Charter Communications, Inc. (CHTR) Q3 2021 Earnings Report, Transcript and Summary

Good day and thank you for standing by. Welcome to the charter Third Quarter 2021, Investor Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session you will need to press [Operator Instructions] on your Telephone. Please be advised that today's conference is being recorded. If you require any further assistance [Operator Instructions]. I would now like to hand the conference over to your speaker today, Stefan Anninger. Please go ahead sir.

Good morning and welcome to Charter 's third quarter 2021 investor call. Presentation that accompanies this call can be found on our website, ir.charter.com under the Financial Information section. Before we proceed, I would like to remind you that there are a number of risk factors and other cautionary statements contained in our SEC filings, including our most recent 10-K and also our 10-K filed this morning. We will not review those risk factors and other cautionary statements on this call. However, we encourage you to read them carefully. Various remarks that we make on this call concerning expectations, predictions, plans, and prospects constitute forward-looking statements. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ from historical or anticipated results. Any forward-looking statements reflect management's current view only and Charter undertakes no obligation to revise or update such statements or to make additional forward-looking statements in the future. During the course of today's call, we will be referring to non-GAAP measures as defined and reconciled in our earnings materials. These non-GAAP measures as defined by Charter, may not be comparable to measures with similar titles used by other companies. Please also note that all growth rates noted on this call, and in the presentation are calculated on a year-over-year basis unless otherwise specified. On today's call, we have Tom Rutledge, Chairman and CEO, Chris Winfrey, our COO, and Jessica Fisher, our CFO. With that, let's turn the call over to Tom.

Good morning and thank you, Stefan. We performed well in the third quarter, with good customer growth and very strong financial results. However, we're operating in an unusual environment where the market effects of COVID-19 have not yet normalized. Market churn remains historically low such that net gains are being driven by much lower transaction activity. Despite that, for the full quarter, we added 185,000 customer relationships, with customer growth of 3.3% year-over-year. We also added 265,000 Internet customers in the quarter, and 1.3 million over the last year for a year-over-year growth of 4.4%. We added 244,000 mobile lines and supported by lower churn and a more tenured customer base, we grew our adjusted EBITDA by a strong 13.9% in our quarterly free cash flow by over 700 million year-over-year. Our view is that we have a long and robust runway of customer growth ahead of us. Today, our network passes over 54 million homes and businesses, and we're doing business with approximately 32 million of them, leaving us with over 20 million opportunities to create new customer relationships. There also approximately 120 million mobile broadband lines in our footprint, and we are currently serving 3.2 million of those. We're currently very underpenetrated. We're looking forward -- looking forward, we remain focused on improving both the quality and value of our products as data usage in the home and outside the home continues to increase at a rapid pace. Earlier this month, we launched our new and highly attractive unlimited multiline pricing structure, which allows customers to save even more on their mobile bills. Early next year, we will launch a field trial of our CBRS small cells in a full market area, allowing participants to attach to our CBRS small cell access points when they are outside of Wi - Fi coverage, providing our spectrum mobile customers with even faster speeds, while improving the economics of our mobile business. We also continue to deliver improving wireline connectivity products. Today, over 70% of our Internet customers subscribe to tiers that provide 200 megabits or more of speed. And our new Wi - Fi 6 Routers and Spectrum Wi-Fi pods managed by our advanced home Wi - Fi platform and our -- My Spectrum App. Provide customers with complete home coverage and greater control of their home networks and connected devices. As expected, we continue to see very high demand for data by our customers. During the quarter, non-video Internet customers used over 600 gigabytes per month, stable as of late, but more than 30% higher than pre -pandemic levels. And today, close to 20% of our non-video Internet customers use a terabyte or more of data per month. In order to increase the capacity and speed on our network for next-generation products and services, we've developed a multifaceted approach to our network evolution comprised of a number of technologies which will be deployed where they make the most sense strategically and economically, delivering the very fastest speeds and lowest latency at the lowest cost and time to deploy. We continued to expand our capacity by splitting nodes, but we have a cost -effective approach to deliver multi-gigabit speeds in the downstream and a gigabit per second -- symmetrical speeds in both downstream and upstream directions, all using our deployed DOCSIS 3.1 platform. And high-splits, which are currently being tested in market, not only allow for increased speeds in the near-term, but are also a capital-efficient way, as they currently use deployed DOCSIS 3.1 customer premises equipment and reduce the need for node splits, which require an average consumer bandwidth utilization, which will require as consumer bandwidth utilization increase. What I'm saying there is that the high-split actually uses the capital that was needed for node splits. We also continue to actively develop our DOCSIS 4.0 [Indiscernible] technology plant architecture, and roll-out, which allows us to cost effectively and cost efficiently offer greater gigabit speeds in both the downstream and upstream. And of course, we're already using fiber-to-the-home technology in a number of use cases across our footprint, including rural areas such as our [Indiscernible] in an MDUs and Greenfield build areas where the economics makes sense. Ultimately, our plant will be comprised of the most bandwidth - rich and cost -effective technologies, enabling us to deliver the fastest speeds in the industry in a more cost-efficient manner than competitors ubiquitously across 24 million passing’s and growing. So with our network and product capabilities, we remain confident in our ability to grow our customers penetration, EBITDA, and free cash flow for many years to come. Before turning the call over to Chris, I want to make a few comments about our recently announced management changes and promotions. October 19th, we announced that John Bickham had been appointed Vice Chairman ahead of his previously announced retirement at the end of 2022. I worked with John for 3 decades and at every turn his knowledge, leadership, and steady hand did not only contribute greatly to the success of the Companies we led but made a profound impact on the growth of our industry. I'm grateful that John will continue to serve Charter in his new capacity as strategic advisor to me and the executive team. We also recently announced that Chris Winfrey had been promoted Chief Operating Officer. Over the past 11 years, Chris has influenced on Charter, has expanded far beyond that of a typical CFO. He has been actively involved in all our business operations and that deep knowledge combined with his previous operational experience in Europe, will serve us well as Charter's next Chief Operating Officer. And John's guidance as Vice Chairman, will help ensure a successful transition for Chris into the COO role. As Chris moves to COO, we've also promoted Jessica Fischer, previously Executive Vice President of Finance, Chief Financial Officer. Jessica's leadership and financial expertise has benefited Charter for many years, both in her roles at Charter and while at E&Y, where she was a key advisor during our 2016 transactions. In our new growth, Jessica will have an even greater impact on Charter's success. Finally, Rich [Indiscernible], our Chief Products and Technology Officer, ads oversight of network and software operations to his current responsibilities, leading the product and technology organization with expanded responsibility, Rich who both shaped the customer experience and lead our network's critical evolution into the 10G future, delivering to our customers a superior broadband connectivity experience. Now I will turn the call over to Chris.

