Optimum Communications, Inc. (OPTU) Q2 2019 Earnings Report, Transcript and Summary

Good afternoon. My name is Jessie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Altice USA Q2 2019 Earnings Presentation. [Operator Instructions] Thank you. Nick Brown, Head of Investor Relations, you may begin your conference.

Hello, everyone, and thank you for joining. In a moment, I'll hand over to Dexter and Charlie, who will take you through the presentation and then we'll move to Q&A. As today's presentation may contain forward-looking statements, please read the disclaimer on Page 2. The slides are available on the company's website and a replay of the call will be made available. I'll hand over to Altice USA's CEO, Dexter Goei.

Thanks, Nick. Hello, everyone. I'm very pleased to report that Altice USA had an excellent second quarter as we continued to successfully execute against our strategic priorities. To summarize on Slide 3, we saw accelerated revenue growth in Q2 to 3.7%. And as the company is performing better than expected, we have increased our revenue guidance for the year. We now expect 3% to 3.5% growth for 2019, up from 2.5% to 3% previously. Much of this improved performance is attributable to Altice One in our continuous network investments, which are driving both improved video and improved data customer trends. We are consistently demonstrating that it's possible to achieve this higher growth, while still enhancing profitability, and this is before the complete execution of our new growth initiatives. The launch of Altice Mobile is now imminent with multiple network and handset partnerships in place, putting us in a really unique position to enter the wireless market. The rollout of our fiber network and new home build activity continues at an accelerated pace. Last month, we completed the Cheddar acquisition to fuel growth in news and advertising, and our advanced advertising platform continues to deliver positive results. Finally, we executed on $600 million of share repurchases in Q2 bringing our total year-to-date to $1.2 billion. Altice USA's Board has authorized a new incremental 3-year buyback authorization of $5 billion as we're coming to the end of last year's original $2 billion authorization, underscoring the company's commitment to return capital to shareholders. Once again, I'd like to thank again all of our dedicated employees as all of their hard work is paying off, and we've had such great momentum right now. On Slide 4, we show the breakdown of total revenue growth, which was up 3.7% in Q2. Our Residential business grew 3.4%, and Business Services grew 6.1%. We benefit from better customer trends, a significant increase in the take rate of higher data speeds and data consumption which supported broadband revenue up 13% plus the recent rate event at the end of Q1. Remember, we will lap the later than normal rate event from last year in Q3, so these divisions will likely show slower growth in the second half ex mobile. Growth in advertising continues to be driven by the success of our advanced advertising platform a4 with revenue up 2.8% in Q2, although this would have been higher at 11% without a dropoff in political advertising revenue year-over-year. Political will also be a drag to growth in the second half although we expect it to be mostly offset with our recent Cheddar acquisition. On Slide 5, on the left-hand side, we show residential ARPU growth of 2.9% to $144 with growth of 0.5% in the residential customer base year-over-year in Q2. On the top right, you can see we had better video trends again in Q2 with just 21,000 net losses compared to a loss of 24,000 last year. Since launching Altice One, this has been our sixth consecutive quarter of better video customer trends. It's also worth noting that our ongoing network investment and the quality of Altice One's WiFi experience reported improved residential broadband trends as well in the quarter with net additions of 13,000 compared to 10,000 last year. On Slide 6, it highlights our progress with the penetration of Altice One, where we had just over 400,000 customers at the end of Q2, representing about 13% penetration of our video base, up from just 4% a year ago. Altice One is helping us to reduce churn, increase gross additions and take market share, and we've had many more quarters of runway ahead of us as we deliver differentiated video and WiFi service to more and more of our customers. On the video side, Altice One is our solution as a cost-effective and convenient content aggregator, including seamless integration of linear and nonlinear services. And we know from our OTT partners that we are delivering a better quality of experience relative to others in the marketplace. On the broadband side, thanks to Altice One's built-in advanced WiFi router, we are seeing Altice One customers consume 20% more data on average than our legacy customers. This is a platform we've designed to evolve and add new features and products, and we're excited about our pipeline of future enhancements. This is a perfect transition to Slide 7. Here we show how customers are consistently taking higher broadband speeds and using more and more data. These trends reflect the work we've done to upgrade our networks, our attractive offers and the benefits of Altice One such as its superior WiFi capabilities. We approach our broadband business with a "build it and they will come" mentality, and this strategy is working well. Not only does this strategy prepare us to give customers what we know they will need based on the trends I'm about to walk you through, but there are major business benefits. Specifically, when you consider the additional efficiencies we gain as we reduce customer churn and see less technical service incidents with improved network quality and capacity. So what are we seeing? On the left, you can see the average speed of our customers' take has increased about fourfold in the past 3 years to over 200 megabits per second. Remember with our fiber network upgrade, it won't be long before we are offering 10 gigabits of services, well ahead of our peers. On the right, you can see household data usage continues to grow 20% year-over-year to over 280 gigabytes per month with an average of 12 in-home connected devices. The top 10% of our customers are using close to 1 terabyte of data per month with an average of 30 in-home connected devices, which is [ just an ] incredible as a forward indicator. One key point to note is that data usage is correlated with speed. For example, customers that take more than 200 megabits use 75% more data on average than customers that take less than 200 megs. And most of this data usage is being driven by video streaming services. As I mentioned earlier, our customer growth trends have been improving, but data usage is the real and sustainable structural growth driver of our residential business. These usage patterns imply to us that the utility of broadband is rapidly increasing for our customers. By contrast, the average data usage from mobile customers in the U.S. is only about 7 gigs per month, and the average speeds being delivered by wireless networks are much slower than what we can deliver with our broadband network. This means the average revenue per gigabyte of usage for mobile operators is about 10x higher than our offers. In other words, customers are getting much less value for money with their current mobile providers, which is where Altice Mobile comes in. Slide 8 gives us an update on Altice Mobile, where we're still on track for a full commercial launch this summer, and we recently launched exclusively to our employees. Altice Mobile is unique in the U.S. as it has its own core infrastructure network, full access control over the customer experience and strategic roaming partners. Altice Mobile will also leverage USA's -- Altice USA's own upgraded public WiFi, its fiber assets and shared small cell infrastructure. By integrating this infrastructure with our own mobile core network, it allows us to maximize WiFi offload, coverage and quality of service. Separately, Altice USA's mobile partnership with Sprint will be expanded to the new T-Mobile network, including 5G services with the contract extension as DOJ merger conditions and commitments that T-Mo has made to the FCC. It's also worth noting that we have signed a complementary new nationwide roaming contract with AT&T as well as new international roaming contracts with multiple other partners. This will ensure an aggregate 99% nationwide coverage across the U.S., and additional international coverage. The network testing phase for Altice Mobile is now complete demonstrating excellent nationwide coverage, speed and quality. All these factors set Altice Mobile up for a successful launch and a long-term strategy by which Altice can access the latest technologies and deliver a superior and differentiated mobile experience for customers. And now I'll hand this over to Charlie, who will take us through some financials in more detail.

