Yet Another Value Podcast - An exciting time in the Cable Business with Cable One Julia Laulis (NYSE: $CABO)

Episode Date: March 20, 2023

Julia Laulis, Chair of the Board, President & CEO of Cable One, Inc. (NYSE: CABO), joins Yet Another Value Podcast to discuss how the cable industry is positioned right now in 2023, and Cable One's focus moving forward. Cable One will also be at The Markel Corporation's 2023 shareholders meeting in Richmond, VA on May 17, 2023, where Andrew will also be in attendance. Chapters: 0:00 - Introduction + Episode sponsor: $BYTE 1:44 - Let's talk about the Cable business; why its an exciting and scary time in the space 4:04 - Does fixed wireless pose a risk to Cable One's focus on broadband for small cities, large towns strategy? 6:47 - The fear with fixed wireless 10:13 - Cable One's experience with fixed wireless 12:13 - Data usage 15:16 - What is it that ultimately turns a fixed wireless customer into a parking place for a future cable customer? 17:17 - Reliability of the network 19:07 - MD&O strategy 21:56 - Fiber overbuilding in general 27:49 - Customer ARPU 31:37 - Cable One's pricing 34:44 - Data throughputs 38:14 - Switching to IPTV and how does this improve the economics of the business 42:13 - Julia's thoughts on fiber vs. Docsis 4.0 for Cable One 46:57 - Is Julia starting to the M&A environment picking up? 48:51 - Share buybacks and capital allocation strategy 51:27 - Customer churn and macro perspective on new connects 1:00:16 - Cont'd. on customer low churn Today's episode is sponsored by: Roundhill IO Digital Infrastructure ETF – BYTE Investing in the real assets that underpin our digital world has never been easier. We are pleased to bring you this podcast in partnership with Roundhill Investments, the advisor to the Roundhill IO Digital Infrastructure ETF – BYTE - which trades on the New York Stock Exchange under the ticker symbol - “B” “Y” “T” “E”. The fund tracks the BYTE Index, which measures the performance of 40 leading global digital infrastructure businesses, such as towers and mobile communications, fiber and fixed line connectivity, and data centers. For a prospectus and more information, please visit roundhillinvestments.com/etf/byte - read carefully. Investing involves risk, including possible loss of principal. Investors should consider the investment objectives, risks, charges, and expenses carefully before investing in BYTE. Distributor Foreside Fund Services, LLC: https://www.roundhillinvestments.com/etf/byte/

Investing in the real assets that underpin our digital world has never been easier. We are pleased to bring you this podcast in partnership with Roundhill investments, the advisor to the Roundhill I-O Digital Infrastructure E-TF, Bite, which trades on the New York Stock Exchange under the ticker symbol B-Y-T-E. The fund tracks the Bight Index, which measures the performance of 40 leading global digital infrastructure businesses, such as towers and mobile communications, fiber and fixed line connectivity, and data centers. For prospectus and more information, please visit roundhillinvestments.com slash ETF slash bite.

Please read carefully. Investing involves risk, including possible loss of principle. Investors should consider the investment objectives, risks, charges, and expenses carefully before investing in bite. Distributor of Foreside Fund Services LLC. All right. Hello, and welcome to yet another value podcast. I'm your host, Andrew Walker.

and if you could like this podcast, wherever you're listening, it would mean a lot. If you could rate, subscribe, review it, whatever you're doing. With me today, I'm happy to have Julie Lallius. Julie is the CEO of Cable One. Julie, how's it going? Great. Thank you so much, Andrew. Hey, thanks for coming on.

Let me start this podcast with a quick disclaimer. Just a disclaimer should remind everyone, nothing on this podcast is investing advice. We've obviously got the CEO of one of the largest cable companies in the world here. So a little bit different, but everybody should remember there's risks in investing. Please do your own work. Consult a financial advisor. That out the way, Julie, I'm really excited to have you on. I followed the cable space for a really long time.

I know the catalyst for you coming on is we're both going to be at Markell's Investor Day on May 17th in Virginia. So we're hoping to maybe shine a little awareness on that, tell anybody who's interested in. The cable one story, the Markell story, come out and out and join us if they want to. But look, it's a great time to talk because it's a really exciting and scary time for the cable space in general. You know, just about every cable stock is down 50% over the past year. you know, you talk to cable investors, you're going to hear fears of fiber overbilled, especially fixed wireless access these days. We can dive into each of those topics.

We can dive into any topic you want. But I just wanted to start as the CEO of a cable company in March 2023, kind of, you know, what are your overall thoughts on the cable business today? Yeah, thank you. And I thought I would just highlight. I don't consider cable one, one of the largest cable companies in the U.S., certainly not the world. we don't even consider ourselves a cable company even though that's in our parent name we're

branded to our consumers as sparklight because we focus on broadband on internet service to our consumers but starting out with you know what are my thoughts about the cable industry i think about the how the cable industry and that's you know some people call it the connectivity industry now some might even think we're infrastructure but it started out originally to get television signals to these rural areas that could not get it, like they were missing out because the signals wouldn't go that far. So in the beginning, cable started to serve the needs of people and communities. And I think that's what these businesses are doing today. Now, albeit with different products, which had really big ramifications during the pandemic, but that is what

companies are doing today. And cable one specific, sparklight specific, that is, what we are doing. We have really tremendous assets. So that's, you know, our hybrid fiber cable networks that are either in the ground or in on poles in the air and our people. And the job of those assets is to bring the world essentially to our communities, whether that's entertainment, it's education, it's medicine, it's opportunities for businesses. That is what the cable industry is doing. Now, the outside world seems to think it is somehow different than it was even eight months ago. But that is what the industry started doing, and that is what the industry is still doing in my view. Perfect. Well, I guess just one thing. So we'll start with a cable one

specific question, you know, and this might jive both into the FWA worries and the fiber overbuild worries. But, you know, cable one is different in a lot of ways than other cable companies. as you said like look for a lot of cable investors cable one when you guys spun out of uh graham y'all were the first ones you said hey video doesn't matter y'all were the original people who focused only on uh only on broadband completely ignoring tv you know you said we'll sell tv if people want it but we're going to sell it to them at cost we're not subsidizing that worked great margins great the stock went on a huge run uh the other thing that's different is your safe harbor strategy right you focus on small towns small cities and large towns and people love that i do think

over the past year people have started to worry hey this focus of the small cities large town does that leave them a little more prone to fixed wireless coming in so many thoughts in my head i mean you did a really nice job of sort of how i threw out about 15 different things for you yeah context but it you know we're in this industry so we're lumped into cable but we do we kind of consider ourselves contrary and starting with our our different strategy back in 2013 24 Let's talk about where we operate, that safe harbor that you talked about, these small cities, large towns, rural America. We have been doing this since we were born, so back in 86, so for decades. Rural is kind of cool now.