Thanks, Tom. I wanted to make a few comments about what we're seeing in the marketplace and briefly discuss our long-term market opportunity. Residential customer activity, particularly churn, has taken longer than we expected to return to normal levels. The overall lower level of market churn has reduced sales opportunities available to us. But interestingly, the value of net additions is even higher in this environment. We still maintained good continued customer growth. Given that the start of Q4 feels similar to Q3, we now expect current-year Internet net adds to look more like 2018 than 2019, as record low churn of every type has not offset higher loss selling opportunities from competitors churn. That lower overall transaction volume has exposed the high level underlying EBITDA and cash flow growth that is normally matched by even higher unit growth. With fewer new customers than usual, we have a lower mix of customers on promotion benefiting our customer relationship [Indiscernible]. Additionally, lower sales volume has driven lower expense and capital expenditures associated with sales and installation, lower upfront provisioning cost, and fewer service calls and truck rolls, which are more frequent with newer customers. Ultimately, market churn will return, driving more sales opportunities, and a return to normal net addition environment for Charter. As that happens, we would expect a reversal of some of the transactional financial benefits I mentioned a moment ago. We thought that would happen by the summer of this year, but it hasn't happened quite yet. Lower transactions have lowered costs and at the same time, our cost per existing customer relationship continues to get better. Our service model drives lower service calls and truck rolls with nearly 100% in-sourcing of our call centers now, improving tools for employees, and increasing customer usage of our digital and automated platforms. The service churn and expense benefits of those initiatives will continue for years. We've also continued to invest in our product marketing sales capabilities, and our yield for close rate has been growing, albeit on lower sales traffic. And we continue to grow Internet customers across our footprint, regardless of the competitive technology or in Infrastructure. Earlier this month, we announced new mobile multi-line pricing designed to drive new mobile relationships, more lines per relationship, and ultimately, stimulate overall market movement and sales opportunities for all of our products, including Internet. Mobile and wireline broadband are converging into a single connectivity service package. And we offer the nation's fastest overall mobile service, combined with our Wi - Fi invest mobile pricing, which offers unlimited service for just $29.99 per line per month in households which have two or more lines. An average household served by the big 3 mobile broadband competitors with two lines and mobile broadband and wireline broadband spends approximately $200 per month on its telecom services. With our pricing and packaging, a Spectrum customer can purchase our Internet product and two lines of our unlimited mobile product with faster service for nearly 50% less, and with more lines means more savings. And customers can also combine 5-a-gig rate plans for $14 per gig, with 1 or more unlimited lines to take advantage of the new 29.99 unlimited line pricing. Today, we have roughly 2 million of our 54 million passing’s subscribed to this converged connectivity service. So as Tom mentioned, we have a very long runway for customer and market share growth created by an ability to save customers hundreds or even thousands of dollars per year with better product capabilities and service. As Tom mentioned, Jessica has been promoted to CFO. I had the opportunity to work with Jessica for over 10 years, 5 years, while she was partner at E&Y advising us. Including on the structure of the Time Warner Cable and Bright House transactions. In the past five years, she's been at Charter, she steadily grown our responsibilities from initially overseeing tax and treasury, that in procurement, internal audit, investor relations, and acquisitions and capital markets activities, all of which has prepared her to take over the CFO role. Now I will turn the call over to Jessica to cover our Q3 results in more detail.