Great. Thank you very much, Dexter. Hello, everyone. Dexter mentioned that our EBITDA grew by 7.3% in the second quarter. And on Slide 9, we show that our Altice USA's adjusted EBITDA margins also continue to expand every year and reached 44% in the second quarter. That included $5 million of mobile losses. And if you were to exclude that, our EBITDA margin would have been 44.2% in the quarter and that's over -- that's 800 basis points higher than it was 3 years ago when we completed the Cablevision acquisition. And as you can see, 170 basis points higher than just in the last year alone. That substantial margin improvement, as we often discuss, is supporting higher investments in all of our growth initiatives. And as always, we'll continue to look for ways to optimize our cost structure further, the mindset in our efficiency practices are really ingrained in the company's culture at this point. Turning to the next page, we've got a breakdown of our capital expenditures, which increased year-over-year as planned due to our growth investment in fiber, our new home build and some spend on DOCSIS 3.1, and of course, mobile. Our total CapEx intensity was 12.9% in the quarter as a percent of revenues. But if you strip out fiber and new home build, that percentage would have been below 10%, and you'll recall that, that's what we see as our long-term recurring CapEx level. Our mobile CapEx is certainly very limited since we've already completed the core network build, and it's only a relatively small number of stores that we're upgrading, given that our product will be -- have more of a digital-first focus when we launch. Turning to Slide 11. Here we're showing our usual free cash flow waterfall. You will note that we generated $472 million of free cash flow in the quarter, some of which was absorbed by the Cheddar acquisition which we completed in June. We saw cash outflow from our financing activities of $600 million for share repurchases, and that was at an average price in the quarter of $24 per share. Our cash taxes remain very limited, and cash interest we expect to come down with the recent refinancing activity we've done this year as well as what we expect to be able to do over the next 12 to 24 months. And speaking of our balance sheet, Slide 12 summarizes our debt maturity profile at the end of the quarter. This is pro forma for the recent $1 billion 2030 senior note that we issued in July, and that was mainly used to repay our revolving credit facility in full. And it's worth noting that, that financing was our lowest ever cost for an unsecured note issuance, that was at 5.75%, which certainly underscores the continued strong support that we are receiving from the credit markets. And just to recap for you, our average -- weighted average life of debt is 6.3 years, our weighted average cost of debt is 6.2% and 77% of that is fixed rate. And lastly, with our undrawn revolving credit facility as well as the cash on our balance sheet, we currently have liquidity of approximately $2.8 billion. We have no major maturities in the near term. And as you've come to expect, we'll continue to be proactive in how we manage our balance sheet. And then finally, on Slide 14 (sic) [ Slide 13 ], just recaps our financial guidance for 2019. As Dexter mentioned, we're upgrading our outlook for revenue growth to 3% to 3.5% and that compares to the prior guidance of 2.5% to 3%. Year-to-date, we've grown revenues 3.3%. So we're really in the middle of our new target range as of today. We still expect EBITDA margin expansion, excluding mobile costs, and we're up 1.4 percentage points year-to-date in that regard. CapEx, we continue to expect in the range of $1.3 billion to $1.4 billion, and that certainly supports all the growth initiatives that we've discussed. And lastly, we expect to grow free cash flow this year and that includes any mobile-related costs. And our target year-end leverage remains at 4.5 to 5x. Our share buyback target for 2019 is $1.5 billion. Although as you can see, we've opportunistically front-end loaded the program this year, given the lower share price, and we've executed $1.2 billion of repurchases in the first half. So you should expect a somewhat slower pace of repurchases in the second half, excluding any M&A activity. And just note that the new incremental 3-year $5 billion share repurchase authorization is equivalent to about 30% of our market cap and about 2/3 of the free float, if you were to calculate that around recent share price levels, which really just illustrates the potential impact of the levered equity returns model that we are running. And with that, I think we will close our formal remarks and will open it up for any questions.

