CHTR - Charter Communications

[scorpioncapital]

Regarding the charter buyout , reality is it hasn't happened. I don't see this as an argument of value. Things change.

 

Regarding mvno, charter appears to becoming like an affiliate marketing firm. It is not clear that affiliate marketing with future 5050 revenue share on 5g and WiFi and cable won't be lucrative, but obviously they'll have less pricing power and why wouldn't the new customer or old one just go directly to Verizon ? If 5g users will want WiFi and occasional cable when connectivity is poor , then I see a place for an affiliate marketer hybrid with some core business remaining. But there could be growth headwinds.

 

It sounds as if 5g maybe over time be so good nobody will need the other two WiFi and cable hotspots. But the hybrid model means charter investors could get a good return while this runoff scenario occurs (if ever ). But I do worry that any shift to less use of WiFi and cable , despite the affiliate agreement means a static or declining asset. When will this occur ? If it occurs after say ten years, charter investors has taken out all their capital as fcf. Businesses with some disruption or competition are always hard to measure the forces of growth versus the forces of shrinkage. On the other hand, every investment has risks so probably no need to get ahead of ourselves yet. I see the market though already starting to digest the idea of 5g as another market entrant competing with cable.

[DooDiligence]

Who's serious about 5G?

We'll know in November.

 

https://www.lightreading.com/mobile/5g/fcc-keys-procedures-for-5g-spectrum-auction-/d/d-id/745119

 

It'd be fun to see Charter & Comcast get in on the bidding.

(IDK if this is a possibility but a guy can dream, right?)

[Broeb22]

I see the market though already starting to digest the idea of 5g as another market entrant competing with cable.

 

If the market is beginning to digest this threat and price it into assets, wouldn’t the market also price the good news of Verizon/AT&T/Sprint-T Mobile gaining share from cable into their stock prices? Where is the evidence of that?

 

 

[jmp8822]

Where exactly can I sign up for this 5G fixed broadband service?  Meanwhile, Charter is rolling out Spectrum Wireless nation wide.  Who is going to eat who's lunch?

 

You can't sign up today, so that must mean it won't ever happen, right? Read much? Anything happening in the next 12 months I would consider to be meaningful news:

 

"Verizon execs have said they expect to launch four fixed 5G markets by the end of 2018. At least 50 residential markets are expected to follow in 2019."

 

Verizon alone expects to be in 50+ markets inside of 18 months, directly competing against traditional cable internet companies - that would be notable to a company like Charter that carries $60B+ in debt with cable TV already in decline. Who is going to buy any cable stock when the internet revenue numbers start going backwards? Generally owning a 'regular' company that becomes a 'runoff' stock isn't profitable between point A and point B.

 

https://www.lightreading.com/mobile/5g/indy-is-verizons-4th-fixed-5g-city/d/d-id/745402

[Spekulatius]

Where exactly can I sign up for this 5G fixed broadband service?  Meanwhile, Charter is rolling out Spectrum Wireless nation wide.  Who is going to eat who's lunch?

 

You can't sign up today, so that must mean it won't ever happen, right? Read much? Anything happening in the next 12 months I would consider to be meaningful news:

 

"Verizon execs have said they expect to launch four fixed 5G markets by the end of 2018. At least 50 residential markets are expected to follow in 2019."

 

Verizon alone expects to be in 50+ markets inside of 18 months, directly competing against traditional cable internet companies - that would be notable to a company like Charter that carries $60B+ in debt with cable TV already in decline. Who is going to buy any cable stock when the internet revenue numbers start going backwards? Generally owning a 'regular' company that becomes a 'runoff' stock isn't profitable between point A and point B.

 

https://www.lightreading.com/mobile/5g/indy-is-verizons-4th-fixed-5g-city/d/d-id/745402

 

It’s a trend worth watching, but I recall the same was said about 4g, that it would be good enough so people would forgo broadband  internet. Again, the cable cos can add 5G too and then some people may forgo their wireless plans for an add on to broadband. My own opinion is that the US telecom market is clubby and prices will remain high.

[DooDiligence]

“We’re wholesaling network capacity from a wireless carrier for the broad umbrella coverage of mobility service, but we want to put as much of our traffic onto our own WiFi infrastructure as possible,” Cowden said.