Thanks, Chris. Now let's turn to our results on Slide 5. We will continue to reference the COVID schedules we provided last year and included again on Slide 17 and 18 of today's presentation to help with year-over-year financial comparisons. Total residential and SMB customer relationships by 185,000 in the third quarter and by 1 million in the last 12 months. Including residential and SMB, we grew our internet customers by 265,000 in the quarter and by 1.3 million or 4.4% over the last 12 months. Video declined by a 121,000 in the third quarter. Wireline voice declined by 216,000 and we added 244,000 mobile lines in the quarter. As of the end of the quarter, we had 3.2 million mobile lines. Despite the lower number of selling opportunities from cable sales, we continue to drive mobile growth with our high-quality attractively - priced service, rather than using device subsidies. Moving to our financial results starting on slide 6. Over the last year, we grew total residential customers by over 900,000 or 3.2%. Residential revenue per customer relationship increased by 5.6% year-over-year, given last year's third quarter residential revenue adjustment of 218 million per sports network credits that we provided to video customers, as well as promotional rates step-ups, video rate adjustments that passed through programmer rate increases and a greater mix of longer tenured customers. Those were partially offset by the same bundle and mix trends we have seen over the past year, including a higher mix of non-video customers and a higher mix of choice essentials and stream customers within our video base. Keep in mind that our residential ARPU does not reflect any mobile revenue. As Slide 6 shows, residential revenue grew by 9.4% year-over-year, reflecting customer relationship growth in last year's COVID impacts. Turning to commercial, SMB revenue grew by 7.5%. This growth rate reflects COVID related impacts of $11 million that negatively impacted the third quarter of 2020, excluding this impact from last year SMB revenue grew by 6.3% faster than the second quarter growth when making the same COVID related adjustment. Enterprise revenue was up 6.4% year-over-year and included some one-time fees which were a benefit in this quarter. Excluding the benefit from this year, enterprise revenue grew by 3.8% and by 6.5% when additionally excluding all wholesale revenue. Enterprise PSUs grew by 4.5% year-over-year. Third quarter advertising revenue declined 15.1% year-over-year, primarily due to less political revenue in 2021, partially offset by COVID impact last year. When compared to the third quarter of 2019, advertising revenue declined by 0.8%, primarily due to local ad revenue, particularly auto, mostly offset by our growing advanced advertising capabilities. Excluding auto, the third quarter advertising grew by 8% over the third quarter of 2019. Mobile revenue totaled 535 million, with 201 million of that revenue being device revenue, and other revenue grew by 6.5% year-over-year. In total, consolidated third quarter revenue was up 9.2% year-over-year. Moving to operating expenses on Slide 7, in Q3, total operating expenses grew by 460 million or 6.2% year-over-year. Similar to revenue, the year-over-year operating expense growth rate is elevated due to 2020 COVID effects. Programming increased 9.4% year-over-year due to last year's third quarter benefit of 163 million related to sports network rebates and higher programming rates. These factors were partially offset by a higher mix of lighter video packages such as choice, essentials, and stream. Regulatory connectivity and produced content grew by 3.5%, primarily driven by higher regulatory and franchise fees and video CPE s sold to the customers. Cost to service customer's were essentially flat year-over-year compared to 3.3% customer relationship growth, excluding bad debt, cost-to-service customers declined by 2.8% year-over-year. And that's despite a higher number of customers and outsize hourly wage increases that we put through earlier this year. Bad debt was higher by $47 million year-over-year, but still nearly $75 million were lower when compared to the third quarter of 2019. Marketing expenses were also flat year-over-year, primarily driven by the lower sales environment. Mobile expenses totaled $607 million and were comprised at mobile device costs tied to device revenue, customer acquisition, and service and operating costs, and other expenses grew by 3.8%, driven primarily by higher corporate costs, partially offset by lower advertising sales expense year-over-year, given the absence of political revenue this year. Adjusted EBITDA grew by 13.9% in the quarter. Turning to net income on Slide 8. We generated $1.2 billion of net income attributable to Charter shareholders in the third quarter versus 814 million last year. The year-over-year increase was driven by higher adjusted EBITDA. Training to Slide 9, capital expenditures totaled $1.9 billion in the third quarter below last year's third quarter spend of 2 billion driven by lower scalable infrastructure spend primarily due to a stabilized level of network traffic growth at investments made earlier this year. a decrease in line extension spend driven by housing built delays due to supply chain constraints in the housing industry and lower support capital primarily due to timing. We spent $119 million on mobile-related CapEx this quarter, which is mostly accounted for in support capital, and was driven by investments in back-office systems and mobile store build-outs. For the full-year 2021, we expect cable capital expenditures to be relatively consistent as a percentage of cable revenue versus 2020. As slide 10 shows, we generated nearly $2.5 billion of consolidated free cash flow this quarter, an increase of $722 million or 41.2% year-over-year. We finished the quarter with $87.9 billion in debt principal. Our current run rate annualized cash interest pro forma for financing activity completed in October is $4.1 billion. As of the end of the third quarter, our net debt to last 12 month adjusted EBITDA was 4.32 times. We intend to stay at or just below the high end of our 4 to 4.5 times leverage range. During the quarter, we repurchased 5.3 million Charter shares in Charter holdings, common units, totaling about $4 billion at an average price of $753 per share. Year-to-date, we've purchased $12 billion of our stock in common unit and since September of 2016, we have repurchased $51.4 billion or 37.5% of Charter's equity at an average price of $436 per share. Our results show that even in this unusual environment, our flexible and robust business and service model, which benefits economically from lower customer transaction activity still drives outstanding EBITDA and free cash flow. Coupling that with our unique balance sheet structure and a proven capital allocation strategy, we will continue to produce shareholder value for years to come. Operator, we're now ready for Q&A.