We were loving these communities decades ago. And if you look at, we're incredibly dispersed. We don't have consolidated markets in large areas, and it's definitely not urban NFL city. So our average market is about 58,000 homes passed and about 20,000 customers, okay? What that means is whatever is affecting one market isn't likely to affect another because of that geographic disbursement. It also means that these are markets that tend to be, again, they're smaller in size. And so you're not going to get a lot of density. And the rural nature of them necessarily means at least, well, probably for both, quite honestly,

fixed wireless and fiber, it is going to be more expensive to build into our market. So let's figure this out. It's going to be more expensive to build. You're going to have less density, less access to consumers. Your ROI is going to be less than it is in other areas. So where do you want to put your money? I think that's what people, that's why people were loving rural up till, I'd say, mid-2021, right? Because there was the fiber overbill threat.

And as you said, these are more dispersed. It, you know, it's always going to make more sense for an AT&TR of Verizon to go upgrade New York City or a big city versus going to a rural town because there's more people. So as you lay that pipe, as you lay that fiber, you can amortize each line of fiber over more houses, all that. But I think what people have started to worry about is fixed wireless, which we're seeing fixed wireless is really targeting places where they have lots of excess spectrum. I think people are saying, oh, if you think about where you've got lots of excess balo spectrum, you know, every single gigger, every single megahertz is going to get used in a large, in a large city. You know, New York City, they're just desperate for every piece of spectrum. If you go out to the rural cities, it kind of feels like, hey, maybe these wireless guys just have so much excess spectrum.

They can sell the fixed wireless, you know, as almost the side business, not the side business, but, But they can, that's where they'll really utilize all this excess spectrum. So I think people are worried rural is right in the targets of fixed wireless these days. I think you're right, Andrew. That is the concern. And I find that a little bit interesting, too. First of all, let me be clear. I want every home in America to have access to the opportunities that the Internet affords them, right?

I mean, that is, we've been working on that way before it was cool. So that is what we want. So whether you're going to get your access from Starlink or Project Cooper or Kuiper, I'm not sure how Amazon pronounces it from fixed wireless fiber, traditional cable co, we want you to have access. But when I think about fixed wireless specifically, we have, let's take Team Mobile because they're the most aggressive, they have less than 35% of our footprint is covered by their unlimited service. So 65% of our people can't even get it. And I can tell you, I just drove through

one of our towns, there's not service available. I mean, there's literally nothing there. The vast majority of the West doesn't mean it's always going to stay that way. But right now, there's very little overlap. I do think that fixed wireless for the time being offers some consumers they weigh into the product. It is at a very low price. And if they have coverage, they can take it. But I don't see it as a long-term play unless they change their strategy. And let's talk about this.

I mean, you've got a couple of players and they're doing things very differently, right? Think about AT&T, and they're talking over and over again about this isn't profitable. We're not going to do it. We're not going to lose focus. Our end game is on something else. And so I wonder about sustainability or even what the purpose of it is. You said it's sort of like a side thing like, hey, we have this here. Let's get some money for it for a period of time.

I hope that that's not the strategy because as a consumer, I would feel incredibly let down when, you know, three months from now you have so many. I mean, what's your primary purpose? Is it wireless? Is it cellular customers? while you've gotten more cellular customers, and now my fixed wireless has buckets. I guess on the AT&T, I do agree with you, though.

They've also said, hey, maybe we'll use fixed wireless in the most rural areas as like a stock gap to getting them to fiber for a year or two. But on the other side of fixed wireless, I think you guys do have experience with fixed wireless as well, right? Which makes you interesting because you've talked about you using fixed wireless to fill up kind of, I believe it was your CFO who called him the donut holes in your coverage, you know, like little areas where you've got cable around the

outside and maybe you're missing spot here or there. You can use fixed wireless. And then you have invested in Next Link and Whisper, which are fixed wireless place. So I just wanted to ask you, what have you seen kind of ignoring the competitive factors just in your investments and your experience with fixed wireless? Right. So we have said that what we want to do is reach these rural communities and connect them to the world via broadband. And we started walking down the path of doing fixed wireless because of its lower cost to serve in super rural areas. Then we found other folks that were doing the same thing. So we sort of have this filter for either M&A or for investments.

You know, rural broadband best in class, like they couldn't just be offering broadband at, you know, 10 megs or something like that. They had to be the best in that marketplace. And that is what you have with Whisper and NextLink. and even NextLink, they will serve rural areas with fixed wireless, but once they get a certain amount of density, they go in and build fiber, and then they can move that fixed wireless equipment to another area. So we do have a bird's eye view, and that's what's really wonderful about our investments.

I mean, we have fiber codes, we have fixed wireless codes. We can talk to them about a myriad of metrics, whether it's churn or service calls or sack costs, you know, and compare it to what we're doing. I think one thing that we have to talk about when we're talking about fixed wireless is data usage and the rampage. That was going to be my next question. You guys have a great slide, slide 44 from your 2002 investor deck. That's where I was going. So please go ahead with data usage. Well, so data usage, it popped a bit during the pandemic, but if we look over a five-year period, it's at a 26% Kager, and it is not stopping. I mean, we have about a fifth of our people that are using over a terabyte of data right now.

And that sort of throughput is not available with fixed wireless. And I guarantee you, I guarantee you, there are, I was going to say young people, but that sounds agist and I'm old, so I'm not ageist, but there are people in their garages, like some founders that we can think of, that are inventing things that are going to take more data throughput of that pipe. They know that pipe exists, and they saw that it. It was incredibly reliable during the pandemic. I mean, there wasn't Zoom.

