CHTR - Charter Communications

[vince]

I think Cam hit the thing that really scares me... regulation.  I dont think its a forgone conclusion that wireless is the future of broadband and its actually (arguably) more expensive for a wireless drop than fiber to the home.  Advancements in compression is also a risk but probably further down than road whereas I believe there is a good probability that Charter will deliver a solid 50 -80 percent total return over next few years with little downside risk (read cable cowboy and everything else you can get your hands on and you will understand why the business is very durable even with competing technologies).  Not that anybody cares but I have ensured that it will be a very nice payoff at those types of returns.

[vince]

Also how likely is it that Verizon wireless, who has been the price leader in wireless is actually committed to executing a plan that will cost them tenth of billions in Capex, obsoletes their broadband business and reduces their ARPU in their wireless business? Makes no sense and ergo isn’t likely to happen. If VZW can indeed change fifer seamless unlimited broadband for 300MB/sec without device restrictions they for sure won’t do that for $50/ month. right now they charge a customer about $80/ month for broadband and probably $70/month for wireless and you think they are stupid enough to offer a better service for  1/3 of thre price. If that were true one needs to short everything , including the debt of all telecom and cable cos.

Spek, I dont think anyone believes that 5G has even a remote chance to make the fiber/coax hybrid obsolete.  Rather, imo, the telcos find themselves between a rock and hard place.  If they dont react competitively, cable continues to capture (slightly) more than 100% of net fixed residential broadband adds (this has been going on for at least 5-7 years) and even more lopsided in business services (although they are starting from a low market share base).  In addition, with Charter guaranteed to increase the attack by launching mobile, it was obvious to everyone that customer losses would accelerate.  There was just no way Verizon could stand still and see how it would play out.  So, without any good options (buying Charter for 500 a share would have been unacceptable to shareholder base who want guaranteed dividend) they decide on an option that ensures dismal returns (does anyone really believe they will pursue this course for a decade?) but one that potentially inflicts pain on their competition (why did Lowell retire?) 

  Charter is growing business services sales....in units, by 10 percent.  Yes revenue growth is lower cause they repriced the acquired footprint.  For those that are interested, they will be cycling that repricing soon which when combined with some opex  rolling off and most of their acquired footprint under their new pricing and packaging, ebitda growth is going to get a nice bump.  Starting in 3rd qtr of 2019 I predict between 7-12 percent yoy ebitda growth, with free cash growing faster because of capex rolling off as well.  Trading at 10-11 times earning power, (80 billion market cap with 7-8 billion of normalized earnings) assuming my growth rates are reasonable, you have a mid-high teens compounder without multiple expansion (or contraction) and no EXTRA benefit from buying their shares back at less than intrinsic value.  Please note that their 7-8 billion of earning power assumes no growth.  I see a couple good years in front of us.

[cameronfen]

A couple things:  when I talk about capex for wireless broadband I'm not talking about the initial outlay.  I believe that wireless broadband is or basically will be very soon cheaper to build out than cable starting from scratch, but cable is certainly competitive and I could be wrong.  The big benefit of having wireless broadband is the upgrade cycle once you have it set up.  If you want to go to 6G, you dont need any more cables, you just upgrade the software to use the more efficient compression algorithm.  It's all software and there is no capex.  Now I am on the record saying that bandwidth is not a problem, but long long term if it is a problem, the fastest way to keep up with growing bandwidth involves wireless broadband.  Additionally other upgrades like range and robustness require much less capex than fiber because these upgrades can be half software half changing the antenna.  I do think that 5g wireless is not good enough to compete with broadband in this moment actually, based on things said by Charter and America Movil.  However, 90% of the value of a stock is in its terminal value, and wireless broadband is the future.  Will Charter be able to pivot?  I dont know.  Near term earnings will definitely grow due to the integration of acquisitions, but long term I don't know. 