[Operator Instructions]. Your first question comes from Vijay Jayant with Evercore.

Hi. Good morning. Just wanted to of unpack obviously, some of the trends on broadband. There's some sense out there that some of this could be competition. Is there any way you can talk about what you're seeing in the marketplace from fiber or fixed wireless in any sense? And then question on -- for Tom Rutledge on your CapEx comments this morning, it looks like you're going to deploy high-splits and -- that will probably reduce the need of doing notes as going forward, can you talk about broadly the cost impact of that shift in strategy if you go down that path, [Indiscernible] bring forward some CapEx while the total CapEx there is a lot really changed over the long term, is that really the message? Thanks.

Let me start with the high-split question first. And we are deploying it in market to see how it works and how it actually works in the real world. But our sense of it is that you get symmetrical gigabit speeds out of it. But you also get the augmentation capacity that we've been spending capital on for years as average consumer growth in usage of data continues to increase. And so when you take the actual capital and let that against it, it becomes a very low cost of incremental capital. And at the same time becomes operationally a lot more capable in terms of the products that you can deliver on the network. So we think it's a very capital-efficient way of upgrading the network and maintaining our superiority from a competitive point of view everywhere we operate. In terms of how we're doing in the marketplace and what the competitive environment's like, The competitive environment is similar to what it's been and when we look at the effects of the marketplace in terms of net ads in the churn environment we're in. We're seeing the same effect where there are no wireline competitors as we do with wireline competitors in terms of net ads, proportionately to -- say 2019. And so we're seeing that the competitive environment doesn't appear to be significantly different than it has been. It's always been a competitive environment. And that the effects of a lower activity are, throughout the marketplace, regardless of what the infrastructure we're competing against is.

Great. Thanks so much.

Thanks, Vijay, April will take our next question, please.

Your next question is from Ben Swinburne with Morgan Stanley.

Thanks. Good morning, everybody. And congratulations, Chris and Jessica on the promotions. I want to ask questions similar to Vijah's, if you don't mind, I guess two of them. One is you guys are obviously describing an environment that is impacting, that adds tied to activity, but the market is focused on competition. If we were to look at markets that Charter operates in with fiber competition, I know AT&T;s been adding fiber for a number of years. Would we see a dramatically different business in terms of penetration and ARPU and even pricing strategy than if we looked at Charter's footprint in DSL market? I think that'd be a helpful framework to think about this. And then number 2 is on the network, again, following Vijay 's line of thought. And Chris be interested in your perspective given your European experience. We're seeing some cable companies in Europe essentially skip Docsis 4.0 and go fiber. And I know there is major structural differences there versus here, but I'm just wondering if there's any thought in your head about where fiber might make sense or what would cause you to move towards fiber-to-the-home versus 4.0 and extended Spectrum Docsis, which seems to be your plan A right now. Anyway, I would love to hear your thoughts on those two. Thank you.

I would just -- I would say that in fiber markets versus DSL markets, that our business model works pretty much the same way. And there are slight variations and penetration everywhere we operate for a variety of reasons, but they're very similar businesses and our growth rates are similar structurally. So we've been able to grow market share in every environment we operate in. Pretty much in terms of facilities based competition for variety of reasons. It's not just capacity in every case. It's sometimes services, sometimes the overall product mix, including the mobile piece of it. We've found ways to make our product work regards of the operating environment.

The difference between Europe and the U.S. they're completely different densities. And we do fiber-to-the-home today in rural environments, often in [Indiscernible] environments and on the increment we're doing greenfield, but the capabilities of the DOCSIS 3.1 network, it really has a very long runway which is what Tom has mentioned at extremely low capital costs and provides all kinds of opportunity, including picking overtime, how you attack with Docsis 4.0 and fiber-to-the-home. But we have a really capital-efficient path that doesn't -- that means that we don't have to go down that safe path. And a lot of the difference here is, I think, driven more by density than anything else.

Density in conduits and the way markets are built, it's a much different environment here. But the reality is that we can upgrade our network at way less than it cost to build fiber platform over top of it. And fiber works for us on the incremental [Indiscernible], it works for us in certain kinds of MDU Environments, certain kinds of greenfield new construction environments. But in terms of taking existing infrastructure that we've already deployed in three quarters of a million miles of Infrastructure essentially -- that we can upgrade at very low costs. Orders of magnitude less than a cost to build fiber and get equal performance. In those cases faster, and do it quickly.

