Charter Communications, Inc. (CHTR) Q4 2015 Earnings Report, Transcript and Summary

Hello and welcome to the Time Warner Cable's Fourth Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now, I will turn the call over to Mr. Tom Robey, Senior Vice President of Time Warner Cable Investor Relations.

Thanks, operator, and good morning everyone. Welcome to Time Warner Cable's 2015 fourth quarter earnings conference call. This morning, we issued a press release detailing our fourth quarter and full year 2015 results. Before we begin, there are several items that I want to cover. First, we refer to certain non-GAAP measures. Definitions and schedules setting out reconciliations of these historical non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our earnings release and trending schedules. Second, today's conference call includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are based on management's current expectations and beliefs, and are subject to uncertainty and changes in circumstances. Actual results may vary materially from those expressed or implied by the statements herein, due to various factors which are discussed in detail in our SEC filings. Time Warner Cable is under no obligation to, and in fact, expressly disclaims any such obligation to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise. Third, the quarterly growth rates disclosed in this conference call are on a year-over-year basis, unless otherwise noted as being sequential. And fourth, today's press release, trending schedules, presentation slides, and related reconciliation schedules are available on our Web site at twc.com/investors. With that covered, I'll thank you and turn the call over to Rob. Rob?

Thanks, Tom, and good morning everyone. Some quarters are more fun to report on than others. This one is fun, because it gives me an opportunity to share just how proud I am of what our team has accomplished. We achieved almost everything we set out to do in the fourth quarter and in 2015. We made our network more reliable, our products more compelling, and our customer service better. And significantly, we materially increased our customer base. I am particularly gratified by our full year residential subscriber gains. As we reported earlier this month, we had residential customer relationship net adds of 618,000. That's not just our best ever. It's nearly three times the previous record. And video net adds were 32,000. It's been a long time since we talked about full year video net adds. We also added a million HSD subs, and just over a million phone subs. And we ended 2015 strongly with our best ever Q4 residential customer relationship and PSU net adds. Fourth quarter customer relationships grew in every region, driven by improvements in both connects and disconnects. Connects increased most in LA and Texas, while disconnects came down most in New York City. Importantly, our subscriber improvement over the last eight quarters is beginning to show up in our financial results. Fourth quarter residential revenue growth of 4.6% was the strongest organic growth in more than six years. I think our residential operation is well positioned for 2016 and beyond. And while we continue to turnaround the residential business, business services kept humming along, recording yet another quarter of more than $100 million of year-over-year revenue growth. That makes 18 quarters in a row. While I'm excited about our reported results, I'm equally pleased with the progress we're making in the areas that are under the radar that enhance customer experience and are critical to delivering sustainable growth going forward. We continued our multiyear effort to improve reliability in customer service. Once again in 2015, we invested heavily in our network and equipment. Network investments to drive better reliability and greater capacity included upgrading the power supplies on roughly 10,000 nodes, replacing approximately 19,000 reverse path lasers and splitting almost 13,000 nodes. And in customers' homes we deployed 4.1 million new modems, 2.8 million new set-tops, and 3.5 million digital adaptors, many of which replaced older, less functional CPE. As a result, but year end 65% of our modems were DOCSIS 3.0, up from 47% a year earlier, and approximately two-thirds of our set-top boxes ran our cloud-based guide, up from just over half at the end of 2014. We also made great strides in key residential customer service metrics. Fourth quarter customer care calls per CR were down 13%, and repair-related truck rolls fell 19% from last year. When we had to roll the truck in Q4 we arrived within our industry-leading one hour appointment window more than 98% of the time. And importantly, we resolved customers' issues on the first visit 15% more often than a year earlier. Over the course of the last year we've introduced a number of tools and apps to empower our customers. I'm particularly excited about TechTracker, which now allows our customers to track the whereabouts of their technician and also sends customers a text or email with the technician's name and photo. This way, customers know who is coming, and have an ever better idea of exactly when they'll arrive. During 2015, we completed our rollout of TWC Maxx in Austin, Kansas City, Dallas, Raleigh, Charlotte, and San Antonio. And we began the process in Hawaii, Wilmington, Greensborough, and San Diego. As a result, a significant portion of our footprint now has all-digital video, and HSD speeds up to 300 megabits per second. Fueled by our Maxx investments, at year end almost 45% of our total HSD customers subscribed to speed tiers of 50 megabits per second or greater, and more than half of our HSD subs enjoyed TWC-provided home Wi-Fi. In addition, Time Warner Cable HSD customers can now enjoy Internet access outside the home through nearly 500,000 Wi-Fi hotspots nationwide. We meaningfully enhanced our video product as well. Video customers across our footprint now have access to 30,000 VOD assets. During the year we augmented our TWC TV app, adding more linear and VOD offerings, and making it available on more platforms. The TWC TV video experience inside the home is fast becoming indistinguishable from our traditional set-top box-based offerings. In fact, for shadowing the video product of the future, we're trialing an IP video offering that eliminates the need for a leased set-top box. The TWC TV experience outside the home is also becoming more robust, with a 100 live channels and 9,000 choices of VOD content from 64 networks. And even phone is more compelling than it's ever been, with unlimited calling to countries comprising half of the world's population, and apps that enable customers to make and receive unlimited calls from anywhere. All this is driving lower churn and better customer satisfaction scores. To be clear, we know we have a long way to go, but I'm encouraged and impressed by the progress we've made. Consistent with our practice last year, during the Comcast deal, we will not provide guidance during the tenancy of the merger with Charter. But you shouldn't assume that means we're standing still. Quite the contrary, we have an ambitious 2016 financial and operating plan marked by continued subscriber growth, better financial performance, and continued investment to improve the customer experience. We plan to continue the rollout of TWC Maxx, completing cities begun in 2015, and adding cities primarily in the Northeast and Midwest. We've set new, even more ambitious targets for network reliability, repair call, and truck roll reduction, on-time arrival, and first call resolution. We'll continue to enhance our products, and we'll continue to drive business services hard, because our opportunity there remains enormous. And as you'd expect, we have every intention of capitalizing on the political advertising opportunity from this year's elections. Before I close, let me provide a quick update on the status of our deal with Charter. Both the integration planning and regulatory review processes continue to move forward. Together with Charter, we're working constructively with FCC, and DOJ to ensure that they are in a position to approve the deal expeditiously. As you know, the FCC restarted the 180 days shot clock last week, and we're now at Day 124. New York State approved the transaction two weeks ago. The California PUC held a public hearing on Tuesday evening which went well, and we remain hopeful that the approval process in California can be accelerated. All that said, we're still not in a position to provide you with a specific timetable for closing. 2015 was in incredible year. Despite the many merger-related distractions, our team has delivered with single-minded determination. We're a much stronger company than we were two years ago, and we've got great momentum as we begin the New Year. Going forward, we intend to continue to drive growth, improve the customer experience, and build value for our shareholders. With that, I'll now turn it over to Bill Osbourn, and then Matt Siegel, who will review our Q4 results. After they comment on the quarter, the three of us, along with Dinni will be available for Q&A. Bill?

