Earnings Call Transcript - CHTR Q3 2021

Operator, Operator

Good day and thank you for standing by. Welcome to the Charter Third Quarter 2021 Investor Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session you will need to press the appropriate operator key on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance please press the operator key. I would now like to hand the conference over to your speaker today, Stefan Anninger. Please go ahead, sir.

Stefan Anninger, Head of Investor Relations

Good morning and welcome to Charter's third quarter 2021 investor call. The presentation that accompanies this call can be found on our website, ir.charter.com under the Financial Information section. Before we proceed, I would like to remind you that there are a number of risk factors and other cautionary statements contained in our SEC filings, including our most recent 10-K and also our 10-Q filed this morning. We will not review those risk factors and other cautionary statements on this call. However, we encourage you to read them carefully. Various remarks that we make on this call concerning expectations, predictions, plans, and prospects constitute forward-looking statements. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ from historical or anticipated results. Any forward-looking statements reflect management's current view only and Charter undertakes no obligation to revise or update such statements or to make additional forward-looking statements in the future. During the course of today's call, we will be referring to non-GAAP measures as defined and reconciled in our earnings materials. These non-GAAP measures as defined by Charter may not be comparable to measures with similar titles used by other companies. Please also note that all growth rates noted on this call, and in the presentation are calculated on a year-over-year basis unless otherwise specified. On today's call, we have Tom Rutledge, Chairman and CEO, Chris Winfrey, our COO, and Jessica Fischer, our CFO. With that, let's turn the call over to Tom.

Tom Rutledge, Chairman and CEO

Good morning and thank you, Stefan. We performed well in the third quarter, with good customer growth and very strong financial results. However, we're operating in an unusual environment where the market effects of COVID-19 have not yet normalized. Market churn remains historically low such that net gains are being driven by much lower transaction activity. Despite that, for the full quarter, we added 185,000 customer relationships, with customer growth of 3.3% year-over-year. We also added 265,000 Internet customers in the quarter, and 1.3 million over the last year for a year-over-year growth of 4.4%. We added 244,000 mobile lines and supported by lower churn and a more tenured customer base, we grew our adjusted EBITDA by a strong 13.9% in the quarter and our quarterly free cash flow by over $700 million year-over-year. Our view is that we have a long and robust runway of customer growth ahead of us. Today, our network passes over 54 million homes and businesses, and we're doing business with approximately 32 million of them, leaving us with over 20 million opportunities to create new customer relationships. There are also approximately 120 million mobile broadband lines in our footprint, and we are currently serving 3.2 million of those. We're currently very underpenetrated. Looking forward, we remain focused on improving both the quality and value of our products as data usage in the home and outside the home continues to increase at a rapid pace. Earlier this month, we launched our new and highly attractive unlimited multi-line pricing structure, which allows customers to save even more on their mobile bills. Early next year, we will launch a field trial of our CBRS small cells in a full market area, allowing participants to attach to our CBRS small cell access points when they are outside of Wi-Fi coverage, providing our spectrum mobile customers with even faster speeds, while improving the economics of our mobile business. We also continue to deliver improving wireline connectivity products. Today, over 70% of our Internet customers subscribe to tiers that provide 200 megabits or more of speed. Our new Wi-Fi 6 routers and Spectrum Wi-Fi pods, managed by our advanced home Wi-Fi platform and our My Spectrum App, provide customers with complete home coverage and greater control of their home networks and connected devices. As expected, we continue to see very high demand for data by our customers. During the quarter, non-video Internet customers used over 600 gigabytes per month, stable as of late, but more than 30% higher than pre-pandemic levels. And today, close to 20% of our non-video Internet customers use a terabyte or more of data per month. In order to increase the capacity and speed on our network for next-generation products and services, we've developed a multifaceted approach to our network evolution comprised of a number of technologies which will be deployed where they make the most sense strategically and economically, delivering the very fastest speeds and lowest latency at the lowest cost and time to deploy. We continued to expand our capacity by splitting nodes, but we have a cost-effective approach to deliver multi-gigabit speeds in the downstream and gigabit-per-second symmetrical speeds in both downstream and upstream directions, all using our deployed DOCSIS 3.1 platform. High-splits, which are currently being tested in market, not only allow for increased speeds in the near-term, but are also a capital-efficient way, as they currently use deployed DOCSIS 3.1 customer premises equipment and reduce the need for node splits as average consumer bandwidth utilization increases. What I'm saying is that the high-split actually uses the capital that would have been needed for node splits. We also continue to actively develop our DOCSIS 4.0 cable plant architecture and rollout, which allows us to cost-effectively offer greater gigabit speeds in both the downstream and upstream. And of course, we're already using fiber-to-the-home technology in a number of use cases across our footprint, including rural areas, MDUs and Greenfield build areas where the economics make sense. Ultimately, our plant will be comprised of the most bandwidth-rich and cost-effective technologies, enabling us to deliver the fastest speeds in the industry in a more cost-efficient manner than competitors ubiquitously across 24 million passings and growing. So with our network and product capabilities, we remain confident in our ability to grow our customer penetration, EBITDA, and free cash flow for many years to come. Before turning the call over to Chris, I want to make a few comments about our recently announced management changes and promotions. On October 19th, we announced that John Bickham had been appointed Vice Chairman ahead of his previously announced retirement at the end of 2022. I worked with John for three decades and at every turn his knowledge, leadership, and steady hand did not only contribute greatly to the success of the companies we led but made a profound impact on the growth of our industry. I'm grateful that John will continue to serve Charter in his new capacity as strategic advisor to me and the executive team. We also recently announced that Chris Winfrey had been promoted to Chief Operating Officer. Over the past 11 years, Chris has influenced Charter and expanded far beyond that of a typical CFO. He has been actively involved in all our business operations and that deep knowledge combined with his previous operational experience in Europe will serve us well as Charter's next Chief Operating Officer. And John's guidance as Vice Chairman will help ensure a successful transition for Chris into the COO role. As Chris moves to COO, we've also promoted Jessica Fischer, previously Executive Vice President of Finance, to Chief Financial Officer. Jessica's leadership and financial expertise has benefited Charter for many years, both in her roles at Charter and while at Ernst & Young, where she was a key advisor during our 2016 transactions. In our new growth, Jessica will have an even greater impact on Charter's success. Finally, Rich, our Chief Products and Technology Officer, adds oversight of network and software operations to his current responsibilities, leading the product and technology organization with expanded responsibility. Rich both shaped the customer experience and led our network's critical evolution into the 10G future, delivering to our customers a superior broadband connectivity experience. Now I will turn the call over to Chris.