Thank you.

Thanks, Ben. April, we'll take our next question, please.

Your next question is from Ketan Moreau with RBC Capital Markets.

Good morning and thanks for taking the question. I was hoping for more color on residential ARPU trends. The quarter came in strong even when backing out the Coder comps against last year. I know this was partly related to the June rate event, but you also noted benefits from a more favorable customer mix. Customer mix given how low churn has been. I guess, given your commentary on 2021 net adds looking more like 2018, should we assume these positive ARPU trends could continue not only into the fourth quarter, but also into early 2022. It's just -- I assume that even if market activity picks up, it would likely take a few quarters to reverse some of this tailwind in your overall subscriber mix would appreciate your perspectives. Thanks.

Yeah. So first I'd point you back to Citi share and the COVID picture that there is a big piece of the year-over-year ARPU increase that's related to the revenue credits in Q3 of last year. But I do you think you pointed out something, the lower churn environment benefits us in a large number of ways. And one of those is on the ARPU side. The longer that a customer stays with idea of more customers [Indiscernible] roll off of promotional packages and therefore roll into higher pricing packages. And we have a low churn environment where you have additional longer tenured customers. We do see some impact on ARPU from that. The other pieces in there that you pointed out is the additional programmers sort of pass-through costs that we pushed at the end of the quarter. So there's a mix of the three. There will -- I think if we continue to be in the low Churn Environment, continue to be some ARPU impact. Just having longer tenured customers in the system. And the financial results of having those customers in the system for longer really are very good both on the revenue and the transactions side which is some of what you see. And in the overall financial results for the quarter.

I would just add to that that if you think about it from a return on investment perspective, every customer you add in a low churn environment is more valuable than a customer you add in a higher churn environment because the average life of the customer is longer, therefore, the total cash flow of the customer is longer and the cost to serve the passing from a transaction cost perspective is less. So it's a from a financial point of view, a slower growth environment related to churn being reduced is actually economically positive from ROI perspective.

That's perfect. Thank you both.

Thank you April, we'll take our next question, please.

Your next question is from Phil Cusick with JPMorgan.

Follow-up and a question, and echo my congratulations to Chris, Jessica and Rich. It's all deserves. First on Vijay's question, you said the ads are more valuable. I think Chris, does that mean you are seeing something similar to Comcast in a slower low-end customer and consistent high-end. And any thoughts on whether wireless, fixed or mobile might be pulling more of that low-end then. And then Tom, can you expand on your CBRs trial comments. How wide a trial is this? [Indiscernible] sites? Anything you can help us with there. Thank you.

I'll do a quick answer on the CBRS. It's an entire DMA market test, thousands of sites because they are whole monitored sites, small cells, relatively speaking. I don't know the exact number, but it's an entire DMA. In terms of customer mix acquisition, it's true that the programs that we put in place in the midst of COVID last year, where there is the remote education offer or the way that we worked with customers where they keep Americans connected credit meant that both from a sales, as well as from a retention perspective, there was a locking end and there was securing the lower-income population and for any of them on as Charter customers. We're really pleased that we did it. So is that a pull-forward maybe that took place last year? But that doesn't mean that we haven't stopped --that we have -- we stopped marketing and selling into that base. We've been an active participant in the Emergency Broadband funds. I wouldn't say that it's created in the third quarter in incremental acquisition. Vast majority has come into that program through our existing subscribers. But we're utilizing our federal program to make sure that we service that community and continue to actively market, sell, and service

into the space. But your point is true there. There is certainly a lot of people who had been on wireless substitution in the past or had affordability issues that through the things that we did cooperating with the federal government, we were able to get them to proper broadband we benefited from that last year, we've managed to keep those customers through the course of this year, but the same level of inflow of sales looking lower.

Thanks for.

That contributes to lower churn environment as well.

Correct.

Thanks, Phil. April, we'll take our next question, please.

Your next question is from Craig Moffett with MoffettNathanson.

Hi, good morning. And let me join the parade of all the congratulations to Jessica and to Chris and to Rich and to John. So two questions if I could. First just digging into the broadband dynamics one more time. In this low churn environment, have you seen any change in the share of gross editions that you're winning. So my understanding is the gross addition pool is clearly suppressed by low churn, but has there been any change in your Windshare as far as you can tell, among what's left in gross additions. And then as you think about the upcoming CBRS offload trial, what's your expected offload? What's your target for how much of the -- what would otherwise go over the cellular contract with Verizon that you think you can offload onto the CBRS small cells?

So on the -- on your -- the first part of your question on broadband growth say, are you talking about new construction growth?

No, just in the smaller gross addition pool that's available. Given that customers are just moving less and churn ing less. But in that smaller pool that's available, do you have any sense that your share of wins has changed at all?

So --

Go ahead.

