12/05/20

Craig Moffett

Good morning, everyone. Thank you for joining us for the second day of 7th Annual MoffettNathanson Media [ and Communication ] Summit, the first and hopefully last virtual version. I look forward to getting everybody back live next year, hopefully. I am delighted to come back Dexter from Altice USA. Dexter, I think, this is, correct me if I'm wrong, I think this is your third time as our guest. And so welcome, and thank you for joining us.

Craig Moffett

I want to start with right in with what I think is the core controversy around your shares, and that is that the investors with whom I speak worry about your ability to sustain positive revenue and, in particular, EBITDA growth in a market that is relatively saturated already. So I just want to start, what can you say to give investors confidence that you can sustain positive revenue and EBITDA growth through a challenging period like this?

Dexter Goei

Yes. I mean Craig, obviously, that's -- number one, thank you, and I'm glad to be here. But we are obviously very focused on the business and the operational side and very focused on delivering as best results as possible during this time. It's very clear to us that we're seeing a couple of very interesting factors out there in our business. Obviously, the lower penetration in our West properties, our Suddenlink properties, continues to deliver very, very strong growth and increased penetration on that side.

Secondly, you would have thought that in the East, we would start seeing very strong performance or outsized performance in the FiOS zones relative to our very, very high penetration market share in our non-FiOS zone but what we've actually seen is the exact opposite. We've seen marginal increase in penetration in the FiOS zones, even though FiOS is not actively installing today its subscribers. So about 16% of our net add growth in the first quarter is coming from the FiOS zones and about 30%, 32% is coming from the non-FiOS zones and the rest is the Suddenlink zones, right?

So the minority in terms of our growth is coming from our competitive areas, which you would expect normally. But given that FiOS has not been actively installing, we're not seeing any change in that dynamic in any shape or form. What we're seeing really is wireless-only subscribers and DSL subscribers, which have been typically those in the noncompetitive optimum areas, which we've not been able to penetrate, have come onboard as customers. And it's been very clear. The trends continue to be very strong from that side and obviously, on the Suddenlink side, we're seeing very good -- they're very good volumes.

So to go back to your point on revenue growth, revenue growth in itself is really driven by a mix of our products. As you k the video business, by and large, in our industry is somewhat challenged in terms of it, but we're seeing it really challenged on the attachment rates and not on the increase in churn on the video side. So the mix is actually better in terms of the revenue impact than taking a very, very large ARPU associated with video and just multiplying that by your net losses. You're actually seeing just lower attachment rates, which are lower ARPU subscribers that grow into a much more attractive one.

And secondly, clearly, on the broadband side, we're seeing an outsized performance and continue to see that outsized performance coming into April and through May right very good results there.

So as we look at our numbers, putting aside B2B and Advertising, we're going to grow our B2C revenues nicely. We were disproportionately impacted, obviously, by Q4 sideways result at Altice USA, which is flowing through on a full rate basis into Q1. So if you were -- if we did not have that sideways [ development ] in Q4, our revenue growth would have been, instead of 0.5% on the Residential business, more like 1.2%, 1.3%. And so that's a cumulative effect that kind of snowballs throughout the year.

So you just have to look at some of the underlying data to understand what's happening in our business. But these trends in our business continue to be extremely strong. We see very, very strong upward momentum in our ability to drive continued strong broadband ARPU growth or broadband revenue growth. I spoke about a little bit of that on Q1. But today, we have 2.8 million subscribers, 2/3 of our subscribers are at 200 megabits and below, right? And a big, big portion of those are on the Optimum footprint.

And so we expect to continue to be able to push that. We've just started to deliver 1 Gb over coax in the Optimum footprint, about half of our Optimum footprint, and we're seeing very strong penetration on gross adds there. And then obviously, as you k we're doing fiber-to-the-home, which will allow us to start delivering north of 1 Gb as we roll out fiber-to-the-home.

So the product road map on broadband continues to be very, very strong. And people are treating that spend on broadband as a necessity and are upgrading actively on that, and we continue to see those trends fare very nicely. So we feel good about our revenue trends in B2C and we feel very good about our EBITDA trends.

Craig Moffett

Well, there's a lot there that we can dig into over the rest of this session.

I want to turn to your Suddenlink footprint for a second because you're starting to see some of those markets opening up now for the first time. Are you seeing any significant changes in your business as some of the lockdowns end in some of those markets?

