Charter Communications Inc (CHTR) — Q2 2022 Earnings Call Transcript

Good morning, and welcome to Charter's second quarter 2022 investor call. The presentation that accompanies this call can be found on our website, ir.charter.com, under the Financial Information section. Before we proceed, I would like to remind you that there are a number of risk factors and other cautionary statements contained in our SEC filings, including our most recent 10-K and also our 10-Q filed this morning. We will not review those risk factors and other cautionary statements on this call. However, we encourage you to read them carefully. Various remarks that we make on this call concerning expectations, predictions, plans, and prospects constitute forward-looking statements. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ from historical or anticipated results. Any forward-looking statements reflect management's current view only, and Charter undertakes no obligation to revise or update such statements or to make additional forward-looking statements in the future. During the course of today's call, we will be referring to non-GAAP measures, as defined and reconciled in our earnings materials. These non-GAAP measures, as defined by Charter, may not be comparable to measures with similar titles used by other companies. Please also note that all growth rates noted on this call and in the presentation are calculated on a year-over-year basis unless otherwise specified. On today's call, we have Tom Rutledge, Chairman and CEO; Chris Winfrey, our COO; and Jessica Fischer, our CFO. With that, let's turn the call over to Tom.

Thank you, Stefan. Our business continues to grow despite an unusual macroeconomic environment. During the second quarter, we added 38,000 Internet customers when excluding an unfavorable impact related to the discontinuation of the emergency broadband benefit, EBB, program and additional definitional requirements of the affordable connectivity program. Customer relationships churn remains historically low due to current consumer behavior, and connect activity remains low primarily due to the low activity environment. At the same time, we continue to see very strong mobile line growth with line net additions of approximately 350,000. And over the last year, we've grown our mobile lines by nearly 50%. We now have over 4.3 million total mobile lines. Financials were also strong in the second quarter. Second quarter revenue grew by 6.2%, and EBITDA grew by 9.7%. Looking forward, we remain well-positioned. Our fixed and mobile broadband service continues to converge technically and operationally. We offer them along with all of our other high-quality products at attractive prices. Our growth is driven by offering value-rich packages that differentiate us from our competition at prices customers can afford regardless of the economic environment. And we plan to continue to do that. To continue to improve our service, we are focused on evolving our network. Data usage continues to grow at a very fast pace. During the second quarter, Internet customers who do not buy traditional video from us used over 650 gigabytes per month. Nearly 25% of those customers now use a terabyte or more of data per month. And even with the rise of work from home, peak usage patterns still prevail, but the vast majority of data usage occurs during the evening hours. Our network is built to handle that peak demand and delivers consistent speeds regardless of the time of day. With our dense HFC network, we deliver gigabit speeds today everywhere we offer service. And in the near term, we're implementing spectrum split upgrades, which expand our plant capacity and allocate more bandwidth to the upstream, all using our DOCSIS 3.1 infrastructure. In turn, we'll be able to offer our customers higher symmetrical speeds and multi-gigabit speeds in the downstream. Our long-term network evolution path includes DOCSIS 4.0. Recent testing using DOCSIS 4.0 technology simultaneously delivered over 8 gigabits in the downstream and over 6 gigabits in the upstream in a 4 amplifier cascade to a single mode. We will develop this technology even further, but the test demonstrated that we can successfully drive bidirectional multi-gigabit speed offerings across our entire network in a very capital-efficient manner and without the major disruption to our customers and operations that other kinds of upgrades require. So we can deliver a future-proof network that provides the most compelling connectivity services in a capital and time-efficient manner and, in turn, offer those services to consumers at highly attractive prices. But we're not only working to improve speeds and latency in our network. We're also focused on improving network quality and reliability, reducing service transactions, driving longer customer lives, and reducing churn. We're doing that through better maintenance practices utilizing artificial intelligence, telemetry, and machine learning technologies to drive what we call operational intelligence. We're now able to ingest, aggregate, correlate, and analyze millions of data points from our network, offering us intelligence about its health, services, and anomalies that are critical to the customer experience. In the past, this type of real-time network intelligence did not exist, and substantial human effort and manual analysis were required to manage our network, which was time-consuming and provided only limited insights, requiring thousands of service transactions. In many cases, our intelligence now allows us to avoid network outages and disruptions altogether, maintaining the plant more efficiently with far less activity and cost and fewer outages in service transactions. Our mobile business is growing at an extremely rapid pace. We remain the fastest-growing mobile provider in the nation, and we continue to improve and enhance our products in several ways, differentiating our offerings, helping to drive customer growth, and making our mobile business economics even better. Ultimately, with our mobile product, we're able to offer consumers a unique and superior, fully converged connectivity service package while saving customers hundreds or thousands of dollars a year. And our share of household connectivity spend, including mobile and fixed broadband, is still very low. In fact, we capture less than 30% of household spend on wireline and mobile connectivity within our footprint. So there's a significant opportunity for us to increase market share by saving customers money. And through our latest offerings, we can do that, which, in turn, raises connects, reduces churn, and drives overall customer relationship growth. In addition, our mobile business will drive meaningful EBITDA for Charter, even at our existing and very attractive mobile price points, giving us EBITDA growth simply by growing our mobile customer base. We're underpenetrated, and our opportunity is large. Charter remains uniquely positioned to deliver superior services at superior prices, offering consumers the most attractive products for their connectivity needs. Our services remain the best choice for consumers, giving us the opportunity to continue to grow our business at a very healthy pace. Now I'll turn the call over to Jessica.