[vince]

Hey Cam, can u please give me some specific calls where america movil talks about this? the more specific conference calls that u can specify, the better for me.  I dont really need specific paragraphs or anything like that (and obviously wouldnt expect that kind of detail) unless u have that kind of stuff organized that way already in your notes.  Would be greatly appreciated

[vince]

A couple things:  when I talk about capex for wireless broadband I'm not talking about the initial outlay.  I believe that wireless broadband is or basically will be very soon cheaper to build out than cable starting from scratch, but cable is certainly competitive and I could be wrong.  The big benefit of having wireless broadband is the upgrade cycle once you have it set up.  If you want to go to 6G, you dont need any more cables, you just upgrade the software to use the more efficient compression algorithm.  It's all software and there is no capex.  Now I am on the record saying that bandwidth is not a problem, but long long term if it is a problem, the fastest way to keep up with growing bandwidth involves wireless broadband.  Additionally other upgrades like range and robustness require much less capex than fiber because these upgrades can be half software half changing the antenna.  I do think that 5g wireless is not good enough to compete with broadband in this moment actually, based on things said by Charter and America Movil.  However, 90% of the value of a stock is in its terminal value, and wireless broadband is the future.  Will Charter be able to pivot?  I dont know.  Near term earnings will definitely grow due to the integration of acquisitions, but long term I don't know.

Are u including the wired backbone when you talk about the near future 5G wireless infrastructure?

[cameronfen]

yes but from what I have read, wired backbone isn't what needs to be upgraded all that often.  It's the last mile stuff that does.  But ya there is no advantage in upgrades the backbone for sure. 

[vince]

But the problem for telcos is that they dont have the backhaul infrastructure in place and it will take a long time and lots of capital, regardless of what they have for the last mile.  In the meantime cable can take advantage of any new technologies if need be.  Now Verizon probably has a leg up for 5G in certain markets because they have some valuable spectrum that works well for 5G but I just dont see how anyone can claim, with all factors considered and based on what is known today that Verizon is in pole position

[cameronfen]

sure I'm not talking about the backhaul needed now, but rather the capex needed to maintain and grow a wireless broadband infrastructure is far less than what traditional cable companies (and even phone companies need). The next generation wireless (6g) is most or not all software based and generations in the foreseeable future are all software based.  So if you want to increase range or bandwidth no more building more capex you just change some algorithm that's coded into your small cell.  This makes competing against wireless broadband increasingly difficult 10-20 years down the road. 

[BG2008]

Does anyone use Spectrum mobile?  We've been talking about the threat of 5G to CHTR.  So 5G is a small cell mounted (typically on telephone poles) that delivers data into your house.  This is supposed to really cut the cord of cable companies. If you are a Verizon user, you can have the 4G LTE phone plane and a 5G for your house.  The fear is that Verizon 5G moves into a CHTR territory and totally uproots CHTR.  Now let's look at Spectrum Mobiles offering in response.  Spectrum mobile is only available for Spectrum broadband users.  In short, you have Verizon 4G LTE mobile services because that's the network that MVNO runs on.  So same product basically.  Now, you get to use Spectrum wired broadband instead of some new 5G services that could be affected by rain, leaves, trucks versus the permanent always on nature of Spectrum broadband.  I haven't looked at exact pricing yet, but it seems like that CHTR will have a leg up in a face off.  If you check the map of Spectrum WiFi, it looks like a 5G map already.  Spectrum has a ton of indoor and outdoor WiFi spots.  Apparently the speed today isn't that great.  Most user patterns is 20% 4G LTE and 80% data intensive at home Wifi usage.  Given CHTR footprint they already have most of the locations wired. 

 

While Verizon and all the other Telcos are trumpeting 5G and how it will destroy cable companies, it seems that Cables wired connection with lesser downtime issues and its mobile services via Verizon's network actually offers a much better combined product. 

 

The thing that I worry about is that Cableco's customer service reputation is so bad that I would not even consider getting mobile through them.  The only reason why I figured this out is because of my involvement in CHTR. 

[cameronfen]

my guess is mvnos can only use telco infrastructure for phone and phone data.  They likely (dont know this for sure) can't use small cells to sell wireless broadband.  The issue with wireless broadband isn't that it will cover more people, but rather that it will cover the same people as cable but at what some people say is a lower all in cost for the company.  What people are saying isn't that wireless broadband isn't a superior product (although stuff like rain won't really effect your service just like it doesnt really effect phone data service anymore), but that it has the potential to be way cheaper. 