 

https://www.multichannel.com/news/small-cells-play-big-role-charter-s-mobile-future-418196

 

---

 

https://www.fiercewireless.com/tech/charter-to-expand-lte-small-cell-tests-to-new-york-city-los-angeles

 

---

 

Does anyone think that Charter will pop up in the 5G spectrum auction this November.

Can they afford to start building out their own small cell network?

Should I just shut up about this?

[cameronfen]

I see the market though already starting to digest the idea of 5g as another market entrant competing with cable.

 

If the market is beginning to digest this threat and price it into assets, wouldn’t the market also price the good news of Verizon/AT&T/Sprint-T Mobile gaining share from cable into their stock prices? Where is the evidence of that?

 

Well it likely will increase volatility (as broadband is also trying to get in mobile) so it could put downward pressure on telecoms as well. 

[AdjustedEarnings]

Tom Rutledge's 2016 equity award (which pays out big until 2022) has been much discussed in places where CHTR is a topic of conversation (that is to say, value investing meetings/blogs/forums and John Malone Groupie meetings/blogs/forums). But I had not seen it quantified, so I did a calculation. At the very maximum, it pays $582 million to Rutledge if a price of $564.04 is achieved on the CHTR equity, within the time limit of the award. Details/assumptions of the calculation are at the link below and have attempted to attach the graphic here (I'm new to this blog so I'm not sure whether and how this attachment will show):

 

http://adjustedearnings.blogspot.com/2018/09/tom-rutledges-chtr-infamous-equity.html

 

Please let me know with your questions and/or feedback. Thanks!

 

Disclosure: Long CHTR (through LBRDK).

[undervalued]

Verizon's $70 5G plan https://arstechnica.com/information-technology/2018/09/verizon-5g-home-internet-70month-300mbps-to-1gbps-speeds-no-data-caps/. For some reason I don't trust their unlimited data plan.

 

https://www.verizon.com/about/news/5g-here

 

5G Home is built on the world’s first and only 5G Ultra Wideband network

Verizon 5G Home is unique because it’s built on Verizon’s 5G Ultra Wideband network. 5G is only as good as the network it’s built on and Verizon’s 5G Ultra Wideband network is the only 5G network that combines:

 

• End-to-end deep fiber resources throughout the network
  
• A large deployment of small cells
  
• Critical, and best-in-class spectrum holdings, particularly in the millimeter wave bands, the only spectrum with the bandwidth to realize the full 5G potential for capacity, throughput and latency
  

[Liberty]

I see the market though already starting to digest the idea of 5g as another market entrant competing with cable.

 

If the market is beginning to digest this threat and price it into assets, wouldn’t the market also price the good news of Verizon/AT&T/Sprint-T Mobile gaining share from cable into their stock prices? Where is the evidence of that?

 

Well it likely will increase volatility (as broadband is also trying to get in mobile) so it could put downward pressure on telecoms as well.

 

If the telecoms are getting terrible ROIC on their plans to overbuild the whole country to compete with cable, pressure on their stocks might be the expected response.

[jmp8822]

Verizon's $70 5G plan https://arstechnica.com/information-technology/2018/09/verizon-5g-home-internet-70month-300mbps-to-1gbps-speeds-no-data-caps/. For some reason I don't trust their unlimited data plan.

 

https://www.verizon.com/about/news/5g-here

 

5G Home is built on the world’s first and only 5G Ultra Wideband network

Verizon 5G Home is unique because it’s built on Verizon’s 5G Ultra Wideband network. 5G is only as good as the network it’s built on and Verizon’s 5G Ultra Wideband network is the only 5G network that combines:

 

• End-to-end deep fiber resources throughout the network
  
• A large deployment of small cells
  
• Critical, and best-in-class spectrum holdings, particularly in the millimeter wave bands, the only spectrum with the bandwidth to realize the full 5G potential for capacity, throughput and latency
  

 

From the arstechnica article above:

 

"Early users of the service in those four cities will get it for free for the first three months. "After that introductory period, current Verizon Wireless customers with a qualifying smartphone plan will pay $50 per month for the service, while non-Verizon Wireless customers will pay $70 per month," Verizon said. "This monthly charge includes all taxes and fees, and does not require an annual contract. There are no additional hardware costs.""