Thanks, Rob, and good morning everyone. As Rob said, we capped a very good year, with outstanding operating results in Q4. Since we announced subscriber metrics for the year earlier this month, I won't dwell on the full-year accomplishments although there were quite a few. Instead I'll highlight some of the trends underlying the fourth quarter results. The 200,000 residential customer relationships added in the fourth quarter were driven by very strong connects. In fact, Q4 connects were 14% higher than the year ago. Connect improvement was broad based, but California and Texas delivered the biggest year-over-year increases. The three key sales channels, inbound sales, online sales, and direct sales, continued to perform significantly better than the year ago, with strong double-digit growth in each channel. But it was not just a connect story in Q4. Residential customer relationship churn declined by 5% despite the year-over-year increase in new subs who tend to churn more. Fourth quarter churn improvement was driven by a significant improvement in voluntary churn, in addition to lower non-paid disconnects. It's noteworthy that we now have more than 15 million residential customer relationships. Residential PSU net adds of 562,000 were 137,000 better than last year's Q4. The PSU growth was again driven by strong triple play net adds of 205,000. Triple play sell-in at 38% of customer relationship connects remained very strong. Each of the primary residential products did well in the fourth quarter, with 54,000 video net adds, and 281,000 and 227,000 net adds for broadband and voice respectively. On a full-year basis, residential video net adds of 32,000 and broadband net adds of 1 million were the best since 2006. And voice net adds of more than a million were our best ever. The quality of the residential subscriber base continues to be very solid, as the early life churn continues to be significantly lower than a year earlier. With that said, let's move on to our financial results. Fourth quarter revenue at $6.1 billion was up 4.9% year-over-year. And full year revenue of $23.7 increased 3.9% over 2014. We grew fourth quarter Residential Services revenue by $210 million or 4.6%; the best organic year-over-year Residential revenue growth since the second quarter of 2009. We are very encouraged by the revenue acceleration in the second half of 2015. This demonstrates that the plan we set in motion two years ago to drive subscriber growth and in turn drive revenue growth is working. Residential revenue per customer relationship of $106.77 in Q4 was up slightly from last year. As we've explained in prior quarters, our strategy of driving very strong volumes of customer connects at promotional rates that are lower than the average of our existing customer base increases aggregate connect revenue, but naturally tempers ARPU growth. Business Services posted another very good quarter. Revenue increased $109 million or 14.4% year-over-year in Q4. This was the 18th consecutive quarter of year-over-year growth above $100 million. HSD led the way, up 19.1% and contributing significantly more than half the Business Services revenue growth. The balance of the revenue increase came roughly equally from voice which grew 13.8%, and wholesale transport which was up 14.3%. It's noteworthy that Business Services surpassed 1 million voice lines in service in Q4. Other Operations revenue declined 6.8% in Q4. Media sales revenue was down $48 million from last year due to lower political advertising revenue, which was $8 million in the fourth quarter compared to $61 million a year earlier. Fourth quarter other revenue increased primarily due to RSN affiliate fees from our Residential Services segment as well as other distributors of the Los Angeles RSN. Note that affiliate fees from our Residential Services segment are eliminated in consolidation. Next, Matt will cover expenses, cash flow, and the balance sheet. Matt?

