In this installment of our Autumn for Broadband series, we provide a quick update on trends in the broadband market based on what we have seen from the companies that have reported so far. Industry net adds were down substantially from a year ago, but trends have leveled off sequentially and they look to remain stable in 3Q24 (adjusting for one-time ACP impacts). We continue to expect growth to recover once the ACP headwind has passed.
We provided a comprehensive review of what Altice needs to do to justify its current value and how results are tracking against those objectives in our note this morning. The earnings call was frustratingly light on useful context. We don’t have that much to add on the quarter.
We knew this would be the toughest quarter of the year, and it was a little tougher than we and consensus expected. Management set expectations last quarter for an improvement in the second half of the year. Investors will be looking for a clear reiteration of that promise on the call. In this note, we touch briefly on the following: 1. The path to positive equity value 2. Broadband market growth 3. Altice’s broadband net adds 4. Broadband ARPU 5. EBITDA 6. Leverage 7. Fiber progress
This note focuses mostly on model changes. Please see separate notes reviewing results and on thoughts following the earnings call. The Company needs to stabilize EBITDA and reduce debt to reclaim equity value. They are making (slow) progress on the first. The second is possible via discounted exchanges, but it won’t be easy. We remain on the sidelines.
In this brief note we cover 1) the prospect for discounted debt exchanges; 2) our evolving thoughts on ABS; 3) the path to ARPU and EBITDA stability; 4) Altice’s decision to overbuild Comcast in NJ; and 5) the normal stuff on broadband market growth, ACP, Altice’s adds, and the investment case.
We just wrapped up the second day of the BCG and NSR Fiber to the Future Conference. The second day featured discussions with over 30 companies including Altice USA, AT&T, BT Group, Charter, Dycom, Deutsche Telekom, Frontier, Goldman Sachs, Liberty Global, Lumen, Recon Analytics, Shentel, TDS Telecom, Tillman Global, Tucows, and Verizon.
Bloomberg is reporting that Charter is working with advisors to explore an acquisition of Altice. We are taking the story seriously, though we believe that Altice’s leverage and operational challenges make a deal difficult. We think there are very limited circumstances under which a deal would be feasible. Our quick thoughts in this brief note.
Subscriber trends were nearly in-line but broadband adds remain pressured in 1Q24. EBITDA beat thanks to higher video ARPU. We think the company is doing the right thing by pulling back on fiber build and focusing on driving penetration in existing markets. The debt issuance last month pushes maturities to 2027 and gives management three years to fix the business. For now, we don’t see a big change in the business by 2027. We remain on the sidelines.
We previously published a report exploring the impact of the loss of ACP subsidies on Charter. In this report, we have improved and expanded our framework in two ways: first, we expanded the analysis to include more broadband providers, including Comcast, Altice, Cox, Lumen, Frontier, and others; second, we found new publicly available data that informed our estimate of ACP recipients by operator.
Press reports indicate that Altice will increase the “network enhancement fee” levied on all broadband subscribers. At the same time, they are cutting rack rates for all tiers of the broadband product. The fee increase will provide a small boost to ARPU in 2024. The reduction in rack rate pricing is big; however, we don’t think they will materially impact ARPU.
We published our big report on broadband trends on Sunday. Today, we are publishing one new slide that focuses more closely on Altice's challenge. In the big report, we showed that Altice's NPS lagged peers and competitors by a wide margin. In this slide, we show that their NPS on their fiber product is fine; the Cable product has issues.
Subscriber trends were in-line. EBITDA beat thanks to higher video ARPU. We have a much clearer view of Altice’s access to ABS and deleveraging prospects following recent work. We think the Company needs to cut capex, pausing fiber deployment until EBITDA is growing sustainably.
We recently published a report on Altice’s path to lower leverage. We followed up with a conference call that took a holistic view of the Altice complex including Altice International and Altice France. In this follow-up report, we take a more detailed look at the prospect of an ABS deal, following conversations with credit investors and agencies. We conclude that an ABS won’t be easy, but it will bring important benefits if it happens.
We understand that President Biden will soon send the Congress a National Security and a domestic spending plan, with the domestic plan including a request for more funds for the Affordable Connectivity Program (ACP). If Congress adopts the ACP recommendation, it would be a positive for all ISPs, as the ACP currently provides a subsidy to over 20 million households. If not adopted, the ACP is likely to run out of money sometime in the spring of 2024. As we have written before, the end of the ...
Yesterday, FCC Chair Rosenworcel circulated two items for a Commission vote that would help broadcasters in retransmissions disputes by forcing the cable, satellite, and telco multi-channel video program distributors (MVPDs) to reimburse consumers for blackout days during which the consumers did not get the full package that they had signed up for.
In this iteration of the global review, we will touch on important themes we have covered in reports over the past couple of weeks. The reports had important, thesis-changing implications for Charter, Comcast, T-Mobile, Dish, Altice, and the towers.
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