Thanks, Tom. Now let's turn to our customer results on Slide 5. Including residential and SMB, we lost 21,000 Internet customers in the second quarter. As part of the EBB to ACP transition, a small portion of subsidized Internet customers either did not opt to continue their service after the EBB program ended or did not meet the ACP requirements, particularly the requirement that customers use their service in each 30-day period, which covers the vast majority of the impacted subscribers. This resulted in 59,000 customer disconnects during the quarter. Excluding that headwind, we organically grew 38,000 Internet customers in the quarter. Looking forward, we expect that zero usage ACP customers will have a smaller impact on our quarterly results than what we saw this quarter. Looking at the broader marketplace, while we saw seasonal increases in moves typical of the second quarter, moves remained well below pre-COVID levels. And voluntary churn, when excluding the EBB-ACP impact I mentioned, was even lower than last year, all of which reduced our selling opportunities. Turning to video, video customers declined by 226,000 in the second quarter, following a programming pass-through increase. Wireline voice declined by 266,000, and we added 344,000 mobile lines. Despite the lower number of selling opportunities from our reduced activity levels, we continue to drive mobile growth with our high-quality, attractively priced service. Moving to financial results, starting on Slide 6. Over the last year, we grew total residential customers by 282,000 or 1%. Residential revenue per customer relationship increased by 2.8% year-over-year driven by promotional rate step-ups and earlier video rate adjustments versus last year that pass-through program rerate increases. These effects were partly offset by the same bundle and mix trends we've seen over the past year, including a higher mix of non-video customers and a higher mix of lower-priced video packages within our base. Also, keep in mind that our residential ARPU does not reflect any mobile revenue. As Slide 6 shows, residential revenue grew by 4.5% year-over-year. Turning to commercial, SMB revenue grew by 3.7% year-over-year, reflecting SMB customer growth of 3.7%. Enterprise revenue was up by 4.9% year-over-year. Excluding all wholesale revenue, enterprise revenue grew by 8.2%, and enterprise PSUs grew by 4.7% year-over-year. Second quarter advertising revenue grew by 12% year-over-year. That growth came primarily from political. It was slightly offset by a 1% decline in our core advertising business due to lower local and national advertising revenue, including auto, partly offset by our growing advanced advertising capabilities. Mobile revenue totaled $726 million, with $299 million of that revenue being device revenue. Other revenue increased by 8.8% year-over-year and includes rural construction initiative subsidies totaling $29 million. In total, consolidated second quarter revenue was up 6.2% year-over-year. Moving to operating expenses and EBITDA on Slide 7. In Q2, total operating expenses grew by $307 million or 3.9% year-over-year. Programming costs declined by 0.2% year-over-year due to a decline in video customers of 3.2% year-over-year and a higher mix of lighter video packages, all of which were mostly offset by higher programming rates. Looking at the full year 2022, we continue to expect programming costs per video customer to grow in the low to mid-single-digit percentage range. Regulatory connectivity and produced content declined by 10.3%, primarily driven by lower Lakers RSN costs and lower video CPE sold to customers. The decline in Lakers and RSN costs was primarily driven by the delayed start of the NBA season in 2020, which drove more Lakers games charges in Q2 2021, making for an easier comparison this year. Excluding the RSN costs from both years, regulatory connectivity and produced content declined by 4.7%. For the full year 2022, we continue to expect regulatory connectivity and produced content expenses to decline in the mid-single-digit percentage range versus 2021, primarily