Thanks, Bill, and good morning. As noted, total company adjusted OIBDA declined $8 million or 0.4% in Q4. Excluding the pension expense increases of $27 million, adjusted OIBDA was up $90 million or 0.9%. On a full year basis, adjusted OIBDA declined $90 million or 1.1%. And excluding the pension expense increase of $108 million, adjusted OIBDA increased $18 million or 02%, somewhat better than we projected on last quarter's call. In Q4, as in recent quarters, we continued to invest aggressively to drive subscriber growth, take care of our expanded customer base, and improve the customer experience. The biggest increase was in sales and marketing where we increased spending by $79 million or 14.7% in support of higher volumes of connects. Sales and marketing in the Residential Services segment grew $48 million or 13.4% while the increase in Business Services was $29 million or 22.7%. Technical operations was up $40 million or 10.3% related in large part to our success in adding customer relationships and PSUs. Customer care, which had been growing at higher rates earlier in the year, grew by just $9 million or 4.1% year-over-year, benefiting from lower call volumes. Programming and content costs, which increased $128 million or 9.7% year-over-year, continued to be the biggest drag on adjusted OIBDA. Contractual affiliate fee increases were the primary driver of higher programming and content costs. In the Residential segment, average programming cost per video sub in the fourth quarter was $42.89, up 386 or 9.9% from last year. Shared functions costs increased 4.3% to $774 million in the fourth quarter, as a result of higher compensation cost per employee including pension expense and higher insurance expense. Moving down the income statement, fourth quarter adjusted diluted EPS was $1.80, down $0.23 from a year ago. Higher depreciation expense resulting from large capital investment we made over the last several years continued to be a driver of low EPS. Full year capital spending of $4.45 billion including $946 million in Q4, was up 8.5% from 2014 due to customer relationship growth as well as investments to improve network reliability, upgrade older customer premise equipment, and expand our network to additional residences, commercial buildings, and cell towers. In 2015, we added 66,000 commercial buildings to our network, representing an estimated $975 million in serviceable annual opportunity. Full year free cash flow of $2.2 billion was 7.5% lower than in the prior year mainly due to an increase in capital expenditures partially offset by an increase in cash provided by operating activities. Free cash flow was $883 million in the fourth quarter, down less than 1% year-over-year due to higher capital spending and cash taxes partially offset by a change in working capital. Note that we had already made our December tax payment when the extension of bonus depreciation was enacted. Our overpayment of roughly $120 million could be applied to reduce this year's taxes. At the end of 2015, net debt stood at $21.3 billion, down $1.6 billion from year end 2014. Our adjusted net leverage ratio was 2.77 times at year end 2015. So to summarize, the very strong operating momentum is beginning to transfer into stronger financial performance. We're very pleased with the trajectory of the business, and we believe that we're very well positioned to deliver strong financial performance in 2016. With that, let me turn it back over to Tom for the Q&A portion of the call.

