CHTR - Charter Communications

[vince]

Charters latest filing with Advance Newhouse shows they are still aggressively buying back stock at record prices.  That would make me frustrated with most other companies but the Charter boys so far have done a great job with their repurchases.  In other words, I believe the business is flying high and should have a few years of mid single digit unit growth in front of them.  This will allow a high single digit Ebitda growth rate WITHOUT pushing price.  They get to keep that lever back for a few more years which is exactly what they wanted.

[vince]

I was reading through some older Charter posts on this board and realized that it is pretty common for people to wonder why we need such high speeds when it seems like we already have what we need at 100 mbps.  One point that I remember clearly from an industry executive/professional was that an increase from 10-100 mbps is much greater than an increase from 100-1000mbps.  In other words 1 gig is not as fast as one would automatically assume it to be.  Having said that I still believe that anything over 100-200 for an average residential household is too much at present.  But having said that I find myself consistently seeking 300-500 mbps.

[Liberty]

Q3:

 

https://ir.charter.com/static-files/93d982e4-a092-4c44-96ff-6b989b52b826

 

Rutledge extended his contract to 2024, which is good news.

[NotSoWise]

Given the extension, its unlikely they will sell/ merge anytime soon, which is good news, as there is more compounding to come.

 

Any new magic numbers disclosed in his new contract, like USD 560 in the previous one?

 

[vince]

After the rapid rise in Charter's stock I sat down with their financials to try and figure out what my forward returns might look like.  I was surprised to see that 4% revenue growth equals roughly 16-17% fcf/share growth.  Within that I assume ebitda margin grows annually by half a percentage point (250 million in dollars) and capex intensity falls by half a point as well (250 million).  With a starting run rate of 7.5 billion of fcf, 300 million increase in fcf from 2 billion revenue growth plus 500 million from ebitda and capex margins gets them to 10.5% growth plus buybacks.  They are also getting a little bump as their average interest rate falls (They just issued 3 billion of debt with weighted average interest rate of 3.3% and weighted average maturity of 25 years...numbers are rough).  On the negative side I haven't adjusted for cash taxes.  Please note that these numbers are on the conservative side....no pricing, and Comcast's ebitda margins are 2-3 points higher and their capex is 3 points lower as they have been getting roughly 1 point annually on each line while Charter was focusing on integrating their acquisitions.  Lastly, Comcast states that they still have a long runway of ebitda margin expansion and shrinking capex intensity. 

[vince]

Another roughly 2 million shares repurchased in last month and looks like their run rate based on non covid months this year. 

[vince]

Another roughly 2.5 million shares repurchased (just over 1% of shares outstanding) within the last month at all time high prices.  Apparently, management continues to believe the stock is cheap.  I still see 15% plus annual returns holding the multiple constant and barring any aggressive regulatory action.

[pocoapoco]

Big holding for me so the existential risks are always in the back of my mind

Regulatory obviously

But what about the news - buzz that Starlink is getting.  With Musk talking about IPO and saying 50-150 mbps could this be a legit threat

Any thoughts?  Often musk is more promises and less delivery but it’s hard to say.

 

[dwy000]

Big holding for me so the existential risks are always in the back of my mind

Regulatory obviously

But what about the news - buzz that Starlink is getting.  With Musk talking about IPO and saying 50-150 mbps could this be a legit threat

Any thoughts?  Often musk is more promises and less delivery but it’s hard to say.

Starlink appears to be focused more on the rural areas where there is little to no fiber.  It doesn't have the speed to compete with fiber but is a better alternative than copper wires or nothing.  It's also not any cheaper (at the moment).  I'm not entirely sure what the rationale would be to switch.

[glorysk87]

Big holding for me so the existential risks are always in the back of my mind

Regulatory obviously

But what about the news - buzz that Starlink is getting.  With Musk talking about IPO and saying 50-150 mbps could this be a legit threat

Any thoughts?  Often musk is more promises and less delivery but it’s hard to say.

 

Until they can definitively solve the interference issues that Ka band has long been plagued with I don't think it's a particularly dire threat to the current HFC service providers. If they are able to solve that problem though, it will be an issue for CMCSA/CHTR/etc.

[scorpioncapital]

From what I read Starlink is a definite competitor to Charter. The speeds are mostly higher than Charter (1 gbps everywhere), relatively low latency, much lower than previous generations, and the price is almost competitive with Charter's prices. A little more but I saw a quote they want to get it to around $80/mo which is same as the highest speed Charter packages.

