'Accelerated move churn' halts Altice USA's broadband momentum in Q2'Accelerated move churn' halts Altice USA's broadband momentum in Q2
On the mobile side, Altice USA remains happy with its T-Mobile deal, but is keeping an eye on the MVNO market amid the new Dish-AT&T deal and revised agreements Comcast and Charter have cut with Verizon.
July 28, 2021
Altice USA's broadband subscriber base hardly moved in the second quarter of 2021 as the company grappled with "accelerated move churn," particularly in its Optimum footprint serving parts of New York, New Jersey and Connecticut, company CEO Dexter Goei said on Wednesday's earnings call.
Altice USA's residential broadband growth flattened in the period when not factoring in about 30,000 customers that came in from Altice USA's recent acquisition of Morris Broadband. Altice USA added about 70,000 broadband net adds in a year-ago period that was marked by pandemic-fueled growth.
The situation in Q2 is effectively a reversal of what Altice USA saw in the early phases of the pandemic when people in New York City, where Altice USA has only a limited presence, moved to the outskirts and signed up for broadband. A portion of those customers are moving back to the city and disconnecting service.
If those move churn numbers continue to accelerate as 2021 goes on, it's possible that Altice USA could see the pace of broadband subscribers come in lighter than what the company saw in comparable pre-pandemic periods in 2018 and 2019, Goei explained.
At the same time, he said Altice USA is not losing a share battle with Verizon Fios and other service providers in the Optimum footprint. "We're not seeing elevated levels of competition across the board," Goei said, noting that 22% of Altice USA's broadband growth activity did occur in areas where Fios is present.
Though churn was cited as a primary reason for Altice USA's zero organic broadband subscriber results in Q2, MoffettNathanson analyst Craig Moffett also views pricing as a problem. While Altice USA's introductory/promotional pricing may undercut that of Verizon Fios, the "larger concern may now be that Verizon's rack rates are suddenly much lower than Altice's," Moffett explained in a research note. He points out that he's seen prices up to $144 per month for a "mid-tier" broadband service from Altice USA while a comparable service from Verizon comes in "well below $100."
"And while it is our understanding that customers paying full rack rates are still the exception rather than the rule, it is clear that more and more customers will 'age into' higher prices as their promotional discounts run off," Moffett adds.
1-Gig sell-in holds steady
Sticking with broadband, Altice USA said 1-Gig sell-in among new customers in gigabit-served areas hit 42% in the second quarter, roughly in line with what it saw in the prior period. About 11.3% of Altice USA's customer base now takes 1-Gig speeds, up from 9.8% at the end of Q1 2021, and up from 3.7% in the year-ago period.
Figure 1: Click here for a larger version of this image.
(Source: Altice USA)
Altice USA ended Q1 with 1.1 million homes passed with FTTP, up from about 1 million at the end of Q1 2021. Goei said Altice USA is on track to deploy FTTP to an additional 500,000 homes for all of 2021, noting that new network builds are ramping up materially during the summer.
Goei said Altice USA plans to introduce multi-gigabit broadband products (up to 10 Gbit/s) in 2022 via FTTP, noting that the company has already put in orders for modems that can handle multi-gigabit speeds.
Goei expects the bulk of Altice USA's FTTP upgrades, which are largely focused on Fios markets, to be wrapped up by 2023. After that, the company will explore further fiber upgrades in other markets based on their economic attractiveness.
Altice USA is also pushing ahead with network upgrades in its more rural Suddenlink footprint that will cover 250,000 to 300,000 homes this year, with most of that activity to occur in the third quarter and into the fourth quarter. The company is also moving ahead with a plan to complete "edge out" builds to about 150,000 locations in adjacent areas in 2021.
With all of Altice USA's upgrade activity rolled up, Goei is hopeful that Altice USA's upgrade activity underway now will put the company in position to see the pace of broadband subscriber additions accelerate in 2022.
Mobile moves along
Altice USA's mobile business, recently rebranded as Optimum Mobile, added 5,000 lines in the quarter, expanding its total to 180,000 lines, or a 3.8% penetration of Altice USA's residential customer base.
Optimum Mobile generated $20.7 million in revenues for the quarter, up 4% year-on-year. Altice USA noted that, since the start of 2021, all active Optimum Mobile customers have been migrated to the T-Mobile network from the Sprint network (Altice USA's original MVNO was with Sprint, but transitioned to T-Mobile following the T-Mobile/Sprint merger).
Goei said Altice USA remains happy with its MVNO with T-Mobile, but noted that he's fully aware of shifts in the market, including Dish Network's new deal with AT&T and recently revised MVNO deals that Comcast and Charter Communications have cut with Verizon.
"We always monitor what else is going on the in the market," Goei said when asked if this flurry of MVNO activity has caused Altice USA to revisit its mobile options.
"We are very, very happy here with T-Mo," he added, but acknowledged that he thinks the economics of the current agreement do have room for improvement, and discussions are ongoing.
Goei expects Altice USA to get more aggressive with mobile marketing later this year, hinting at a possible acquisition campaign focused on the back-to-school period.
'Stream' enters the mix as pay-TV numbers fall again
On the video end, Altice USA shed another 48,000 subscribers in Q2, a figure that widened from a year-ago loss of 35,000. Those losses enter the picture as Altice USA starts to present new streaming options for its high-speed Internet subs. Earlier this month, the company introduced a new "Stream" product for broadband-only customers that relies on an Android TV-powered device. Altice USA is offering that product, which supports a wide range of third-party OTT-delivered pay-TV and subscription- and ad-based VoD services, for no added cost for customers who take the fastest available speed tier in a given market. Others are paying an additional $5 per month.
Goei expanded a bit on the strategy behind Stream, noting that it is coming online as pay-TV attachment rates continue to fall. He also sees Stream as a good fit for broadband customers who don't care for the kind of large pay-TV bundle that's offered on the operator's more expensive Altice One set-top/gateway platform.
"It's really a capex play," Goei said, noting that the intro of Stream is about being reactive to what consumers want and how they are behaving today.
Altice USA pulled in total residential revenues of $1.99 billion in Q2 2021, relatively flat (-0.1%) from the year-ago period. Residential revenue per customer dropped 1.5%, to $142.24, compared to the year-ago period, but flat when compared to Q1 2021.
A bright spot was business services, which grew 1.8% year-on-year, driven partly by 2.7% growth at Lightpath, the fiber-focused service unit that recently announced expansions into Boston, Massachusetts; and Queens, New York.
— Jeff Baumgartner, Senior Editor, Light Reading
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