CHTR - Charter Communications

[Munger_Disciple]

Thanks to the board member who replied to me via PM and explained to me that Malone was referring to the DCF formula where the power series becomes infinite. Clearly Malone must have meant it as a thought experiment.

 

Here is an interesting article about high growth rates some might find interesting  called "Growth Stocks and St. Petersburg Paradox" by David Durand:

 

http://csinvesting.org/wp-content/uploads/2012/10/Growth-Stocks-and-the-Petersburg-Paradox.pdf

 

[Sportgamma]

Malone is famous for saying if your cash flow growth rate is higher than your cost of debt value is infinite.

 

Malone was quoted as saying this in the book Cable Cowboy. I am trying to understand what he meant by this. If you take on debt to buy a new cable business or add an additional service like mobile to your current users, as long as your increase in cash flow exceeds your extra debt payment, you are adding equity value to shareholders. Naturally you can repeat this process almost forever if you started out small like TCI did, and thus the word "infinite". Is this correct?

 

He's said this on various occasions.

 

"I used to say in the cable industry that if your interest rate was lower than your growth rate, your present value is infinite."

- https://www.bizjournals.com/denver/stories/2009/04/27/daily45.html

 

 

 

[undervalued]

Malone is famous for saying if your cash flow growth rate is higher than your cost of debt value is infinite.

 

Malone was quoted as saying this in the book Cable Cowboy. I am trying to understand what he meant by this. If you take on debt to buy a new cable business or add an additional service like mobile to your current users, as long as your increase in cash flow exceeds your extra debt payment, you are adding equity value to shareholders. Naturally you can repeat this process almost forever if you started out small like TCI did, and thus the word "infinite". Is this correct?

 

He's said this on various occasions.

 

"I used to say in the cable industry that if your interest rate was lower than your growth rate, your present value is infinite."

- https://www.bizjournals.com/denver/stories/2009/04/27/daily45.html

 

 

Most mom and pop real estate investors took advantage of this to the top when rent kept growing and flat interest rate stays flat. You keep collecting the difference between your debt rate vs your rental income, as you build enough down payment for next you, you buy more houses. Only works if demand stays flat or increasing.

[vince]

Malone is famous for saying if your cash flow growth rate is higher than your cost of debt value is infinite.

 

Malone was quoted as saying this in the book Cable Cowboy. I am trying to understand what he meant by this. If you take on debt to buy a new cable business or add an additional service like mobile to your current users, as long as your increase in cash flow exceeds your extra debt payment, you are adding equity value to shareholders. Naturally you can repeat this process almost forever if you started out small like TCI did, and thus the word "infinite". Is this correct?

 

I believe it was the discount rate in the discounted cash flow model

[scorpioncapital]

Insurance companies have no problem with well signaled or gradual inflation, what is a danger is unexpected fast, out of nowhere, inflation. The 'if' in Malone's quote is probably this. You can't jack up prices so fast in this scenario but you can slowly move them up if debt costs rise gradually. We have not had anything like the 70s and early 80s in a long time in Western nations. I am not confident it won't happen again .

[vince]

What follows is Chtr CFO at a conference a month ago.  I love the first sentence in his reply and he does this often....tells everyone how confident he is of the fantastic results that are to be expected, starting early in 2019. 

 

  Bryan D. Kraft Deutsche Bank AG, Research Division – Senior Analyst

Yes. So I did want to take a couple of minutes and talk a little bit about just the financial side and the priorities and how you think about what to do with the cash that's generated by the business last year and I guess parts of this year. You were pretty clear about doing some debt-financed buybacks and redeploying free cash flow for stock repurchases. Can you talk about what yours and the board's priorities are around free cash flow this year and how you view that given where your leverage level is relative to the target?