 

https://www.forbes.com/sites/johnkoetsier/2020/11/01/starlink-internet-from-space-faster-than-95-of-usa/?sh=6cde788d1bb0

 

https://www.vice.com/en/article/g5p7am/users-are-starting-to-report-internet-speeds-from-spacexs-starlink

 

https://www.pcmag.com/news/tested-spacexs-starlink-satellite-internet-service-is-fast-but-itll-cost

 

https://www.whistleout.com/Internet/Guides/fiber-internet-vs-starlink-satellite-internet

 

But I have to wonder if this existential risk could have ever come about without the huge subsidy by the government and Fed of negative real rates for a long time. When money is free, everything can be destroyed. I wonder if rates were 5% or 10% if half of all these new age businesses (which all have a very real basis in fact) wouldn't be worth pennies on the dollar and highly indebted companies - as many telecom companies usually are - wouldn't suddenly disappear.

Is it fair? I don't know. Probably not.

The question is if space internet is somehow better for everyone. Even if it wasn't, a new competitor would cut short growth of an incubent and reduce profits and market cap. I am also thinking that broadband stocks have some real risk from 5g and satellites.

[NotSoWise]

Rutledge hasnt sold his large package after full vesting, so I guess he continues with his positive view on CHTR vs. sat internet (and 5G). If it was a serious threat over the next 5 years (his investment horizon I guess), then wouldnt he sell by now or wouldnt the CHTR price drop to e.g. USD 400-500 or less? 5G threat was raised and seriously discussed on this forum over the past few years and it hasnt affected CHTR in any significant way, yet.

 

Even at the same price per service, CHTR for sure offers a more stable and faster connection (if needed they can get to 10 gbps easily). However, at some point in the future, there may be a real threat to broadband business/ technology, but I just dont think its over the next few years.

 

[KJP]

Here's what I've read recently about the three potential competitors to traditional cable broadband operators:

 

1. 5G:  I haven't read much talk recently of this being a real near-term threat to cable/fiber networks.  It continues to appear that the capital costs of building out 5G will be massive:

https://www.lightreading.com/5g/former-google-chief-warns-massive-sums-paid-for-c-band-will-stall-5g/d/d-id/767249

https://investor.crowncastle.com/news-releases/news-release-details/crown-castle-and-verizon-expand-strategic-relationship-long-term

 

 

2. Satellite:  This is an admittedly biased source, but as currently conceived, LEO constellations don't appear to have the capacity to threaten cable/fiber networks:  https://ecfsapi.fcc.gov/file/10208168836021/FBA_LEO_RDOF_Assessment_Final_Report_20210208.pdf

 

Moreover, average usage among traditional cable/broadband subscribers continues to increase (pandemic likely pushing some of this): 

https://www.lightreading.com/opticalip/fttx/power-users-consuming-1-tb-per-month-have-almost-doubled---openvault-/d/d-id/767294?

Slide 8:  https://s22.q4cdn.com/118672413/files/doc_presentations/2021/ATUS-Q4-2020-Results-Presentation-vFINAL2.pdf

 

 

3.  Fiber:  In its Optimum footprint (NY, NJ, CT), Altice is overbuilding its legacy network with fiber-to-the-premise.  Altice's actions and disclosures suggest that:  (i) fiber is a significantly superior technology to traditional cable networks; and (ii) traditional cable cos already have significant fiber in their networks, and it is much cheaper for a traditional cable co to "overbuild" itself by completing fiber-to-the-premise than it would be for someone to build an FTTP network from scratch.  That appears to be why Altice is building out FTTP in its Optimum footprint, which overlaps significantly with Verizon's Fios fiber product, but isn't as eager to buildout FTTP in its more rural Suddenlink footprint.

 

 

Altogether, I haven't seen any actions or analyses that suggest that the competitive positions of Charter/Comcast/Altice in broadband are going to be significantly eroded by alternatives.  But I don't work in the field and this is, I believe, the major potential risk to those companies, so it's definitely an issue that I try to keep my eye on. 

 

 

[dwy000]

That's a pretty good summary KJP.

 

I agree that there's nothing really on the horizon for the next 3-5 years.  Satellite is slow, spotty, has bandwidth issues and is very expensive ($400 for the dish and $100/month for 100Mps speed).  Verizon's mmwave 5G is the most competitive from a speed perspective but will likely only be available in the densest cities.  The other 5G's right now are more comparable to existing 4G.

 

The biggest risk I think is regulatory.  If government caps prices or limits things like data caps or requires low priced line sharing it could put a real damper on the business.  Lets hope cooler heads prevail.

[pocoapoco]

A second order effects of the threat of 5G, satellites etc that may actually -benefit- chtr is that competitors on the horizon reduces the urgency / motivation for regulators to see it as a monopoly that needs legislation

[cmlber]

From what I read Starlink is a definite competitor to Charter. The speeds are mostly higher than Charter (1 gbps everywhere), relatively low latency, much lower than previous generations, and the price is almost competitive with Charter's prices. A little more but I saw a quote they want to get it to around $80/mo which is same as the highest speed Charter packages.