Dexter Goei

Well, it's interesting. So the timing of the lockdowns gave us a really good interesting geographic perspective on the U.S., which was as the lockdowns were more active in California and the East Coast, the Northeast, in mid-March to late March, you saw a surge in activity in our business, which started to abate 2, 3 weeks later. And then the West side of our business, which is a Suddenlink footprint, which is really right in the middle of the country, we're seeing really active activity through the month of April.

Now on the Residential side, the biggest trend that we're seeing outside of getting increased penetration on the broadband product and probably getting a lot of that from DSL subscribers and wireless-only subscribers, but we're seeing churn rates fall dramatically during the pandemic, right?

And so that's not a surprise. People, as long as their service is working well, there's no need for them to look elsewhere. And the marginal costs of savings, of moving on to someone else, is probably much more problematic than actually paying the actual increased costs than going to a promo.

The more interesting thing is that with Texas reopening right on the SMB business, if you look at our sales numbers, you start seeing weekly sales numbers. We kind of track it on the East versus West. And on the East, sales numbers are off on the SMB business, 40% to 50%, let's call it, and really troughed in mid-March to end of March. But what you've seen in the West is the sales numbers, irrespective of what we've seen in the pandemic, have actually continued to rise. Even though they're lower than last year, the sales numbers have continued to come in.

So the SMB business did not stop like it has on the West -- on the East, sorry. On the West, it's been active. And as you start seeing the reopening of markets and as you k Texas is our third largest market, we're seeing activity pick up nicely on the SMB side, putting aside our Residential business, which is performing very well.

So that's very encouraging. It's really based on what we see today. We see the SMB business actually hanging in there nicely. Maybe we'll start seeing some effects on it 1 or 2 quarters down the road, but the churn rates have hung in there, and the sales numbers are starting to tick up nicely.

Craig Moffett

Dexter, a lot of your peers have managed a lot of the business through self-install. What percentage of your business do with self-install, so even in markets where a locked down and they might not want to see techs entering their home?

Dexter Goei

It's virtually 0 today, Craig. That has not been a major focus of our business. It clearly has been over the last couple of quarters, getting ready for a rollout. So we're going to start rolling out self-install in the second half of this year in a very, very, case-by-case, area-by-area basis. But this is in very much a 2021 case for us to be delivering self-install in a more meaningful way, which really allows us to look forward to some nice OpEx savings as we continue to drive more efficiency in our business.

Craig Moffett

Yes. I was going to ask, what are the -- as you come out the other side of this crisis and things start to reopen, even in the East Coast, what are the lasting changes to your business with the way you conduct business with customers, the cost structure and that sort of thing?

Dexter Goei

Yes. I mean it's clear that even though I think we are well-known for being very efficient in our businesses, in our capital allocation, that we continue to see meaningful savings across our business in terms of what we're -- how we're conducting our business today. The obvious ones are that the amount of real estate that we require in our business is coming down meaningfully because of the way people are working more efficiently, whether it be from home or outside of an office space.

Secondly, I think the whole perspective on customer acquisition costs and media spend is under focus and really trying to drive a lot more efficiencies in what we do in terms of how we spend. Without our retail shops being open, 86% of our retail shops are closed, the ability to pay in cash, other than dropping into a lock box outside of the retail store, has come down significantly.

And so what we've seen is that about 30% of those people who were paying in cash, which is a meaningful expense for us to actually treat cash payers, have started to move on to some form of auto pay, whether it be credit cards, debit cards or auto pay, like that. So that is a big win in our business in terms efficiency. And I don't think that will change, and I think we'll continue to push. I think the market has been, as an industry, relatively cautious about trying to push people on to some type of automated payment or card basis and has been patient with cash payers. I think now you'll see distributors or other subscription businesses be much more aggressive in pushing people into much more efficient ways of paying.

From a personnel standpoint…

Craig Moffett

I guess those customers would have been unbanked customers. Is that not the case?

Dexter Goei

It's -- some of them, it's by habit. So there is (sic) [are] those who are unbanked, as you say, there are those who are just by habit, like to have better control over their spend and not have things on their credit cards or their debit cards and go. So it's a real mix. It's not -- we actually -- we have $100 million, $150 million, I think, per month of cash payers, right? It's a very big number. And so we're moving people off that meaningfully.