[BG2008]

my guess is mvnos can only use telco infrastructure for phone and phone data.  They likely (dont know this for sure) can't use small cells to sell wireless broadband.  The issue with wireless broadband isn't that it will cover more people, but rather that it will cover the same people as cable but at what some people say is a lower all in cost for the company.  What people are saying isn't that wireless broadband isn't a superior product (although stuff like rain won't really effect your service just like it doesnt really effect phone data service anymore), but that it has the potential to be way cheaper.

 

Yes, I understand that Spectrum can't use Verizon's small cell to sell wireless broadband.  What I am saying is that Spectrum can offer its customers the ability to use Verizon's MVNO for mobile when Spectrum WiFi is not available.  When Spectrum WiFi is available, the Spectrum Mobile users can use that out-of-home WiFi to stream data into their phone.  The promise of Verizon's 5G plan is that it will cut the cable cord.  What I am saying is that Spectrum and Comcast appears to be going on the offensive already.  They are offering the corded cable to your house plus 200,000 WiFi locations that you can connect to outside of your house.  It appears that Spectrum is already offering a 5G like service for its MVNO due to all the public and private WiFi locations it has installed.

[cameronfen]

my guess is mvnos can only use telco infrastructure for phone and phone data.  They likely (dont know this for sure) can't use small cells to sell wireless broadband.  The issue with wireless broadband isn't that it will cover more people, but rather that it will cover the same people as cable but at what some people say is a lower all in cost for the company.  What people are saying isn't that wireless broadband isn't a superior product (although stuff like rain won't really effect your service just like it doesnt really effect phone data service anymore), but that it has the potential to be way cheaper.

 

Yes, I understand that Spectrum can't use Verizon's small cell to sell wireless broadband.  What I am saying is that Spectrum can offer its customers the ability to use Verizon's MVNO for mobile when Spectrum WiFi is not available.  When Spectrum WiFi is available, the Spectrum Mobile users can use that out-of-home WiFi to stream data into their phone.  The promise of Verizon's 5G plan is that it will cut the cable cord.  What I am saying is that Spectrum and Comcast appears to be going on the offensive already.  They are offering the corded cable to your house plus 200,000 WiFi locations that you can connect to outside of your house.  It appears that Spectrum is already offering a 5G like service for its MVNO due to all the public and private WiFi locations it has installed.

 

Sure I'm not arguing the Charter has a sweet deal right now being able to rent telecom assets at regulated prices while having sole ownership of its fiber assets, but a.) if charter has too much sucess with this approach (which is not a guarantee as how many people switch to mvnos actually even among us investors who know they have the same assets), it's a relatively easy case for telecoms to argue that they should have free access to fiber at regulated prices.  That being said the more important argument is that while Charter likely has an advantage now, the long term and structural advantage goes to whoever develops wireless broadband. 

[cmlber]

Sure I'm not arguing the Charter has a sweet deal right now being able to rent telecom assets at regulated prices while having sole ownership of its fiber assets, but a.) if charter has too much sucess with this approach (which is not a guarantee as how many people switch to mvnos actually even among us investors who know they have the same assets), it's a relatively easy case for telecoms to argue that they should have free access to fiber at regulated prices.  That being said the more important argument is that while Charter likely has an advantage now, the long term and structural advantage goes to whoever develops wireless broadband.

 

Where are you getting this information?  Charter does not rent telecom assets under regulated prices...  its MVNO deal was privately negotiated as part of a sale of spectrum in 2011.

[jmp8822]

my guess is mvnos can only use telco infrastructure for phone and phone data.  They likely (dont know this for sure) can't use small cells to sell wireless broadband.  The issue with wireless broadband isn't that it will cover more people, but rather that it will cover the same people as cable but at what some people say is a lower all in cost for the company.  What people are saying isn't that wireless broadband isn't a superior product (although stuff like rain won't really effect your service just like it doesnt really effect phone data service anymore), but that it has the potential to be way cheaper.