Chris Winfrey, Chief Operating Officer

Thanks, Tom. I wanted to make a few comments about what we're seeing in the marketplace and briefly discuss our long-term market opportunity. Residential customer activity, particularly churn, has taken longer than we expected to return to normal levels. The overall lower level of market churn has reduced sales opportunities available to us. But interestingly, the value of net additions is even higher in this environment. We still maintained good continued customer growth. Given that the start of Q4 feels similar to Q3, we now expect current-year Internet net adds to look more like 2018 than 2019, as record low churn has not offset lower sales opportunities. That lower overall transaction volume has exposed the high level of underlying EBITDA and cash flow growth that is normally matched by even higher unit growth. With fewer new customers than usual, we have a lower mix of customers on promotion benefiting our customer relationships' economics. Additionally, lower sales volume has driven lower expense and capital expenditures associated with sales and installation, lower upfront provisioning cost, and fewer service calls and truck rolls, which are more frequent with newer customers. Ultimately, market churn will return, driving more sales opportunities, and a return to a normal net addition environment for Charter. As that happens, we would expect a reversal of some of the transactional financial benefits I mentioned a moment ago. We thought that would happen by the summer of this year, but it hasn't happened quite yet. Lower transactions have lowered costs and at the same time, our cost per existing customer relationship continues to get better. Our service model drives lower service calls and truck rolls with nearly 100% in-sourcing of our call centers now, improving tools for employees, and increasing customer usage of our digital and automated platforms. The service, churn and expense benefits of those initiatives will continue for years. We've also continued to invest in our product marketing and sales capabilities, and our yield and close rate has been growing, albeit on lower sales traffic. And we continue to grow Internet customers across our footprint, regardless of the competitive technology or infrastructure. Earlier this month, we announced new mobile multi-line pricing designed to drive new mobile relationships, more lines per relationship, and ultimately, stimulate overall market movement and sales opportunities for all of our products, including Internet. Mobile and wireline broadband are converging into a single connectivity service package. We offer the nation's fastest overall mobile service, combined with our Wi-Fi integrated mobile pricing, which offers unlimited service for just $29.99 per line per month in households which have two or more lines. An average household served by the big three mobile broadband competitors with two lines and mobile broadband and wireline broadband spends approximately $200 per month on its telecom services. With our pricing and packaging, a Spectrum customer can purchase our Internet product and two lines of our unlimited mobile product with faster service for nearly 50% less, and with more lines means more savings. Customers can also combine five-gig rate plans for $14 per gig, with one or more unlimited lines to take advantage of the new $29.99 unlimited line pricing. Today, we have roughly 2 million of our 54 million passings subscribed to this converged connectivity service. So as Tom mentioned, we have a very long runway for customer and market share growth created by an ability to save customers hundreds or even thousands of dollars per year with better product capabilities and service. As Tom mentioned, Jessica has been promoted to CFO. I had the opportunity to work with Jessica for over 10 years, including five years while she was a partner at Ernst & Young advising us, including on the structure of the Time Warner Cable and Bright House transactions. In the past five years she's been at Charter, she steadily grew her responsibilities from initially overseeing tax and treasury, then procurement, internal audit, investor relations, and acquisitions and capital markets activities, all of which has prepared her to take over the CFO role. Now I will turn the call over to Jessica to cover our Q3 results in more detail.

