Altice USA revamps network upgrade, growth strategy
Chastened by broadband subscriber losses and a near-halt to its mobile sub growth, Altice USA is reversing course and plans to boost capital spending, accelerate fiber network upgrades, step up footprint expansion, revamp mobile product pricing and open up dozens of new retail stores.
Speaking on the company's Q3 2021 earnings call Thursday afternoon, Altice USA CEO Dexter Goei said the large MSO will increase its capital spending by about $500 million to a projected $1.7 billion-$1.8 billion in 2022 to restore broadband growth and boost its residential business as soon as possible. He said he's "optimistic that by advancing these key initiatives, we will drive long-term sustainable growth and value for all of our stakeholders."
Specifically, Altice USA intends to expand its fiber rollout to pass 1.5 million households with fiber-to-the-home (FTTH) lines by the end of this year, up from 1.26 million homes passed at the end of September. It then intends to pass another 1 million homes with FTTH lines in 2022, raising its grand total to 2.5 million households by the close of next year.
In particular, Altice USA plans to upgrade to FTTH throughout its Optimum footprint in the greater New York metro area, where it has been fighting a losing battle lately against Verizon's fiber-fueled Fios service. Goei said Altice USA aims to pass another 1 million to 1.5 million homes with fiber in the Optimum areas by the close of 2023, putting it on at least an equal competitive footing with the Verizon service.
"Right now we are very, very focused on getting to 3.5 million to 4 million homes passed (with fiber) as soon as possible," Goei said. "We think that building fiber will put us in a superior network position relative to them."
Goei argued that while Verizon needs to "fix their fiber-to-coax termination if they want to go to higher speeds," Altice USA will "be 10-Gig ready effectively by the second half of next year across our fiber footprint and have a longer runway with product advantage and mind share... We'll be able to duke it out in equal, if not better, position."
The revamped Altice USA growth strategy also calls for installing more FTTH lines in its Suddenlink territories in Texas, North Carolina and elsewhere. The operator is targeting another 100,000 Suddenlink households next year, followed by an additional 100,000 to 200,000 homes in 2023 and 2024. The operator also plans to rebrand its Suddenlink service as Optimum, matching its brand name in the old Cablevision Systems territories in the Northeast.
In the near term, Altice USA also plans to boost maximum speeds over its legacy hybrid fiber-coax (HFC) plant from 300 Mbit/s to 500 Mbit/s in its Suddenlink footprint, as well as rebrand its services there under the Optimum name. But the big focus is clearly on its Optimum territories in the Northeast.
In addition to installing more fiber lines and boosting broadband speeds, Altice USA will step up its "edge-out" strategy to extend its network reach beyond its current footprint to another 175,000 households in 2022.
Besides hiking its spending on fiber and coax upgrades, Altice USA said it will spend more heavily again on its sales distribution channels to match pre-pandemic levels. It expects to rebuild its door-to-door salesforce, which slipped to 241 people in Q3 after reaching as high as 518 in 2018, to 400 to 500 by the end of next year. In addition, the company plans to increase the number of retail stores, which fell to 87 in 2020 during the height of the pandemic, to 150 to 170 locations by the close of this year.
"We're back to business here now," Goei said.
In another move, Altice USA is rebranding its mobile service as Optimum Mobile and will revamp its product packaging and pricing to make it more attractive to consumers. Among other things, the operator will package streaming services in with its mobile offering, similar to what Verizon does with Disney+.
All these moves come after Altice USA suffered a loss of nearly 13,000 residential broadband customers in Q3, lowering its grand total to just under 4.39 million. While the sub losses were not as steep as Goei had warned investors back in late September, they still represented a sharp setback for the company and sent its stock diving as much as 16% in one day.
In addition, Altice's Optimum Mobile service added just 1,000 lines in the summer quarter, inching its total up to 181,000, after much stronger gains a year ago. And the operator lost another 67,000 video customers, lowering its total to just over 2.8 million.
In a research note issued late Thursday Craig Moffett, a principal and senior analyst at MoffettNathanson, argued that Altice USA's new strategic direction represents a repudiation of its previous reliance on deep cost cuts, minimal capex spending and healthy price increases to boost revenues and profits. The company has called this approach "The Altice Way."
"Not one single part of the strategy worked. And now, no part of it remains," wrote Moffett, who welcomed the reversal in strategy. "They are conceding that they have underspent on capex, and, having done so, full fiber replacement, especially in competitive areas, is the best strategy."
Despite the broadband sub decline, Altice USA reported that total revenue climbed 5.8% in Q3 to $2.57 billion while adjusted EBITDA rose 3.4% to $1.16 billion, largely because of one-time gains in a couple of areas.
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