due to lower video CPE sold to customers and lower RSN costs given an abnormal Lakers game schedule last year. Cost to service customers increased by 5.1% year-over-year. The increase was primarily driven by higher bad debt year-over-year given lower bad debt in the second quarter of 2021, which benefited from government stimulus packages at the time. And while this quarter's non-paid churn and bad debt write-offs both remain well below pre-COVID levels, our bad debt accrual includes expectations for potential softening of consumer finances later this year. Excluding bad debt from both years, cost to service customers grew by 1.1% primarily due to a larger customer base and higher fuel costs partly offset by productivity improvements. As the year progresses, prior year bad debt expense normalizes and should drive slower growth in cost to service customer expenses during the second half of the year. Marketing expenses grew by 8.6% year-over-year due to higher labor costs driven by previously planned wage increases and higher staffing levels as Charter completes the insourcing of its inbound sales and retention call centers with a focus on providing better service to new and existing customers. For the full year 2022, we continue to expect marketing expense to grow in the mid-single-digit percentage range vs. 2021. Mobile expenses totaled $797 million and were comprised of mobile device costs tied to device revenue. Customer acquisition and servicing and operating costs and other expenses increased by 1.3%. Adjusted EBITDA grew by 9.7% year-over-year in the quarter. Just a quick note on inflation before moving on to net income. We've seen some inflationary pressure in fuel, freight, and utilities as well as pricing pressure on CPE and other network components. In labor, our planned move to a $20 per hour starting wage blunted the impact, but we still see pressure in the labor market, which we may need to respond to more fully as the year progresses. I would also note that our consumers are experiencing inflationary pressure. But given the availability of subsidies for broadband and our focus on saving customers hundreds of dollars per year by switching to our converged connectivity product, we believe that we're well-positioned for this environment. Turning to net income on Slide 8. We generated $1.5 billion of net income attributable to Charter shareholders in the second quarter versus $1 billion last year. The year-over-year increase was primarily driven by higher adjusted EBITDA. Turning to Slide 9. Capital expenditures totaled $2.2 billion in the second quarter, above last year's second quarter spend of $1.9 billion. We spent a total of $357 million on our rural construction initiative in the quarter. Most of that relates to design, walk out and make ready, and as expected, has not yet resulted in significant passings growth. And most of that spend is accounted for in line extensions. We spent $95 million on mobile-related CapEx, which is mostly accounted for in support capital and scalable infrastructure and was driven by investments in back-office systems and wireless offload construction. As Slide 10 shows, we generated $1.7 billion of consolidated free cash flow this quarter versus $2.1 billion in the second quarter of last year. The decline was primarily driven by higher cash tax payments and higher CapEx, mostly driven by our rural construction initiatives. We finished the quarter with $95.7 billion in debt principal. Our current run rate annualized cash interest is $4.5 billion. As of the end of the second quarter, our ratio of net debt to last 12-month adjusted EBITDA was 4.45 times. We intend to stay at or just below the high end of our 4 times to 4.5 times leverage range. During the quarter, we repurchased 8.3 million Charter shares and Charter Holdings common units totaling about $4.3 billion at an average price of $511 per share. And given where the share price has been, during the first two quarters of this year, we repurchased 7.2% of our fully diluted shares outstanding as of December 31, 2021, for approximately $7.8 billion.