Jessica Fischer, Chief Financial Officer

Thanks, Chris. Now let's turn to our results on Slide 5. We will continue to reference the COVID schedules we provided last year and included again on Slide 17 and 18 of today's presentation to help with year-over-year financial comparisons. Total residential and SMB customer relationships grew by 185,000 in the third quarter and by 1 million in the last 12 months. Including residential and SMB, we grew our internet customers by 265,000 in the quarter and by 1.3 million or 4.4% over the last 12 months. Video declined by 121,000 in the third quarter. Wireline voice declined by 216,000 and we added 244,000 mobile lines in the quarter. As of the end of the quarter, we had 3.2 million mobile lines. Despite the lower number of selling opportunities from cable sales, we continue to drive mobile growth with our high-quality attractively-priced service, rather than using device subsidies. Moving to our financial results starting on Slide 6. Over the last year, we grew total residential customers by over 900,000 or 3.2%. Residential revenue per customer relationship increased by 5.6% year-over-year, given last year's third quarter residential revenue adjustment of $218 million per sports network credits that we provided to video customers, as well as promotional rate step-ups, video rate adjustments that passed through programmer rate increases and a greater mix of longer tenured customers. Those were partially offset by the same bundle and mix trends we have seen over the past year, including a higher mix of non-video customers and a higher mix of Choice, Essentials and Stream customers within our video base. Keep in mind that our residential ARPU does not reflect any mobile revenue. As Slide 6 shows, residential revenue grew by 9.4% year-over-year, reflecting customer relationship growth and last year's COVID impacts. Turning to commercial, SMB revenue grew by 7.5%. This growth rate reflects COVID-related impacts of $11 million that negatively impacted the third quarter of 2020. Excluding this impact from last year, SMB revenue grew by 6.3%, faster than the second quarter growth when making the same COVID-related adjustment. Enterprise revenue was up 6.4% year-over-year and included some one-time fees which were a benefit in this quarter. Excluding the benefit from this year, enterprise revenue grew by 3.8% and by 6.5% when additionally excluding all wholesale revenue. Enterprise PSUs grew by 4.5% year-over-year. Third quarter advertising revenue declined 15.1% year-over-year, primarily due to less political revenue in 2021, partially offset by COVID impact last year. When compared to the third quarter of 2019, advertising revenue declined by 0.8%, primarily due to local ad revenue, particularly auto, mostly offset by our growing advanced advertising capabilities. Excluding auto, the third quarter advertising grew by 8% over the third quarter of 2019. Mobile revenue totaled $535 million, with $201 million of that revenue being device revenue, and other revenue grew by 6.5% year-over-year. In total, consolidated third quarter revenue was up 9.2% year-over-year. Moving to operating expenses on Slide 7, in Q3, total operating expenses grew by $460 million or 6.2% year-over-year. Similar to revenue, the year-over-year operating expense growth rate is elevated due to 2020 COVID effects. Programming increased 9.4% year-over-year due to last year's third quarter benefit of $163 million related to sports network rebates and higher programming rates. These factors were partially offset by a higher mix of lighter video packages such as Choice, Essentials, and Stream. Regulatory, connectivity and product content grew by 3.5%, primarily driven by higher regulatory and franchise fees and video CPE sold to customers. Cost to service customers was essentially flat year-over-year compared to 3.3% customer relationship growth; excluding bad debt, cost-to-service customers declined by 2.8% year-over-year. And that's despite a higher number of customers and outsize hourly wage increases that we put through earlier this year. Bad debt was higher by $47 million year-over-year, but still nearly $75 million lower when compared to the third quarter of 2019. Marketing expenses were also flat year-over-year, primarily driven by the lower sales environment. Mobile expenses totaled $607 million and were comprised of mobile device costs tied to device revenue, customer acquisition, and service and operating costs. Other expenses grew by 3.8%, driven primarily by higher corporate costs, partially offset by lower advertising sales expense year-over-year, given the absence of political revenue this year. Adjusted EBITDA grew by 13.9% in the quarter. Turning to net income on Slide 8. We generated $1.2 billion of net income attributable to Charter shareholders in the third quarter versus $814 million last year. The year-over-year increase was driven by higher adjusted EBITDA. Turning to Slide 9, capital expenditures totaled $1.9 billion in the third quarter, below last year's third quarter spend of $2.0 billion, driven by lower scalable infrastructure spend primarily due to a stabilized level of network traffic growth and investments made earlier this year; a decrease in line extension spend driven by housing build delays due to supply chain constraints in the housing industry; and lower support capital primarily due to timing. We spent $119 million on mobile-related CapEx this quarter, which is mostly accounted for in support capital, and was driven by investments in back-office systems and mobile store build-outs. For the full-year 2021, we expect cable capital expenditures to be relatively consistent as a percentage of cable revenue versus 2020. As slide 10 shows, we generated nearly $2.5 billion of consolidated free cash flow this quarter, an increase of $722 million or 41.2% year-over-year. We finished the quarter with $87.9 billion in debt principal. Our current run rate annualized cash interest pro forma for financing activity completed in October is $4.1 billion. As of the end of the third quarter, our net debt to last 12 month adjusted EBITDA was 4.32 times. We intend to stay at or just below the high end of our 4 to 4.5 times leverage range. During the quarter, we repurchased 5.3 million Charter shares and Charter Holdings common units totaling about $4 billion at an average price of $753 per share. Year-to-date, we've purchased $12 billion of our stock in common units and since September of 2016, we have repurchased $51.4 billion or 37.5% of Charter's equity at an average price of $436 per share. Our results show that even in this unusual environment, our flexible and robust business and service model, which benefits economically from lower customer transaction activity still drives outstanding EBITDA and free cash flow. Coupling that with our unique balance sheet structure and a proven capital allocation strategy, we will continue to produce shareholder value for years to come. Operator, we're now ready for Q&A.