[Operator Instructions] Your first question comes from Kannan Venkateshwar with Barclays.

A couple, if I may. One is on Lightpath. If you could just give us an update on how the process is going? And in that context, how do you see your buyback path if that transaction was to be completed anytime soon? And secondly, when we think about the expense trajectory, I guess the big surprise every quarter is nonprogramming OpEx, and it looks like you came in lower again this quarter. So if you could just help us understand the trend line there? And how long this could go on? And what the main drivers are?

Thanks. On Lightpath, we continue to review our strategic alternatives there. As we were very clear when we entered the process, this is an opportunistic situation for us. This is not a must do in all respects, and so we're continuing to look at that. Obviously have done a tremendous amount of work here. We continue to like the trajectory of the business. If you've seen our earnings release, the enterprise business is up over 5% in the quarter. So continues to perform very well. I don't think it's necessary to think about how we're going to do something we're going to the buyback, should we do something on Lightpath. We'll make that clear to the extent we announce something on Lightpath. On the expense trajectory, it's interesting you mention nonprogramming OpEx because that is something obviously that we don't raise in terms of a nomenclature anymore, but it's clear that everything that we do on a daily basis is focused on revenue growth, but also on making sure that we're very focused on good capital allocation when it comes to our operating expenses. And the trend line continues to be positive. We continue to see, as I mentioned before, not necessarily home runs, but singles and doubles on lots of different initiatives that we embark upon. I don't think it makes any sense for us to list all those out to you. But quarter-over-quarter, we feel good about our margin growth, which is why we've guided the market to an uptick in our margins from a year-over-year perspective. So I think it's just, we'll continue to have that discussion quarter-over-quarter, but we're on the right trajectory line, which is upward.

Your next question comes from Philip Cusick with JPMorgan.

First, a follow-up on Lightpath. Is this process still ongoing? And are you still in discussions with more than one potential partner? Or is it getting a little closer to the end? Or has it ended for now? And then second on the wireless launch, you said imminent. What remains to be done before launching? It sounds like everything is pretty much in place. And any preview you can give us on pricing or packaging there?