A couple on sort of competition and your go-to-market. You guys didn't talk a lot about fixed wireless or the fiber builds that are happening in various parts of the country. I'm just wondering if you could comment on whether that competitive intensity has increased, if you're seeing, in particular, pressure in certain parts of your footprint, including in the third quarter. I realize you don't like to comment quarterly, but obviously, there's a lot of focus on that. And then Tom, I was interested in your comment about generating mobile EBITDA because it would seem like there's maybe some tension between sort of passing on efficiencies in that business to the consumer through lower prices, which can drive volume and maybe drive broadband volume as it gets pulled through by mobile. But that tension exists versus sort of trying to make as much money as you can in that business. Just wondering if you could comment on how you think about balancing that, particularly as you move more traffic on network.

Sure, I'll start there. There is always a balance between product pricing and market penetration. The goal is to optimize cash flow by finding the right price and the appropriate volume distribution for that product. In the mobile sector, we see significant potential. We're building customer relationships where customers are paying us, and there are healthy margins in this business at our current pricing. We believe we can enhance efficiency over time with that margin and that the 9 million customers generated from our MVNO partner are valuable and should be recognized as mutual customers. This shared relationship means we have a chance to grow our business further at our existing pricing, which is advantageous compared to our competitors. The prices we're offering now provide a great opportunity for long-term value creation and improving margins, though even without margin improvements, the value remains strong. Our mobile business is poised for growth, especially since we have a fully penetrated market but only a small share, and we're expanding quickly. Regarding competition, our churn rates are very low, and current market activities significantly influence our growth rates compared to prior performance. The typical fiber competition remains present, and while a new fixed wireless competitor has emerged, it's not a central aspect of our quarterly results. When you analyze the numbers claimed by fixed wireless competitors, they do not appear to be the main cause of changes observed between the second quarters of 2019 and 2022; the key factor has been activity levels. Other aspects, such as RDOF construction ramping up and lower housing occupancy and new builds due to supply chain issues, are affecting growth now but we are optimistic that market activities will return to normal post-pandemic and that our broadband growth share will increase. We view our mobile business as significantly beneficial and full of opportunities moving forward.

A couple for me. One, really move churn is a phenomenon that is sort of new to us and what it sort of meets the subs. Can you sort of help us understand, is your share of the gross ARPU higher than the share of moveouts that have your service? I think it needs to be for low move activity to be negative for net adds. And if that's the case, how has that sort of shifted over time? And obviously, you announced that you've increased your speeds by about 100 megabits for your service, but it was not on the upstream. Can you just talk about the importance of upstream? Obviously, the fiber guys keep talking about that being a well advantage for them and how that's impacted the service so far.

Vijay, can you clarify on your first question a little bit more? I didn't fully understand what you meant by the new first flow. This is Chris.

Is your share of the gross average revenue per user higher than your share of move-outs that use your service, considering move churn as a factor? For low move activity to negatively affect net additions, I think that's necessary. I'm trying to grasp how this move churn phenomenon, with people moving in and out, impacts the opportunity for gross additions.

Yes, I think what you're saying is that we take more shares when there's uncertainty. There are more uncertainties when people are relocating, which results in our new additions from moves being greater than our disconnections from all moves. That's your point.

And we're still a net share taker. You're in a Q2 where move activity remains well below pre-pandemic levels, non-pay churn well below pre-pandemic levels. We also saw the return of seasonality in college markets that didn't occur last year. So we expect to see those gross additions come back in August and September. So it was a seasonal Q2 where you had low move non-pay and our lowest to lever voluntary churn when you exclude this EBB impact. And so without that activity, I think what you're asking is if we were in a normalized environment, are we still in that share taker. And the answer is yes.

That's our expectation. With regard to downstreams and upstreams, usage is still significant. 14:1 downstream versus upstream. And so from a practical point of view, our products are appropriate. We think, over the longer term, upstream use will continue, but it isn't actually growing faster than the downstream use at the moment.

Could you elaborate on the future of broadband growth, specifically regarding broadband ARPU and how you anticipate the impact of RDOF and the early stage Jobs Act awards on the number of homes passed? Additionally, could you discuss your thoughts on offloading wireless traffic, particularly in relation to your CBRS buildout? What level of traffic do you believe can be offloaded onto that network?

