WOW sets sail for broadband growth as M&A wave subsides

Midsized competitive cable operator WideOpenWest says it is ready to push forward with a "broadband-first" strategy and a focus on network expansions and accelerated subscriber growth after closing the sale of a handful of systems.

Last week, WOW wrapped the sale of its Chicago; Evansville, Indiana; and Anne Arundel, Maryland systems to Astound Broadband. That followed the September 1 close of sales of WOW systems in Columbus and Cleveland, Ohio to Atlantic Broadband. That leaves WOW with 14 service areas in parts of Alabama, Florida, Georgia, Michigan, South Carolina and Tennessee.

"We are really pleased with how quickly both transactions closed," WOW CEO Teresa Elder said on Monday's Q3 2021 earnings call, noting that the deals generated $1.8 billion in gross proceeds.

WOW will use that to reduce its debt by $1.5 billion and put the company in position to make "significant greenfield investments" funded by free cash flow generated by the remaining WOW business, she said.

"Now that we have enhanced our balance sheet, following the completion of the service area divestitures, we are in a very strong position to more aggressively invest in our broadband-first strategy, which we expect will result in a re-acceleration of HSD [high-speed data] subscriber growth in 2022," Elder said.

Similar to trends at other US cable operators in the period, WOW's broadband sub additions slowed to 1,600 in Q3 2021. That was paired with low levels of churn that have generally reduced sales opportunities for most US broadband service providers. Roughly 87% of WOW's new broadband subs in Q3 took speeds of 200 Mbit/s or higher, Elder said.

Reflecting WOW's shift away from traditional pay-TV service, the company lost 10,700 video subs in Q3, lowering its video penetration rate to 8.4%. That compares with a penetration rate of 27.1% for high-speed data, and an overall subscriber penetration rate of 28.3%.

More detail to be revealed December 9

WOW also made some progress with an "edge-out" strategy in which it extends the network to adjacent areas. Since the program's inception, those projects from continuing operations now reach about 78,000 homes passed and have generated roughly 19,000 subscribers. So far for 2021, those projects have brought in 400 subscribers, good for a penetration rate of 21.1% on nodes serving new edge-out areas.

WOW is expected to accelerate its edge-out activity in the wake of its handful of system sales, but was short on details. Elder said the company will shed more light on the edge-out strategy, as well as WOW's plans for greenfield network builds, during an investor day set for December 9.

"We expect WOW to pursue greenfield FTTH expansion opportunities in markets with limited broadband competition and a relatively strong household and business formation outlook," Daniel Day, analyst with B Riley, explained in a research note.

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— Jeff Baumgartner, Senior Editor, Light Reading