On Lightpath, it still is ongoing. We still have the opportunity here to speak to multiple parties. I think there's not much more to talk about than that. The process is a lengthy one. It takes a tremendous amount of work to separate the business and do the work to make sure that we are providing the right information on network as an example and making sure that we have all the materials available to any third parties that are interested. So I think, Phil, on that point we will update the market when it is timely to update the market. On the wireless launch, imminent means imminent. So what else do we need to do? I think we just hang on, watch the tape. We're looking to launch as soon as practical and making sure that we're launching with -- in the best conditions possible for us to do so. No indication here on price. I think we're not ready. I think you will see that when we launch.

As part of the T-Mobile transaction, you extended your MVNO with Sprint, does that change anything else like your renewal options or out of footprint rates?

Well, to be clear, we haven't extended our existing agreement. But as you saw from the DOJ's consent decree, our agreement is expected to get extended through to the life of the consent decree, which is 7 years from closing. So we view that as plus or minus a 4-year extension of our existing deal. Other than that, there is nothing really more to say about that phase because that deal hasn't closed yet. So I think we'll see once that closes. In terms of, does it change how we think about things, absolutely not. We clearly have more time to think about it, if that's one of your questions. I think we are just focused on launching currently, launching successfully, driving good momentum in our stand-alone mobile business and hopefully benefiting from some ancillary benefits to our other businesses. And then we will reconvene internally and see what the path is in the years to come.

Your next question comes from Brett Feldman with Goldman Sachs.

And then a few more questions on the MVNO. Just listening to Dexter's comments, it sounds like your opinion is that one of the key pain points for the consumer is, we just pay too much for mobile broadband and so it certainly sounds like that's something you're hoping to address with the product. And I can't imagine you'd want to keep that much of a secret. And so can you give us any sense as to how much upfront investment you want to make to make sure the product has a successful launch? And then what's the right way for us to sort of keep track of the product as it ramps to see that it's driving value? Should we be grading you on subscribers? Should we be grading you on how quickly you generate EBITDA and cash flow? I guess, we just want to understand how you're thinking about the impact that it has on the business? And then just the last one, which is kind of an extension of Phil's question. I believe the MVNO allows you to market services where you have assets and operations. If your business were to grow organically or inorganically, does the ability to leverage that MVNO grow your asset base?

Sure. I'm not going to opine on whether consumers pay too much for their mobile experience, but you will see in our pricing where we think we can be, as we've said consistently that we believe that we have a stand-alone profitable business model in front of us. In terms of our upfront investment, clearly, we're going to put the right marketing dollars behind our launch as we enter the back-to-school season. In terms of how to track this, we are very, very focused, obviously, in number of subscribers, making sure that those subscribers are profitable subscribers by being very, very thoughtful about managing the traffic. I think you could take this off-line with Nick and walk through the business model in terms of the key KPIs to be tracking, but obviously number of subscribers is important. We don't believe we will ever be marketing negative gross profit subscribers. And so then the whole question is how quickly can we ramp up to EBITDA positivity, which we think we can do in relatively near-term basis. [ But ] we have publicly said historically that within 12 months we believe we will be able to deliver EBITDA positivity there. In terms of our MVNO contract, yes, we can market to places where we do have assets and operations. Clearly, an expansion organically or inorganically will allow us to market more broadly in more geographies.

Your next question comes from Craig Moffett with MoffettNathanson.

I wonder if you could just comment on your thoughts about video. There is -- your larger peers, I think, have been quite outspoken over the last couple of quarters and on this round of earnings calls about their willingness to let video subscribers go if they're not profitable. Where is your thinking about the importance of video in the bundle? And whether it does or doesn't keep -- make broadband stickier and that sort of thing?

Thanks, Craig. I mean, listen, we've been consistent here, which is: number one, video is a profitable product for us; two, it does have good stickiness relative to other products, obviously, mainly broadband. So we're going to continue to invest the resources in the video product. We continue to see, as you've seen, 6 straight quarters of better video -- year-over-year performance here. So I think this continues to be a very core product for us. I don't think we share some of the comments that you're hearing from our other peers, and we've been consistent that we maybe have somewhat of a unique footprint in the New York tri-state area, which is a very, very high video bundle consumption market and also a very underpenetrated Suddenlink video market, which is taking advantage of: one, the Altice One launch, which has been a very, very strong success; and secondly, maybe some of the difficulties of the other video providers, namely the [ satellite guys ], which we're able to take market share from. So we're seeing continued good market momentum in both of our footprints on the video products. So they remain very, very core to our strategy.