We have achieved approximately 1.5 million passings in rural areas through the RDOF program and various state initiatives. There are numerous bids still pending at the state level and a $42 billion fund expected next year that will support additional construction opportunities. Although we have not yet started to commercialize CBRS offloading, our WiFi-first strategy allows considerable mobile traffic to be transferred onto our WiFi network. Combining our successful managed WiFi environment with the potential of CBRS is promising. Our current MVNO relationship is solid, featuring volume-based pricing and substantial margins, and if we continue to succeed, we can enhance that by transferring more traffic onto WiFi and our own 5G CBRS network. Overall, we find ourselves in a favorable position with significant potential for improvement.

Yes. Craig, on the broadband growth, I'd just add that similar to what we were talking about with Vijay, the market transaction volume eventually is going to pick up. So our Internet net adds will pick up again. We're confident in that. And our recipe for broadband growth has always been about being competitive and price competitive in the marketplace. And we've had new entrants and overbuild for many years. So when you asked the question about ARPU, I assume it relates a little bit to competitive. And I don't see a major change there in terms of our strategy and how we go to market or how we need to go to market. In fact, I would argue because of the mobile product and the converged mobile product that Tom was talking about and the ability to put these together and that we can save customers money, significant dollars, that has both good volume and ARPU impacts for broadband over time. So I think the outlook is still very, very strong.

A couple of questions. One, just curious, based on your comment about the test on DOCSIS 4.0, what percent of your footprint is covered at plus 4? And when do you think that equipment will be ready for prime time? And then I guess, Tom, but maybe just a jump ball, I'm just curious when we think about stressing the consumer whether inflation impacts in their wallets are ultimately Fed interest rate increases impact on the economy and overall consumer spending, where would you expect to see any pressures from the consumer in your business first? Have you seen anything so far? And where would you expect to see it? And I'm just curious if you reflect back, you think about the great recession and consumer wallets got tighter and there was some readdressing of pay television spending and tiering. Do you see across your businesses, any risk of tiering down? And how would you manage against that? So I know not a fun question, but I'm just curious how you think about that given your history.

We acknowledge the concerns regarding the current economic climate. Regarding DOCSIS 4.0, it has not yet been deployed, and we are currently fully utilizing DOCSIS 3.1, which allows for 1 gig speeds across our footprint. There is still significant room for upgrading to DOCSIS 3.1, as it supports multi-gigabit speeds downstream and gigabit symmetrical speeds upstream. The infrastructure is strong, and the necessary customer premises equipment is already in place. DOCSIS 4.0 is a complete overhaul involving new electronic components and a different modulation scheme, requiring new customer premises equipment. Although it hasn't been deployed, it is in the lab phase, and the specifications are established. This upgrade will enable us to achieve high speeds without needing to replace our entire network, allowing for capital-efficient advancements and pricing advantages that competitors may not have. On the topic of inflation and its broader effects, we have access to capital at favorable rates. Temporary inflation could provide us with a competitive edge, as consumers with tighter budgets will see more value in our products. Examining consumer spending on telecom services, our share is commendable, and we believe that our offerings will appear even more appealing during challenging times. While we will certainly face cost pressures, our overall business is becoming more efficient. As we attract more customers, our cost per customer continues to decrease. This positioning allows us to thrive in difficult economic conditions, making our products more valuable to consumers. Although we'd prefer to operate in a more stable environment, we believe we have solid assets and opportunities for success.

I would like to add that we have been strong advocates for affordability. As part of this effort, we participate significantly in the affordable connectivity program, more so than any other wireline providers to our knowledge. We have worked hard to promote this program among our existing subscribers, not as a way to acquire new customers, but to help ease some of the financial burden on our current consumer base. I believe this gives us a better advantage than we had in 2008 in retaining customers and providing them with value during challenging economic times when financial resources are strained.

I do think video would be more challenged in a downturn or an inflationary environment than other products, but the margins have relatively become smaller in that part of our business. So the net of it all is, I think it's somewhat of a market opportunity, but there will be stress on video.

Yes. And just a final clarification, Tom. At 4 amplifiers for DOCSIS 4.0, I get that it will be a while before it arrives. Would that cover the vast majority of your network? Or would you be invested in seeing 6 amplifiers?

