Altice USA said it lost about 13,000 residential broadband customers in Q3, better than the 15,000-to-20,000 losses its CEO said were expected more than a month ago, and vowed to reverse those losses through accelerated footprint expansion, new products, fiber upgrades and additional investment in mobile and converged offerings.
Altice USA CEO Dexter Goei warned that broadband subscribers could go negative in Q3 to the tune of between 15,000 and 20,000 customers at the Goldman Sachs Communacopia conference on Sept. 23. That news drove the stock down by as much as 16% that day and sank the sector as fears that the anticipated broadband growth slowdown could accelerate.
Despite the broadband decline, total revenue for the company was up 5.8% in the period to $2.57 billion and adjusted EBITDA rose 3.4% to $1.16 billion.
In a press release, Goei said that the near-term focus is to return to broadband growth and boost investment in its residential business.
“Today we are announcing strategic measures to enhance the company’s product portfolio and customer experience, including footprint expansion, fiber and network upgrades, as well as investments in simplified and converged offerings that support consumer needs, and a rapid expansion of sales distribution channels,” Goei said in a press release. “I am optimistic that by advancing these key initiatives we will drive long term sustainable growth and value for all of our stakeholders.”
The initiative seemed to cheer investors, who drove up Altice USA shares by more than 8% in after-market trading Nov. 4 to $17.75 each.
Back in September, Goei said the expected broadband decline was due to lower than expected gross additions, the result of an “underwhelming” back-to-school period. But the CEO was hopeful that new efforts launched at the beginning of September, like increasing the speeds of its Altice Advantage Internet product to 50 Megabits per second (a 65% boost), renaming it Optimum Advantage and keeping its price point at $14.99 per month, will boost subscriber rolls. In July, Altice said it would rebrand its Altice Mobile product as Optimum Mobile, the first step in aligning all of its brands under the Optimum name.
Altice has been deep in its fiber-to-the-home network upgrade for the past few years, but had to scale back during the pandemic to adhere to protocols. Now that those restrictions are easing, the company said it plans to step up its fiber rollout to pass 1.5 million homes with fiber-to-the-home capability by the end of the year -- up from 1.26 million passings in Q3 -- and to 2.5 million FTTH passings by the end of 2022. That includes completing the vast majority of its Connecticut territory by the end of 2022 and targeting 100,000 homes for fiber upgrades within Suddenlink’s footprint next year.
Existing hybrid-fiber-coax (HFC) areas inside the Suddenlink footprint also will see speed increases from the old maximum of 150 Megabits per second to 400 Mbps and 1 Gigabit per second.
“We’re on track to deliver over 300,000 upgraded homes by the end of this year, at the higher end of what we were targeting, and we’ve already commenced additional upgrades which we will complete next year,” Goei said on the call.
In a research note, MoffettNathanson principal and senior analyst Craig Moffett wrote that Altice’s new strategic direction is in part a repudiation of its old method of deep cost cuts, minimal capex spending and healthy price increases, which the company previously dubbed “The Altice Way.”
The new direction seems to make Altice more of a conventional cable company, which the analysts saw as good news.
“[T]hey are conceding that they have underspent on capex, and, having done so, full fiber replacement, especially in competitive areas, is the best strategy,” Moffett wrote.
The company said it also will expand investment in its sales distribution channels to pre-pandemic levels. Door-to-door salesforce headcount, which slipped to 241 in Q3 after being as high as 518 in 2018, is expected to rise to between 400 and 500 by the end of next year. Retail locations, which fell to 87 in 2020 during the height of the pandemic, are expected to rise to between 150 and 170 locations by the end of 2022.
Altice said that most of the broadband losses came in Optimum markets where it competes against Verizon’s Fios products. Broadband customer growth was consistent with 2018 and 2019 levels within its Suddenlink footprint.
On a conference call Thursday to discuss Q3 results, Goei said that Verizon Fios has benefited from having a “mobile strategy, product and mindshare which is significantly higher than ours across the board,” which should change now that Altice USA’s MVNO partner is T-Mobile instead of Sprint. And the CEO believes the expansion of the fiber buildout will also make a competitive difference.
“We think that building fiber puts us in a superior network position relative to them,” Goei said of Fios. “...They need to fix their fiber-to-coax termination if they want to go to higher speeds. We’re going to 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 mindshare. We’re repositioning ourselves to be able to duke it out on an equal, if not better, product portfolio going forward.”
As far as boosting broadband subscribers, Goei said on the call that lower churn has driven less competition for gross customer additions, which has impacted gross additions in general. And though there was some softness in the back-to-school market, he believes that segment is beginning to come back.
“Yes, we had a peculiar 2021 back-to-school,” Goei said on the call, adding that after visiting some college campuses “it looks like [things are] back to normal.”