Operator, Operator

At this time, we'll open the call for questions. Your first question comes from Vijay Jayant with Evercore.

Vijay Jayant, Analyst, Evercore

Hi. Good morning. Just wanted to unpack obviously some of the trends on broadband. There's some sense out there that some of this could be competition. Is there any way you can talk about what you're seeing in the marketplace from fiber or fixed wireless in any sense? And then a question for Tom Rutledge on your CapEx comments this morning, it looks like you're going to deploy high-splits and that will probably reduce the need of doing node splits going forward. Can you talk about broadly the cost impact of that shift in strategy if you go down that path, whether it brings forward some CapEx while the total CapEx over the long term really changed, is that really the message? Thanks.

Tom Rutledge, Chairman and CEO

Let me start with the high-split question first. We are deploying it in market to see how it works and how it actually performs in the real world. But our sense of it is that you get symmetrical gigabit speeds out of it, and you also get the augmentation capacity that we've been spending capital on for years as average consumer usage of data continues to increase. When you take the actual capital and look at it against that need, it becomes a very low cost of incremental capital. At the same time it becomes operationally a lot more capable in terms of the products that you can deliver on the network. So we think it's a very capital-efficient way of upgrading the network and maintaining our superiority from a competitive point of view everywhere we operate. In terms of how we're doing in the marketplace and what the competitive environment's like, the competitive environment is similar to what it's been. When we look at the effects of the marketplace in terms of net adds in the churn environment we're in, we're seeing the same effect in markets without wireline competitors as in markets with wireline competitors in terms of net adds, proportionate to 2019. So we're seeing that the competitive environment doesn't appear to be significantly different than it has been. It's always been competitive, and the effects of lower activity are throughout the marketplace, regardless of what infrastructure we're competing against.

Vijay Jayant, Analyst, Evercore

Great. Thanks so much.

Stefan Anninger, Head of Investor Relations

Thanks, Vijay. April will take our next question, please.

Operator, Operator

Your next question is from Ben Swinburne with Morgan Stanley.

Ben Swinburne, Analyst, Morgan Stanley

Thanks. Good morning, everybody. And congratulations, Chris and Jessica on the promotions. I want to ask questions similar to Vijay's, if you don't mind. Two of them. One is you guys are obviously describing an environment that is impacting adds tied to activity, but the market is focused on competition. If we were to look at markets that Charter operates in with fiber competition, I know AT&T's been adding fiber for a number of years. Would we see a dramatically different business in terms of penetration and ARPU and even pricing strategy than if we looked at Charter's footprint in DSL market? I think that'd be a helpful framework to think about this. And then number two is on the network, again, following Vijay's line of thought. Chris, I'd be interested in your perspective given your European experience. We're seeing some cable companies in Europe essentially skip DOCSIS 4.0 and go fiber. I know there are major structural differences there versus here, but I'm just wondering if there's any thought in your head about where fiber might make sense or what would cause you to move towards fiber-to-the-home versus DOCSIS 4.0 and extended spectrum DOCSIS, which seems to be your plan A right now. Anyway, I would love to hear your thoughts on those two. Thank you.

Tom Rutledge, Chairman and CEO

I would just say that in fiber markets versus DSL markets, our business model works pretty much the same way. There are slight variations and penetration everywhere we operate for a variety of reasons, but they're very similar businesses and our growth rates are similar structurally. So we've been able to grow market share in every environment we operate in. In terms of facilities-based competition, for a variety of reasons it's not just capacity in every case; it's sometimes services, sometimes the overall product mix, including the mobile piece of it. We've found ways to make our product work regardless of the operating environment.

Chris Winfrey, Chief Operating Officer

The difference between Europe and the U.S. is that they're completely different densities. We do fiber-to-the-home today in rural environments, often in sparse environments and on the increment we're doing greenfield, but the capabilities of the DOCSIS 3.1 network really has a very long runway which is what Tom has mentioned: extremely low capital costs and provides all kinds of opportunity, including picking over time how you attack with DOCSIS 4.0 and fiber-to-the-home. But we have a really capital-efficient path that means we don't have to go down the more expensive path at scale. A lot of the difference here is driven more by density than anything else.