 

https://www.forbes.com/sites/johnkoetsier/2020/11/01/starlink-internet-from-space-faster-than-95-of-usa/?sh=6cde788d1bb0

 

https://www.vice.com/en/article/g5p7am/users-are-starting-to-report-internet-speeds-from-spacexs-starlink

 

https://www.pcmag.com/news/tested-spacexs-starlink-satellite-internet-service-is-fast-but-itll-cost

 

https://www.whistleout.com/Internet/Guides/fiber-internet-vs-starlink-satellite-internet

 

But I have to wonder if this existential risk could have ever come about without the huge subsidy by the government and Fed of negative real rates for a long time. When money is free, everything can be destroyed. I wonder if rates were 5% or 10% if half of all these new age businesses (which all have a very real basis in fact) wouldn't be worth pennies on the dollar and highly indebted companies - as many telecom companies usually are - wouldn't suddenly disappear.

Is it fair? I don't know. Probably not.

The question is if space internet is somehow better for everyone. Even if it wasn't, a new competitor would cut short growth of an incubent and reduce profits and market cap. I am also thinking that broadband stocks have some real risk from 5g and satellites.

 

I think Starlink may actually succeed in having a competitive offering to cable, but will be limited by physics in the % of households they can serve.  Musk is not known to be conservative in his forecasts and even he says this will only address 3-4% of the world.  I think the reason is the bandwidth in a radius is tied to the distance from the satellite which you can’t really change.  There’s no way to add more bandwidth to high demand areas (like NYC) since these satellites are evenly spaced out so that there’s continuous service as they orbit.  So unlike cable where you put the cables where the houses are and don’t put them where they aren’t, Starlink must have the same shared bandwidth in major cities as it does in Yosemite.  You can’t put 4 satellites over NYC and none over Yosemite because (a) they’re always moving and (b) they have to be spaced a certain distance... That’s why it works better as a rural offering. 

[CorpRaider]

Please sweet little 6lb 8oz baby jesus sell off Comcast and Charter hard on the threat from space internet.  Amen.

[pocoapoco]

From what I read Starlink is a definite competitor to Charter. The speeds are mostly higher than Charter (1 gbps everywhere), relatively low latency, much lower than previous generations, and the price is almost competitive with Charter's prices. A little more but I saw a quote they want to get it to around $80/mo which is same as the highest speed Charter packages.

 

https://www.forbes.com/sites/johnkoetsier/2020/11/01/starlink-internet-from-space-faster-than-95-of-usa/?sh=6cde788d1bb0

 

https://www.vice.com/en/article/g5p7am/users-are-starting-to-report-internet-speeds-from-spacexs-starlink

 

https://www.pcmag.com/news/tested-spacexs-starlink-satellite-internet-service-is-fast-but-itll-cost

 

https://www.whistleout.com/Internet/Guides/fiber-internet-vs-starlink-satellite-internet

 

But I have to wonder if this existential risk could have ever come about without the huge subsidy by the government and Fed of negative real rates for a long time. When money is free, everything can be destroyed. I wonder if rates were 5% or 10% if half of all these new age businesses (which all have a very real basis in fact) wouldn't be worth pennies on the dollar and highly indebted companies - as many telecom companies usually are - wouldn't suddenly disappear.

Is it fair? I don't know. Probably not.

The question is if space internet is somehow better for everyone. Even if it wasn't, a new competitor would cut short growth of an incubent and reduce profits and market cap. I am also thinking that broadband stocks have some real risk from 5g and satellites.

 

I think Starlink may actually succeed in having a competitive offering to cable, but will be limited by physics in the % of households they can serve.  Musk is not known to be conservative in his forecasts and even he says this will only address 3-4% of the world.  I think the reason is the bandwidth in a radius is tied to the distance from the satellite which you can’t really change.  There’s no way to add more bandwidth to high demand areas (like NYC) since these satellites are evenly spaced out so that there’s continuous service as they orbit.  So unlike cable where you put the cables where the houses are and don’t put them where they aren’t, Starlink must have the same shared bandwidth in major cities as it does in Yosemite.  You can’t put 4 satellites over NYC and none over Yosemite because (a) they’re always moving and (b) they have to be spaced a certain distance... That’s why it works better as a rural offering.

 

Scorpion, those are helpful links. The vice article in particular makes it clear that starlink, while when used by a single user might have pretty good speeds, doesn’t scale because the satellites don’t have the capacity for a high number of homes. I take this to assume that the signal must be diluted across all the end users so satellites are only most effective where there’s just a few people connected. Great for rural, terrible for cities.