 

Yes, I understand that Spectrum can't use Verizon's small cell to sell wireless broadband.  What I am saying is that Spectrum can offer its customers the ability to use Verizon's MVNO for mobile when Spectrum WiFi is not available.  When Spectrum WiFi is available, the Spectrum Mobile users can use that out-of-home WiFi to stream data into their phone.  The promise of Verizon's 5G plan is that it will cut the cable cord.  What I am saying is that Spectrum and Comcast appears to be going on the offensive already.  They are offering the corded cable to your house plus 200,000 WiFi locations that you can connect to outside of your house.  It appears that Spectrum is already offering a 5G like service for its MVNO due to all the public and private WiFi locations it has installed.

 

Random anecdote- I just received a mailer today at my home to sign up for Spectrum mobile - I'm a current 'internet only' Spectrum customer.  Timely to our discussions here.

 

Also, I was curious to look at the Spectrum wireless hotspot map because I have never used it. I'm trying to think why I would ever use it.  I currently receive 100+ Mbps to my Galaxy S9 via T-mobile wireless service.  The only hang-up would be data usage, which for me by definition - I'm out and about and don't want to fool with logging into some random wifi to save 50mb of data typically. Hotspots also have some limitations when you're out and about because you are moving and they are quite limited in range (300 feet or so), similar to your home router.  My understanding of Verizon's 5G product (according to what they've tested) is that it will reach 1,500 feet or so with some obstacles and 3,000 feet approximately with no obstructions.  Going in and out of hotspots in a car for example would be quite disruptive to streaming video.  So, if you think adding a bunch of fixed wireless is too many locations required, just imagine how many it would take to truly blanket 60 major cities in the U.S. at 300 feet per hotspot.  It seems like a simple race to fully cover all major cities in the US with fiber-like wireless (5G) and I don't think cable will be the victor.  The telecoms are simply going to do it no matter what, it seems, considering how much they talk about self-driving cars, etc.  They don't seem as concerned about the capex as everyone here is - I think they will finish and cover all relevant cities/areas with 5G - they can't help themselves.

[dwy000]

Neither Verizon, nor Charter nor Comcast have given any details on the MVNO relationship.  There is a big question in my mind as to whether it would cover 5G or just the existing 4G/LTE assets.  If it covers 5G, the competitive.dynamic for cablecos is much better over.the medium term.  If not.....

[BG2008]

Neither Verizon, nor Charter nor Comcast have given any details on the MVNO relationship.  There is a big question in my mind as to whether it would cover 5G or just the existing 4G/LTE assets.  If it covers 5G, the competitive.dynamic for cablecos is much better over.the medium term.  If not.....

 

I am making my investment under the assumption that the MVNO only covers the 4G LTE service.  I believe that is the existing relationship.

[cameronfen]

Sure I'm not arguing the Charter has a sweet deal right now being able to rent telecom assets at regulated prices while having sole ownership of its fiber assets, but a.) if charter has too much sucess with this approach (which is not a guarantee as how many people switch to mvnos actually even among us investors who know they have the same assets), it's a relatively easy case for telecoms to argue that they should have free access to fiber at regulated prices.  That being said the more important argument is that while Charter likely has an advantage now, the long term and structural advantage goes to whoever develops wireless broadband.

 

Where are you getting this information?  Charter does not rent telecom assets under regulated prices...  its MVNO deal was privately negotiated as part of a sale of spectrum in 2011.

 

Right that's correct I forgot about this case, However,  I think by law though telecoms have to rent the telecom assets to mvnos at a price that if can't be negotiated will be set by government, but this is slightly different.  My point here though is the government is basically forcing telecoms to rent to charter and other mvnos and that could be problematic when charter gets to successful in the mobile space. 

[glorysk87]

I'm out and about and don't want to fool with logging into some random wifi to save 50mb of data typically.

 

I believe if you download the Spectrum iOS or Android app and install the Spectrum profile it will automatically detect and connect to hotspots when you're out and about, rather than you having to manually do it.

[jmp8822]

I'm out and about and don't want to fool with logging into some random wifi to save 50mb of data typically.