We weren't using Zoom for everyday life before the pandemic. What is next? What are my grandkids going to be teaching me how to use that is coming, you know, in my world, to a pipe outside of my home and then wirelessly throughout my home? Yeah. And then tell me if this is too simple model. But one thing that I've kind of always thought in my head is like, you know, you and I, I'm sure we're both on Zoom right now. Maybe you're getting your internet over a wired, like, Ethernet connection, or maybe you're on wireless.

But, you know, most of the internet you consume is done over wireless route, over just normal wireless, right? Like, there's a cable coming into your house and then the wireless is doing the last 30 feet. Like whether the last 30 feet, 400 feet, 800 feet are wireless or not, like cable in many ways, you know, it ultimately comes back to cable has fiber laid very, very deeply. it is the best, deepest fiber in most of the places it competes. Like, whether it's over fixed wire or something, it just seems like the cable assets are ultimately going to be the best to handle that increasing data usage, as you said. I don't know if you want to add anything.

I don't think it's too simple. I think about my kids, and they don't call it broadband. They don't call it Internet. They don't say they have an ISP. They say my Wi-Fi provider is. That's what they call it. And so it is the way people access. I mean, it's what they're doing with their cell phones in their home, too.

They're writing of a Wi-Fi that comes to them from their broadband provider, more than likely. The vast majority, anyway, is. And now, a quick word from our sponsor. Comprived of 40 of the world's leading digital infrastructure businesses, the BITE ETF, ticker BYTE, trades on the NYSE, and tracks the BITE index. Byte looks globally for companies such as mobile tower, fiber, and data center operators. For prospectus and more information, please visit roundhillinvestments.com slash ETF slash bite. Read carefully. Investing involves risk, including possible loss of principle.

Investors should consider the investment objectives, risk, charges, and expenses carefully before investing in bite. Distributor of four-side fund services LLC. Is the ultimate, I mean, I think you guys have kind of said it, and I know Charter and Comcast have both said it. They say, hey, we kind of look at Fixer. wireless subs as a parking place for future cable subs, right? As data uses continues to go up or as more people join the fixed wireless network and it gets more unreliable, like what is it that ultimately turns a fixed wireless customer into a parking place for a future cable customer?

Is it just the fixed wireless network collapses under demand? Or is it the demand for speed continues to increase? So, you know, right now I know you guys offer a gig in most markets. I don't think most people need a gig, but maybe five years from now, everybody needs two gigs and fix relish simply can't handle that. Yeah, no, I think that is exactly the case. I think it could be a collapse in local areas based on sell sites that they have or don't have, as well as increasing demand.

If I, I mean, you need a reliable service. I mean, you couldn't be doing your value broadcast, you know, your podcast, if you didn't have a reliable connection. And then. And it is based on data. I mean, people are using it now. Now, a lot of times, especially consumers, get confused about speed versus data. And so both have a value component, right?

So my guess is that there will be innovations that require more speed down and up. But at this point in our network, we have utilization that hangs around 23% for both. In other words, there's plenty of capacity for both up and down. A lot of times you hear about symmetrical speeds for fiber. They're not using the 20 gigs up that we're giving them right now, let alone, you know, symmetrical gig by gig. But our network can do that too. And we'll talk more about that later. I'm sure about IPTV and how that.

There were about four different angles I wanted to take what you just said to. And IPTV was one. That's all connected. But let me just wrap up the fix. wireless thing with something I think you alluded to before. And when you guys have been questioned on launching an MV&O, I think you've also said. You said, look, the reliability in our networks, like, we're not launching an MV&O because forget about fixed wireless. Like, in a lot of our networks, our rural customers don't have reliable cell phone service. And it would be a

brand problem if we partnered with an MVNO and they were getting unreliable cell phone service, even though we're not providing it like our names on it. We can't do an MVNO because they don't have, that would be like 3G voice, right? So how are people going to come in and launch fixed wireless. Obviously, that's not all networks, but a lot of them, I don't know if you want to talk to that reliability point as well. I mean, that is, that is a, there's a bunch of pieces related to where we go with potential of selling a wireless service to our customers. Number one, do customers want it? Do they need it? Can we provide a better value? Will it provide something to us in terms of profitability or lower churn leading to profitability,

customer satisfaction, those sorts of things? Again, I was driving through a market. I was talking to someone, and my call dropped repeatedly. And it is a somewhat mountainous area of Arizona. So it makes some, it's hard to build there. I mean, it was hard for us to build there. So I get why none of the major providers in one of these markets, I had to switch my daughter from her provider, which I would love to say who it was because they had absolutely no coverage,

to another provider who did have some coverage. Otherwise, I would never be able to talk to her while she was away at school. So that is what, I think it was Todd that brought it up. That's what he was talking about. Like, okay, if I partner with brand X, but they don't have coverage for our towns, how does that reflect on us? Yep. It's sort of, it's a negative halo.

Completely good. Just because we're here, I was going to do MBNO a lot later, but since we're talking MBNO anyway, you mentioned, hey, if we do an MBNO, I mean, the reliability concerns are probably number one, as you said, the negative brand halo. But you also did start talking about profitability, improving churn and stuff. And Comcast, particularly charter, and it seems the other cable players are really all in on the MB&O strategy, right? They're accelerating ads. They're leaning into it.

They're cutting price to increase ads. They're doing everything. What are you seeing, again, aside from the reliability issues, is there anything else you're seeing in the data that kind of makes you guys hold back from launching the MB&O versus those guys leaning whole log into it? Well, I mean, we're definitely seeing convergence, right? But we've seen things, you know, I would call them in hindsight, flash in the pan things, that we're going to be really good. Let's take an example, like video on demand, like, oh, here's what you need to do. You need to buy this equipment for your head end.

You have to do all these complicated contracts. Then you're going to be able to offer this. You're going to have to do some software work, and you're going to be able to offer customers this. and we think we're going to make money out of it. And then I was like, well, okay, we're not making money out of it, but it's reducing churn. Customers are happier because they have it. I don't know. I mean, I personally looked at the business model for us, not other people.

We don't have the scale of other people, but for us to get into the business. And if we, again, if our focus being on our customers and our communities, if we believe they need this as a connection point, We could do it in about six to eight months. But there has to be a reason. Either it's a really customer-centric reason, which will end up being profitability-related as well or not. Right now, the signs are pointing to it's not our time. We have a focus.

