CHTR - Charter Communications

[NotSoWise]

The magic number is USD 560 - where CEO gets all his stock options vested (highest package). Once it gets there, the real question is whether to keep it longer or exit along the CEO (if he exits before potential sale to strategic). Value will get to this magic number level at some point. This is how I think about my position in Charter.

 

 

[vince]

The magic number is USD 560 - where CEO gets all his stock options vested (highest package). Once it gets there, the real question is whether to keep it longer or exit along the CEO (if he exits before potential sale to strategic). Value will get to this magic number level at some point. This is how I think about my position in Charter.

 

I would be shocked if Rutledge thinks 560 is his exit.  If you look at Charters likely mid to high single digit ebitda growth (oversimplified conservative model=units sold increase by 2-3%, modest pricing gives you rev growth 4-6%, 50 basis points of increasing margins annually gets them to high single digits) and add their free cash flow yield (call it 6-7%) you get 15ish% in value per share.  If multiple stays constant you have a 1000 dollar stock in 5 years.  Please note that there is nothing aggressive about these numbers.... Comcast is already at 41% plus ebitda margins, and with an inferior footprint, they are guiding to continued margin expansion.  Why are they so sure margins will increase?  Because their broadband service has grown by over 1 million subscriptions annually for 10 years straight, and as broadband has much higher margins and as the broadband business becomes an ever larger percentage of their overall business, it tends to drag margins up.  Are there threats to this model?  Of course there are, i have never come across an investment that didn't have some.  However, in terms of competitive threats, we can confidently predict that any potential infrastructure threats are at least a few years out JUST TO START LOOKING LIKE A THREAT and at least a couple more years to start having a material effect.  That is a worst case scenario to me because it is unlikely that Charter will not be able to manage that threat thru investment, thru merger or a few other tricks that Dr Malone has up his sleeve.  That leaves us with the only real threat in my opinion, and that is regulatory.  The real problem with this treat is that it's impossible to handicap in my opinion but let me just say that I can't believe I'm actually pulling for Trump in the next election. 

[rogermunibond]

LEO latency makes it not a threat to cable for most users.

 

LEO sats will take share from SATS and VSAT though.  And might make rural fixed wireless broadband (5G) a DOA proposition.

[scorpioncapital]

Judging by the regulatory environment for broadband globally outside the USA if the USA ever goes in that direction then 250 is a more reasonable target than 1000. But hopefully this won't happen. I remember Buffett who said about the USA that this system works. In broadband, there are not many countries where the government has not ruined the business.

[vince]

Judging by the regulatory environment for broadband globally outside the USA if the USA ever goes in that direction then 250 is a more reasonable target than 1000. But hopefully this won't happen. I remember Buffett who said about the USA that this system works. In broadband, there are not many countries where the government has not ruined the business.

 

I totally agree that the price of Charter stock will get creamed, at least in the short term, possibly for a couple years and then trade for a reasonable (9-11) multiple of whatever their normalized earnings would be.  And it could get real ugly for a while because of their leverage.  Just thinking about it makes me want to barf.  And I really do believe that at some future time (7-8 years maybe) there will be some kind of intervention.  That pipe is just too important (and getting more so) to allow the eventual price increases.  By the way, does anyone know or know where to look to study up on how something like that would play out.  What kind of legal recourse would cable have?  I realize there are probably many different outcomes but I'm trying to get my mind around some of the regulatory actions and possible responses from cable.  When I think about it, cable doesn't really have a TRUE barrier, their plant could be overbuilt.  It's a matter of capital and return on that capital which looks less monopolistic to me.  But I guess electric utilities could be overbuilt as well so my thinking could be flawed.  Any info would be greatly appreciated!!

[Liberty]

Charter has taken its speeds from tens of megabits a few years ago to hundreds minimum now, with 1 gbits capability over almost all its footprint, and a pathway to 10gbits soon, as well as going all digital on the old TWC footprint. All these investments are not nothing and improve quality to the customers. The same with in-sourcing call centers and service technicians, etc. If all this isn't worth more, I don't know what is.

 

Most of the price increases come from the video content producers, though, but there's pressure there and that'll stop soon.

 

Charter is one of the players that has been holding back on price a lot in recent years, Rutledge prefers going for volume than pricing. But they certainly have invested enough in the network to justify some pricing down the road.