 

Christopher L. Winfrey Charter Communications, Inc. – Executive VP & CFO

Well -- and our target leverage range is 4 to 4.5x, and we're sitting at the high end of that today, primarily because we know what's coming in 2019, frankly, and we think it's a good use of the balance sheet to use that capacity today. And so I'd expect for the short-term here that we are going to be at the upper end of that 4.5x. And as I mentioned, there have been M&A opportunities along the way, and we have exercised on opportunities to go invest further in the business. If you think about the investment that we're making into mobile, yes, our capital expenditures for cable next year is going to go down meaningfully both in dollars as a percentage of revenue. But from a free cash flow standpoint, we're diverting some of that savings really to be able to use and develop the next leg of growth for the cable business, which is to move into the mobile space. So our priorities continue to be ROI-positive projects inside the business for investment. The second one would be M&A to the extent it's more attractive than doing buybacks. And the third, meaning buying somebody else's stock, making it more attractive than buying our own. Third would be buybacks. And the fourth would be, and I hope this never happens here, is we have no better place to put your capital, and so we'd rather return it to shareholders in the form of dividends so that it can be taxed. That's not something I've ever done, and that's because the cable business has always provided opportunities to go have positive ROI projects to continue to go reinvest or do M&A or do accretive stock buybacks. So that's still our plan today, and I don't see any dramatic changes on the horizon. If something came up on the M&A front, which doesn't exist today that we thought we needed to get down to the lower end of the target leverage range of the business, actually delevers pretty fast. And if you think about a closing process or a regulatory process, there's usually quite a bit of a window for you to be able to delever if you need to.

[KJP]

Malone is famous for saying if your cash flow growth rate is higher than your cost of debt value is infinite.

 

Malone was quoted as saying this in the book Cable Cowboy. I am trying to understand what he meant by this. If you take on debt to buy a new cable business or add an additional service like mobile to your current users, as long as your increase in cash flow exceeds your extra debt payment, you are adding equity value to shareholders. Naturally you can repeat this process almost forever if you started out small like TCI did, and thus the word "infinite". Is this correct?

 

I believe it was the discount rate in the discounted cash flow model

 

Yes, I think he was just pointing out that the present value of a perpetuity goes to infinity if g > r.

[vince]

And one more from the same conference.... " Yes. And I wanted to go back to a point that you hit on because you talked earlier about even from the time you announced the big transaction that you always wanted to get yourself to 2019. And 2019 is now sort of around the corner, and the business is inflecting, and you've got CapEx declining. How does that decision play into how you sort of then go allocate that capital and what you go after?

 

Christopher L. Winfrey Charter Communications, Inc. – Executive VP & CFO

Well, some of it, the cable -- we're going to isolate mobile and cable, and 2019 is really the year that financially we're going to get to show and demonstrate what we've been up to for the past 2.5 years, and so we're looking forward to that."

[SHDL]

Malone is famous for saying if your cash flow growth rate is higher than your cost of debt value is infinite.

 

Malone was quoted as saying this in the book Cable Cowboy. I am trying to understand what he meant by this. If you take on debt to buy a new cable business or add an additional service like mobile to your current users, as long as your increase in cash flow exceeds your extra debt payment, you are adding equity value to shareholders. Naturally you can repeat this process almost forever if you started out small like TCI did, and thus the word "infinite". Is this correct?

 

I believe it was the discount rate in the discounted cash flow model

 

Yes, I think he was just pointing out that the present value of a perpetuity goes to infinity if g > r.

 

I really like this Malone quote and the math behind it.

 

Of course the “infinite” part is not to be taken too literally because if g > r (forever) then the asset will have an “infinite value,” which makes it “infinitely profitable” to borrow money at rate r and buy more of the asset, and of course everyone will try to do so, until all that borrowing pushes interest rates up to the point where g < r. 

 

I’m sure the old man knows all this, but it’s an interesting thing to note because it can actually take you to interesting places.  For instance, if you think, say, dividends (+ share repurchases) for the S&P 500 are going to continue growing at a > 5% rate forever then you should not really expect interest rates to stay << 5% forever — unless you really happen to believe the SPY is infinitely valuable. 

[vince]

Malone is famous for saying if your cash flow growth rate is higher than your cost of debt value is infinite.

 

Malone was quoted as saying this in the book Cable Cowboy. I am trying to understand what he meant by this. If you take on debt to buy a new cable business or add an additional service like mobile to your current users, as long as your increase in cash flow exceeds your extra debt payment, you are adding equity value to shareholders. Naturally you can repeat this process almost forever if you started out small like TCI did, and thus the word "infinite". Is this correct?