It is providing broadband to our communities. We have a ways to go in increasing penetration in the majority of our markets. It's not all. Markets are different. They're not monolithic. So we're going to stay focused on that for the time being. I think Comcast and Charter have a lot of scale. By the way, we talk to them, hey, what are you seeing? They do say, you know, they give us information and they say it's early on, but we think this. We talk to the others, the smaller and mid-sized folks that are trying it through a different method, through a different partner, and get information from them. And we'll do the right thing for our customer. for the business when the time is right. Right now, it's, it's not right. We don't get into one more thing when we're spending our time with heads down, running the business and executing well. Let me switch to the other thing. And this affects cable one less than maybe some of the other bigger players, but it does affect you. And that is fiber overbuilding. I mean, I think Boise and golf part are two larger markets. I think Boise, Google, and Lumen have both said they're going to do a

fiber overbuild there, golf port, I think AT&T said they were going to do a fiber over. You can correct me if I'm wrong. That's just from memory. But, you know, fiber overbuilding. Investors are worried about it. We can talk specifics. But I guess just first, is this a little bit of deja vu all over again? Like, it's not like this is the first time we've had fiber overbuild worries.

We've had cable overbuild worries in the past. We had Google fiber in like 2008 to 2010. Is this deja vu all over again? Is this something different than in the past? How do you kind of think about fiber overbuilds? Yeah. I, you know, I don't know if it's the exact same thing. I've been in the business for 39 years.

And I can remember my father calling me up agitated. He's like, there's this thing. They're launching these satellites. And I think it's going to put your guys' business, you know, just on a downward trajectory. Are you sure you're okay? And he was talking about direct TV in DVS. So certainly people, and I actually remember from a very practical standpoint, being in Alexandria, Virginia, when then Bel Atlantic said they were going to come over, build us with fiber.

We upgraded our plant and launched switch telephony and internet service in the mid-to-late 90s before anyone else in the country did it and ended up doing just fine. So you're right, competition from any sort of technology related to either the video business or now the internet business is not new. We have been dealing with it for decades. Again, when you have markets as dispersed as ours are, I mean, I can think of one where AT&T built fiber and Grande came in and overbuilt us and decades ago. So there's three of us there. And we grow in that market every month. Every month we grow. Now, when it first happened, there was disruption. And then it normalized. And then we went back to getting our share. So that's one example. I can think of two of our markets that are overbuilt with fiber, one super small.

We've lost no customers. There's been no, I mean, the people that came in don't, that's, that's an editorial judgment on my part, but they don't, they came, they're stepping out of their footprint and they just didn't know what they were doing. And so if I bless them, we, we do just fine there. There's another larger market that has a fiber overbuilder. We have grown penetration by almost six points since they came in. The thing about competition is, if they're doing advertising, we can end up, if we're the better operator, we can end up growing in terms of units and ARPOO. At the year end, at our last earnings call, I talked about our ARPOO.

Our ARPOO grew in competitive and non-competitive markets. So it's not just like, okay, but one, you're not taking good care of your customers. You're jacking up your rates in your non-competitive markets. No, the advertising that's being done by the fiber folks, because usually their pricing is focused on a gig, which, by the way, costs more, means that people are like, well, I can get a gig from cable one. And so our ARPU gets lifted. So is your ARPU lifting? I mean, I think that another thing I'd say, and I apologize for interrupting, is that 65% of our footprint, well, it's more than that for fiber. We have 25% overlap with fiber.

So 75% of our people do not have access to fiber. I think 35 is our total competitive. So they have a competitor. It could be an HFC competitor. And again, the fixed wireless is less than 35% too. So the vast majority have, and ILEC who's doing DSL potentially and us. That will change over time. but again, if you have a chance to invest your money in something,

are you going to go to less dense, hard to build, expensive to build places or others? So I expect there to be more competition over time. That's fine. Competition makes us better. And things normalize. I mean, do you drink Coke or do you drink Pepsi? Do you wear Levi's or do you wear? seven for mankind. Do you have T-Mobile or do you have AT&T? There's the American way to have

choice. But that doesn't mean that there can only be one provider of service, especially if you're someone who has been in the market for decades and you have a local workforce. 80% of our workforce is local. It's resident in these markets. We are neighbors to our customers. We see our customers at baseball games at church in the grocery store. I mean, I myself am wearing a sparklight, you know, shirt, and I'm going into a grocery store when I'm in market. Someone may talk to me about an offer, maybe even about a problem. Yeah.

I talked to a customer yesterday who had moved into one of our markets from Michigan, and I called her back to follow up on an issue that she had with our new Sparklight TV. And she was like, I am blown away that you called me. And I'm like, but you wrote me a letter. You had a problem. We needed to fix it. I needed to make sure you're okay. I mean, that is what you get from someone who's been in these communities for decades

and isn't just being drawn in now for the money. That's great. Let me just quickly, you mentioned earlier that your ARHU was increasing in both fiber and I'll call it competitive, actually, in both competitive and non-competitive markets. Is it kind of increasing at the same rate in both? Or are you seeing a divergence? You know, I honestly would have to go look. Otherwise, I'd be telling you something that I don't know.

That's a good question. I can go look and follow up with you. But the fact that it's growing in both, like I think what people are afraid of is, oh, there's going to be competition and you're going to lose customers. And because they're going to come in with lower price, you're going to have to lower your price. And it's going to be just a melee of chaos. And I think that's potential.

in some places. I don't, I can't, I don't know what things competitors may or may not do, but I have, I have seen people come into our markets, either in the past or more recently, and I found them to be relatively rational, and they love the idea of doing things simply, and so they basically advertise high-end service prices, and we have the same thing, or something very similar, like we don't always have symmetrical speeds, right? And Tyler, you know, it's funny, this is a little tangent, but less so recently, but especially in like 2021 when you know everybody was upset, all investors were obsessed with TAM and everything.

A frequent question I would get was, hey, table one is smaller. Altis is levered. If you're Verizon or AT&T, why don't you just overbuild them and then offer fiber internet for $5 per month and, you know, take all the share and bankrupt your competitor and then you can raise your prices in a monopoly market in 24 months. And I would always say that and be like, I mean, I guess you could, but you would, you'd burn so much money in the meantime. And like, yeah, maybe you would, let's take Altis. Maybe you would bankrupt Altis. Altis might bankrupt themselves. Who knows? But it's not like those cable assets would go away. So you've bankrupted

your competitor and like all you've done is lit all the money you can imagine on fire. So I think people forget, like even with the competitor, these are duopoly markets. Like, it's not like we're going to price these things down to zero. You need to get a return. return on this $3,000 per home per pass that you're spending to do a fiber. Exactly. And you've seen recently every single fiber provider. And I say that because I cannot think of one that hasn't said we plan to go more slowly in 2023 for a variety of reasons, right, whether it's supply chain, whether it's the markets and access to capital, whether it's access to labor, whether it's what they're seeing in their penetration rate.