And I think from a personnel standpoint, as we continue to get efficiencies in our customer experience, whether it be call centers or reductions in our field operations, that is flowing through nicely into our business as well. And then that obviously affects our entire corporate line and G&A-related lines because we're becoming more efficient that way. So this -- we've been moving towards this as an institution, as you k quarter-over-quarter consistently. And I do think we probably are saving a couple of quarters of decisions here based on what's happening with the pandemic and getting more efficient even quicker.

Craig Moffett

So Dexter, I want to turn to your broadband business for a minute and maybe dig into some of the things you've already mentioned.

First, you talked about starting to roll out 1 Gb over coax. One of -- I'm still left with the question that we've always had a sort of remake the case again, if you can do a Gb over coax or having to do large-scale rollout of fiber-to-the-home. Is it if customers need more than 1 Gb? Or are the cost savings so significant with moving to fiber that is cost-justified?

Dexter Goei

It's the cost savings are so significant and the experience, as you k is significantly different, right? The in-lab statistics on coax 1 Gb obviously are great in terms -- but the actual performance out there doesn't really deliver a true consistent performance across just the speeds, the download speeds and the latency that you would expect, that when you actually have symmetrical up and down 1 Gb plus on fiber with no active components in your network, the performance is dramatically different.

And because the performance is dramatically different, there are 2 things that occur. Number one, your incidence rates, which really drive your OpEx, servicing cost, your customer touch point costs, change dramatically because the incidence -- the number of incidence rates for the people complaining about their service changes. And we're seeing material changes in that in some of our sister companies, as you k whether it's coax and fiber, more than 40% reduction in incidence rates. And secondly, it's mind share related in terms of performance. If you have a fiber-to-the-home FiOS, which is really fiber through the coax, which is not delivering 1 Gb, up and down, and has many of the incidence rate issues that coax does because it's fiber-to-the-in-house-coax, we have a material advantage in terms of what we're providing in terms of a service. And we're seeing that significantly proving itself out today out there where we are delivering fiber-to-the-home, even it's just 1P and it's in small numbers, people are jumping all over it, right?

And so you are out in the Hamptons today and you can imagine over the 23,000 homes in the Hamptons, how many people would take fiber-to-the-home when it's available and I will say to you for your 400 Mb that you're getting in your coax, you're going to change automatically to 400 Mb in fiber-to-the-home or even more, and you're going to get a much better service. So that incremental revenue opportunity is significant, but it's not in our math. It's really driven by the cost reductions where we're spending $800 million, $900 million a year on customer touch points. That's going to come down significantly over time as we deliver a much, much better service.

Craig Moffett

You mentioned the trends that you're seeing in broadband and I thought it was really interesting to think about how they're different in FiOS, non-FiOS and Suddenlink territories. If I go back to that for a minute, the gains that you're seeing in non-FiOS markets, which presumably are -- is that -- that is the Verizon non-FiOS markets. Is that a function of customers want higher speeds and they're upgrading from legacy DSL? Or is that a function of Verizon being less willing or able to send the customers into premises to do repair and maintenance and installs?

Dexter Goei

I mean you would have thought that we would benefit significantly from what FiOS is doing in terms of holding back its techs out there but that is actually not what we're seeing at all, right? So if you look at our net add numbers for the first quarter, the 35,000 net adds and it's the same trend that we're seeing, plus or minus, a couple of percentage points year-to-date through to May, is only 17%, 18% of our net adds are coming from the competitive FiOS zones, right?

The other Optimum subscribers, 30% of our net adds is coming from noncompetitive zones, where we already have 70% market share plus. And what we don't have is the DSL subscribers there. And then obviously, the 54% delta is coming from Suddenlink out there.

And that statistic, that pie chart is, by and large, consistent [ with what ] we're seeing it in April and May as well. And so it's really a minority of subscribers are coming from the FiOS zones and it's only a couple, it's about 6,000 of our 35,000 out there that we got in the first quarter. So that is not at all where we're seeing the impact in the growth of our business. And we're seeing it from increased penetration of the noncompetitive Optimum zones and Suddenlink and up-tiering in terms of speeds.

Craig Moffett

So I'm going to come to the up-tiering question in a second, but I want to just keep digging in on the unit side for a minute.

The penetration levels in Suddenlink's footprint [ where it still are ] a good 10 points lower than in the Optimum legacy footprint, and there's always been an interesting question that you've got less competitive intensity in those markets. And so the obvious place to look is affordability and lower disposable income levels and what-have-you.

