unfolds favorably in cables favor.  That dynamic, combined with Rutledge's operating abilities and Malone helping drive strategic direction in a monopoly like business with pricing power (hopefully they restrain themselves with pricing) just seems to me like a rare combination especially when the price is reasonable.  In fact, it looks to me like the plan could fall well short and still hold its current market value.  Can anyone please highlight any leaks that could sink this ship?

[dutchman]

"80% of the bits going through phones are already going through its wifi, not through cell towers, so it's easier for them to absorb that extra capacity than for the wireless players to try to duplicate the capacity of cable."

 

-- what does this mean?  Is the point that verizon would have to buy a charter in order to get to 5g?

Ive heard Malone say 5g is " impossible " without a terrestrial fiber network.  So isn't it inevitable that charter will be bought?  This has to happen right?  why would verizon et al pay to build charters network all over again? This is what i don't get.

 

 

 

[Liberty]

I think it was Rutledge who mentioned it a few times. Basically, when we think of mobile devices we might think of cell towers first, but 80% of the bits transferred to these devices come from WiFi, not cellular.

 

The other 20% are still very valuable because they allow complete mobility, but when it comes to backhaul infrastructure, there's more going through other pipes.

[vince]

But remember, the bits are higher over wifi cause people watch video on their phones when they are home...usually, and video passes more bits.  The fact that they are not able to monetize this traffic yet is significant but if measured in other ways I dont believe its as valuable as it seems.  At least it feels that way when I think it thru.

[Liberty]

I think the point is that if wireless companies want to compete with cable with 5G, they're going to have to handle all these bits (mostly video), and that won't be easy on their infrastructure. They'd basically almost have to recreate a cable network, except that instead of terminating into homes with wifi, it would terminate into small 5G cells blanketing neighborhoods. 5G cells are almost closer to wifi than current cellular, based on what I know (higher speeds, but shorter range and a lot more trouble getting through obstacles, even trees and rain).