Doesn’t sound like as much of a threat.

 

 

[scorpioncapital]

the more i think about it, satellite is a play on pandemic change in where people live..more rural, less urban. now maybe you don't believe that. i think there's room for everyone. but if an inflation accident happens i know what asset i want to hold - charter. however this news does make me want to lighten up if valuation gets a little less bubbly then i would normally think to lighten up.

[dwy000]

Verizon 5G for the home looking very, very competitive.  $70 for 1G speed and only $50 if you are a Verizon customer. No data caps.  Free streaming device included. All self installed.

 

Its limited cities right now but they want 100 mn 0eople covered in the next year or two (which is most of the major cities).

[LearningMachine]

Verizon 5G for the home looking very, very competitive.  $70 for 1G speed and only $50 if you are a Verizon customer. No data caps.  Free streaming device included. All self installed.

 

Its limited cities right now but they want 100 mn 0eople covered in the next year or two (which is most of the major cities).

 

Right on dwy000.  Verizon just bought a lot of scarce spectrum in all markets across 48 contiguous states with no gaps, and is bringing fixed wireless internet using 5G antennas hanging off their FIOS backbone to homes nationwide, with faster speed and likely higher reliability than cable.  They think cable guys have network capacity challenges but not them.

 

See

@ 1:47:05.

[vince]

Verizon 5G for the home looking very, very competitive.  $70 for 1G speed and only $50 if you are a Verizon customer. No data caps.  Free streaming device included. All self installed.

 

Its limited cities right now but they want 100 mn 0eople covered in the next year or two (which is most of the major cities).

 

Thats for their mobile 5G.  Different story for broadband

[glorysk87]

Verizon 5G for the home looking very, very competitive.  $70 for 1G speed and only $50 if you are a Verizon customer. No data caps.  Free streaming device included. All self installed.

 

Its limited cities right now but they want 100 mn 0eople covered in the next year or two (which is most of the major cities).

 

They're targeting 1 to 2mm people by year end, and 15mm is their target for full coverage. Not sure where you're getting 100mm from.

 

Right on dwy000.  Verizon just bought a lot of scarce spectrum in all markets across 48 contiguous states with no gaps, and is bringing fixed wireless internet using 5G antennas hanging off their FIOS backbone to homes nationwide, with faster speed and likely higher reliability than cable.  They think cable guys have network capacity challenges but not them.

 

See

@ 1:47:05.

 

Higher reliability? Absolutely no chance, just based on the physics. Speed, maybe, but a move to Docsis 4 and beyond can bring the cable plant up to 5G FWB speeds.

[LearningMachine]

Verizon 5G for the home looking very, very competitive.  $70 for 1G speed and only $50 if you are a Verizon customer. No data caps.  Free streaming device included. All self installed.

 

Its limited cities right now but they want 100 mn 0eople covered in the next year or two (which is most of the major cities).

 

Thats for their mobile 5G.  Different story for broadband

 

Actually, it is for 5G Home broadband.  See https://www.verizon.com/5g/home/?cmp=KNC-C-HQ-NON-R-BP-NONE-NONE-2K0VZ0-COE-GAW-71700000070573597&gclid=Cj0KCQiAv6yCBhCLARIsABqJTjbAqKWWzdgjY8ZZWghVfuHk3czuUnGTkkXtSGYLMHYJriVnCLk5iJwaAuENEALw_wcB&gclsrc=aw.ds.

[LearningMachine]

They're targeting 1 to 2mm people by year end, and 15mm is their target for full coverage. Not sure where you're getting 100mm from.

They are planning 50 Million coverage by 2025.  Please see https://www.verizon.com/about/sites/default/files/Verizon-Investor-Day-Infographic-2021.pdf

 

Higher reliability? Absolutely no chance, just based on the physics. Speed, maybe, but a move to Docsis 4 and beyond can bring the cable plant up to 5G FWB speeds.

I disagree that the probability is 0%.  Reliability includes network congestion issues when your colleagues on cable internet are running into network issues.  During WFH, if you work with a few hundred folks, you will start hearing how many run into network issues with cable internet.

 

If you have worked with carriers and cable internet providers on taking network equipment & devices, you will realize how high of a bar Verizon has for its vendors compared to other carrier and cable internet providers. To get there, it takes culture to be focused on reliability and be willing to say NO to vendors until they pass the stricter quality tests than any of their competitors.

 

You can search for 3rd party independent test results as well.  There is a reason businesses caring about network quality for their business choose to work with Verizon over Comcast, Charter, T-Mobile & AT&T.