It's making them go, hmm, the model said we would get this, but real life is different than the model. Because let me tell you, it is very different to build a network versus run a network with customers. Maybe we'll ask Google about that, you know, we're going to go build this thing called Google Fiber. And I think, I don't know, I don't work there, but my bet is that they found that, wow, this dealing with customers on a day in a day out basis, that takes a lot of work. And building it was one thing. Running it and operating it for the long term, for the good of those communities is another.

That's another thing related to Arpoo, which sort of sticks in my call where people are like, oh my gosh, of course your Arpoo's high. Your markets are moated. We can't have it both ways. Some people say, you know, oh, you're moated. You have the safe harbor and the others are like, oh, that means you're going to,

things are going to be terrible for you. Which is it, by the way? But, gosh, now I forgot where I was going. I got myself all riled up. No, that's great. Actually, the next thing I was going to ask is pricing. Maybe I'll come back to my last one or two questions on fiber later. But let's stick with pricing.

Like, I do think a lot of people, and especially maybe a lot of the more negative press coverage, when they cover cable in general or cable one in particular, goes and looks at the ARPU for cable or cable one and says, look how high it is. And people one, I think the ARPU from memory is approaching 80. $80 per unit, you know, charter and Comcasts are probably in the 65 to 70 range. So I think more negative coverage we look and say cable ones pricing is $10 per month higher than their peers or people would say, oh, look how fast they're raising pricing. And I think you would rightly push back on both of those points. So I've kind of teed you up.

I'll just toss it over to you. I was like, that's where my rant. That's where I started on my rant was this, oh my gosh, they must be taking advantage of these poor customers in these rural towns because their ARPU is so high. And I'm like, okay. That is not our purpose, and we are an incredibly purpose-driven organization, and we start with our associates who need to be happy in order to take care of our customers in order to get to a long-term profitable business. And yes, we are profitable, but that is put third as part of a natural chain. And so our pricing is actually likely, I mean, again, I'd have to do a statistical study, but the lowest, definitely the big operators, up until,

last year our entry price was $55 for 100 megs. We sunsetted the 100 meg product and now 200 megs is our entry product and it's $65. And that is a great value. I am not paying that in Phoenix, I can tell you that. So what's happening is customers are choosing to have things that they value.

It might be faster speeds, it might be more data throughput. It might be other value added items that we offer. And because they're adding that on, it is a pull. They are coming to it. We aren't pushing them to it. They get to choose. Our ARPU is higher. We haven't done, I mean, I think from 2015 was a rate adjustment year. We didn't do another one for like seven years. We recently increased the price of our modem this fall because we're launching a new Wi-Fi modem that we think is going to bring, well, we know it's going to bring a better in-home experience for our customers. So that went up.

Now, not everyone owns, has rents or leases a modem from us. They can own their own modem too. So they have a choice. Do you want to buy your own modem or do you want to lease one from us? So, again, we're not trying to create a monopoly-like situation. What we're simply doing is creating choice for customers. We have, actually, recent selling rates, which I won't give because I haven't made them public in other ways. But a third, based on our last earnings call, a third of our people are taking a gig service.

That costs more than the entry level 200-Bag service. Just one of the things you mentioned was data throughputs. And I think you guys are the only ones who have like kind of the upsell for data caps. And it goes away, if I remember I looked the other day, if people take your highest tier, which right now is a gig, they get unlimited data. And if people take under that, I mean, they get a lot of data. You would really have to be using a lot of data to hit the caps. But you guys will charge them about $10 for every 100 gigs over 600 gig, if they're on like the 500 meg plan or something. Can you talk about, I think you're the only broadband provider that's really doing the data throughput.

Can you talk about that? I think that MediaCom does it as well. They're not public. They're not public. you know, so to me they're basically, but they do it as well. And we say data guidelines, not data caps, but yes, there are data guidelines to many of our plans. And the way we viewed it was this was the fair and appropriate way. There are, and I can look it up right now, how many customers use less than, say, 300 gigs a month. And if I use 300 gigs a month, maybe that's like my

parents, I shouldn't have to pay more because you're using a terabyte a month. So that was the reason why we started it at the beginning. And less than 10% of our customers went over their data guidelines. So 90% plus people were not paying extra for any data guidelines. A percentage were. We have launched different options, like an unlimited option, so you can have a really low-speed service, but with high data throughput? Because, again, what do you value? And at a gig, we thought, let's make it easy. If you want a gig, we have it, and we're going to include unlimited data as part of that.

And I assume that's one of the reasons why it's selling really well, too. Like, it's an all in price. I have unlimited data with my cellular provider. I don't need it. I can see how much I use. I probably should go down to a lower-level plan, but I do it for a piece of money. mind. No matter where I am, I know that I have that unlimited data. So we do have a portion of our ARPU, but it's really small, comes from that usage-based billing, which is what we call

it. But the majority of it is coming through selling to higher tiers and upgrades to higher tiers or people buying unlimited data. Yeah. And it does strike me like the output base pricing, as you said, it's, you know, it's about $10 per month if you go over and it's kind of like going over once, it's the difference between upgrading to the next tier. So it's a really nice way to the way the pricing is made so that it just takes, like if you're at 200, you might as well just jump to the 300 level service or maybe the 500 or maybe the gig. But honestly, we're looking at our pricing and packaging right now because we've learned a lot.

We've learned a lot from our investment partners who, again, have different array. of technology that they get to consumers, and we've learned a lot from watching competitors in our markets and others. And so I think it's time for us to revisit that. There was a point in time, I'm trying to think it was probably around 2018, where our ARPU growth was just, you know, far outpacing our unit growth. And so I think we're there again, and it's time to sort of right size to get those both in balance. So we need to make sure that what we're offering and the consumers is a value because they are going to vote with their wallet. Perfect.

