October 30, 2020
It's still early days, but Altice USA says it's starting to reap some of the benefits of its fiber-to-the-premises (FTTP) network upgrades in the "Optimum" footprint serving parts of New York, New Jersey and Connecticut.
Following the commercial launch of double- and triple-play services in its FTTP service areas, the sell-in rate for fiber-fueled services rose to 44% in the third quarter of 2020, up from 28% in Q2 2020, Altice USA CEO Dexter Goei said on an earnings call.
Figure 1: Dexter Goei 'We remain very optimistic about the 1-Gig opportunity,' Goei said on Thursday's earnings call.
Additionally, 60% of FTTP customer gross broadband subscriber adds in Q3 took the operator's 1-Gig broadband product, a rate that is significantly higher than the 1-Gig sell-in it is seeing with new broadband customers on the operator's hybrid fiber/coax (HFC) networks, Goei said.
With all of Altice USA's networks factored in – both HFC and FTTP – 29% of gross additions took the highest-level speed tier in 1-Gig-capable areas in Q3 2020, up from 24% in Q2 2020. At the end of Q3, 92% of Altice USA's footprint was 1-Gig capable.
"We remain very optimistic about the 1-Gig opportunity," Goei said, noting that there's sizable opportunity for speed upgrades as the average download speeds across Altice USA was 262 Mbit/s, up from 208 Mbit/s a year ago. Across its full footprint, Altice USA is seeing average data usage of 420 gigabytes per customer per month, up 44% from a year ago, and 530GB among its broadband-only subs.
Altice USA ended Q3 with 900,000 homes passed and ready for service with FTTP. The plan is to upgrade the entire Optimum footprint, which covers about 5 million homes, within the next three-and-a-half to four years. Goei's hopeful that Altice USA will build FTTP to another 500,000 homes in 2021 and then start to deploy FTTP at a clip of 1 million-plus per year thereafter.
Michael Grau, Altice USA's CFO, believes the company can comfortably operate in the range of $1.3 billion to $1.4 billion in capex to complete its FTTP and edge-out initiatives, but sees a longer-term opportunity to cut annual capex to below $1 billion after the FTTP build is complete.
Meanwhile, the company is pursuing network "edge-out" strategies in its more rural Suddenlink areas, aiming to extend its reach to another 150,000-plus homes annually with that tactic. To further its efforts in underserved and unserved areas, Altice USA has also filed for the Rural Digital Opportunity Fund (RDOF) auction that gets underway this week.
Cogeco stalemate, but other M&A opportunities may arise
Goei said that the November 18 expiration date on its sweetened deal for Canada-based Cogeco still stands, but didn't elaborate. Cogeco's boards and a family-owned business that holds 69% of voting rights shares in Cogeco have already rejected Altice USA's latest proposal. Altice USA is looking to retain Cogeco's US assets (Atlantic Broadband) and sell Cogeco's Canadian assets to Toronto-based Rogers Communications.
Goei said Altice USA is also looking at a "handful" of other M&A opportunities, noting that interest among smaller US operators, including some with contiguous operations to Suddenlink's footprint, are starting to percolate. Altice USA recently expanded in its Optimum footprint with the acquisition of a small operator, Service Electric Cable TV of New Jersey.
"Anything that Altice can do to geographically diversify away from their legacy Optimum footprint would be welcomed by the market, even if they have to pay a premium to do it," Craig Moffett, analyst with MoffettNathanson, said in a research note issued Thursday afternoon. "There are a handful of operators somewhat larger than Service Electric that are logical targets."
Overall Q3 revenues of $2.43 revenues were essentially flat, up 0.2% year-on-year, though business services revenues ticked up 1.3%. The company swung to a net loss of $4.7 million (1 cent per share) compared to year-ago net income of $77.2 million (12 cents per share).
Altice USA added 26,000 broadband sub and lost 86,400 video subs in the period.
The company, which recently added flexible data plans to its Altice Mobile service, added 18,000 mobile lines in Q3, extending that total to 160,000 lines. Altice Mobile, launched last September, generated revenues of $19.7 million in the quarter.
Goei said mobile momentum continues to be slow while about half of Altice USA's stores remained closed during the pandemic, but still managed to achieve 3.5% penetration of the company's total residential customer base.
— Jeff Baumgartner, Senior Editor, Light Reading
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