Can you just comment on that? Do you think that this crisis has just sort of amplified the need for connectivity to the extent that now those -- that gap is going to be closed more quickly? Or do you think the economic pressures of this crisis are actually going to exacerbate the income disparities that caused the gap in the first place?

Dexter Goei

I think it's the first, Craig, which is, this has become -- broadband has become a necessity. A good performance broadband in the home has become a true necessity and that no longer is an optimal cost for a household, it's part of households' fixed costs. And we're seeing it in terms of the increased penetration, the desire for better speeds. And as we fast forward, where no one really knows what's going to happen over the next 3, 6, 12 months, there's really an anticipation that some form of online schooling or work-from-home is going to continue to exist for quite a period of time. And given that, that entire experience, which becomes part of your daily life, this has really become no longer an optional part of your cost basis. It's really a fixed cost base like your rent or your mortgage or electricity or your water. And so we really are seeing it in our churn numbers and it's not because only people don't want techs coming into their homes, is if it's working, don't touch it, right? And if I'm saving $10 -- or $10 or $15 on a promo, that's a pain in the butt to deal with. I'd rather just hold on to my subscription, it's working well, and my kids are happy and my family is happy working in that way.

Craig Moffett

Can you talk about new household formation? As you k we've talked about new household formation as a critical driver of broadband industry growth rates. The Greater New York market was already struggling with new household formation ever since the elimination of the state and local tax deductions a couple of years ago now. And there's been some speculation that what had been a trickle of people leaving Greater New York may turn into a flood.

How do you think about the -- what could be a rise in vacancy rates in rental units and unoccupied housing, coupled with very little new construction and how that might affect your growth rates in the legacy Optimum footprint?

Dexter Goei

Yes. I mean it's a good question. We actually think we're going to benefit from trends, the trends that you just stated, because unless people are leaving the state or the tristate area for Florida or the West Coast or somewhere with better weather, what's happening and what we expect to see happening is people are leaving New York city to go out to the more -- less dense areas of the tristate area.

And just to remind you, in our footprint, we are not in Manhattan, we are not in Queens, we are not in Staten Islands and we only have about 30%, 40% of Brooklyn. And our biggest New York City exposure is the Bronx, which you wouldn't expect to see a large outflow of people coming out from the Bronx, right? So let's call it those who have the optionality to move because they have the income levels or are on jobs that can transition to other parts of the country outside of the tristate area, those are not out subscribers today. Those are all Spectrum and FiOS subscribers elsewhere.

And so if we see people coming out from the city, by and large, they're going to come out to Long Island, Westchester County, Fairfield County, New Jersey, where we are. So we actually have the more attractive footprint out there to deal with any exodus coming into the city.

Craig Moffett

And you saw that, I think, pulled forward from what ordinarily would have been, say, rental homes in some of the resort markets that would generally fill up in July or even only in August, filling up in April. Is that the way you read it that this is basically a pull forward of seasonal demand into instead of a month or 2 being now a 6- to 9-month subscription?

Dexter Goei

No. I mean there are some of that. But to be very specific, let's talk about the Hamptons, right, where, as you k everyone is out there and every home is full and the rental market is very tight right now. That's only 23,000 homes, right? Suffolk County is 500,000 homes. And what we saw in terms of net adds coming from the noncompetitive areas, which is -- a big part of it is the 500,000 homes in Suffolk County, but we have another 1.5 million homes elsewhere in our footprint, which are not covered by FiOS. So of our 5 million homes, 2 million -- 2- and-change million are noncompetitive, and then the rest is competitive.

We saw 16,000 net adds coming from the entire Optimum footprint, of which 2/3 came from noncompetitive and 1/3 came from competitive, right? So it's not -- we're not seeing 10,000, 11,000 coming from the Hamptons out of 23,000 homes. People are -- or the homes of 23,000 Hampton homes are connected to Optimum all year long. People are not homeowners, are either renting their homes all year long to third parties or they're using them off the summer months and still have the connectivity.

So the surge that we see in activity in Hamptons is really traffic surge, which is really driving up-tiering of speeds. And from our standpoint, what we're doing is we're splitting nodes like crazy out here. And as I mentioned to you off-line, we're selling enterprise-level Lightpath lines to certain people who are trading working from home, right?

And so we are not seeing a pull forward here in any shape or form from what we see today. This is a consistent drive towards a change in the way people are working and how they're thinking about the broadband connectivity and how they need a real stable experience on a consistent basis, that's not being provided by wireless today or DSL.