Let me switch you a completely different track, but we started to allude to it earlier. You guys, look, you guys were the first or among the first to say, hey, video, we don't make any money on it. All the money's in broadband. We're going to de-emphasize video. Now you guys are taking it a step further. I mean, I've seen some fears talk about doing this in the future, but you guys are the first to actually do this.

You're switching to kind of the IPTV, which is going to free up a lot of spectrum, you know, improve the capacity of your whole network. But I just wanted to talk to you about what does this switch to IPTV? Why is this big for you guys? How does this improve the economics of the business? Yeah. Well, we definitely were the first. And I think other people are still having a hard time.

Look, people want to be entertained and informed. And you get that through video programming. But we could see that there were other choices and opportunities that were very customer-driven, that were coming on the scene, aka streaming services. And we were a size of a company that did not have the ability to get really great pricing from these programmers.

And so, you know, double digit, triple digit increases. And we were like, oh, our poor customers, we don't want to pass these increases onto them. We ended up subsidizing our other products and not passing that long. And we're like, wait a minute. that coupled with doing a really simple analysis of, you know, here's what video brings in. Here's the direct cost.

Wait, we have all these indirect costs. This is ridiculous. This is bringing no value to us. And we have the negative halo thing going on too because every time we got a increase from programmer X or Y, we passed it along to the consumers. And the consumers hated us, not understanding we were simply taking the money and giving it to someone else not keeping a dime. So that started our path. The next thing that led to this idea that IPTV would free up spectrum in a very capital efficient way was us remembering how we launched gig. Now, we launched a gig across the majority of our footprint or any of the majors did it.

And we did it as a defensive move back in 2016 having a gig everywhere. so like, hey, we have a gig everywhere, why should anyone come into our markets? What we did is we bonded 30 channels together. We dropped video programming so that we could use that frequency for internet, and we launched a gig quickly. We didn't have to upgrade our networks to 1.2 gigs. I mean, it was an incredibly capital-efficient and fast way to get a gig out to our customers. We think IPTV is kind of like that.

I mean, IPTV just takes the, and I am not a technologist, our CTOs probably, you know, would be rolling around and on the floor as I discuss technology. But if we take the spectrum that video is taking right now and use that for internet, so internet-based video, IPTV, we call it Sparklight TV, we can take that bandwidth and allocate it back to broadband. for downstream, more downstream, and more upstream. And we're doing that in a couple of our markets and we'll continue to do so throughout the year and throughout the future in order to free up space. It doesn't mean that we're never going to put fiber in the ground. We will. We have been doing that for decades as well.

But it gets rid of us buying boxes, which was a huge capital outlay and tracking that inventory. Consumers are by and large use to that. of them, believe me, I've talked to some. So, so streaming is a way of life for people. And it gives us access to more capacity for internet in a relatively quick manner. There's a great slide from your 2022 investor deck that everybody should go check out. I think it was slide 47, but it shows just how much, you know, people don't think about it, but legacy video, you have to have like dedicated channels, as you said, for all of that. And it shows you take this, which one. You take this legacy video away that as you said, you guys have been deemphasizing for 10 years,

not many people get, you know, if you took it away, most people would just instantly go switch to streamers. Like, you take away and it just frees up so much capacity for downstream and upstream, as you're saying. You mentioned fiber. I do think at, you've heard a couple of people ask you guys, and we've seen Altis go out and do this. A lot of people said, hey, why not just skip Dox's 4.0 and go straight to fiber, fiber to the home or do, you know, kind of fiber overbuild yourself? most cable companies had said DOTS 4.0 is going to be fine. We're going to be very competitive. We've got a roadmap very far into the future.

I mean, if you ran things out to infinity, eventually everyone will be Fibers at the home, but you don't have to go there right away. You can do Dox's 4.0. Maybe Doxas 5.0 and then you can get there. But I rambled a little bit. I want to just turn to you. What do you think about the idea of fiber to the home overbuilding yourself? Right. Yeah.

So first of all, I think about Altis, who says, you know, we're not going to follow the DoxS4.0 path. or not cable labs members. I guess that doesn't surprise me all that much. But they've walked that back a little bit recently where they're saying, look, we're going to do it in old cable vision areas, right? But we're not going to do it in the old sudden link areas. Okay, some link areas are like our areas.

They're more rural. They're likely seeing that, ooh, it costs a lot of money to do this. And the density isn't so high. We have a reoccurring story. Again, I don't know. I'm not Altis. But we've, and we revisit them to make sure that the data isn't stale, but we've done the models too. Like, what should we be doing if we have a network that has lower capacity than what we want? Should we rebuild it with classic architecture, HFC architecture, which is a mix of fiber and cable or so all fiber to the home?

And all fiber, we've been doing fiber for new build for like two decades. Like this is the way we build anything new. But if we're going to look at our existing networks, and this is a beautiful thing, we built them years ago, we already had that there. Anything we do to that is going to cost us less than our competitors. We've looked at what Doxas 4.0 provides us. We've looked at what fiber provides us. and Doxas 4.0 has a more capital-efficient runway to get to essentially the same thing.

I mean, we need reliability, redundancy, we need speeds, we need symmetricity, if that's even a word. And we get that with Doxas 4.0. So why would we spend more money? And by the way, again, we have investment companies that are fiber to the home, 100%. By the way, we have markets that are 100% put rid of the home too. So we know what it costs to operate them. We know what their trouble calls look like. We know what their churn looks like. And so if there was a better way of skinning a cat, we'd be doing it.

And what we're doing is doxas 4.0. And I think a big misconception among probably generalists is, oh, when you've got cable, that means the fiber runs to outside the city and then you run HFC to every home for miles and miles and miles and you know, you can correct me if you're wrong. I know you guys said it at the your investor day. you have fiber to within at most a few hundred feet of every home, and it's just the last 100, 200, maybe 300 feet that are getting laid HFC. So it's not like, you know, we call you, as you said, we call you cable,

but you're more broadband and fiber if you actually think about it. Yeah, we actually are. And the vast majority, over 90%, again, our CTO would be able to give you the exact number of our data runs over fiber, not COACs. Let's switch to Eminet. I was just talking about this yesterday, too. I noticed several fiber cuts. One was down south in Arizona, an operator that owns that fiber.