[vince]

Charter has taken its speeds from tens of megabits a few years ago to hundreds minimum now, with 1 gbits capability over almost all its footprint, and a pathway to 10gbits soon, as well as going all digital on the old TWC footprint. All these investments are not nothing and improve quality to the customers. The same with in-sourcing call centers and service technicians, etc. If all this isn't worth more, I don't know what is.

 

Most of the price increases come from the video content producers, though, but there's pressure there and that'll stop soon.

 

Charter is one of the players that has been holding back on price a lot in recent years, Rutledge prefers going for volume than pricing. But they certainly have invested enough in the network to justify some pricing down the road.

 

Well i'm certainly not arguing that they shouldn't be allowed to make a good return on incremental investments.  I'm simply saying that broadbands importance to society will continue to increase and at some point (whether justified or not) people will complain, even for modest price increases and tougher regulatory classification of broadband will be re-implemented.  Exactly how that plays out is anyone's guess.  But to think that Charter will be treated more favorably for holding back on price probably doesn't make sense.  So Rutledge must truly believe that holding back on price and focusing on additional units is economically superior, over the long run, than pushing price.  That's a tough argument to make if you believe the industry will eventually face tougher regulations.  On that note I think that the potential competitive threat of 5G may actually be a blessing.

[BG2008]

Broadband is kind of like rent, look at rent regulation in NYC for some clues I guess.  The key difference is that Broadband is $100 and rent is $2,000 in NYC

[Spekulatius]

Broadband is kind of like rent, look at rent regulation in NYC for some clues I guess.  The key difference is that Broadband is $100 and rent is $2,000 in NYC

 

$100 in NYC or $50 elsewhere. I agree it’s an inevitable expense, like utilities.

[vince]

Broadband is kind of like rent, look at rent regulation in NYC for some clues I guess.  The key difference is that Broadband is $100 and rent is $2,000 in NYC

 

$100 in NYC or $50 elsewhere. I agree it’s an inevitable expense, like utilities.

 

What really surprises me is the fact that people think they are being overcharged for high speed broadband and that it is expensive.  I think this is just carryover from the days when cable was raping everyone, they are conditioned to believe that cable is always a rip-off.  To me 60-80 bucks for 100-200 mbps, and all the utility that comes with it is a bargain.  In my house you have at least 15-20 man hours of use on a weekday and much more than that on weekends or days off.  Cable t.v was/is a rip-off (and it's mostly the content producers doing the the ripping off) but fixed broadband offers tremendous value imo.

[Jurgis]

Broadband is kind of like rent, look at rent regulation in NYC for some clues I guess.  The key difference is that Broadband is $100 and rent is $2,000 in NYC

 

$100 in NYC or $50 elsewhere. I agree it’s an inevitable expense, like utilities.

 

What really surprises me is the fact that people think they are being overcharged for high speed broadband and that it is expensive.  I think this is just carryover from the days when cable was raping everyone, they are conditioned to believe that cable is always a rip-off.  To me 60-80 bucks for 100-200 mbps, and all the utility that comes with it is a bargain.  In my house you have at least 15-20 man hours of use on a weekday and much more than that on weekends or days off.  Cable t.v was/is a rip-off (and it's mostly the content producers doing the the ripping off) but fixed broadband offers tremendous value imo.

 

Because US broadband pricing is a rip off compared to prices in most European countries. Even if you live in high density urban area in US.

 

Edit: this is not perfect, but in case anyone wants data: https://www.numbeo.com/cost-of-living/country_price_rankings?itemId=33

[scorpioncapital]

My mental framework is that USA allows broadband companies to make a better profit margin and that the rest of the world sort of wants this industry semi nationalized..so far this has played out. Returns have not been higher than some corporate bonds for the equities of foreign cable stocks over the last decade or two. On the other hand if your goal is a 7 to 10 Percent return, you can get that. Berkshire owns many utilities and I'm sure they're not earning 15 percent unleveraged returns. Fwiw it seems mobile telecom and broadband is an even worse business than home broadband. In that space you have even lower prices and margins. In Europe and other parts of the world many plans can be under 15 to 20 USD a month for unlimited data and roaming.

[Spekulatius]

Broadband is kind of like rent, look at rent regulation in NYC for some clues I guess.  The key difference is that Broadband is $100 and rent is $2,000 in NYC

 

$100 in NYC or $50 elsewhere. I agree it’s an inevitable expense, like utilities.