Thanks, Matt. Operator, we're ready to begin the Q&A portion of the conference call. We would ask that each caller ask a single question so that we can accommodate as many callers as time permits. First question please.

Thank you. Our first question is from John Hodulik from UBS. Sir, you may ask your question.

Hey, thanks. Rob, it looks like the FCC is moving forward again to try to sort of unbundle the set-top box from the cable service, and maybe circulated NPRM. I know I've asked you about this before, but what's your view on that process, and where it leads, and what does it mean for Time Warner Cable and the cable industry? Thanks.

Thanks, John. The fact sheet that the FCC circulated yesterday is a little hard to decipher. So I'm not sure we really understand exactly what's being proposed yet, and as you say, it's an NPRM process, and my expectation is that sometime after the meeting in mid-February we'll get a clearer view of exactly what is being proposed. But from what I can glean from the materials that have been shared, it appears to me that this is an attempt to create regulation that is really unnecessary given the advances that have been made driven by marketplace forces. And in particular what I mean is that almost every MVPD, if not every MVPD, has over the last several years made great strides to make their video products available through multiple different devices to give customers a lot more choice than they ever had, and that's happening without any imposition of regulation, which as we all know can have unintended consequences that it can actually stymie or thwart innovation as opposed to advance it. So I'm highly skeptical, but I really do want to reserve judgment until we see the specifics of what's being proposed. We in particular have been at the forefront of some of the developments in the delivery of IPTV, not only through our TWC TV app, which serves as a complement to our traditional video service. It enables customers to consume our video product in all sorts of IP-enabled devices, but more recently, through the trial that we're doing in New York City which represents kind of the first stage of a potential substitutional service which would enable customers to enjoy our video service without leasing a set-top box, so again, hard to really see the need for regulation in an environments that's as dynamic and as vibrant as this one.

Great. Thanks, Rob.

Thanks, John. Next question please.

Thank you. Our next question is from Jessica Reif Cohen from Bank of America Merrill Lynch. You may ask your question.

Thank you, good morning everyone. Your programming costs are still growing at roughly double-digit rates. Can you talk about the outlook for 2016, and beyond if you can? And as part of that, can you comment on how you see the bundle evolving?

Jessica, we're not going to give specific guidance on 2016 programming expense, just as we're not really going to give any other guidance. I would tell you, I don't expect any near-term fundamental change in the trajectory of programming cost growth. In the fullness of time, do we see the growth rate we've seen for the last, I don't know, how many number of years moderating? I think it's certainly a very interesting time. And there are some reasons to believe that in fact long-term programming cost growth might moderate. One of the points of leverage historically that programmers have had is that if we cease to carry a particular network due to an inability to reach an agreement, customers who wanted that network would have no other choice but to switch to an alternative MVPD, and that certainly put pressure on us at the negotiating table. I think as you see more and more programmers making their networks or their content available on an a la carte basis direct to consumers I think that dynamic changes, and it does potentially shift leverage in a manner that could allow us to moderate programming cost growth. But again, very early days in those kinds of trends, and there's a lot of things that go into programming cost growth, so I'm hesitant to make any firm prediction at this point.

Thank you. Can I just follow-up maybe just on HSD penetration still seems pretty low given the increasing, you said like a la carte, there is OTT et cetera, where do you expect it to trend for you over time?

Again, I'm going to refrain from making longer term projections. We added a million HSD customers in 2015. We're looking forward to robust growth in 2016. So we think there continues to be room to grow, and that's what we're focused on doing for now.

Thank you.

Thanks, Jessica. Next question please.

Thank you. Our next question is from Vijay Jayant from Evercore ISI. Sir, you may ask your question.

I just wanted to drill down on your Maxx market performance. Obviously we see total company performance, and it's all improving, but can you sort of compare and contrast in the Maxx markets what customer behavior is on take rates on advanced services and churn characteristics so we can understand when we do the full transition what the company could look like? Thanks.