 

I believe if you download the Spectrum iOS or Android app and install the Spectrum profile it will automatically detect and connect to hotspots when you're out and about, rather than you having to manually do it.

 

That makes much more sense thanks.

[KJP]

Sure I'm not arguing the Charter has a sweet deal right now being able to rent telecom assets at regulated prices while having sole ownership of its fiber assets, but a.) if charter has too much sucess with this approach (which is not a guarantee as how many people switch to mvnos actually even among us investors who know they have the same assets), it's a relatively easy case for telecoms to argue that they should have free access to fiber at regulated prices.  That being said the more important argument is that while Charter likely has an advantage now, the long term and structural advantage goes to whoever develops wireless broadband.

 

Where are you getting this information?  Charter does not rent telecom assets under regulated prices...  its MVNO deal was privately negotiated as part of a sale of spectrum in 2011.

 

Right that's correct I forgot about this case, However,  I think by law though telecoms have to rent the telecom assets to mvnos at a price that if can't be negotiated will be set by government, but this is slightly different.  My point here though is the government is basically forcing telecoms to rent to charter and other mvnos and that could be problematic when charter gets to successful in the mobile space.

 

I'm not aware of any obligation in the United States to provide network access to an MNVO, nor any regulation of the wholesale rates negotiated between mobile network operators and MVNOs.  (The FCC does require interconnection among wireless  networks, i.e., "roaming," at commercially reasonable rates.)  Indeed, some of the commentary around a potential Sprint-T-Mobile merger is that wholesale rates should be regulated in the future because those two are big suppliers to MVNOs.  For example, here's one argument that Sprint and T-Mobile should not be permitted to merge without a new wholesale pricing regulatory regime being put in place:  https://globenewswire.com/news-release/2018/05/21/1509213/0/en/Founder-and-Former-CEO-of-Boost-Mobile-USA-Raises-Concerns-that-Prepaid-Customers-are-Being-Forgotten-in-Sprint-T-Mobile-Merger-Plan.html

 

If you are aware of any source discussing the regulation of wholesale rates charged by MNOs to MVNOs, I'd be very interested to see it.

 

 

[Liberty]

Charter and Comcast have access to MVNO from Verizon because of a 2011 deal:

 

https://www.fiercewireless.com/wireless/charter-ceo-now-we-own-twc-we-can-use-verizon-mvno-deal-to-offer-nationwide-wireless

 

The Verizon agreement in question refers to a 2011 deal in which Verizon purchased AWS-1 spectrum from Bright House Networks, Comcast, Cox and TWC (a group dubbed SpectrumCo) and in return gave those companies access to its wireless network for use in a potential MVNO offering.

[dwy000]

Sure I'm not arguing the Charter has a sweet deal right now being able to rent telecom assets at regulated prices while having sole ownership of its fiber assets, but a.) if charter has too much sucess with this approach (which is not a guarantee as how many people switch to mvnos actually even among us investors who know they have the same assets), it's a relatively easy case for telecoms to argue that they should have free access to fiber at regulated prices.  That being said the more important argument is that while Charter likely has an advantage now, the long term and structural advantage goes to whoever develops wireless broadband.

 

Where are you getting this information?  Charter does not rent telecom assets under regulated prices...  its MVNO deal was privately negotiated as part of a sale of spectrum in 2011.

 

Right that's correct I forgot about this case, However,  I think by law though telecoms have to rent the telecom assets to mvnos at a price that if can't be negotiated will be set by government, but this is slightly different.  My point here though is the government is basically forcing telecoms to rent to charter and other mvnos and that could be problematic when charter gets to successful in the mobile space.

 

I'm not aware of any obligation in the United States to provide network access to an MNVO, nor any regulation of the wholesale rates negotiated between mobile network operators and MVNOs.  (The FCC does require interconnection among wireless  networks, i.e., "roaming," at commercially reasonable rates.)  Indeed, some of the commentary around a potential Sprint-T-Mobile merger is that wholesale rates should be regulated in the future because those two are big suppliers to MVNOs.  For example, here's one argument that Sprint and T-Mobile should not be permitted to merge without a new wholesale pricing regulatory regime being put in place:  https://globenewswire.com/news-release/2018/05/21/1509213/0/en/Founder-and-Former-CEO-of-Boost-Mobile-USA-Raises-Concerns-that-Prepaid-Customers-are-Being-Forgotten-in-Sprint-T-Mobile-Merger-Plan.html

 

If you are aware of any source discussing the regulation of wholesale rates charged by MNOs to MVNOs, I'd be very interested to see it.