I guess -- okay, we've seen that in the sense that you come in during the yields are actually going up. So the number of sales that come in that we are able to close and convert to customers has been increasing. I haven't it looked at it exactly. And Chris.

That's -- our share of activity is actually higher from the activity that we see in front of us, our ability to attach mobile units to transaction is going up. There's just less of them. And -- but no, in terms of -- I don't see really a change or shift of any material way that I can see in the numbers in terms of our acquisition share, our churn is down in all types of markets, with all types of infrastructure that we operate in front of. And our gross adds are down proportionately inside all of those same footprints. So there isn't any incremental change in any material way in gross adds based on the foot print in which we operate, it's just lower transaction volume taking place across the entire board.

It sounds a lot like what you're describing is just that a low mobility and low household formation market.

That's true. And how that unwinds is unclear. I mean, there was -- it's a very unusual market situation. People sheltered in place, so to speak. And so you had all the friction of the market came out that used to exist, people in transition, and they settled into subscriptions. And when the market remobilizes, so to speak, I think there will be continued pressure on gross because of pull-forward of all of that activity. But it is I think the [Indiscernible] opportunity for growth and long-term growth is still the same and our ability to take share out of the market is still the same. In terms of CBRS, today 80% of the traffic on mobile platforms is on Wi-Fi. And our -- and we continue to use the Wi-Fi network effectively. And there's a whole new piece of spectrum available to Wi-Fi, available to us. So Wi-Fi and CBRS together have an opportunity to make a significant change in how much traffic is on our network versus on the MVNO. Our targeted for CBRS, I've said before could be pushing up third of the marketplace if everything works and it's fully deployed now. You're talking years of runway necessary to deploy that and to get it fully utilized. The good thing about it is that the capital associated with any construction we do is dedicated to the -- to a lower cost. In other words, if we're going to put out a device or a radio, we know where the traffic flows are, we know that the traffic flows in that particular area justify the capital of placing that device. And that the offload percentage that's associated with that specific geography is sufficient to pay back the capital investment in the radio. It's a -- we'll deploy that based on actual utilization. But our modeling shows that it could be a significant reduction in the overall traffic load on the MBO.

Thanks. That's helpful.

Thanks, Craig. April, we'll take our next question, please.

Your next question is from Jonathan Chaplin with New Street Research.

Thanks, guys. Just to start off, a quick housekeeping question, and then I've got another one as well. For anchoring off of 2018, and I guess this is the question for Chris, should we be anchoring off of residential net adds of 1.1 million or total net adds of closer to 1.3 million? And then following up from one of the earlier questions, the -- I recognized the color you're giving on the transition of the network to high-splits, and that's extremely helpful. I'm wondering if you can give us some indication of how long that transition to high-splits across the network will take. And then when more or less, do you expect to start folding in the DOCSIS 4.0 upgrade? And then my final question on broadband ads. Are you assuming any benefit in the broadband ads guidance that you're giving for 4Q effectively from a pull-through from the lower wireless rate plans that you've put out there. So if wireless accelerate, should that have a pull through benefit broadband? And is that baked into your expectations? Thanks, guys.

Okay. In the timing, high-split opportunity from a timing perspective is also opportunistic. like I was describing CBRS, but it's relatively inexpensive like a CBRS deployment. Excuse me like 3.1s Docsis deployment was. And it's on per passing basis. We think it will be quite efficient, but it -- the other beauty of it is it's pretty much in electronic drop in and it could be done quite rapidly. And cover huge slots of geography in a very short period of time. And so it has two benefits. One, it just -- if you do it in an sort of a normal management of augmentation network growth pattern, sort of deployment, it replaces the need to do node splits. But if you do it quickly, it also has the same effect, but it gives you greater capacity in terms of what products you can deploy in a market and what marketing claims you can make. So it can be done quite quickly and that's the beauty of it. Do you want [Indiscernible]

Sure. The 2018 comments that I made was really in the context of total internet additions. The answer to your question is yes.

And it's got a pull forward, but this mobile pricing pull forward,

It's only been out in the market for [Indiscernible], so we should be careful of what we say. But the initial uplift for mobile sales has been fairly significant as we expected. And while we think it could and should have a material impact on broadband over a multiyear period. We haven't seen anything yet that indicates that's the case. And so I think it's [Indiscernible] we expect [Indiscernible]. We expected and we didn't expect it. So I think it's premature to think that we're going to see that pull through the internet just yet.

[Indiscernible]. Thanks, guys and congratulations to both you and Jessica and Chris.

Thank you.

Thank you.

Thanks, Jonathan, April, we'll take our next question please.

Your next question is from Brett Feldman with Goldman Sachs.

Thanks. Just a couple of follow-up questions on wireless. When we look at your wireless pricing strategy, you've done the exact opposite of what major carriers are doing, which is you've offered your consumers a great deal on their service price, but you're not necessarily offering a promo on the handsets. And so at least it's sort of two questions. The first is, what are you thinking about handset promotions? Meaning, would you be willing to also incorporate them into your price point, particularly as consumers look to upgrade to 5G devices

and they are offered promos elsewhere? And then bigger picture, I mean, the key reason it looks like you were able to lower your prices recently is because you were able to get a better cost structure under the MVNO agreement, meaning that you took your lower costs and you converted them into lower prices. The question would be, if you're pleased with the success of the CBRS trial, what does that mean for your wireless businesses? Does it mean that you have an opportunity to be more profitable or do you think that's an opportunity to take your price point down even further, because once again, you'll have lower your costs? Thank you.