Craig Moffett

So Dexter, those higher speeds that you were talking about that people are demanding. I think, as you said, you still got 2/3 of your customer base at 200 or below. So presumably, in prime position to be upgraded. I want to unpack your ARPU growth rate because there's -- have been an awful lot of discussion about the sustainability of 12% ARPU growth for broadband or -- and even the relevance of the way it's reported because of the allocations that happened within the bundle and changes that you take into rack rates. Can you just help unpack that for us, and tell us how we should think about the growth rate of broadband ARPU going forward?

Dexter Goei

Yes. I mean listen, as I unpacked it over our Q1 earnings, our 14% revenue growth coming from broadband is really 10%, right? The rest -- the 4% is really allocations. And if you think about things like upgrades and those types of events, that's really half of the growth. The other half is volume-driven and gross add driven and rate event driven. So you take half of it is related to upgrades, 25% of it is rate events and 25% of it is other, which really drives the balance, which gets us to 10% volume, really. So it's volume, 25%; rate event, 25%; half of it is gross adds and up-tiering.

Craig Moffett

And how -- so if I think about those 3 elements, the 5 points of growth, say, that are coming from upgrades, how sustainable is that? Is that a onetime phenomenon that people look at...

Dexter Goei

To be specific, sorry, it's gross adds and up-tiering, right? So a bigger proportion of that is really growth adds than there's up-tier.

Craig Moffett

But so -- you -- I thought, if I understood you correctly, you said there's about 10 points of growth after allocations, of which half of that is upgrades and then half of the remainder is rates and half of the remainder is volumes?

Dexter Goei

Yes, yes, sorry. That's -- you're right. You're right. So what I mean in terms of the gross adds is there's just a different change in mix as you are unbundling and cord shaving that's affecting it. But there's truly, yes, there's volume that's 2.5%, there's a rate event that's 2.5%, and then there's like another category, which is speed upgrades, changes in how you actually a, based on the fact that you're cord shaving and those types of things, right? So more of, let's call it the customer activity outside the volume.

Craig Moffett

That upgrades category includes the step -- the price step-up that comes back with volume video.

Dexter Goei

That's exactly right.

Craig Moffett

I see. But within that category, so it's reasonable -- we'll come to video in a minute. But within that category, how much of the demand came from onetime events, so I'm going to be working from home, I'm going to be distance learning, I need to upgrade? And how much of it do you think is sort of a sustainable demand for those 200-megabit per second customers to step up to 4 and then 1 Gb?

Dexter Goei

I mean the numbers in terms of actual volumes of upgrades, even though we've seen a doubling of request for upgrades, are de minimis. They're in the thousands and thousands of subscribers, not in the hundreds of thousands of subscribers, right? So we really -- as we think about our product road map and our ability to push rates through upgrades or rate events to our subscriber bases, where 2/3 of our subscribers, 2.8 million of our broadband subscribers, are only on 200 Mb, we think we have a very, very long runway of upgrading. So the actual numbers associated with the upgrades in terms of dollar amounts are not large. It's really the gross adds and the change in the mix and the rate event that is driving a disproportionate amount of our revenue growth on broadband.

Craig Moffett

Now when a customer upgrades to a higher speed, they give up their Price for Life plan, if they were in a Price for Life promotional plan. What percentage of your customers are in Price for Life pricing plans?

Dexter Goei

It's a good question. We were, in Price for Life, from end of June in 2019 up through to the fall October, November-ish, and so it's about 1/4 -- let's call it, 1/4 of Price for Life, and 1/4 of Price for life is probably somewhere around, if I look at it, 250,000 gross adds. So out of 4.5 million residential subscribers.

Craig Moffett

Got it. I want to turn to video. You've had more success than most of your peers in retaining video, particularly, I think the first quarter result was a bit better than at least that we had expected. What's your current thinking? And how hard do you think you should be trying to save video disconnects?

Dexter Goei

So it's a tale of 2 stories right here on video, which is, particularly in our Optimum footprint, we have a subset of our subscribers here, [ 50% ] of our video subscribers have been with us for more than 5 years, and I think the number is somewhere around 1/3 of our subscribers have been with us for over 10 years. Those are very profitable subscribers, very happy subscribers and they're bundled players for life in many respects.