 

I believe it was the discount rate in the discounted cash flow model

 

Yes, I think he was just pointing out that the present value of a perpetuity goes to infinity if g > r.

 

I really like this Malone quote and the math behind it.

 

Of course the “infinite” part is not to be taken too literally because if g > r (forever) then the asset will have an “infinite value,” which makes it “infinitely profitable” to borrow money at rate r and buy more of the asset, and of course everyone will try to do so, until all that borrowing pushes interest rates up to the point where g < r. 

 

I’m sure the old man knows all this, but it’s an interesting thing to note because it can actually take you to interesting places.  For instance, if you think, say, dividends (+ share repurchases) for the S&P 500 are going to continue growing at a > 5% rate forever then you should not really expect interest rates to stay << 5% forever — unless you really happen to believe the SPY is infinitely valuable.

 

Ya the old man commented on it before saying that it obviously couldn't happen forever but the point was that math is what made all the cable guys rich.  And it actually has helped me put certain growth rates into perspective.  For instance, that growth rate (i believe) has to be without the addition of incremental capital (this may be obvious to some but math and formulas have never been my strength)

[SHDL]

Malone is famous for saying if your cash flow growth rate is higher than your cost of debt value is infinite.

 

Malone was quoted as saying this in the book Cable Cowboy. I am trying to understand what he meant by this. If you take on debt to buy a new cable business or add an additional service like mobile to your current users, as long as your increase in cash flow exceeds your extra debt payment, you are adding equity value to shareholders. Naturally you can repeat this process almost forever if you started out small like TCI did, and thus the word "infinite". Is this correct?

 

I believe it was the discount rate in the discounted cash flow model

 

Yes, I think he was just pointing out that the present value of a perpetuity goes to infinity if g > r.

 

I really like this Malone quote and the math behind it.

 

Of course the “infinite” part is not to be taken too literally because if g > r (forever) then the asset will have an “infinite value,” which makes it “infinitely profitable” to borrow money at rate r and buy more of the asset, and of course everyone will try to do so, until all that borrowing pushes interest rates up to the point where g < r. 

 

I’m sure the old man knows all this, but it’s an interesting thing to note because it can actually take you to interesting places.  For instance, if you think, say, dividends (+ share repurchases) for the S&P 500 are going to continue growing at a > 5% rate forever then you should not really expect interest rates to stay << 5% forever — unless you really happen to believe the SPY is infinitely valuable.

 

Ya the old man commented on it before saying that it obviously couldn't happen forever but the point was that math is what made all the cable guys rich.  And it actually has helped me put certain growth rates into perspective.  For instance, that growth rate (i believe) has to be without the addition of incremental capital (this may be obvious to some but math and formulas have never been my strength)

 

Exactly — and yes it’s the growth rate of distributed (or at least distributable) cash flows after growth capex has been paid that needs to grow at rate g.

[vince]

Malone is famous for saying if your cash flow growth rate is higher than your cost of debt value is infinite.

 

Malone was quoted as saying this in the book Cable Cowboy. I am trying to understand what he meant by this. If you take on debt to buy a new cable business or add an additional service like mobile to your current users, as long as your increase in cash flow exceeds your extra debt payment, you are adding equity value to shareholders. Naturally you can repeat this process almost forever if you started out small like TCI did, and thus the word "infinite". Is this correct?

 

I believe it was the discount rate in the discounted cash flow model

 

Yes, I think he was just pointing out that the present value of a perpetuity goes to infinity if g > r.

 

I really like this Malone quote and the math behind it.

 

Of course the “infinite” part is not to be taken too literally because if g > r (forever) then the asset will have an “infinite value,” which makes it “infinitely profitable” to borrow money at rate r and buy more of the asset, and of course everyone will try to do so, until all that borrowing pushes interest rates up to the point where g < r. 