I'd say both.

If you look at our total opportunity relative to customer spend on combined mobile and broadband, there's a lot of broadband spend -- a lot of mobile spend out there relative to broadband spend. So if you think about a customer, typical two-line household, they might be spending a total of $200 on broadband and mobile. And today, we're only getting a relatively small piece of that. And so if we continue to sell mobile product, even if we do it by bringing the pricing of mobile down, our expectation is that we'll continue to drive both revenue growth and bottom line EBITDA growth from that business, all wall driving pricing down in the mobile industry. And from the perspective of our mobile business, even today, our mobile business is profitable if you take customer acquisition costs down. And like what we've done across our business, our goal is always to further penetrate the market. And so if we can increase our penetration of the mobile market and up more ongoing revenues and less customer acquisition costs, okay, not less, even with additional customer acquisition costs, we'll generate strong profits out of that business just by penetrating the market, sticking with our strategy of having very competitive pricing for our customers.

Yes. I agree that -- I think that one way of thinking about it is -- we have 55% penetration of our broadband business at about a $60 ARPU on average, and the average spend on mobile on a per home basis inside our footprint is over $120 a month. And the average number of devices inside our footprint is about 120 million. And so when you really look at our 6% mobile penetration and our 55% broadband penetration, and look at that as a share of spend, even if you cut the mobile average household price in half, where our penetration of the dollar is less than 30%, which is -- which means what I said earlier in the presentation, which is we're really underpenetrated and there's lots of Telecom spend in which to grow our business at the household level.

Thanks, Bryan. April, we'll take our next question, please.

Your next question is from Peter Zaffino with Bernstein.

Hey, good morning. Wanted to go back to this sector of ARPU with fiber and fixed wireless, segmenting broadband, presumably in 2022 and beyond, I wondered if you could talk with us a bit about how you manage local pricing in response to those local deployments and whether that might result in some ARPU, growth, deceleration, albeit still at nice positive rates in the years to come.

You want me to take [Indiscernible]

Sure.

So we have national pricing everywhere for our retail pricing, and it's low compared to any of our peers or competitors. And we have the ability to bundle products that most of those competitors that you mentioned don't have. So if you think about low broadband pricings at national retail pricing combined with the ability to save customers hundreds or thousands of dollars in mobile, and increasingly, because of where the rest of the market has gone, we have the very best video product out there. And that may not be for everybody because there's a lot of different ways to take video, but Our video product -- we have something for everybody, whether it's a full expanded package, where there is blend matino, or whether it's essential stream choice in the home, outside the home, on every single device. So, we have a package and price point for just about everybody and still about half of our internet sales still take video. And it causes them to retain so we're able to add value to these households, not just by having a national low retail pricing structure for broadband, but the ability to use video and to use the savings from mobile to compete now, and really for a long period of time. So that's how we approach the marketplace. It's really how we've always approached the marketplace, including back to if you think about phone, where the pricing, and again, it's only maybe half the customer base that's relevant for it, but it is relevant for half, where we have a total dollar price point for phone as well. So we have different ways we can save customers' money, and we think the product that we offer anyway in broadband is as good, if not better than any competitive footprint that we face.

And ultimately price -- what you can do with price is a function of what costs are, and we have lowered costs.

Thanks, Peter. April, we will take our next question, please.

Your next question is from John Hodulik with UBS.

Great. Thanks, guys. First question on video. You guys saw some accelerating video and voice losses, actually this quarter. That is the function of the catch rates and lower broadband ads or is there a sort of a reopening issue there as well? Or maybe did the price increase in June, affect those numbers? And then, getting back to the wireless. Clearly wireless and broadband is a new bundle. And thanks for the number, 2 million households so far having that bundle. I mean, it's early yet. But can we look at the churn within that cohort and see whether or not you're actually seeing an improvement versus standalone broadband? And if so, can you maybe give us a sense of the change in churn that you may be seeing? Thanks.

On the video and voice losses front, I think that that one is just the impact of having the -- not having the level of broadband additions that we had in 2020. when you have a lot of broadband additions, we pulled through a lot of recent video in bundling there, in this lower gross add lower churn environment. It's just carried through of the prior trends. It's no overall change in trend.

On the churn benefit for a broadband customer also takes wireless. I can sit here and advertise and tell you how fantastic it is, the churn is definitely lower and I can beat our chest about it. But some of that -- a lot of that is really at this point, they're just self selection of customers are happy with our service. They like who we are, they like the pricing that they have on the products, and as a result, they take more product from us. I don't know that, that means there's enough evidence now to say systemically, but our gut tells us the answer is yes. And while the numbers would tell us yesterday as well, I don't think you should rely on that, in terms of an order of magnitude until we get further down the road.