 

What really surprises me is the fact that people think they are being overcharged for high speed broadband and that it is expensive.  I think this is just carryover from the days when cable was raping everyone, they are conditioned to believe that cable is always a rip-off.  To me 60-80 bucks for 100-200 mbps, and all the utility that comes with it is a bargain.  In my house you have at least 15-20 man hours of use on a weekday and much more than that on weekends or days off.  Cable t.v was/is a rip-off (and it's mostly the content producers doing the the ripping off) but fixed broadband offers tremendous value imo.

 

I agree it is a good value, but so is the Aspirin pill that saves me the headache forma day. It’s a user perceived value vs cost thing. I do agree with scorpioncapital that broadband / cable more profitable in the US than virtually anywhere else. I have great success with my investment in broadband in the US, but so far any investment elsewhere (US, Latin America , Asia) has been a failure so far. I still have great hope for Megacable, which has a decent LT track record so far.

[Liberty]

Broadband is kind of like rent, look at rent regulation in NYC for some clues I guess.  The key difference is that Broadband is $100 and rent is $2,000 in NYC

 

$100 in NYC or $50 elsewhere. I agree it’s an inevitable expense, like utilities.

 

What really surprises me is the fact that people think they are being overcharged for high speed broadband and that it is expensive.  I think this is just carryover from the days when cable was raping everyone, they are conditioned to believe that cable is always a rip-off.  To me 60-80 bucks for 100-200 mbps, and all the utility that comes with it is a bargain.  In my house you have at least 15-20 man hours of use on a weekday and much more than that on weekends or days off.  Cable t.v was/is a rip-off (and it's mostly the content producers doing the the ripping off) but fixed broadband offers tremendous value imo.

 

Yeah, broadband, like smartphones, is one of the most under-priced products on the market today.

[vince]

Broadband is kind of like rent, look at rent regulation in NYC for some clues I guess.  The key difference is that Broadband is $100 and rent is $2,000 in NYC

 

$100 in NYC or $50 elsewhere. I agree it’s an inevitable expense, like utilities.

 

What really surprises me is the fact that people think they are being overcharged for high speed broadband and that it is expensive.  I think this is just carryover from the days when cable was raping everyone, they are conditioned to believe that cable is always a rip-off.  To me 60-80 bucks for 100-200 mbps, and all the utility that comes with it is a bargain.  In my house you have at least 15-20 man hours of use on a weekday and much more than that on weekends or days off.  Cable t.v was/is a rip-off (and it's mostly the content producers doing the the ripping off) but fixed broadband offers tremendous value imo.

 

Yeah, broadband, like smartphones, is one of the most under-priced products on the market today.

 

Are you agreeing with me or being sarcastic?  I'm not offended either way and not trying to start an argument, just curious.

[DooDiligence]

Broadband is kind of like rent, look at rent regulation in NYC for some clues I guess.  The key difference is that Broadband is $100 and rent is $2,000 in NYC

 

$100 in NYC or $50 elsewhere. I agree it’s an inevitable expense, like utilities.

 

What really surprises me is the fact that people think they are being overcharged for high speed broadband and that it is expensive.  I think this is just carryover from the days when cable was raping everyone, they are conditioned to believe that cable is always a rip-off.  To me 60-80 bucks for 100-200 mbps, and all the utility that comes with it is a bargain.  In my house you have at least 15-20 man hours of use on a weekday and much more than that on weekends or days off.  Cable t.v was/is a rip-off (and it's mostly the content producers doing the the ripping off) but fixed broadband offers tremendous value imo.

 

Yeah, broadband, like smartphones, is one of the most under-priced products on the market today.

 

Are you agreeing with me or being sarcastic?  I'm not offended either way and not trying to start an argument, just curious.

 

Sounds to me like agreement & it echoes my sentiments.

 

Too many people know the price of everything & the value of nothing.

 

The entitled society.

[Spekulatius]

I checked out SKY‘s broadband pricing and it’s 27 GBP ($35) for 60MB/s Speed. I pay $50 for 100MB/s (in two different locations the price was the same, so I think it’s a pretty good estimate for US pricing) so while the UK is a bit cheaper, it’s not terribly so. SKY I think is the low cost competitor - they are using their own network and the Last  mile from BT (for wholesale prices set by the government). Sky can also bundle TV and now cell phone via MVNO. I think that’s Comcast play that  thy want to provide broadband and TV in Europe and that why they bought SKY. Perhaps they will be a buyer for Liberty assets if regulators allow so. If we estimate SKY‘s priding $40 to account for the different speeds, I think it’s a reasonable pricing that ought to allow a decent profit for broadband providers in the UK.