Tom Rutledge, Chairman and CEO

Density in conduits and the way markets are built is a much different environment here. But the reality is that we can upgrade our network at way less than it costs to build a fiber platform over it. Fiber works for us on the incremental deployments; it works for us in certain kinds of MDU environments and certain kinds of greenfield new construction environments. But in terms of taking existing infrastructure that we've already deployed in three quarters of a million miles of infrastructure, we can upgrade it at very low costs—orders of magnitude less than the cost to build fiber and get equal performance, in some cases faster, and do it quickly.

Ben Swinburne, Analyst, Morgan Stanley

Thank you.

Stefan Anninger, Head of Investor Relations

Thanks, Ben. April, we'll take our next question, please.

Operator, Operator

Your next question is from Ketan Moreau with RBC Capital Markets.

Ketan Moreau, Analyst, RBC Capital Markets

Good morning and thanks for taking the question. I was hoping for more color on residential ARPU trends. The quarter came in strong even when backing out the COVID comps against last year. I know this was partly related to the June rate event, but you also noted benefits from a more favorable customer mix given how low churn has been. Given your commentary on 2021 net adds looking more like 2018, should we assume these positive ARPU trends could continue not only into the fourth quarter, but also into early 2022? I assume that even if market activity picks up, it would likely take a few quarters to reverse some of this tailwind in your overall subscriber mix. Would appreciate your perspectives. Thanks.

Jessica Fischer, Chief Financial Officer

So first I'd point you back to our COVID schedule and the COVID picture in that there is a big piece of the year-over-year ARPU increase that's related to the revenue credits in Q3 of last year. But I do think you pointed out something: the lower churn environment benefits us in a large number of ways. One of those is on the ARPU side. The longer that a customer stays with us, more customers roll off promotional packages and therefore roll into higher pricing packages. In a low churn environment where you have additional longer-tenured customers, we do see some impact on ARPU from that. The other pieces in there that you pointed out are the additional programmer pass-through costs that we pushed at the end of the quarter. So there's a mix of the three. If we continue to be in the low churn environment, we would expect some ARPU impact just from having longer-tenured customers in the system. The financial results of having those customers in the system for longer really are very good both on the revenue and the transactions side which is some of what you see in the overall financial results for the quarter.

Chris Winfrey, Chief Operating Officer

I would just add that if you think about it from a return on investment perspective, every customer you add in a low churn environment is more valuable than a customer you add in a higher churn environment because the average life of the customer is longer, therefore, the total cash flow of the customer is longer and the cost to serve the customer from a transaction cost perspective is less. So from a financial point of view, a slower growth environment related to churn being reduced is actually economically positive from an ROI perspective.

Ketan Moreau, Analyst, RBC Capital Markets

That's perfect. Thank you both.

Stefan Anninger, Head of Investor Relations

Thank you. April, we'll take our next question, please.

Operator, Operator

Your next question is from Phil Cusick with JPMorgan.

Phil Cusick, Analyst, JPMorgan

Follow-up and a question, and echo my congratulations to Chris, Jessica and Rich. Well deserved. First on Vijay's question, you said the adds are more valuable. Chris, does that mean you are seeing something similar to Comcast in a slower low-end customer and consistent high-end? Any thoughts on whether wireless, fixed or mobile might be pulling more of that low-end then? And then Tom, can you expand on your CBRS trial comments. How wide a trial is this? Is this a DMA wide trial with thousands of sites, anything you can help us with there? Thank you.

Chris Winfrey, Chief Operating Officer

I'll do a quick answer on the CBRS. It's an entire DMA market test, thousands of sites because it's whole market small cell deployment, relatively speaking. I don't know the exact number, but it's an entire DMA. In terms of customer mix acquisition, it's true that the programs that we put in place in the midst of COVID last year, such as the remote education offers and the way that we worked with customers where we kept Americans connected credits meant that both from a sales as well as from a retention perspective, there was locking in and there was securing of lower-income population that were Charter customers. We're really pleased that we did it. So is that a pull-forward maybe that took place last year? Possibly, but that doesn't mean that we have stopped marketing and selling into that base. We've been an active participant in the Emergency Broadband Benefit program. The vast majority of the benefits came from our existing subscribers. But we're utilizing our federal program to make sure that we service that community and continue to actively market, sell, and service into the space.

Tom Rutledge, Chairman and CEO

Your point is true. There are certainly a lot of people who had been on wireless substitution in the past or had affordability issues that, through the things that we did cooperating with the federal program, we were able to get them to proper broadband. We benefited from that last year and we've managed to keep those customers through the course of this year, but the same level of inflow of sales looks lower.

Phil Cusick, Analyst, JPMorgan

That contributes to the lower churn environment as well.

Tom Rutledge, Chairman and CEO

Correct.

Stefan Anninger, Head of Investor Relations

Thanks, Phil. April, we'll take our next question, please.