 

I’m sure the old man knows all this, but it’s an interesting thing to note because it can actually take you to interesting places.  For instance, if you think, say, dividends (+ share repurchases) for the S&P 500 are going to continue growing at a > 5% rate forever then you should not really expect interest rates to stay << 5% forever — unless you really happen to believe the SPY is infinitely valuable.

 

Ya the old man commented on it before saying that it obviously couldn't happen forever but the point was that math is what made all the cable guys rich.  And it actually has helped me put certain growth rates into perspective.  For instance, that growth rate (i believe) has to be without the addition of incremental capital (this may be obvious to some but math and formulas have never been my strength)

 

Exactly — and yes it’s the growth rate of distributed (or at least distributable) cash flows after growth capex has been paid that needs to grow at rate g.

 

Let me ask you this then....with regards to this theory, does it make a difference if you use lots of equity vs lots of debt?

[SHDL]

No difference (in theory). Regardless of the capital structure, as long as the distributable cash flows grow at rate g (> r) forever the equity is “infinitely valuable.”

[Spekulatius]

No difference (in theory). Regardless of the capital structure, as long as the distributable cash flows grow at rate g (> r) forever the equity is “infinitely valuable.”

 

Which applies not just to cable, but anything that creates a growing cash stream (pipelines, real estate, infrastructure assets etc.).

[SHDL]

No difference (in theory). Regardless of the capital structure, as long as the distributable cash flows grow at rate g (> r) forever the equity is “infinitely valuable.”

 

Which applies not just to cable, but anything that creates a growing cash stream (pipelines, real estate, infrastructure assets etc.).

 

Correct.

[CLM5]

I've been looking at some of the smaller fiber providers recently - Tucows, Nelnet,... who have gone into singular communities to provide fiber connections.

 

Can someone explain the difference in the backhaul between the cable co's and the fiber overbuilders? I've been trying to research it, but I'm struggling to find in-depth information. A few questions that come to mind...:

 

- Is the entire infrastructure of the cable co's copper coax cables? Charter is in the middle of their Gig rollout, and says their entire footprint will be Gig-capable by the end of 2018. So coax is capable of gig internet? Charter says their network is "fiber-rich", but I don't really know what this means. Even if something like your connection-to-the-house is fiber, and the rest of the network is coax, that shouldn't make a difference because the coax would bottleneck the network wouldn't it? So what exactly does fiber-rich mean, and what are the benefits of that?

 

- If coax is capable of gig internet, then what really is the advantage of a fiber buildout vs the cable co's? I understand it's more reliable against weather and the pipes getting clogged up with many users, but if the potential speeds are the same, does that really justify the massive capital intensity needed to build the network for that slight improvement?

 

- What is the difference in the way each is connected to the premise (home or business)? I've read that each fiber connection is connected directly to the network with it's own line, which implied that cable broadband did not work like that. Do you really share your broadband service with your neighbors, and how does that work?

 

 

Edit: Just read this - "While Comcast offers 2Gbps download and upload speeds over its fiber-to-the-home service, Charter hasn't rolled out all-fiber services to residences yet." How is this possible if you're just making the connection to the home with fiber. Wouldn't you still be bottlenecked by the network infrastructure being coax? Obviously this isn't the case because the offering is real... I just want to understand myself how this works. This seems to make any sort of fiber overbuilder rendered useless if cable cos already have this infrastructure in place...

 

[maybe4less]

- Is the entire infrastructure of the cable co's copper coax cables?

 

- If coax is capable of gig internet, then what really is the advantage of a fiber buildout vs the cable co's?

 

- What is the difference in the way each is connected to the premise (home or business)? I've read that each fiber connection is connected directly to the network with it's own line, which implied that cable broadband did not work like that. Do you really share your broadband service with your neighbors, and how does that work?

 

Cable companies like Charter generally have fiber backbones to deliver signals most of the way and then use coax to hook up to the users' premises (e.g., Fiber-to-the-Node). Using coax in the last mile does result in a user sharing the network with the neighborhood. In Fiber-to-the-Home (FTTH), each user has their own optic cables dedicated to their building, so there is no sharing.