Dexter, would you imagine there might come a time when wireless is -- sort of substitutes for video in the importance of the bundle and the way that customers think about it?

I won't use those words, Craig. I'm not so sure if substitution is the way we think about things. We're all about incremental value creation here. So mobile in itself, number one, is a stand-alone product, we think it's a profitable product for us; number two, obviously, to the extent, that we can get bundling effects benefits, that is icing on the cake for us. It clearly has been positive in some of the commentary from our peers, but also in our experience of our sister company, who sees great bundling effects from adding mobile, but it's not a substitution. Today, we are just adding very attractive in our minds and profitable additional services to our lineup, and it's not just in the pure telecom space, it also is in the advertising and news space, as you know. So we're going to continue to try and deliver great shareholder value here across multiple products until there is a point in time where things may be less profitable and we'll make those decisions at that point in time.

Your next question comes from James Ratcliffe with Evercore ISI.

One on mobile and one on video, if I could. On the mobile front, can you talk about how extensive you expect BYOD to be out of the gate? And how long it will probably take for you to start to explore ABS for your handset financing? And on the video side, we're clearly seeing a lot of turmoil around regional sports networks at the moment and the Optimum business has exposure to some of the most expensive and stand-alone. How has your view on the value of those networks versus the cost evolved, if at all?

Listen, on the BYOD side, we're going to obviously offer BYOD. We think the simplicity of our offer, when we launch it, will lend itself to a good BYOD experience, but the same time, we've got great partnerships with the big handset providers and we'll have a lineup available for people to acquire handsets as well. In terms of handset financing, we continue to look at different financing and working capital advantageous structures, but that's not necessarily core to our discussion today in terms of when we are going to provide handset financing and in what form, but it will be very, very clear when we do launch and in subsequent quarters as we add new services and products to our mobile that those types of features will be very clear to our consumers. On the video side, listen, the RSN experience, you're very right to flag that maybe the cost is not necessarily pertinent to the viewership numbers in terms of the ratings that you can see, but we do believe that particularly the New York tri-state area, the RSNs continue to be important for our video consumers. And I can't really give you my personal perspective on the value of those networks, but I do think that we have good relationships with our RSN partners in the New York tri-state area and other parts of the Suddenlink side that we'll continue to have a good contract negotiations with them as we look to renew those contracts going forward.

Your next question comes from Andrew Beale with Arete Research.

I just wanted to try a few more questions on the MVNO. Just wondering if you could talk qualitatively about the differential in price per gig when you're on or near your network? And what -- Sprint has the [ typical frameout ] versus what it looks like away from the network? I'm just trying to get some sort of picture as to how much more price aggressive you could be? Secondly, just wondering if you made any progress in your -- in the remedy discussions on MME and S10 for dynamic handover. Like, I'm just asking that as it seemed like that was something that DISH has managed to get. And then finally, could you draw the distinction between your national roaming agreement with AT&T, the new one, and the Sprint and new T-Mobile infrastructure MVNOs, what do you use and when do you use them?

Thanks, Andrew. There is a couple of things. I think, listen, on the MVNO price per gig discussion, we have not spoken openly about what those price points are. It's clear it's -- I don't mean to be pandering to the obvious, but our network is cheaper than Sprint and Sprint is probably cheaper than AT&T, right? So I think we're very focused on making sure that we maximize offload onto our own network. The second port of call becomes obviously the Sprint network, which is the primary network which we're tethered to. And then lastly, to your point on AT&T, that's a roaming contract, which is really for the edge side of our business where the Sprint network does not have good coverage. So the sequencing, the waterfall of the economics are such, we obviously expect the AT&T usage to be significantly in very, very large quantums, a lot less than the Sprint one. And similarly, obviously, the Sprint usage relative to our own WiFi network to be a fraction in terms of the usage. So we think overall the economics continue to be very compelling for us. You'll see with our price point and as we talk about our price point more openly, we could walk you through those economics more clearly. On the remedy side, listen, you guys have seen as much detail as we have seen in terms of the consent decree and the commitments the new T-Mobile has done with the FCC. I can't really talk to you about anything more than that's what's out in the public domain in terms of what DISH has received. We do not know the details outside of what's been published in the consent decree as to what DISH has received nor are we in any position to talk about what we have received, because we have never been in discussions one-on-one on these types of very specific remedies with the DOJ and the FCC. This has really been a discussion that they have had directly with T-Mo and Sprint, and that has been public information.