Operator, Operator

Your next question is from Craig Moffett with MoffettNathanson.

Craig Moffett, Analyst, MoffettNathanson

Hi, good morning. And let me join the parade of all the congratulations to Jessica and to Chris and to Rich and to John. So two questions if I could. First, just digging into the broadband dynamics one more time. In this low churn environment, have you seen any change in the share of gross additions that you're winning? My understanding is the gross addition pool is clearly suppressed by low churn, but has there been any change in your win share as far as you can tell among what's left in gross additions? And then on the upcoming CBRS offload trial, what's your expected offload? What's your target for how much of what would otherwise go over the cellular contract with MVNO partners that you think you can offload onto the CBRS small cells?

Tom Rutledge, Chairman and CEO

On the first part of your question on broadband growth, are you referring to our share of gross additions across the markets in which we operate?

Craig Moffett, Analyst, MoffettNathanson

No, just in that smaller gross addition pool that's available. Given that customers are moving less and churning less, but in that smaller pool that's available, do you have any sense that your share of wins has changed at all?

Jessica Fischer, Chief Financial Officer

We've seen that yields are actually going up. So the number of sales that come in that we are able to close and convert to customers has been increasing. I haven't looked at it exactly in that phrasing, but generally our close rates and yields are improving.

Chris Winfrey, Chief Operating Officer

Our share of activity is actually higher from the activity that we see in front of us; our ability to attach mobile units to transactions is going up. There's just fewer transactions. In terms of acquisition share, I don't see a material change in the numbers in terms of our acquisition share. Our churn is down in all types of markets with all types of infrastructure that we operate in front of, and our gross adds are down proportionately across all of those footprints. So there isn't any incremental change of a material way in gross adds based on the footprint in which we operate; it's just lower transaction volume across the board.

Craig Moffett, Analyst, MoffettNathanson

It sounds a lot like what you're describing is just that there's low mobility and low household formation in the market.

Tom Rutledge, Chairman and CEO

That's true. How that unwinds is unclear. It's a very unusual market situation. People sheltered in place and so you had all the friction of the market removed that used to exist, people in transition settled into subscriptions. When the market remobilizes, I think there will be continued pressure on gross because of the pull-forward of activity. But the long-term opportunity for growth is still the same and our ability to take share out of the market is still the same. In terms of CBRS, today roughly 80% of the traffic on mobile platforms is on Wi-Fi, and we continue to use the Wi-Fi network effectively. There's a whole new piece of spectrum available to us in CBRS. Wi-Fi and CBRS together have an opportunity to change how much traffic is on our network versus on the MVNO. Our target for CBRS, as I've said before, could be approaching a third of the marketplace if everything works and is fully deployed. You're talking years of runway necessary to deploy and get it fully utilized. The good thing about it is that the capital associated with any construction we do is dedicated to the areas where traffic justifies the capital. If we're going to put out a radio, we know where traffic flows are, we know that the traffic flows in that area justify the capital of placing that device, and the offload percentage associated with that geography is sufficient to pay back the capital investment in the radio. We'll deploy based on actual utilization, but our modeling shows that it could be a significant reduction in the overall traffic load on the MVNO.

Craig Moffett, Analyst, MoffettNathanson

Thanks. That's helpful.

Stefan Anninger, Head of Investor Relations

Thanks, Craig. April, we'll take our next question, please.

Operator, Operator

Your next question is from Jonathan Chaplin with New Street Research.

Jonathan Chaplin, Analyst, New Street Research

Thanks, guys. Just to start off, a quick housekeeping question and then I've got another one as well. For anchoring off of 2018, and I guess this is a question for Chris, should we be anchoring off of residential net adds of 1.1 million or total net adds of closer to 1.3 million? And then following up on the earlier questions, I recognized the color you're giving on the transition of the network to high-splits and that's extremely helpful. I'm wondering if you can give us some indication of how long that transition to high-splits across the network will take, and when more or less do you expect to start folding in the DOCSIS 4.0 upgrade? And then my final question on broadband adds: are you assuming any benefit in the broadband adds guidance that you're giving for Q4 effectively from a pull-through from the lower wireless rate plans that you've put out there? So if wireless accelerates, should that have a pull-through benefit to broadband and is that baked into your expectations? Thanks, guys.

Tom Rutledge, Chairman and CEO

On timing, the high-split opportunity is also opportunistic. Like I described with CBRS, it's relatively inexpensive like a DOCSIS 3.1 deployment was. It's on a per-passing basis. We think it will be quite efficient, and the other beauty of it is it's pretty much an electronic drop-in and it can be done quite rapidly and cover huge swaths of geography in a very short period of time. It has two benefits. One, if you do it in a normal management pattern of augmentation network growth, it replaces the need to do node splits. But if you do it quickly, it also gives you greater capacity in terms of what products you can deploy in a market and what marketing claims you can make. So it can be done quite quickly.