And the term, it's all [Indiscernible] is so low relative to the sort of trend that it's hard to attributed it all.

That's right.

Thanks, guys.

Thanks, John.

April, we'll take our next question, please.

Your next question is from Doug Mitchelson with Credit Suisse.

Thanks so much, and I have my congratulations to Jessica and Chris and Rich. I will stick with broadband and wireless, seems. Tom, just a clarification on you mentioned the pandemic was a pull -forward, and I think you emphasized share opportunities. Should we think about the growth opportunity really as share focus going forward and that the broadband marketplace is broadly fairly mature after this pandemic pull-forward. And then I guess jump all though Chris, I know your experienced in Europe might inform this and it seemed like Bryan Roberts yesterday was implying that they're thinking about launching a converged in-home out-of-home, broadband offering and I'm sure you've been thinking about the same thing. Is there an opportunity to disrupt the marketplace by having a single converged by-the-home subscription rather than thinking about it as a per-phone plus per-home subscription model? Thanks.

So, Doug, I wouldn't say broadband is mature in the sense that, we think high capacity broadband, which we sell and packaged with mobility and packaged with great home connectivity, and managed Wi - Fi. Is still a growth opportunity in two ways. You have, what will the number of people that ultimately take that level of service be. And in our footprint today, we think 93% of houses are occupied. And I think the penetration of any kind of Internet service in that footprint is about 85%. So there's still opportunity to grow the overall connectivity broadband market. And then there's the opportunity to actually grow it into the high capacity service that we sell and high-quality service we sell. So we think that while we have 55% penetration, there's 37% penetration more to go in terms of what other possibilities are there. Plus the whole broadband -- mobile broadband platform as well and which grew very under penetrated.

Doug, your question -- yes, it's true, it's a decade in European cable, but it's also been a decade since I've been there. So I don't know that I'm really any longer qualified to make comparisons or talking about it. But your question was -- and I apologize if I haven't followed it, but the -- that could you offer a mobile subscription together with broadband and have the mobile lines be part of the home subscription to multi-line?

Yeah. Just a single price for a household to have as many devices as they want in and out of the home.

It's an interesting concept and I know what it's trying to solve. I mean, for all the reasons that you can think convergence tech technically makes a lot of sense. The ability to have a ubiquitous Internet product inside the home, outside of the home, in the neighborhood, in the coffee shop, etc. All that which we talked about and it works. The ability to save customers tons of money, which we do. There are not that many markets where from a marketing and sales machine, it's been fully proven out yet of how you combine that together when lines are often sold at a personal level, and broadband subscription wireline is sold at a household level. So I think it's an interesting concept, one that we're keeping our eye on. And when you think about as our pricing gets lower, mobile bridging our way towards that one way or another. It's one another way of thinking about it. But I think those type of models and taking a look at how to fully get convergence also for marketing and sales and solve the difference between per line versus per household is interesting.

Great. Thank you.

Thanks Doug. April, we'll take our last question, please.

And your last question is from Jessica Reif Ehrlich with Bank of America Securities.

Thank you for getting me on. I guess one last question on broadband to beat a dead horse and then one other question. On the Internet ads on the SMB side, that's slowed as well. And that's an area that seems to have kind of normalized a bit more than residential. Can you talk a little bit about what's going on commercial? And then on, X Class TV that the Comcast talked about rolling out, is there anything in this service to the extent that [Indiscernible] by an X Class TV, are there any benefits or economic that you get or would you consider shifting to becoming an aggregator of streaming services, which with the different set of economics from linear?

You can answer.

I think the SMB space is really more about cyclicality right now related to COVID and how things have opened and shutdown and businesses have closed and restarted and new businesses formed. I think it's much more tied to that than the things that we're seeing in the residential side. Generally, I would say that our SMB capabilities are as good as ever right now. And in a market where you have new business is forming or coming back online, where our competitive posture there is very good and I don't see the same type of issues that we've talked about in residential for us in this. So the fluctuations you've been seeing really much more about just the overall economic cyclicality has taken place with COVID, but I wouldn't --we don't face the same type of issues from market movement that we're seeing in residential in the SMB space. Our opportunity for theirs remains good and same as residential long-term.

Yes. So from a streaming perspective, it's interesting Charter's actually the biggest live-streaming app in the country and the most highly rated app in the country. We distribute streaming products on Roku, Apple TV, on our own set-top boxes. We've got the cloud-based streaming application that can be placed on our app-based streaming app system that can be placed right on our set-top boxes. And so we've got more than 10 million customers who are connected to us strictly through a streaming relationship. And we like the Comcast strategy with regard to their -- putting their platform on televisions. And so, we think there's lots of opportunity for us to continue to change the video model and to take advantage of our relationship with customers and to make the video model more efficient for programmers and for operators, and to bring value back into television.

Thanks, Jessica. That concludes our call. Thanks to everyone. And April I'll pass back to you.

This does conclude today's conference call. Thank you for participating. You may now disconnect.