I'll start on that one, and if Dinni has anything to add he'll chime in, but I think the general takeaway from the work we were doing in the Maxx markets is that the improvements to our product set, the reliability of the product sets and overall customer satisfaction are all really -- we're getting very positive feedback across the board there. And I think it's starting to show up in our numbers. We've had churn improvement across our footprint, but even more significant churn improvement in the earliest of our Maxx markets, New York, and LA. So it's all favorable. At this point, we haven't seen any material change in take rates on what I guess -- what you're calling is the end services, I can't think of what you might be talking about except maybe transactional VOD, but there's nothing else that would jump out at me as something that would logically flow from the features and benefits that we're rolling out in Maxx markets. But overall we're very pleased with the investments we're making, and that's why in '16 we have a pretty healthy lineup of markets that will be moved to Maxx.

If I can have a quick follow-up on your IP Video plans. Are your programming rights allow you to offer these services on a non-facilities base? Meaning, can you do it outside your broadband footprint?

I'm not going to talk about details of our programming agreements. What I will say is that the offering we're trialing in New York is explicitly directed at in-home video viewing. It really is designed to be an alternative to our traditional set-top box-based video product. Separately, as we mentioned in the prepared remarks, we're always working towards augmenting our outside-of-the-home video offering. And as we said, that -- The channel lineup and the VOD content that's available outside the home is growing pretty quickly, and we think that's a nice value add for our video customers. But the IP TV trial that you're referring is really targeted at in-home viewing.

Thank you so much.

Thanks, Vijay. Operator, next question please.

Thank you, sir. Our next question is from Richard Greenfield from BTIG. Sir, you may ask your question.

Hi, it's actually Brandon Ross. A couple of questions, one, with Google Fiber talking about a large scale build-out in LA, why should investors not be concerned about that?

So Brandon, we've talked about Google before as a competitor. As you probably know, our experience with Google is still pretty much limited to the Kansas City market, where Google is available in roughly, let's say, 350,000 to 400-and-some-odd thousand homes in the region is the range they're at that's sort of the state of their development. In some places it's theoretically available but it's not yet really being offered. In any event, we -- they're a real competitor. We've certainly experienced some element of sub losses in Kansas City. But as they move into other markets, and the most near-term market is Austin, where they're just getting started. We think as a result of the experience we've had in KC, that we're much better positioned to compete with Google in future markets than we've ever been. And in part that relates to the rollout of TWC Maxx, where we think our products are not just more capable with HSD speeds up to 300 megabits a second, and all digital video, but also much more reliable. And add to that the fact that we've deployed increased Wi-Fi hotspots in those markets. We think we're very well-equipped to compete with Google wherever they end up going. And as we know from experience, these –- the time between announcements about considering a particular market and actually being in markets are multi-year endeavors. So, to the extent that anything happens in LA, I think we're a number of years out.

Right. And just following up on an earlier answer that you gave, you said that there's the potential for a leverage shift in programming negotiations because networks are offering more content available over their top. What about the outlook though for sports programming costs?

I don't really -- I'm not distinguishing much between the two. We've not seen as much in the way of direct-to-consumer availability of sports programming. So to the extent that that's different than the comment I made about a leverage -- a potential leverage shift. And I don't want to get too far ahead of myself here. I don't think we've really quite seen it yet. And I raise it only as a long-term potential. But if in fact sports programming was available on that basis, same thought would apply.

And just one more, Verizon's been touting the success of Custom TV. How come you guys -- or what's your thought process around offering a similar type choice for customers?

Yes, Brandon, for long time now I've been an advocate of providing customers with choice, whether that's in HSD or video. On the HSD side, we offer our many tiers -- many speed tiers and consumption tiers because we think that a one-size-fits-all approach doesn't yield maximum benefit to us. Same goes true -- goes for video. And the only reason that we haven't run headlong into a Custom TV-type solution is that we've really made a great effort to simplify our offerings as we tried to turn our residential business around, and keeping things simple. Meaning limiting ourselves really to one lead triple-play offer with a couple of different flavors, and focusing on a simple approach has served us very well. And I think that's in part what's driven our recent subscriber success.

Great, thank you.

Brandon thanks for your question. Next question please.

Thank you. Our next question is from Craig Moffett from MoffettNathanson. Sir, you may ask your question.