Okay. That's great. One additional one. I mean it's more a question about DISH's agreement, as they describe in their Q. It seems like there was a carve-out that could apply to you as a permitted strategic equity investor in DISH Wireless. I don't know if my reading was the same as kind -- as yours. Is that something that -- was it something that you would ask for or is it just a technical possibility and you have no thoughts at this time?

I have a lot of thoughts, Andrew. But listen, I think, as I read it and from memory here, there is clearly time periods when DISH has probably not incentivized. They do things with third-parties and then becomes progressively more incentivized or the value of a change of control potential feature or a coinvestment by a permitted strategic becomes more advantageous. And I think off the top of my head, that's 3 years into the consent decree, where there is a shift, at which point it may make sense for them to have more strategic discussions with third parties. What do we think about that? I think it's obviously an opportunity for us to have discussions at the right time and if it makes sense, but again those are things that are so far away from our thought process today given that we're so focused just on the launch of our existing product. We do have a 7-year plus, let's call it, because the transaction hasn't closed in the consent decree -- the 7-year consent decree fund closing. So we've got a 7-year plus lifeline of our existing MVNO and the time to think and to speak to all the relevant parties out there as to the next step and evolution of our product and potentially network to the extent that makes sense.

Your next question comes from Doug Mitchelson with Crédit Suisse.

Dexter, are you still building out WiFi nodes in the New York City area? I'm not sure if there is a target coverage or other metric you would discuss there. And then I think the main line of questioning, fiber strategy is a big differentiator for Altice in addition to your mobile strategy. And you've made comments on this in the past, but I continue to get a lot of investor questions on the fiber plan. So if you could just maybe walk us through again the cost per home passed is substantially below what other companies in the U.S. have been able to achieve. So what's the secret sauce there? And if you could just confirm sort of how many homes passed in the end do you think fiber will have? And then the second part of the fiber question is just when do we start to see proof points in the potential to remarket against Fios and upsell at the faster speeds and the cost of CapEx benefits you've previously outlined? Is there a geography or a market you might launch the product first to be able to sort of report back in a certain time frame? Anything on those lines would help.

I'm fast and furiously, Doug, writing down all of your questions. So let me try and go through these one by one. Yes, we are continuously regularly enhancing our WiFi network in the tri-state area, that is an annual commitment that we do as part of our capital expenditure budget. And we'll continue to do so, not just for mobile usage, but obviously for our residential and SMB clients who get access to our WiFi network. In terms of the fiber strategy, yes, it is core to our plan. I think the secret sauce is none other than we have a attractive footprint that we're working with in terms of the geographic and the density features and the relationships that we have with the local communities. But more importantly, I think the secret sauce is that ourselves and our sister company at Altice Europe have been rolling out fiber for many, many, many years in very, very large quantities, which is probably unique relative to some of the other providers here in the U.S., who have not done as much fiber-to-the-home rollout as we have and probably don't benefit from relationships such as we have with Altice Labs as an example, which is core to our fiber strategy and really all of our infrastructure strategy that we have globally between Altice Europe and Altice USA. In terms of the number of homes, I think we are looking to fiberize the entire Optimum footprint, the tri-state area, which is 5 million homes. We've been consistent in talking about that. We are currently at about 300,000 homes ready for service and about 1 million homes cabled or passed today, which will then become obviously ready for service as we continue to drive our investment. In terms of proof points, a couple of things: number one is, we've been also very clear that we are upgrading, in the interim, our Optimum footprint to 1-gig on DOCSIS 3.1. So that is almost complete. It will be completed by the end of this year. So our entire footprint pretty much will be 1-gig-ready by the end of this year. So in terms of competition relative to a Fios 1-gig product, we will be delivering that competition before year-end. Secondly, I think the most relevant proof point relative to our fiber-to-the-home is that we believe we're going to be 10 gig-ready as early as the first half of next year. So we will market a 10-gig product. We're expecting be able to market a 10-gig product up and down within the first half of 2020. I think that is probably the best proof point for you in terms of our ambitions to create a differentiated experience for our customers, but also provide our customers with more alternatives for an advanced product relative to Fios or other -- any other of our competitors out there.

Your next question comes from Marci Ryvicker with Wolfe Research.