Chris Winfrey, Chief Operating Officer

The 2018 comments I made were really in the context of total internet additions. The answer to your question is yes; think of it in terms of total internet additions. On the mobile pricing, it's only been out in the market for a short period, so we should be careful about overstating early results. But the initial uplift for mobile sales has been fairly significant as we expected. While we think it could and should have a material impact on broadband over a multiyear period, we haven't seen anything yet that indicates that's the case in Q4 and so I think it's premature to say we've seen a meaningful broadband pull-through just yet.

Jonathan Chaplin, Analyst, New Street Research

Understood. Thanks, guys, and congratulations again.

Tom Rutledge, Chairman and CEO

Thank you.

Jessica Fischer, Chief Financial Officer

Thank you.

Stefan Anninger, Head of Investor Relations

Thanks, Jonathan. April, we'll take our next question, please.

Operator, Operator

Your next question is from Brett Feldman with Goldman Sachs.

Brett Feldman, Analyst, Goldman Sachs

Thanks. Just a couple of follow-up questions on wireless. When we look at your wireless pricing strategy, you've done the exact opposite of what major carriers are doing, which is you've offered your consumers a great deal on their service price, but you're not necessarily offering a promo on the handsets. So two questions. First, what are you thinking about handset promotions? Would you be willing to incorporate handset promotions into your price point, particularly as consumers look to upgrade to 5G devices and they are offered promos elsewhere? And second, if you're pleased with the success of the CBRS trial, what does that mean for your wireless business? Does it mean you have an opportunity to be more profitable or do you think that's an opportunity to take your price point down even further, because once again you'll have lower costs? Thank you.

Stefan Anninger, Head of Investor Relations

I'd say both.

Jessica Fischer, Chief Financial Officer

If you look at our total opportunity relative to customer spend on combined mobile and broadband, there's a lot more mobile spend out there relative to broadband spend. So if you think about a typical two-line household, they might be spending a total of $200 on broadband and mobile. Today, we're only getting a relatively small piece of that. If we continue to sell mobile product, even if we do it by bringing the pricing of mobile down, our expectation is that we'll continue to drive both revenue growth and bottom-line EBITDA growth from that business, while driving pricing down in the mobile industry. From the perspective of our mobile business, even today our mobile business is profitable when you take customer acquisition costs into account. Our goal is always to further penetrate the market. If we can increase our penetration of the mobile market and rely more on ongoing revenues and less on high customer acquisition costs, we'll generate strong profits out of that business just by penetrating the market and sticking with our strategy of very competitive pricing for our customers.

Tom Rutledge, Chairman and CEO

I agree. One way of thinking about it is we have about 55% penetration of our broadband customer base at roughly a $60 ARPU on average, and the average spend on mobile on a per-household basis inside our footprint is over $120 a month. With about 120 million devices in the footprint and only roughly 6% mobile penetration, and 55% broadband penetration, when you look at that as a share of spend, even if you cut the mobile average household price in half, there's still a large opportunity for us to grow our dollar penetration of each household. We're really underpenetrated and there's lots of telecom spend to capture at the household level.

Stefan Anninger, Head of Investor Relations

Thanks. April, we'll take our next question, please.

Operator, Operator

Your next question is from Peter Zaffino with Bernstein.

Peter Zaffino, Analyst, Bernstein

Hey, good morning. Wanted to go back to the segment of ARPU with fiber and fixed wireless, segmenting broadband, presumably in 2022 and beyond. I wondered if you could talk a bit about how you manage local pricing in response to those local deployments and whether that might result in some ARPU growth deceleration, albeit still at nice positive rates in the years to come.

Chris Winfrey, Chief Operating Officer

We have national pricing for our retail pricing, and it's low compared to many competitors. We have the ability to bundle products that many of those competitors don't have. So if you think about low broadband pricing at a national retail price combined with the ability to save customers hundreds or thousands of dollars in mobile, and increasingly because of where the rest of the market has gone, we offer very compelling video products and a range of packages from expanded packages to lighter offerings like Choice, Essentials, and Stream for customers who want different experiences. We have a package and price point for just about everybody and still about half of our internet sales still take video, which helps retention. We're able to add value to households not just by having a national low retail pricing structure for broadband, but by the ability to use video and to use the savings from mobile to compete now and for a long period of time. That's how we approach the marketplace and how we've always approached it.

Tom Rutledge, Chairman and CEO

Ultimately what you can do with price is a function of what costs are, and we have lowered costs.

Stefan Anninger, Head of Investor Relations

Thanks, Peter. April, we will take our next question, please.

Operator, Operator

Your next question is from John Hodulik with UBS.

John Hodulik, Analyst, UBS

Great. Thanks, guys. First question on video. You saw some accelerating video and voice losses this quarter. Is that a function of the catch rates and lower broadband adds, or is there a reopening issue there as well? Did the price increase in June affect those numbers? And then on wireless and the 2 million households that have the bundle so far, can we look at the churn within that cohort and see whether you're actually seeing an improvement versus standalone broadband? If so, can you give a sense of the change in churn that you may be seeing? Thanks.