[Jurgis]

I pay $50 for 100MB/s

 

$50 after all fees and taxes and that being non-promotional pricing? Who's your provider?

 

I am paying $80 for 20MB/s non-promotional with fees/taxes. And the cheapest 12 months promotional is $39.99 which goes up to undisclosed sum after 12 months AND that's before fees/taxes. (Edit: I see there is currently one $29.99 promo offer that was not there last time I looked. That might go to $50 non-promo before taxes, who knows.)

[Spekulatius]

I pay $50 for 100MB/s

 

$50 after all fees and taxes and that being non-promotional pricing? Who's your provider?

 

I am paying $80 for 20MB/s non-promotional with fees/taxes. And the cheapest 12 months promotional is $39.99 which goes up to undisclosed sum after 12 months AND that's before fees/taxes. (Edit: I see there is currently one $29.99 promo offer that was not there last time I looked. That might go to $50 non-promo before taxes, who knows.)

 

My provider is Verizon FIOS for 100MB broadband only.. Price  for the same service was exactly the same in Long Island with the same provider. I think it is a promotional rate for 1 year, but it is easily extended with a phone call.

[pocoapoco]

People complain about all bills. In particular when they don’t feel they can opt out. And it’s hard to imagine living in modern society with no broadband connection.

 

Also people get particularly uneasy when there’s no competition.  For good reason.

 

But clearly the cost is way less than the utility as it is for things like potable water and electricity.

[scorpioncapital]

Why is there a desire inside the USA to consolidate and allow higher margins for broadband while outside USA it's treated like an oil producer or perhaps a heavily regulated utility? How did this history come about ? If the desire was to increase investment in new speeds and technology I guess you would deregulate completely?

[NotSoWise]

USA is managed by lobbyists (e.g. guns, pharma, medical services, oil, etc) - not a critique - just saying the obvious. In lots of sectors consumers are overpaying big time (in comparison to Europe, or paying via environment damage, lost health, etc) so big businesses/ shareholders can make big bucks. Limited competition in cable is a result of that (partially due to weak regulations). Compare LBTYA and CHTR - similar businesses, one owner, different returns on capital. As CHTR shareholder I would like this semi-monopoly to continue forever and longer, but consumers have to finance my exceptional returns.

 

I would like to use this opportunity to say a BIG thank you to all CHTR customers!

[scorpioncapital]

The two variables to watch are pricing caps and regulatory approval to consolidate (Indirectly affecting cost of capital too). It seems these 2 levers make or break a telecom business in a given geographical area.

[Spekulatius]

USA is managed by lobbyists (e.g. guns, pharma, medical services, oil, etc) - not a critique - just saying the obvious. In lots of sectors consumers are overpaying big time (in comparison to Europe, or paying via environment damage, lost health, etc) so big businesses/ shareholders can make big bucks. Limited competition in cable is a result of that (partially due to weak regulations). Compare LBTYA and CHTR - similar businesses, one owner, different returns on capital. As CHTR shareholder I would like this semi-monopoly to continue forever and longer, but consumers have to finance my exceptional returns.

 

I would like to use this opportunity to say a BIG thank you to all CHTR customers!

 

In the US, the customer protecting antitrust stopped working in the. 1980’s under Reagan. They haven’t done much since then.

 

Telecom and Media is different. In  Europe , the telecom companies were state run and TV was state sponsored (and generally free except a smallish “tax”). Private TV came on the scene in the 80’s, but they could not charge consumers for it, it was only advertising supported.  Both changed over time but both telecom and TV pricing started at a way lower base pricing and it has been that way ever since.

 

There are some disadvantages to this. My brother for example lives in a rural village (in german context) and he does not have access to reasonable broadband, even though he needs it for his job. He actually gets it via a microwave transmitter, which can be iffy and speeds are only slightly better than ADSL. The US has this issue too in rural communities, but at least there is funding mechanism to encourage better connectivity (connect America sponsernd by the FCC)  but nothing like this in Germany and it doesn’t seem like anybody cares either. He would gladly pay the equivalent of $50 for broadband if he had the option.

 

I second Notsowise toast to CHTR’s  and CMCSA’s customers.

[rogermunibond]

Cable/telecoms have been busy with their lobbyists as well prohibiting or styming municipal broadband networks.

 

https://broadbandnow.com/report/municipal-broadband-roadblocks/

 

But in states that allow it there is still quite an active interest in municipal broadband.

 

https://muninetworks.org/