I have 2. The first for mobile. Are you launching across your entire footprint on day 1? And then my second question, related to the raise to your revenue guide, is that all just from advertising? Or is something else also driving that?

On mobile, yes, it's across the entire footprint. On the raise, I think it's a confluence of -- from all of our divisions doing well or better-than-expected. You have to remember, Marci, that we are launching mobile also in the second half. So given that we are imminently launching that, we feel comfortable that, that will produce also [ a certain ] revenue. So it's not advertising per se. I think I flagged in the presentation part of our discussion today that advertising on a year-over-year basis will be softer, given that last year the third and the fourth quarter were heavy political quarters. So it's clearly not the advertising side of the business that is driving that. Really, you've seen our B2C business beat expectations at least in terms of our expectations of the performance. The B2B business continues to do extremely well. Advertising per se is doing better on a relative basis than our peers, given the investments we've done there. Cheddar, obviously, has come online, and it's going to deliver some incremental revenue contribution. And then there is mobile, which will not be 0. So it will just be higher than 0, and that will also be contributing to the top line. So we feel good about our new [ friends ] there, and we'll see how that pans out.

Next question comes from Ben Swinburne with Morgan Stanley.

Just, Charlie, on the balance sheet going back to your guidance slide, are you or should we expect or are you expecting to be at 5x or below level by the end of the year? That's sort of the implication of the slide, but I wanted to just ask specifically because you've been, as you know operating above that level, so just wanted to start there.

Well, yes, Ben, thanks. That's on an L2QA basis and we -- because of just the seasonality of the quarters and so on, that's why we are a little bit higher this quarter. But as you also know, we were within that same guidance at the end of last year, and it's also our expectation that, that's where we'll be likewise at the end of this year.

Okay. Got it. And then a question on the Sprint/T-Mobile front, I think they had built out, they being Sprint, I think 19,000 small cells, I think that was the number. Assuming that this transaction between Sprint and T-Mo closes, do you guys have any expectations whether [ you're going ] to add more small cell capacity on your network? Or what are your expectations around that, if any?

Ben, 19,000 is the right number. I think that's a dialogue that we're going to have with the new T-Mo whenever that comes about. I don't think we're privy yet to their network strategy in the New York tri-state area as to whether they're going to keep their own existing T-Mobile network or prioritize the Sprint network, which has been heavily invested in, or do some combination of both, right. So I think the expectations, obviously, is that they have the ability to use us to continue to densify their network. I don't see why they wouldn't want to do that. But I can't say for certain that, that's what they're planning on doing.

Okay. And then just lastly back on the advertising question. I guess, Dexter, now that you have Cheddar closed and you've got a number of news businesses, any update on sort of how you feel about these businesses? And how they're performing relative to expectations, whether you think tucking in more digital media assets might make sense for the company as you build out this business? And I don't know if you guys would be willing to size the Cheddar contribution in revenue for the back half, but I thought I would at least ask.

Yes. I mean, listen, we were very clear that the Cheddar acquisition was very specific to 2 things: number one is, it fits a product that we don't have in our portfolio of news. And so now we have a full suite of news products both on the linear side and the digital side. And secondly, bringing on board an exceptional management team that's proven out to be differentiating in not only driving news coverage and good content but also being exceptionally good at driving national advertising. And what are we, 2 months into it, today, I can tell you that we are thrilled to have Jon Steinberg and his team as part of Altice USA. He has already done wonders internally with the drug strategy, integrating the various news assets, thinking about the next suite of products and content that we can deliver in a very unique fashion and has pushed the organization towards, let's call it new thought processes and new partnerships with third parties, which were not part of or quiver of things that we were thinking about or doing. And so -- I know it's early in the life of our experience with Cheddar and the team, but I think we're over the moon is probably a good example of how we feel about that acquisition. In terms of the contribution, I'll let Nick kind of drive that discussion with you, Ben, off-line to the extent he is willing to do that with you.

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

Dexter, just a high-level question to start off. So there was talk at the beginning of the process with Sprint and T-Mobile that cable could get involved and maybe pick up some nationwide spectrum. And I'm -- it seems like it could be a great opportunity for you guys collectively, obviously maybe not such a great opportunity for Altice on its own. But I'm wondering what might have stood in the way of a -- you guys collectively taking advantage of an opportunity like that. And then I'm wondering just more broadly how you guys think about spectrum down the road given the size of your footprint, would you be interested in C-band or a CBRS in your own right? Or is that something that only really makes sense in the context of the cable industry all acting together?