Thanks. I'm going to see if I can squeeze in two if I could. First I guess for Dinni, -- so if I think about the turnaround that's happened, you've passed the first threshold of subscriber growth. Now you've passed the second threshold of revenue growth. I know you can't give guidance, but can you just talk a little bit about when we could expect to see the final leg of that, which is EBITDA and profitability growth follow. And then Rob, I wonder if you could just talk about wireless a bit. You're in kind of an awkward situation now in that the wireless auction will begin before your merger is completed based on the California timeline. How do you think about what you might do in wireless given those constraints?

Craig, yes, I think -- obviously I am not going to give guidance as you suggested even in the way you asked the question. But what I can say is that what happens after you get the subscriber growth approximately a year later as we are seeing, we start to see the revenue growth. And I think that what seems to lag in the EBITDA growth is often the scaling effect that you have in the business. There are certain decisions that we've made to bolster our customer service in the call centers and with the tech. But as you get to a point where we're reaching a normalized operating run rate, the year-over-year investments in them -- in that area don't continue to go up. In fact over time, as we've discussed in this call, those will actually start to come down, because as error rates reduce. So I think we're right on plan from where we would like to be. We're doing around the same level of Maxx each year, so that we're not having to scale up for Maxx as you know every year. And if things continue like they continued last year, I think we would see that just according to our overall plan.

So Craig, I'll give you a little bit more without any specific numbers. In our prepared remarks, we did say that our 2016 plan contemplated continued subscriber growth and better financial results. And when we say better financial results, we mean not just revenue but also OIBDA. So, put that in. You can factor that comment in. In terms of wireless, I am not really sure I have much to add to things like previously said in this area. Obviously, we're not going to be participating in the spectrum auction. And our focus in the mobility space has been on the continued deployment of our Wi-Fi access points. We think that adds value to our HSD customers. And we're going to continue to spend to expand that network. And at this point, that's the extent of our wireless game plan.

Right. Thank you.

Thanks, Craig. Next question please.

Thank you. Our next question is from Ms. Laura Martin from Needham & Company. You may ask your question.

I would love to ask you for more color on consumer demand metric. So with all this fabulous products you now have, could you talk about consumer usage? Are you seeing more consumption of the video product? I would love to learn if you have any insights in terms out of home versus in home. In home, how much shifting to on-demand versus stay-at-home linear feeds? Thank you.

Yes, I am not sure how granular we can get on the call, Laura although it's we can certainly follow up on. Let me give you a couple of high level numbers. Our usage of the TWC TV app has grown materially over the last year. I think in December, we had something like 20 million sessions. And I think somewhere approaching 10% of our customers actually use the app. So, it's starting to get good traction and certainly adds to the value proposition. Most of that use is in home. And frankly, most of that use is on a couple of platforms iOS and android with growing use on local devices as well as some of the other platforms. In terms of linear versus on demand, I don't have the stats at my fingertips and we can probably follow-up with that.

Great. Thanks, Laura. Next question please.

Thank you. Our next question is from James Ratcliffe from Buckingham Research Group. You may ask your question.

Good morning. Thanks for taking the question. Just two quick ones, if I could. First of all, following up on John's question around set-top boxes, I mean the last time we tried third party set-top boxes. It seemed like most people didn't actually want to buy box. Has anything changed since then? Particularly, what's your experience of people buying the modems? What share of the customer base purchased the modem? That seems much more straightforward cost-benefit analysis than a set-top with every user interface et cetera? And secondly, could you just update us what percentage of the footprint actually has Maxx at this point? And what the increase was in '15? Thanks.

Okay. So just to give you the stat on customer-owned modems, I think roughly 14.5% of HSD customers bring their own modem. It's an interesting question as to whether or not there is real aversion to leasing a set-top box and how much demand there will be for an alternative. We think giving customers the choice is the right way to go. And those customers who want to continue to lease a set-top box from us will be satisfied through a program when we do that. And those that do not, we would like to give the opportunity to consume our video product a different way through a device that they might otherwise own already or that they might go out and purchase themselves. So we think that customer choice is the order of the day there. And we'll have to see how the demand is. We know that in the trial that we are doing and there is obviously a lot of self selection and trial, but the feedback we're getting is extremely favorable. Thank you for doing this. That's what we wanted. So, we'll have to see. It's one of the reasons why we're doing the trial is to understand exactly how interesting this is to customers. In terms of Maxx, it's a little tough to say because we're completed in some markets, and then, we are in-process in others. I would say from a totally completed perspective, if you measure it based on customer relationships or homes path, and I think it's more or less the same. I think we're probably in the low 40s% range. Partially completed, we're somewhat higher than that. And probably give or take half of that happened in 2014 -- '15 excuse me, with the first half being in 2014.