 

After seeing the price of $50 per month for current Verizon customers, I did some random looking at Sacramento pricing on regular cable and internet and fiber offerings.  All were priced at a minimum of $60 for roughly similar speeds, up to $80 per month. So, all traditional cable companies presumably will need to lower their prices for new customers if they intend to compete with Verizon over time.  And if Verizon is $50/month for existing wireless customers as the first entrant, I wonder what Sprint/T-Mobile might be priced at?  It seems to me that this is a substantial risk to traditional cable internet - will be interesting to watch cable internet subscriber numbers.

 

Also, the other issue that cable companies could have - seamless 5G with a wireless phone (once they come out next year) could be near.  I.e. no signing in to wireless at a friends house - you might already have unlimited 5G in that given neighborhood.  Anytime something is cheaper/similar pricing and has other benefits, perhaps many might start moving to the new technology?

[Liberty]

Based on the ANH filing, it looks like CHTR bought back a little less than 1% of shares outstanding during the past month.

 

https://www.sec.gov/Archives/edgar/data/914545/000089924318024245/xslF345X03/doc4.xml

[AdjustedEarnings]

Good presentation by Tom today at GS Communacopia. Loved the part where he goes, "fixed wireless is basically a cable overbuild with a more expensive drop". I had to shut my office door to laugh properly at the appropriate volume. Not because I disagree with him (in fact, I do agree) but because he threw so much shade at VZ's new announcement (without mentioning them of course). Aside from how funny it was, I do believe it really is true and important to the long thesis. FWA is not an immediate threat and perhaps not a long-term one either.

 

He also gave some overlap statistics, namely the amount of overlap with CHTR being about 8% after 10 years, EVEN IF fixed wireless were to prove to be a threat. I'm not sure how he came up with that number, given VZ has not announced all of its 30 mm sub geographies. Perhaps based simply on VZ's fiber coverage.

 

Would love to hear feedback/opinions from the group.

 

Disclosure: Long LBRDK

[chrispy]

It is the right thing to do.. but are they only doing it because of Verizon's messup out west?

 

https://www.wraltechwire.com/2018/09/12/spectrum-to-open-more-than-5000-wifi-hot-spots-to-all-wireless-users/

[DooDiligence]

It is the right thing to do.. but are they only doing it because of Verizon's messup out west?

 

https://www.wraltechwire.com/2018/09/12/spectrum-to-open-more-than-5000-wifi-hot-spots-to-all-wireless-users/

 

Who cares, it's great PR.

[dwy000]

Good presentation by Tom today at GS Communacopia. Loved the part where he goes, "fixed wireless is basically a cable overbuild with a more expensive drop". I had to shut my office door to laugh properly at the appropriate volume. Not because I disagree with him (in fact, I do agree) but because he threw so much shade at VZ's new announcement (without mentioning them of course). Aside from how funny it was, I do believe it really is true and important to the long thesis. FWA is not an immediate threat and perhaps not a long-term one either.

 

He also gave some overlap statistics, namely the amount of overlap with CHTR being about 8% after 10 years, EVEN IF fixed wireless were to prove to be a threat. I'm not sure how he came up with that number, given VZ has not announced all of its 30 mm sub geographies. Perhaps based simply on VZ's fiber coverage.

 

Would love to hear feedback/opinions from the group.

 

Disclosure: Long LBRDK

 

I had the same reaction to his comments.  However, the one part that is worrisome is that Verizon is going to build out 5G almost regardless of cost and IRR on that investment.  They have no choice in order to stay ahead of the other wireless carriers (which is their whole marketing premise to customers).  And on that basis they will start with the denser urban areas where they get the best payback - which is probably in the sweet spot of cable customers.  The Verizon CEO was on CNBC after Rutledge and commented that the rollout of 5G was more cost efficient than people thought and their capex spend this year is actually going to be lower than projected (and lower than last year) despite the initial roll out.