On the first one, listen, there really wasn't a -- necessarily an opportunity here to get nationwide spectrum. I don't know what our peers are saying, but the process was very much away from us, let's call it, at least Altice USA, in terms of opportunity to be a potential acquirer of those -- some -- any of the third-party assets that are being divested, right, so we were never given the opportunity to look at it, and so I can't say anything more than that because I don't know. In terms of spectrum down the road, we have been obviously looking at all the different alternatives as to -- to the extent we wanted to build anything out from a future standpoint. It's really too early to tell as to what we would do or what we would really think about doing given that we are on the eve of launching here our infrastructure-based MVNO. So I can't really comment on anything because we don't have a path until we really see the success of [ our producer ] business and are able to map out the right capital allocation strategy going forward to the extent we then want to allocate more capital to mobile business.

And one quick follow-up, if I may, Dexter, is there an opportunity for you guys to improve your deal with T-Mobile further as they go through their discussions with the states? Could you get full core control the way DISH has potentially? Was that something that you'd tried to get in the last set of discussions and they weren't willing to give?

Listen, I don't mean to be presumptuous on anything here, which is we've been very clear as to why we initially opposed the transaction. The FCC and DOJ have gone to great lengths to assuage our fears and our concerns, and so we got a lot of great benefits out of both agencies. I don't know what the state AGs are looking for and whether or not they will be pushing for additional things for people like ourselves or other third-party competitors, but anything's possible, Jonathan, we clearly will take advantage of opportunities to the extent they are present for us to get improved deals, including the things that you talk about in terms of real full network control, core network control, which is really driven by the hand off side to it. But we already have very good core control, which is already a big advantage, and we'll see what happens over the next months.

The last question that we have time for today comes from the line of John Hodulik with UBS.

Maybe two quick follow-ups on wireless and then one on data. Dexter, the press reports say that with the MVNO, you're currently testing with employees at a price point of $25 a month for unlimited services, is that not the right price that we should think about going forward? Number two, and you may have touched on this a little bit earlier, but if Altice is acquired by, say, another cable company, does the current MVNO terms -- would they travel to the acquired company, say, cable company? That's it on wireless. And then on the data side, 13% growth in data, again, is sort of industry-leading, nice acceleration from the last quarter. Now you anniversary the July price increase, but we -- talk about the runway you have in terms of growth on the data side? And do you think you can maintain that industry-leading growth going forward?

So I don't mean to be coy, but you see the price point for employees, so you see the price point employees. I think, when we launch, you will see the price point that we'll come to market with, right. So I think that continues to be something that we're going to keep close to our vest until we actually launch.

I thought I'd give it a shot, though.

It was a good shot. If Altice gets acquired, I think it's really based on the proper structure in the transaction. You're not privy to the actual agreement, but there are scenarios that would clearly see that deal survive. And so we think that's an attractive asset that we own for us to allow that to survive. On the data side, yes, I mean, listen, we're very pleased with our data revenue growth performance. We continue to believe we have an incremental runway going forward. What we are seeing primarily and I know that we're lapping the price increase from last year, so we may see some year-over-year comparisons in Q3 and Q4 which are less than the 13% we're seeing here in Q2. But the most important thing that we're seeing is a super, super majority of this growth in data revenue is driven by up-tiering of our clients, right. Proactive up-tiering on their behalf of higher and higher speeds. And so we've seen that consistently. If you go back to all of our Investor Relations material, you'll continue to see the curve going in the right direction from left to right in an upward trend. We don't see any slowing down of that today. So we do believe that we continue to have a good runway. And as I mentioned, answering one of your colleagues' questions here, with the launch of our fiber-to-the-home 10-gig product next year, we obviously, between 1-gig and 10-gig, have a lot of room again to have multiple tiers of products which are not available to consumers nationwide other than to us. So that's really the differentiator for us, that we continue to drive great network investments, good capital allocation decisions that we believe will continue to drive good upward trends in our businesses. I can't tell you whether quarter-over-quarter, we're going to be at 5% or 13% or 20% or something like that in terms of our data revenue growth, but all the trends continue to push in the right direction on the data growth side.

And with that, I'll turn the call back to the presenters for any closing remarks.

Thank you. Thank you for joining, and we look forward to catching up with you in the next few weeks. Thank you.

Thank you.

This concludes today's conference call. You may now disconnect.