Great. Thank you.

Thanks, James. Next question please.

Thank you. Our next question is Marci Ryvicker from Wells Fargo. You may ask your question.

Good morning. It's Stephan on for Marci. I think you guys have done various trials on usage-based pricing. Do you have any thoughts on implementing it more broadly throughout the footprint?

Yes, Stephan. We actually are beyond and have been for many years beyond the trial phase. We've offered across our footprint for several years; two different usage-based offerings, one, which enables customers to use five gigabytes a month and another, which enables customers to use 30 gigabytes a month. And the way we think about those are that they are complements to our unlimited offering, and again are consistent with this theme that I have talked about several times of giving customers choice. The uptake, candidly, has not been significant. We probably got somewhere in the tens of thousands of customers that subscribe to those two tiers combined. That said, we think the choice is nice for customers to have and we're not intending to discontinue them.

And on the higher side, so maybe in terms of are there any caps currently, and…

No, our unlimited service is unlimited.

Great, thanks so much.

Thanks, Marci. Next question please.

Thank you. Our next question is from Tom Eagan from Telsey Advisory. Sir, you may ask your question.

Great. Thanks a lot. A follow-up from a previous question, among your earliest customers on the new triple play promo from a year ago, again what was -- when the price increases by about 20 bucks, what is it showing on those subs? Thanks.

We're finding that the retention rate -- we're retaining more than we were retaining, Tom, before we started this offer. So our overall retention both of the customer itself and of ARPU is higher than what we were previously experiencing.

Great. Thank you.

Thanks, Tom. Next question please.

Thank you. Our next question is from Phil Cusick from JPMorgan. Sir, you may ask your question.

Hi, guys. Thanks. So we are seeing ARPU picking up nicely. Can you talk about the balance of new subs coming in and price increases as we think about ARPU and revenue growth this year, obviously with forecasting? And then, customer reaction to the recent price increase, how do you think that influences the ramp and as well as disconnect and cord cutting issues? Thanks.

Boy, a lot of stuff there, Phil. In terms of ARPU, let me just talk about some general dynamics, and I don't think they are new dynamics, but we should talk through them anyway. When we are ramping gross connects as we have been, those customers by and large come in at promotional rates which are lower than the rates that our existing base is paying, and as a result, it was a dilutive effect on ARPU, although we like the fact that we're increasing aggregate connect revenue. Disconnects also have an impact on ARPU, and interestingly, what we've experienced recently is that our disconnect -- the revenue per customer that disconnects is also lower than the base. So disconnects actually oddly have the impact of increasing ARPU, but if you have fewer of them on a trend basis, it actually -- the better you do at retaining customers as opposed to letting them disconnect, the worse the effect on ARPU. And then obviously, there's what happens to the existing base and that's adding to ARPU. So those are the dynamics that are going on, and obviously as you do better in terms of taking customers off of promotions on to higher rates as you increase rates more generally, the impact on the existing base and then on the total ARPU improves, and that's what we're setting out to do. But I don't think there is going to be change in the dynamic that as we ramp across connects or as we continue add a whole lot of new customers that will by definition have a dilutive impact on ARPU. In terms of the customer reaction to rate and fee increases, I guess without getting into specifics what I would say is that the increases the customers are seeing on their bills this year are pretty comparable to what we did last year. We adopted the same general strategy of a unified rate and fee increase, which means that customers would not see more than one increase in a given year. And what we also stuck with was the strategy of applying the increases as broadly as we could, and therefore minimizing the impact on any individual customer. That worked quite well last year. And I think we were able to, as you can see from the churn numbers, managed through the rate increase quite well. It's early days in this year's cycle, but our expectation is that we'll be effective in managing churn this time around as well.

Got it. Thanks, Rob.

Thanks, Phil. Next question please.

Thank you. Our next question is from Tuna Amobi from S&P Capital IQ. You may ask your question.