Doug, I think the point of the example around 4 amplifiers is that the technology can work in an amplifier cascade that would allow it to cover a large portion of our network without having to move the nodes closer to the customers necessarily. So I think its performance in that environment in the lab at this point is a strong example of how it is that we can make it capital efficient when we deploy it down the road.

Yes, it could get better.

It could get better.

Two quick ones, if I may. First, it seems like wireless is becoming an increasingly important piece of the business. And one of the pieces that maybe investors don't understand so well is how it contributes to EBITDA because, on an aggregate basis, it still is a drag. Can you give us some idea of what the incremental margin is on a wireless level, what the contribution to EBITDA per sub is from wireless, what gives fiber subs? And then on broadband, can you give us a sense of sort of how you saw trends progress as you came out of June into July?

So Jonathan, I'll take this one. The wireless segment is becoming increasingly important, and I believe it's not well understood in the marketplace. Currently, it shows an EBITDA loss, but that is mainly due to the costs associated with acquiring subscribers for sales and marketing. The EBITDA for wireless became positive quite some time ago, likely over a year ago. It’s an attractive product, and we are experiencing rapid growth. I'm not going to discuss margin analysis or forecasts, but I can tell you that most published data on this topic significantly underestimates the margins inherent to this business and its potential to drive overall growth, including broadband net additions. It’s a powerful segment, and while it may not be well understood at the moment, that's acceptable for now. The second question was about volume.

Volume in June-July.

On volume, yes.

Yes. Look, that's a tough question because you've got a seasonal disconnect period that goes through June and July. You've heard me mention earlier that we have had a more return to seasonal disconnects in our college markets, which actually bodes well for August and September, assuming that comes back. I would say that our medium and long-term confidence is very high, will be back market overturn with net activity. Short term, it's just difficult to see with volume and July is a very difficult month to go ask that question. So we'll see.

We are primarily a wireless company, with 450 million wireless devices connected to our network. When considering our new video strategy and our joint venture with Sumo, our ability to connect video customers wirelessly in the future means that all of our products could be delivered wirelessly.

I was wondering if I could ask you how you're thinking these days about potential acquisitions in the cable business or even other types of assets, whether it's business services or wireless? And maybe in cable specifically, if you could talk about just how you would evaluate a potential deal today.

Well, we've always said we love cable, which is why we've been buying our own stock back, because we haven't been able to buy cable. And that it's a great business. And we think that the future of what these assets can do is significant and a huge opportunity. So nothing about our view on M&A has changed.

I will add that it has to be cable at attractive prices that will benefit shareholders in the long term. We are always exploring cable assets, whether they are small or otherwise. Ultimately, it needs to bring value to shareholders, and we will be prudent.

I wonder if we can go back and talk about the progression of broadband through the quarter, and forgive me if this is just too much. In May, we talked about green shoots. And in mid-June, it looked like broadband would be slightly positive. I assume it's fair to say that June was worse than expected and that July is probably not trending well. I'm curious if June being worse is bigger seasonality in that type of market or was it worse in the other markets or the underlying business? And then second, if I can, sort of a big picture question. How much do you take competitive response into account when you price a product like wireless? As you price wireless at $30, Verizon responds with $25 broadband, and it seems to be cycling down. Is this really the situation you want to create? And do you think you have an advantage in that over time?

I will start with that. In May and June, we mentioned seeing signs of improvement. We were referring to increased activity, although it didn't necessarily mean we were adding more customers at that time. By June, we still anticipated reporting a net gain in Internet subscribers, despite the challenges posed by the transition from the Emergency Broadband Benefit to the Affordable Connectivity Program. I don't believe that market conditions or performance significantly worsened in June. On a quarterly basis, net adds totaled more than 1 million connections, which were balanced out by disconnects. Even a minor change in either direction can result in slight variations in the final net add figures, which ultimately amount to about 20,000 or 25,000 subscribers. Overall, our assessment of activity throughout the quarter remains consistent with our previous outlook.