Where we don't like the economics, and you've seen it really from all of our peers as well, is gross add video subscribers. Gross add video subscribers, not only in a promo bundle is a lower ARPU. But on top of that, the customer acquisition costs are higher and you have all the set-top box and equipment-related CapEx. And so in our math, you are cash flow breakeven on a gross add video subscriber in 2.5 to 3 years.

And so you really need to go -- and that assumes that you're doing your traditional step-ups in pricing every year for the 2.5 to 3 years, right? So that lifeline of a subscriber on video, we don't have enough data on it today. But that lifeline today of a gross add video subscriber is low, right? These are subscribers who are on it, on a promo, tend to switch from promo to promo when they can after 12 months, if they are in a competitive zone, or secondly, are much more transient in terms of their moves and are moving in and out of different regions.

So those subscribers are not very good subscribers, if you do your math, and they're cash flow negative on an all-in basis to us. And so what we're seeing in our subscription areas, because we have an Optimum footprint, which is very heavily bundled, and we have a flow that's outside of New York City, remember, you got to really remember that our footprint is not New York City, except for the Bronx and a little bit of Brooklyn, we have a very stable, family-oriented subscriber base in the Optimum footprint, which doesn't move as much, stays within its areas and actually is a heavy video user because there's more than one person in the household there.

So we're not seeing an acceleration in the churn rates at Optimum, we're just seeing a acceleration of the lessening of the attachment rates, right. Where we were attaching 60%-plus of all our subscribers on a gross add were taking video, that number more is like 40% to 45% now. And that's why you saw in Q4, higher video losses from our standpoint, and in Q1, even though we did maybe better than some of our peers, but it's because the attachment rates have come down significantly.

Craig Moffett

So it's as much cord never-ing as it is [ cord-ing ].

Dexter Goei

Yes, that's exactly right. And those economics, if we think about it, is we like our video subscribers that are existing video subscribers because we've stepped them up over time. So the acceleration of cord cutting or cord shaving, to be more specific, is not happening today. We're not seeing it. It's really -- the effect is the attachment rates on the gross adds is coming down.

Craig Moffett

It's interesting that you're not seeing a significant change in the video churn rate, just given the sports is off the air. The conventional wisdom and, full disclosure, I think Michael and I embraced the conventional wisdom, that with --

Dexter Goei

For once?

Craig Moffett

For once. That without sports on the air and with the economic pressures mounting, it's not hard to imagine that cord cutting is going to accelerate in this -- or as your cord shaving is going to accelerate in the second quarter and perhaps stay there. Is that fair to [ assume ] that...

Dexter Goei

I think we are -- listen, it's -- we're only 5, 6 weeks into the quarter, right? But what we're seeing in this first 5 to 6 weeks is relative to the first quarter, we've seen our video trends slow down relative to the first quarter of this year and the fourth quarter of last year.

Craig Moffett

Sorry, the decline rate slowed down?

Dexter Goei

Decline rates slowed down because -- and so not to push you under conventional wisdom, but the other conventional wisdom would suggest that if you've got a whole family at home -- again, we're very family-oriented in terms of our households, somebody wants to still have TV. And given that you've got kids running around all day long, people are not cutting off their television. So I'm not -- so you're talking about an economic impact, which we may see in the third or fourth quarter, but in the second quarter, we're not seeing it in our footprint today.

Craig Moffett

That's interesting. I mean certainly, the second -- or the first quarter saw an enormous acceleration, nationally, at least, particularly among satellite customers.

Dexter Goei

Yes.

Craig Moffett

But you're saying you didn't see that -- still aren't really seeing that kind of a...

Dexter Goei

We're talking first quarter acceleration for us because we've had, let's call it, better industry performance overall, because we've been in the Optimum footprint, which is at a high attachment rate and the Suddenlink footprint to where we have less and less competition from satellite. But what we're seeing is that the fourth quarter and the first quarter video loss is in the 40,000-plus numbers, we're not seeing those same trends in the second quarter now.

Craig Moffett

Interesting. That's interesting to hear.

If I go back to the industry trend, though, the programmers who are now seeing much lower attach rates to the virtual MVPDs as well, and therefore, are starting to see much bigger declines in live distribution for entertainment networks. There's -- it's easy to imagine a sort of second spiral, where if the first vicious cycle was sports programming costs rising and therefore, squeezing nonsports customers out of the bundle, the second one that starts is the programmers start to pull their best content from linear video and redirect it to OTT video because they see the writing on the wall. And so whether it's HBO Max or Peacock or Disney+, the traditional system is going to be deprived of the best content or at least in the first windows. Is that a concern? And I guess, what I'm thinking more broadly is how do you sit down and negotiate with a programming partner given all this set of uncertainties about the sustainability of the linear video system.