 

The fact that cable cos can can deliver gig+ internet without having to dig up the streets is a major argument for the cable bull case. FTTH delivers similar speeds, but at much higher cost, so overbuilding is not usually rational.

[vince]

- Is the entire infrastructure of the cable co's copper coax cables?

 

- If coax is capable of gig internet, then what really is the advantage of a fiber buildout vs the cable co's?

 

- What is the difference in the way each is connected to the premise (home or business)? I've read that each fiber connection is connected directly to the network with it's own line, which implied that cable broadband did not work like that. Do you really share your broadband service with your neighbors, and how does that work?

 

Cable companies like Charter generally have fiber backbones to deliver signals most of the way and then use coax to hook up to the users' premises (e.g., Fiber-to-the-Node). Using coax in the last mile does result in a user sharing the network with the neighborhood. In Fiber-to-the-Home (FTTH), each user has their own optic cables dedicated to their building, so there is no sharing.

 

The fact that cable cos can can deliver gig+ internet without having to dig up the streets is a major argument for the cable bull case. FTTH delivers similar speeds, but at much higher cost, so overbuilding is not usually rational.

 

The coax fiber hybrid is almost as good as pure fiber and way better than everything else in their footprint.  The reason you only see one cable operator per passing is because the returns are uneconomical if there are 2 players with the infrastructure capex.  There have been attempts by several operators to overbuild and the results are what would be expected, they more or less eventually gave up.  5G may be an exception in terms of getting an acceptable return on the overbuild but the quality will most likely be inferior.  My opinion is even if there is some fiber overbuild, and some 5g, and some increased speeds on the older telco copper, there is still a strong case that cable will do well.  The increased competition may be a blessing because without it the cable cos may be perceived as too monopolistic with a very very important product/service.  It is also important to note that Charters volume strategy (their ARPU is 30 dollars less than comcast) could be viewed as a defense to the potential increased competition....much harder to steal a happy customer that is on the cheapest plan with lots of value, especially as their mobile initiative scales. Heck it was hard to take their customers when their customers hated them and their product was inferior

[DooDiligence]

- Is the entire infrastructure of the cable co's copper coax cables?

 

- If coax is capable of gig internet, then what really is the advantage of a fiber buildout vs the cable co's?

 

- What is the difference in the way each is connected to the premise (home or business)? I've read that each fiber connection is connected directly to the network with it's own line, which implied that cable broadband did not work like that. Do you really share your broadband service with your neighbors, and how does that work?

 

Cable companies like Charter generally have fiber backbones to deliver signals most of the way and then use coax to hook up to the users' premises (e.g., Fiber-to-the-Node). Using coax in the last mile does result in a user sharing the network with the neighborhood. In Fiber-to-the-Home (FTTH), each user has their own optic cables dedicated to their building, so there is no sharing.

 

The fact that cable cos can can deliver gig+ internet without having to dig up the streets is a major argument for the cable bull case. FTTH delivers similar speeds, but at much higher cost, so overbuilding is not usually rational.

 

My Dad was recently extolling the virtues of his new ISP in Santa Fe.

He didn't get FTTP but instead, is getting a wireless signal from a box down the hill, which is also servicing multiple homes.

He still has to have a receiver in his home.

 

http://www.nmsurf.com/services.html

 

I looked at the provider & noticed that they do FTTP, and was wondering if they were a threat to Charter & Comcast's business & you've clarified that they are not since they just do last mile using someone else's backbone, duh.

 

I wonder if & when any of these small local guys will be able to start offering 5G services?

[CLM5]

- Is the entire infrastructure of the cable co's copper coax cables?

 

- If coax is capable of gig internet, then what really is the advantage of a fiber buildout vs the cable co's?

 

- What is the difference in the way each is connected to the premise (home or business)? I've read that each fiber connection is connected directly to the network with it's own line, which implied that cable broadband did not work like that. Do you really share your broadband service with your neighbors, and how does that work?

 

Cable companies like Charter generally have fiber backbones to deliver signals most of the way and then use coax to hook up to the users' premises (e.g., Fiber-to-the-Node). Using coax in the last mile does result in a user sharing the network with the neighborhood. In Fiber-to-the-Home (FTTH), each user has their own optic cables dedicated to their building, so there is no sharing.