The other one was through windstream. So two operators, not us, supplying us with fiber to our market, and there were fiber cuts. Just because it's fiber doesn't mean that you're never going to see an issue. That isn't the case. If you're AT&T fiber, if you're aloe fiber, if you're aloe fiber, if you're fill in the blank fiber, your fiber is going to get cut just like anybody else's. Just saying that we're all constrained by the same real physical factors. Yep.

Let's switch to M&A and capital allocation. I don't want to go too crazy deep in here, but obviously you guys have a history of M&A. Multiples have come down a lot in the past 12 months. You guys have been very creative with the MNA, JVs and everything. But with multiples down in the past year, are you guys kind of see and multiples down and I think a lot of smaller investor, smaller cable players starting to look and say, hey, we've got to lay out some capital for a doxas 4.0 upgrade. Are you guys kind of starting to see the M&A environment pick up a little bit? I don't know if I would say pick up. We definitely

have had some of the smaller family-owned folks come to us and say, uncle. So we are looking at those, right? We believe that the melee that's going on with, I'm going to build fiber, I'm going to build fixed wireless, I'm going to fill in the blank, get to consumers across America is going to create opportunities for people who do know how to take care of customers. So we think that that's, you know, over some sort of time horizon to be determined, but we think more opportunities are going to come from that than not. But yes, there are smaller operators that are finding this market very hard to navigate through. You mentioned SuddenLink earlier, and Altis obviously put SuddenLink up for sale.

A lot of people have said Suddenlink looks a lot like cable one. Did you guys take a look at Suddenlink? Well, we got their book. But quite honestly, those markets would have loved to have owned them when Altice got them. But at this point in time, quite honestly, if it'd be easy. easier for us to overbuild them than buy them and then put the capital into them, but they require. That's my opinion. That makes total sense.

So the other alternative to M&A is share buybacks. And you guys, I mean, I think the capital allocation here has been pretty outstanding. You know, you do the convert deal when the stocks at over 2000. You guys have, you know, look at Charter. Charter was a leveraged share for sure. They buy back the most of their shares when the stock's 7 and 800 and they're not doing it when the stock's 3 or 400. You guys, the stock goes under 1,000. You guys have gotten more and more aggressive buying back.

Just want to ask the other alternative to M&A is share buybacks in capital allocation. How are you thinking about that? Yeah, you actually sound like Tom Gainer, who's our lead independent director and also CEO of Markell. Well, you know, the Markell days why we're talking. So, yeah. He's like, hey, you know, the price is high. We sell some stock. The price is low.

We buy some stock. We definitely think investing in ourselves at the price point that we are these days make you've seen us do it throughout 22. We still have authorization available to us. And I guess that's about all that I will guide to at this point in time. And now, a quick word from our sponsor. Comprives of 40 of the world's leading digital infrastructure businesses, the byte ETF, ticker BYTE, trades on the NYSE and tracks the BITE index. Bight looks globally for companies such as mobile tower, fiber, and data center operators. For a prospectus and more information, please visit roundhillinvestments.com slash ETF slash bite.

Read carefully. Investing involves risk, including possible loss of principle. Investors should consider the investment objectives, risk, charges, and expenses carefully before investing in bite. Distributor of four-side fund services LLC. Like, as an investor, I mean, I think all the cable companies are trading under seven times EBITA. What that is in free cash flow varies by leverage structure and how much they're putting into near terming CapEx. But, you know, I kind of think if you're buying a cable company, for seven times even out there there's not much better you can do with your capital honestly

Andrew you couldn't build the network we have yep the value it's it's mind-boggling to me I'm like what's what's in the ground and in the air is worth more but the last I looked I mean you guys do have the JV investments which I don't want to get too to hung up on the book value of the JV and everything but the last time I looked you guys are trading for like under 2.5k per home pass it's like hey you want to go do a rural overbill, you're talking, I mean, Charter's doing rural over. This is probably more rural than you, but they're talking 4.5K for home pass. So you're buying this cash flowing cable company that's already got the customers for 2.5K for home pass. Like that you want to talk about buying below replacement costs. That's buying way below release costs. Let's see.

Just a few questions to wrap this up. I realize you've been generous with your time and we're close to an hour. You know, I think one thing cable companies have said, you guys included, are our churn is low. Our churn is at record lows. And one of the reasons we're not adding subs right now. Yes, fixed wireless is probably taking, particularly the people who used to come to DSL to cable, fix wireless is taking chair. We're not getting our chance to add the move,

the people who are moving because moves are down and everything. And I agree with all that, but I think a bear case a lot of people point out is, hey, the cable companies have been saying this for a while. And A, broadband ads have gone negative for probably the first time ever in the back half of last year across the board. And B, if churn so low,

why aren't the cable companies not just disclosing churn? Like Frontier does it, and you can see their results. Why don't the cable companies just disclose it if there's nothing tied? So again, I've thrown four different thoughts out at you, but I'll just kind of turn it over to you. I'm taking notes. First off on losses. The big folks started their losses in the second quarter. We lost for the first time that I can remember in the fourth quarter, and it was a very small loss.

It was barely, it was like 2000, if I remember correctly. It was less than 2000. It was very, very hard felt by our entire team. Net gain is a byproduct of connects minus churn, right? So you can see what our net gain is. The pieces and parts you might not get, but we talk about it. We say, you know, wow, our connects are really down. And we believe that is a byproduct of the how,

housing starts and the lack of moves, right? You know, it's 7% now, 6.5% for a mortgage. So moves are down, housing starts, like new build. You know, folks are pulling back on doing the construction, is starting to slow. Now it came to us more slowly than the big guys, and that's the way it always happens. Like whatever happens in the NFL cities usually ends up coming to our markets, but later. And we have time to see it and adjust. It also, I think, has to do with fixed wireless taking connects.

I mean, fixed wireless is just like DSL. Where do we get most of our connects from, either a DSL provider or potentially a competitor in the marketplace who isn't operating as well? So both of those things depressed are connects. But our connects are depressed in markets that don't have any fixed wireless access. So I believe that it is more a general environment. So that's, that's just talking about what is going on. And I think, I don't, I can't speak for like Comcast and Charter, but, you know, at the beginning, you know, they may have said that they felt like it was only the housing start issue.