 

The best part of the Rutledge interview was his comments that the fiber network today can already handle 1Gb (the end goal for 5G) and could be upgraded to 10Gb.  That means that by the time the wireless companies get there with 5G, the cableco's might already be double or triple that speed.

[Liberty]

Good presentation by Tom today at GS Communacopia. Loved the part where he goes, "fixed wireless is basically a cable overbuild with a more expensive drop". I had to shut my office door to laugh properly at the appropriate volume. Not because I disagree with him (in fact, I do agree) but because he threw so much shade at VZ's new announcement (without mentioning them of course). Aside from how funny it was, I do believe it really is true and important to the long thesis. FWA is not an immediate threat and perhaps not a long-term one either.

 

He also gave some overlap statistics, namely the amount of overlap with CHTR being about 8% after 10 years, EVEN IF fixed wireless were to prove to be a threat. I'm not sure how he came up with that number, given VZ has not announced all of its 30 mm sub geographies. Perhaps based simply on VZ's fiber coverage.

 

Would love to hear feedback/opinions from the group.

 

Disclosure: Long LBRDK

 

Good presentation, I agree. I tweeted some highlights in a thread here if anyone wants to see more:

 

[DooDiligence]

https://www.multichannel.com/news/charters-rutledge-we-have-a-better-platform-to-deploy-5g-than-cellular

[cameronfen]

 

I had the same reaction to his comments.  However, the one part that is worrisome is that Verizon is going to build out 5G almost regardless of cost and IRR on that investment.  They have no choice in order to stay ahead of the other wireless carriers (which is their whole marketing premise to customers).  And on that basis they will start with the denser urban areas where they get the best payback - which is probably in the sweet spot of cable customers.  The Verizon CEO was on CNBC after Rutledge and commented that the rollout of 5G was more cost efficient than people thought and their capex spend this year is actually going to be lower than projected (and lower than last year) despite the initial roll out.

 

The best part of the Rutledge interview was his comments that the fiber network today can already handle 1Gb (the end goal for 5G) and could be upgraded to 10Gb.  That means that by the time the wireless companies get there with 5G, the cableco's might already be double or triple that speed.

 

I think 99% of people dont need speeds above 1Gbps or even 100Mbps .  Unless your whole family isn't satisfied with anything but 4k video all at the same time, 100Mbps wont be the bottleneck in terms of latency. 

[dwy000]

 

I had the same reaction to his comments.  However, the one part that is worrisome is that Verizon is going to build out 5G almost regardless of cost and IRR on that investment.  They have no choice in order to stay ahead of the other wireless carriers (which is their whole marketing premise to customers).  And on that basis they will start with the denser urban areas where they get the best payback - which is probably in the sweet spot of cable customers.  The Verizon CEO was on CNBC after Rutledge and commented that the rollout of 5G was more cost efficient than people thought and their capex spend this year is actually going to be lower than projected (and lower than last year) despite the initial roll out.

 

The best part of the Rutledge interview was his comments that the fiber network today can already handle 1Gb (the end goal for 5G) and could be upgraded to 10Gb.  That means that by the time the wireless companies get there with 5G, the cableco's might already be double or triple that speed.

 

I think 99% of people dont need speeds above 1Gbps or even 100Mbps .  Unless your whole family isn't satisfied with anything but 4k video all at the same time, 100Mbps wont be the bottleneck in terms of latency.

 

That's probably the case today but they are building for the use cases of tomorrow.  I remember when people asked what on earth you would do with 100Mbps of service.  Verizon is also not just building 5G for home use but also for IoT applications which are outside of home (like connected vehicles).

[vince]

Does anyone have any idea how much incremental cost to cable service provider to increase speeds for cable customers.  I don't mean capex.  I mean if they up the speeds from 100 mbps to 500 mbps for a whole city.  There is a capex cost to do that.  But I'm wondering what the cost is after that if someone decides to pay for a higher tier? Does it cost cable money to deliver higher speeds after the residence has the ability?  And the reason I ask is I just realized, after reading Chtr's latest call, that they could raise everyone's speed at no extra charge to the customer as a competitive response that cannot be matched outside of fiber.  I realize that 1 gig is overkill for most people (for now) but I think its natural for the consumer to feel like they are receiving real value for that especially when it is received at low to no cost.  Im sure cable doesnt want to dilute the value of their product but im also sure that its nice to have that capability in ur pocket if you need it.