 

The requirement is under Title II of the Communications Act which requires incubmbent carriers to provide wholesale access at cost based rates to new entrants.  Historically this applied to voice and there were questions as to whether that covered data.  In 2015 when the FCC applied Net Neutrality they did so with a broad brush by having internet/data governed by Title II (which incorporates a huge amount of potential gov't control well beyond Net Neutrality - gov't can regulate access, price, investment, etc).  While the FCC now is seeking to reverse the Net Neutrality requirements there's a question of whether that is going to be specific to Net Neutrality or if they are entirely exempting internet/data from Title II regulation.

 

As John Malone has said repeatedly, you want to own your network or you are at the mercy of the people who do.  There have been very, very few MVNO's in the US that have been successful over the long term.

[KJP]

Charter and Comcast have access to MVNO from Verizon because of a 2011 deal:

 

https://www.fiercewireless.com/wireless/charter-ceo-now-we-own-twc-we-can-use-verizon-mvno-deal-to-offer-nationwide-wireless

 

The Verizon agreement in question refers to a 2011 deal in which Verizon purchased AWS-1 spectrum from Bright House Networks, Comcast, Cox and TWC (a group dubbed SpectrumCo) and in return gave those companies access to its wireless network for use in a potential MVNO offering.

 

I know.  I was responding to the suggestion that, in general, the US requires mandatory network access to MVNOs at regulated rates.

[dwy000]

Quote from Malone back in 2017:

 

"We fundamentally believe we can make money for the shareholders through a wireless offering with the unique relationship that we have with the Verizon MVNO," Comcast Chairman and CEO Brian Roberts said in his most recent quarterly earnings call. "We can't go into detail about that relationship for obvious reasons, but we have the ability to do things that we think put us in a position to make that statement come true and create real value for our shareholders along the way."

Malone, however, said he believes that it's more likely that consolidation will take place among wireless and cable providers, rather than cable companies launching their own wireless networks.

"At some point, the [wireless] network that's supplying that to you is unhappy with you becoming a full competitor on their capital assets. And you start to get squeezed. You also don't have the ability to innovate services, because you're essentially a reseller of their service," he said.

Malone pointed to further and more aggressive relationships between cable and wireless companies as a solution to that problem.

"It's fine for Charter and Comcast to go down the MVNO road for a while, particular in the [business-to-business] world, because they have a great relationship with Verizon, which is the best technology network," he said. "So you can start that way, but my belief is they will have to have a much deeper relationship with Verizon in the long run to make that work."

[walkie518]

Quote from Malone back in 2017:

 

"We fundamentally believe we can make money for the shareholders through a wireless offering with the unique relationship that we have with the Verizon MVNO," Comcast Chairman and CEO Brian Roberts said in his most recent quarterly earnings call. "We can't go into detail about that relationship for obvious reasons, but we have the ability to do things that we think put us in a position to make that statement come true and create real value for our shareholders along the way."

Malone, however, said he believes that it's more likely that consolidation will take place among wireless and cable providers, rather than cable companies launching their own wireless networks.

"At some point, the [wireless] network that's supplying that to you is unhappy with you becoming a full competitor on their capital assets. And you start to get squeezed. You also don't have the ability to innovate services, because you're essentially a reseller of their service," he said.

Malone pointed to further and more aggressive relationships between cable and wireless companies as a solution to that problem.

"It's fine for Charter and Comcast to go down the MVNO road for a while, particular in the [business-to-business] world, because they have a great relationship with Verizon, which is the best technology network," he said. "So you can start that way, but my belief is they will have to have a much deeper relationship with Verizon in the long run to make that work."

Not sure why Masa didn't jump for Charter at Malone's price?  The cost to Sprint/Tmobile will be immense ...