It wasn't fixed wireless. Well, it's really hard to measure something you're not getting, Andrew. Like, I mean, it's, it's like a false negative. Like, yep. This is slowed down. And it takes a while to figure out what, what goes into that recipe. What is causing that? I mean, for us, we actually went in and changed our disconnect codes for our people so that we could track it.

Like, oh, there never was this thing before. Now there is, instead of saying it's competition, we're going to denote what kind of competition. And we also now have a third party company who's tracking that sort of movement for us. Now, coming to churn, I mean, I've seen cable churn used to be video for us. at least 2014 and we only talk HSD, this is the lowest I've seen churn. And I'm talking about Cable One as a monolith. And we know that we have competition in, you know, about a third of our marketplaces. So even with competition, likely driving higher churn in those markets than in others,

our overall average churn is the lowest that I've ever seen it. Why don't we give it? You know, we're still relatively an immature public company. So I'm going to say, I'm sure I don't know all the ends and outs of what we should be disclosing and what we shouldn't. What I do know is that our peer companies don't. Yep. And so we don't. And when I think about it at a deeper level, it's almost like the difference between a board director and management.

Same with investors and management. Like, do you want to run the business? Do you want to know every, you know, do you want to know what our salary is for field techs? Do you want to know? I mean, how much information. do we need to give versus you're entrusting us to run the business. And the bottom line, which for us is free cash flow, is where you want it to be. That is what we are driving for.

We are driving that pre-cash flow conversion. We're driving high return on invested capital. If those aren't the metrics that an investor cares about, we would want to hear about that. And by the way, we talked to them. I mean, I just went through our top 25. conversations. And they might bring up things related to ESG. They might bring up things related to compensation. I mean, we listen to that and we take their suggestions to heart. Quite honestly, you'll get to spare views. But I guess the question is, how much do you need

to disclose? Because once you do it, you're going to get doing it and then it'll be like, okay, that's not enough. Now I want to know the churn buy market. Now I want to know, where do you want me to spend our time. We want to know churn by voluntary versus involuntary. Yeah, no, I certainly hear you, but it. I'm not trying to hide it, but I'm telling you honestly, like, I think in most cases, like in the case of business solutions, there is no right or wrong. There's a whole continuum. But when it comes to morality and ethics, there is a right or wrong. I have no reason to lie because even about churn, because if I did it for a quarter, by the time you got to the next quarter or the quarter after,

the numbers would show whether I was being truthful or not. So we have no reason to. No, look, I 100% agree with you. I just know it is, like, there are people who think cable is a terminal zero. Everybody's going to be getting their internet from Starlink. I think if that happened, actually, there would be people getting like vaporized on the street by satellite rays. But, you know, some of the bear cases have been,

hey, they're not disclosing churn. And maybe it was kind of astute, especially in like Q2, when Charter and Comcast were saying, no, fixed wireless isn't hurting us, but we just lost subs, and like, it really went negative after that. And they were saying, you know, T-Mobile added 200,000 broadband fix wireless subs. It was all bodegas on the corner or something, you know. But I 100% hear you on that. It's just a frequent bear case.

I think that Frontier needs to be disclosing that. Let's just be real. And by the way, it's not really helping me to see what they're disclosing. Because, again, I can go to point broadband, or I can. could go to Clearway Fiverr to see what their churn is vis-a-vis ours. And I can tell you, very similar. Yep. And not head and shoulders above us at all. The other thing is we have to be careful about the majority of our competitors are not public. I don't know if that's true. I should be careful about what I say. There are some competitors of ours that are not public. And so any way they can get

information about us. And I mean, I'm very competitive. Ask anyone who works with me. If they can find information about us and we're making it easy, I don't like that. On the other hand, I do love the idea of being transparent with the people that put their money into our company. So if they want to know what's going on, here's what's going on. Fixed wireless is taking some of our connects in certain mid-America, not West, where we have the majority of our customers. And moves and housing starts are down. Our churn is really low. Our job is is to go get connects and it's not to get connects at any price. It's not to go out there with a $10 per month home broadband internet, yep.

I mean, you see some of some of our peers saying, oh, you know, for $40 you can get, you know, a 300 meg internet and a cellular line. Like, well, I know what things cost. Not a lot of profit there. I'm not going to do that. We're not going to do that. Now, we might do it. We might consider it for a test and try it out.

in a small area to see what it gets us. But ultimately, we have been very focused on cash flow and free cash flow and not just units for units sake. I mean, like, every, this is a value investors podcast. Every investor is going to love to hear that. That's what people want to hear. And obviously, free cash flow can vary if you do a big capax belt out, but ultimately the bottom line is free cash flow per share over a long period of time. Just last thing on churn, and then we can wrap this up. I think it was the Q4 call. I would kind of use that as the bottom line. You said every quarter we hit a new record for churn low and I think we can't go any lower and then the next quarter we hit a new record for low churn. Is that kind of the right way to think about

how you guys are seeing churn even in today's environment? It is, which is what is I think really kind of amazing because again 65% no competition but 35% does have competition and in some of those markets it means nothing like again the one I told you about that's growing that has three. It's us and two other competitors. We're growing. I look at it. Oh, that market's up again. That's great. Some have people coming in. And when they first come in, there's a power grab, right? You lose the 10% of customers who just, no matter what you do, that you're never going to be good enough for them. Yep. Even with that, our churn is really low. And actually, that might make our jobs harder in that it is incumbent upon us to maintain the trust of the consumers that we are serving.

I mean, our ambition is to be the most trusted broadband provider. And that means that we are there when they need us, that we respond quickly, that we treat them with empathy. And it is, maybe it's fun to do offers and go get customers, but keeping them. over the long term, that's the really hard work, and that's the work that we are up for. Perfect. Well, Julie, you've been super generous with your time. I think we'll go ahead and wrap it up here. Your 2022 investor day, I remember you said, being on camera isn't your jam. I think you did a fantastic job. I really appreciate you coming on and look forward to see you in May at the Markelde. I said, I love to fly below the radar. I mean, really, I love our people. Our people are our secret

sauce and they take care of our customers and that's where I love spending my time. Of course, I speak to investors and banks and have fun with them too. But if I can do it while I'm not on camera, you can better. I think this was great. I look forward to seeing you at Markell Day and May and we'll chat before then. I will see you in Richmond. Thanks so much. Have a great day. A quick disclaimer. I do not have a position in Cable One stock.