 

The fact that cable cos can can deliver gig+ internet without having to dig up the streets is a major argument for the cable bull case. FTTH delivers similar speeds, but at much higher cost, so overbuilding is not usually rational.

 

 

I looked at the provider & noticed that they do FTTP, and was wondering if they were a threat to Charter & Comcast's business & you've clarified that they are not since they just do last mile using someone else's backbone, duh.

 

 

 

That's not the case for all of them. The ones I mentioned, Tucows and Nelnet, used their own infrastructure to pass a bunch of houses in smaller communities.

[CLM5]

- Is the entire infrastructure of the cable co's copper coax cables?

 

- If coax is capable of gig internet, then what really is the advantage of a fiber buildout vs the cable co's?

 

- What is the difference in the way each is connected to the premise (home or business)? I've read that each fiber connection is connected directly to the network with it's own line, which implied that cable broadband did not work like that. Do you really share your broadband service with your neighbors, and how does that work?

 

Cable companies like Charter generally have fiber backbones to deliver signals most of the way and then use coax to hook up to the users' premises (e.g., Fiber-to-the-Node). Using coax in the last mile does result in a user sharing the network with the neighborhood. In Fiber-to-the-Home (FTTH), each user has their own optic cables dedicated to their building, so there is no sharing.

 

The fact that cable cos can can deliver gig+ internet without having to dig up the streets is a major argument for the cable bull case. FTTH delivers similar speeds, but at much higher cost, so overbuilding is not usually rational.

 

Thanks for that.

 

When exactly did Comcast/Charter replace their backhaul infrastructure with fiber, it surely hasn't always been that way?

 

How does "using the coax network in last mile resulting in users sharing the network" actually physically work? I guess I don't really understand how last mile works for cable. For fiber, it's essentially an ethernet cord run to the backhaul... but I'm not quite sure how cable/modems work and how that results in sharing?

 

I actually found an article today citing an even more improved DOCSIS 3.1 which allows 10Gb download, and 1Gb upload which would effectively eliminate the only advantage fiber has over cable networks - the upload speed. Blows my mind that an upgrade to the modem (or what I'm assuming is software upgrade?) is able to provide these kind of improvement of numbers. 

 

 

[maybe4less]

- Is the entire infrastructure of the cable co's copper coax cables?

 

- If coax is capable of gig internet, then what really is the advantage of a fiber buildout vs the cable co's?

 

- What is the difference in the way each is connected to the premise (home or business)? I've read that each fiber connection is connected directly to the network with it's own line, which implied that cable broadband did not work like that. Do you really share your broadband service with your neighbors, and how does that work?

 

Cable companies like Charter generally have fiber backbones to deliver signals most of the way and then use coax to hook up to the users' premises (e.g., Fiber-to-the-Node). Using coax in the last mile does result in a user sharing the network with the neighborhood. In Fiber-to-the-Home (FTTH), each user has their own optic cables dedicated to their building, so there is no sharing.

 

The fact that cable cos can can deliver gig+ internet without having to dig up the streets is a major argument for the cable bull case. FTTH delivers similar speeds, but at much higher cost, so overbuilding is not usually rational.

 

Thanks for that.

 

When exactly did Comcast/Charter replace their backhaul infrastructure with fiber, it surely hasn't always been that way?

 

How does "using the coax network in last mile resulting in users sharing the network" actually physically work? I guess I don't really understand how last mile works for cable. For fiber, it's essentially an ethernet cord run to the backhaul... but I'm not quite sure how cable/modems work and how that results in sharing?

 

I actually found an article today citing an even more improved DOCSIS 3.1 which allows 10Gb download, and 1Gb upload which would effectively eliminate the only advantage fiber has over cable networks - the upload speed. Blows my mind that an upgrade to the modem (or what I'm assuming is software upgrade?) is able to provide these kind of improvement of numbers.

 

Sorry, I don't know when the backbones became fiber. My guess is ~20 years ago, but someone else might know for sure.