Dexter Goei

You're very, very topical because I've been saying for the past couple of quarters that I think we are, as distributors, universally, it's changed in terms of the dynamics between ourselves and the content providers. I think that if you speak to the head of content at all the distributors, I think they would share that over the last 6, maybe even 12 months, some of the dynamics have switched for exactly the reasons that you're saying, which is the attachment rates are lower, there's an acceleration of bundled, whether it be vMVPD or MVPD subscribers, and programmers are seeing that very, very actively in the numbers where affiliate fee numbers are coming down and the advertising dollars from their subscribers are coming down, right?

So they need to reinvent themselves as they have been actively. But if they start pulling off content or there's other forms of content that are just as attractive and elsewhere, that's why you're seeing the attachment rates falling off. And that's going to continue. I don't see a slowdown in the reduction of attachment rates for big bundles. I think Charter and Comcast are vocal in the fact that a lot of their video subscribers are coming from skinny packages, right, which are competing with vMVPDs or even lighter versions of vMDPDs. Now if someone wants some type of video, and they're getting it for very, very cheap as part of their bundle but you don't see that in the statistics because it takes a very long time for the ARPU trends to change dramatically.

So if you look at the mix there for someone who is bucking the trend significantly on video RGUs, it's because primarily, they're doing it with very skinny stuff out there, which is more profitable than, let's call it, the fatter stuff out there.

So I do think, to go back to your point, is over the next 1 to 2 years, you will start seeing those dynamics harden, in my view, where programmers and distributors may finally be on the same page as to how to drive the right economics for those existing subscribers and try to push them towards a higher-margin product for video programmers and video distributors to make that balance a lot more equitable.

Because I would not be surprised if somebody dropped something that was significant out there in MVPD land, right? The rating related to just things like networks have come off dramatically, right? And so the whole issue about retrans is going to come to the forefront here. I'd be surprised to start seeing a real acceleration and continued acceleration of retrans fees going out the way they have been.

Craig Moffett

Interesting. Dexter, I want to transition to your wireless business for a minute. I've always been interested in your views on wireless because you've been a student of wireless in Europe and seen some of the convergence theories with maybe a longer lens than a lot of executives here in the U.S. What's your current thinking about the trajectory of your wireless business in the U.S.? And I saw you moved back to offering your $20 price point again in the last couple of days or maybe even just this morning, as I just saw it this morning, but I saw you moved back. It doesn't look like it's a Price for Life. But you obviously seem to be thinking that now is the time to sort of put the pedal to the metal with subscriber acquisition. Can you just talk about that?

Dexter Goei

Yes. I mean we've been very vocal that we're big believers in convergence but we're also big believers in driving profitability, right? So that is a fine balance to see how we're allocating capital here. And we're tweaking the model. Obviously, handset sales are affecting the entire wireless industry today. So that revenue, which is a marginless revenue and sometimes even a loss-making business is going -- just affecting revenue trends, but that's fine because that actually helps our profitability in many respects. So it's a real focus on the attachment of mobile on our subscriber base. And I think we're in the very, very early innings of convergence here, where in all the other developed countries out there, whether it be Europe or Far East, you're in the -- you've passed -- you're in overtime relating to convergence.

And the reason why convergence is a tough one in the U.S. is really the ubiquity of service on wireless is not there and the same thing on fixed, where you have regional players all over the place. And even on the wireless side, everyone talks about having 99% coverage and those types of things, but you really don't have 99% same coverage in all of the areas in the U.S. And so as people move around, they start picking the better networks in certain areas to drive them, if price is not a differentiator.

And so from our standpoint, we're going to continue to push our wireless product and drive profitability in a wireless product as quickly as possible. And we're looking forward to working very closely with T-Mo where we're engaging them on timetable of transitioning onto their network.

But we, all of a sudden, are going to benefit from a much better network than the Sprint network and we think we're going to have a very good relationship with T-Mo to drive a better performance in our wireless businesses going forward. And we continue to be a big believer in helping our wireless "competitors" improve their networks, right, if to the extent that we can get good economics on our product because we do think there continues to be and there will continue to be, for a very meaningful period of time, a major differentiator in terms of wireless technology and stability relative to fixed line.