Jessica Fischer, Chief Financial Officer

On the video and voice losses front, that is largely the impact of not having the level of broadband additions that we had in 2020. When you have a lot of broadband additions, we pull through a lot of video in bundling. In this lower gross add, lower churn environment it's just the carry-through of prior trends. There's no overall change in trend that would indicate a new dynamic. It's mostly the lower addition environment.

Chris Winfrey, Chief Operating Officer

On the churn benefit for a broadband customer that also takes wireless: our gut and early data suggest the churn is lower for customers who take multiple products, including mobile. Customers who are happy with our service and the pricing take more product from us and tend to stay. However, there's not enough evidence yet to make a systemic conclusion about order-of-magnitude differences until we've got more time and data.

Tom Rutledge, Chairman and CEO

The churn levels are so low relative to historical trends that it's hard to attribute all the change to bundling yet.

John Hodulik, Analyst, UBS

Thanks, guys.

Chris Winfrey, Chief Operating Officer

Thanks, John.

Stefan Anninger, Head of Investor Relations

April, we'll take our next question, please.

Operator, Operator

Your next question is from Doug Mitchelson with Credit Suisse.

Doug Mitchelson, Analyst, Credit Suisse

Thanks so much, and congratulations to Jessica, Chris and Rich. I'll stick with broadband and wireless for a moment. Tom, just a clarification: you mentioned the pandemic was a pull-forward and emphasized share opportunities. Should we think about the growth opportunity really as share-focused going forward and that the broadband marketplace is broadly fairly mature after this pandemic pull-forward? And Chris, does your experience in Europe inform thinking about a converged in-home and out-of-home broadband offering—a single converged subscription for the household rather than per-phone plus per-home subscriptions? Thanks.

Tom Rutledge, Chairman and CEO

I wouldn't say broadband is mature in the sense that high-capacity broadband, which we sell and package with mobility and managed Wi-Fi, is still a growth opportunity in two ways. One, the number of people that ultimately take that level of service could increase. In our footprint today we think about 93% of houses are occupied and penetration of any kind of Internet service in that footprint is about 85%. So there's still opportunity to grow the overall connectivity broadband market. Then there's the opportunity to grow it into the high-capacity service that we sell. With 55% penetration we see room to grow. Plus the mobile broadband opportunity is very underpenetrated.

Chris Winfrey, Chief Operating Officer

On the converged single subscription concept, it's an interesting idea. Convergence technically makes a lot of sense: the ability to have ubiquitous Internet inside and outside the home and to save customers money. The complexity is commercial and operational—lines are often sold at a personal level while broadband is sold at a household level. It's an idea we're watching, and as our pricing evolves and our mobile capabilities grow, it could be another way to think about convergence. We continue to experiment and evaluate models that solve the differences between per-line and per-household sales.

Doug Mitchelson, Analyst, Credit Suisse

Great. Thank you.

Stefan Anninger, Head of Investor Relations

Thanks Doug. April, we'll take our last question, please.

Operator, Operator

And your last question is from Jessica Reif Ehrlich with Bank of America Securities.

Jessica Reif Ehrlich, Analyst, Bank of America Securities

Thank you for getting me on. A couple of questions: On the SMB side, internet ads slowed as well, an area that seems to have normalized a bit more than residential. Can you talk a little bit about what's going on in commercial? And then on X-class TV that Comcast talked about rolling out, is there anything in that service that would be beneficial economically for you or would you consider shifting to becoming an aggregator of streaming services with a different set of economics from linear?

Chris Winfrey, Chief Operating Officer

The SMB space is really more about cyclicality right now related to COVID and how things have opened, shut down, and restarted—businesses have closed and come back and new businesses have formed. It's much more tied to that than to the type of reduced churn issue we're seeing in residential. Our SMB capabilities are as good as ever. In markets where new businesses are forming or coming back online, our competitive posture is very good. I don't see the same type of issues that we've talked about in residential for SMB. The fluctuations you've been seeing are really much more about overall economic cyclicality tied to COVID rather than structural market movement in SMB.

Tom Rutledge, Chairman and CEO

From a streaming perspective, Charter is actually the biggest live-streaming app distributor in the country and our app is highly rated. We distribute streaming products on Roku, Apple TV, and our own set-top boxes. We have a cloud-based streaming application that can be placed on set-top boxes and app-based streaming platforms. We have more than 10 million customers who are connected to us strictly through a streaming relationship. We like Comcast's strategy of putting a platform on televisions and believe there's lots of opportunity for us to continue to change the video model, take advantage of our relationship with customers, make the video model more efficient for programmers and operators, and bring value back into television. We will continue to evolve our approach to aggregation and distribution in ways that create value.

Stefan Anninger, Head of Investor Relations

Thanks, Jessica. That concludes our call. Thanks to everyone. April, I'll pass back to you.

Operator, Operator

This does conclude today's conference call. Thank you for participating. You may now disconnect.