 

I also don't know all the technical details about how coax works, but my understanding is all of the data simply goes through a shared cable that splits off at each premise. If too many other people are using the cable, then your speeds are slower.

 

Yeah, another of cable operators have said they can go to higher speeds with minimum expense. Helps the bull case for cable even more if true. I don't think its purely a software upgrade though, some capex is involved, but not much.

[vince]

It really is incredible how fast they upgraded to 1 gig with minimal capital, I knew they were in an advantaged position but didnt realize the coax had that capacity...goes to show how much of an advantage they really do have.  As far as timing goes, I think it was a gradual ongoing process to upgrade the backbone.  I think another important point is the fact that if last mile fiber does indeed become mandatory from a performance perspective, or even 5G, cable is positioned better than the rest to deliver that with the best economics.  Keep an eye on Altice, they have committed to replacing their entire network with fiber and claim the cost is much lower than the street thinks.  If true, this is could be a negative development or it could mean that cable's cost for last mile fiber is significantly lower than everybody else's which is consistent with my previous statement about relative positioning.  Strange how I've never heard any analyst ask for details on this so I will ask the board now....Does anyone know if cable's cost for all fiber is lower than say Verizon's? If so, maybe explain with some detail.  This could also explain why Verizon is trying 5g, although Mr Rutledge has commented that 5g could actually be more expensive.  Whatever the case, Verizon's latest move is a head scratcher and Altice could be headed for stock price trouble if indeed their upgrade cost is not a wise use of capital. 

[CLM5]

 

Sorry, I don't know when the backbones became fiber. My guess is ~20 years ago, but someone else might know for sure.

 

I also don't know all the technical details about how coax works, but my understanding is all of the data simply goes through a shared cable that splits off at each premise. If too many other people are using the cable, then your speeds are slower.

 

Yeah, another of cable operators have said they can go to higher speeds with minimum expense. Helps the bull case for cable even more if true. I don't think its purely a software upgrade though, some capex is involved, but not much.

 

Yeah I believe the only capex related expense would be the replacing of modems with the new docsis, no?

[CLM5]

It really is incredible how fast they upgraded to 1 gig with minimal capital, I knew they were in an advantaged position but didnt realize the coax had that capacity...goes to show how much of an advantage they really do have.  As far as timing goes, I think it was a gradual ongoing process to upgrade the backbone.  I think another important point is the fact that if last mile fiber does indeed become mandatory from a performance perspective, or even 5G, cable is positioned better than the rest to deliver that with the best economics.  Keep an eye on Altice, they have committed to replacing their entire network with fiber and claim the cost is much lower than the street thinks.  If true, this is could be a negative development or it could mean that cable's cost for last mile fiber is significantly lower than everybody else's which is consistent with my previous statement about relative positioning.  Strange how I've never heard any analyst ask for details on this so I will ask the board now....Does anyone know if cable's cost for all fiber is lower than say Verizon's? If so, maybe explain with some detail.  This could also explain why Verizon is trying 5g, although Mr Rutledge has commented that 5g could actually be more expensive.  Whatever the case, Verizon's latest move is a head scratcher and Altice could be headed for stock price trouble if indeed their upgrade cost is not a wise use of capital.

 

Maybe I'm stating the obvious here, but Verizon is at a disadvantage in either 5G or Fiber because they don't have the backhaul for it... I think the capital intensive part of a fiber overbuild is all the passings, which the cable companies already have (and what I'm now learning is that a lot of it is already fiber...). So it seems Charter or Comcast should be in a position to upgrade their entire footprint to FTTH relatively easily if they needed to. Idk why the street would be underestimating that cost, maybe companies who have attempted fiber in the past haven't designated the difference in cost between a passing and an actual connection to a premise?

 

Another point to mention - the reason why fiber has failed in the past is because of customer penetration as a percentage of passings. Fiber would work if they could get a high enough customer penetration, but as we all know, this is a sticky business. And comcast/charter (and I'm assuming Altice) have very high customer penetration already, which would likely make any upgrade of infrastructure worth it in the long run if it led to increased pricing power and customer stickiness. This would probably make their fiber cost look cheap relative to the returns they'd see?