People will continue to have both products for the very, very foreseeable future. So we're not worried about, let's call it, 5G substitution in any shape or form. But we do think that there's an opportunity to drive increased revenue and profitability through a stand-alone mobile product but also then improve on the churn rates and mind share rates related to your fixed line product, which is what you're talking about in terms of convergence. And just the convergence here is, it's a different story relative to the habits and the geography of the competitors on both sides.

Craig Moffett

Great. So entertain my conspiracy theory that I've always had that part of the benefit of going fiber-to-the-home is actually take video and broadband traffic off of coax so that the coax plant can be used for what turns out to be an incredibly high-value function, which is strand-mounted small cells on coax may actually be the best solution for wireless traffic offload.

Dexter Goei

It's not a conspiracy theory, right? The most valuable part of our business is our assets, our fixed line assets and our networks, right? So we are going to monetize our assets as best we can. And we've had discussions with all of the wireless providers in terms of helping them densify their networks, right? So we're going to have 2 of the best networks out there, the only 2 networks, right?

So -- and with the less focused, let's call it, FiOS in our areas, we're going to have a materially better network than they will have. We will have overbuilt their entire fiber-to-the-home footprint in Optimum in the next 2 years, right? So in the next 2 years, whenever you go out there and look for a FiOS product versus an Optimum fiber product, there won't be a comparison in terms of the performance of that. And so it will just purely be price point driven from there. But then on top of that, we've got an attractive wireless product to add to it. That's going to make us, from a convergence standpoint, much more attractive than FiOS and Verizon put together.

Craig Moffett

Interesting. Okay. Dexter, I want to wrap up in a little bit of time we have left on your capital structure, and in particular, on the decision you made in the first quarter to continue to buy back stock pretty aggressively. You said that your leverage ratio is likely to stay relatively constant. And yet you sort of if you pulled forward some share repurchases where instead of delevering a bit to your goal in Q1. Can you just talk about that decision? Was that driven by -- to some extent by the CARES Act and the expectation that you could push out your NOLs even further before you become a cash taxpayer? And how do you think about in this kind of a crisis, what the right leverage ratio is?

Dexter Goei

Yes. Unfortunately, we weren't that smart in terms of thinking about timing of our buyback because before the market got hit in late February, early March, we had bought back a tremendous amount of shares in that $26 to $28 range and only benefited from buying back more shares in the second half of the quarter at lower price levels, post pandemic launch, right?

So there was no strategy in terms of CARES Act or not at all. It was -- we are big believers in the value of our stock that is very cheap today. If you look at any type of financial metric, whether it's on a relative basis or on a stand-alone absolute basis, the yield that we're driving or the relative comparison in our sector in terms of valuations, we're the cheapest stock out there. So we're going to continue to buy back our stock. As you saw in -- as you may have seen, in April, CPBIB, I think it was in April or was a couple of weeks ago in beginning of May, sold their last 11 million, 12 million shares. We took a 20% allocation of that block, which has been typical of blocks were out there.

So we're not slowing down our buyback in terms of our targets. It's really about front-loading it because we feel very comfortable in terms of our free cash flow, matrices and our ability to deliver EBITDA that's going to get us to 5x, right? So even though we withdrew our guidance on certain of our matrices in the first quarter, I reiterated we see revenue growth and EBITDA growth and our EBITDA growth will be able to sustain a $1.7 billion of buybacks and a 5x LTQA leverage target, right?

So we feel very comfortable on all of those. Again, the caveat is from what we see today. But I'll tell you that we've run, as I'm sure all of our peers and all corporates are doing today, very, very actively running downside scenarios left, right and center. And I think today, we're doing better than our downside scenarios, right? And so we'll see.

The biggest, obviously, x factor out there is whether we see a second lockdown type of activity. But based on the -- what the all the knowledge and the reading and the newscasts and all the interviews, we're seeing a very good, not great, but a very good performance this year relative to expectations.

Craig Moffett

Well, it's a good place to leave it. Dexter, I always find it illuminating to spend this time with you. I learn a lot. So I thank you for the time you spent with us this morning. And on behalf of everyone on the call, we wish you and all the employees of Altice USA health and safety and we look forward to having you back at what will hopefully be a live summit next year.

Dexter Goei

I look forward to it. Thank you very much, Craig. Thank you.