Hey, thank you very much. So Rob, I was trying to understand in terms of the timeframe that you've updated early in call for the closing, it seems to me that -- did you tuck-in someone reading to that, there might be a little more uncertainty in terms of the timing? I think in the last call, you had suggested early 2016 closing. And from everything we have heard, seems like the timeline was on track. And the restarting of the clock, do you foresee anything else that might maybe perhaps delay the closing beyond Q1 of this year?

So Tuna, let me start with what you said I said, which I don't think is accurate. I think last quarter what I said was that closing in 2015 looked ambitious without any specificity around when in 2016 we might close. The current short clock, if there are no further delays, will expire towards the end of March. As we know, California has published a timeline that takes us into June although we remain hopeful that we can accelerate that. At this point, it's impossible for me to predict whether or not the FCC would stop the clock. Again, I have no indication that they would. But again, this is an informal short clock and they have a lot of latitude in how they proceed. So I wouldn't describe there will be more uncertainty at all. We are further along than we were when we were last on the phone with you, especially given the approval in New York and continued progress elsewhere, but that's about all about I can say. But I certainly wouldn't characterize it as more uncertainty.

Okay, fair enough. I stand corrected. Thank you.

Thank you, Tuna. Next question please.

Thank you. Our next question is from Amy Yong from Macquarie Capital. You may ask your question.

Thanks. I understand that you are walking away from guidance -- excuse me, but can you comment on the trajectory of CapEx spend for '16 and beyond? What are the bigger buckets? Maxx going all digital, and can you parse out what could be considered onetime? Thanks.

Let me try to do it at a very high level and maybe Matt you can supplement it. As we said, we're not going to give specific CapEx guidance. But what I will say is that the things that drove capital spending in 2015 continue to be higher priorities for us, and what I mean in particular are we're going to continue to spend to drive growth, and what I mean by that is continue to spend on line extensions, both residential and commercial. In other words, adding buildings to our network. We'll continue to spend on cell tower back haul in that area. We are going to continue to spend to accommodate the growth that we're driving in units, which means spending CPE and on adding network capacity because not only we're adding units but customers are using our services more. So that means we need to spend on capacity. And then the last big bucket is that we're spending on improving the customer service -- customer experience and that's really where the Maxx work comes in. And as we said, we have an ambitious schedule for Maxx deployments in 2016. So at a high level, that's sort of how we're thinking about the buckets of capital. And I should add in addition to Maxx as part of the customer experience effort, and this is something that was very true in 2015, we'll continue to replace customers' set-top boxes that are older less functional. And we think that really does have significant payback in terms of improving the customer experience. Matt, I don't know if there is really anything to add.

No.

Okay.

Great, thanks.

Thank you, Amy. Operator, next question please.

Thank you. Our next question is from Jonathan Chaplin from New Street Research. You may ask your question.

Thanks. Dinni and Rob, I would love to get your thoughts on what's driving the acceleration in broadband subscriber growth that you have seen in your business, but we've seen for the industry in general? How much of it is coming from company specific things you've done around rolling out Maxx and changing pricing versus just increasing broadband and the utility of the board band product and customers increasing willingness to -- reliance on speed and willingness to pay for it? And what I am wondering about ultimately is to what extend we in the early stages of a trend of acceleration, we could see even higher growth next year versus this being sort of a function of onetime benefits that you've implemented this year?

Jonathan, I don't think that what we experienced in 2015 is the product of onetime benefit. I think it's a product as we've said during the course of this call it's the product of better operational focus. Focus on things like driving down disconnect, on priming our connect machines through the various channels that we've talked about. And I think it's through the work that we are doing in things like Maxx where we are delivering a better customer value proposition in the HSD space overall. So, I think it's the aggregation of those things. And as Rob said in an earlier question, we think that there is a lot of growth in front us in the HSD space. So, we expect -- the growth that we've seen in 2015, we believe is sustainable.

And then only thing I would add to it, Jonathan, is it's not just going happen. There is an awful lot of work on our side that needs to continue to occur in order for us to remain competitive in the broadband space. It's already a competitive market, but it's a dynamic market where new competitors are entering all the time and augmenting their capabilities. So we have to continue to improve our product, improve our customer service, make sure that it's incredibly reliable in order to continue grow at the kind of space that we've been able to achieve.

Got it. Thank you.

Great. Jonathan, thanks very much. Operator, I think that's probably all we have time for this morning. Thanks to everyone for joining us. Have a great day.

Thank you. That concludes today's conference. Thank you all for participating. You may now disconnect.