[bizaro86]

I would guess it's low marginal cost, but don't know for sure. My wife calls retention at our cable company every year for a new deal, and they always bump the speed a level as part of their offer, almost as a throw in.

[Spekulatius]

Does anyone have any idea how much incremental cost to cable service provider to increase speeds for cable customers.  I don't mean capex.  I mean if they up the speeds from 100 mbps to 500 mbps for a whole city.  There is a capex cost to do that.  But I'm wondering what the cost is after that if someone decides to pay for a higher tier? Does it cost cable money to deliver higher speeds after the residence has the ability?  And the reason I ask is I just realized, after reading Chtr's latest call, that they could raise everyone's speed at no extra charge to the customer as a competitive response that cannot be matched outside of fiber.  I realize that 1 gig is overkill for most people (for now) but I think its natural for the consumer to feel like they are receiving real value for that especially when it is received at low to no cost.  Im sure cable doesnt want to dilute the value of their product but im also sure that its nice to have that capability in ur pocket if you need it.

 

The marginal cost depends most likely on speed thresholds. I know that FIOS can deliver 1GIG in most of their areas and to do that costs them almost nothing compared delivering the basic rate of 100Mbit for example, but I think it would cost quite a bit to go beyond 1GIG, because that requires special hardware.

 

FWIW, if Verizon really follows though with their 5G pricing and offers $50/ month for 1 GIg speed, they would need to reduce the cost for a lot of their current FIOS customers too, as they charge right now $50 for 100Mbit and $80 for 1GIG (where it is available).

[vince]

Spek, I dont believe they are giving 1 gig.  They said something like up to 1 gig but average will be closer to 300

[cameronfen]

 

I had the same reaction to his comments.  However, the one part that is worrisome is that Verizon is going to build out 5G almost regardless of cost and IRR on that investment.  They have no choice in order to stay ahead of the other wireless carriers (which is their whole marketing premise to customers).  And on that basis they will start with the denser urban areas where they get the best payback - which is probably in the sweet spot of cable customers.  The Verizon CEO was on CNBC after Rutledge and commented that the rollout of 5G was more cost efficient than people thought and their capex spend this year is actually going to be lower than projected (and lower than last year) despite the initial roll out.

 

The best part of the Rutledge interview was his comments that the fiber network today can already handle 1Gb (the end goal for 5G) and could be upgraded to 10Gb.  That means that by the time the wireless companies get there with 5G, the cableco's might already be double or triple that speed.

 

I think 99% of people dont need speeds above 1Gbps or even 100Mbps .  Unless your whole family isn't satisfied with anything but 4k video all at the same time, 100Mbps wont be the bottleneck in terms of latency.

 

That's probably the case today but they are building for the use cases of tomorrow.  I remember when people asked what on earth you would do with 100Mbps of service.  Verizon is also not just building 5G for home use but also for IoT applications which are outside of home (like connected vehicles).

 

As someone who has been in the tech sector, I can tell you that most IoT will use something like 5-10 KB a second (this is sort of pulled out of my ass but the number is really small).  Something like a self-driving car can potentially generate a lot of data, but even then I think its unlikely they will generate 1GBps of data that will have any reason to be transmitted (a lot of the data processed will just be internal).  Will there be other IoT things that need lots of video and video-like data, maybe, but I don't have any idea what it will be.  Maybe virtual reality, but how many people right now even use an oculous or other virtual reality.  So far it's a dud but maybe an Apple comes in and designs something that people want.  Most people don't even need 100Mbps IMO.  Experts say that you can watch 4K even with 15Mbps.  Is it worth paying $10 more per month so you can watch 4K video instead of 480p?  Not in my opinion and probably a lot of people agree.  There will always be some that would appreciate the difference and others that want to get the latest thing even if they cannot notice the difference, but the larger the data you provide, the smaller the customer base that wants it is.  IMO at this point in the product cycle, people would rather spend less money on cable, than have bigger data capacity.  It's only because cable companies have almost local monopolies, that aren't noticing this effect IMO.