I'll start off on the pricing, and then I suspect Tom will chime in as well. To build a question on competitive pricing, of course, we think about not only the moves that we're making but the secondary moves and the market responses. Our pricing for mobile is $29.99 when you take through lines or more. It's very simple. There's no taxes and fees. And it's so long as you have or take broadband of really any kind together with that product. Some of the other offers out in the marketplace mean that on a wireless product, you got to go spend $10, $20 more, and then you can get discounted prices on broadband. So when you put the all-in package together, our all-in package of broadband plus wireless service is dramatically cheaper, taxes and fees included, and no upcharge on the core service required. It's really attractive. So I think even with some of those responses in the marketplace, which may or may not be related to us, we can be very attractive and save customers thousands of dollars a year with a better product, which is integrated as a converged broadband product for years to come. The other big benefit is that we have the ability to offer mobile in 100% of our footprint. So we have 54 million passings. We have gigabit service everywhere we operate. We did not red-line. We're fully upgraded. We have a path to multi-gig symmetrical services. And in addition to that, we have mobile everywhere we operate at a price point that is very, very competitive with a product that's actually not only the fastest growing mobile but the fastest mobile service in the country. If you put all that together, we feel pretty good about our competitive positioning long term.

Yes. And to your broader question, yes, we think about what it does to how competitors might price against us. Our view is that we can do the pricing we're doing and still create extremely good value for customers and, at the same time, create an extremely good value for us. The macro situation with regard to us is that we're underpenetrated. We have 4%, 5% of the mobile dollars in our marketplace. When you just add up all the telecom spend, we have a very small piece of it. So our opportunity is volume. You saw that even in the second quarter. So second quarter, a seasonal quarter, low volume in the cable side across the entire market. Yet we still have 344,000 net adds on mobile in a very low cable environment. I think that illustrates the opportunity. When the market comes back, Internet sales will go back up along with the market activity. But mobile, in a strange way right now from a line's net adds perspective, it's depressed compared to what it could or should be in a normalized market. So we'll continue to grow.

Two questions on pricing across two different products. First on mobile, Chris, I particularly appreciate your comments on the cost structure. And I'm aware that mobile has not historically sold at high rates to new broadband subscribers. And in context of a business with flagging gross adds, I wondered if there's an opportunity in the future to attach more mobile to gross adds and use it as a way to stimulate overall sales of your converged connectivity product. And then in parallel, on broadband pricing, I'd love to know your views on retail price increases at this point.

So nothing to announce today, Peter, but clearly, we think a lot about mobile and its ability not only to attach to existing Internet customers, which has been the predominant path so far. But as the market understands our product better, and the fact that it is the fastest mobile product in the country, and that is real, that it really does save customers a lot of money, no contracts, no taxes, no fees, I do think there's a really powerful case that we can use to have mobile actually drive significant Internet net adds and particularly in a market with low volume to be able to kick-start in volume in the marketplace by using mobile to do just that. So we're constantly testing different concepts in the marketplace. Economically, it's a no-brainer and it makes a lot of sense, but it is a new package structure for educating customers to get them to think about buying a household service and an individual service together so that they can get those savings and they can get that better product, and that may take a little bit of time for us to find the right connection as well as to educate the marketplace. And then the second question, I should have made a note of what the second question was on.

Retail pricing.

Our goal has always been to have the best pricing in the marketplace, and to the extent that we can withstand some of the inflationary pressures and save customers lots of money with that converged product, which includes both Internet and mobile, that's going to be our path. It doesn't mean that we're dogmatic about never taking rate increases when we need to. This issue is always available, but our preference has always been to be competitive and value leader in the marketplace.

A big picture one on broadband. The magnitude of the slowdown in subscriber growth has been fairly meaningful. A lot of the factors like low market activity, comping the pandemic pull forward, and competition are pretty well understood at this point. I know there's been an expectation that we'll get some normalization or stabilization with at least some of these issues, but it's just taking a bit longer than we would have hoped for. So I guess with that, is there a sense of greater urgency to reaccelerate that subscriber growth? And based on the answer earlier, it seems like you're satisfied with the current retail playbook. But is there a desire to rethink things like accelerating network investments, rural build, leaning even more into mobile or anything else? Or is the view that the long-term opportunity remains intact and we just need to course-correct and cycle through the current dynamics?

I believe both of those statements hold true. The long-term prospects remain strong, and theoretically, we could simply wait it out. However, I appreciate how you described the overall situation. While the long-term outlook is positive, we are not opting to wait. We are accelerating our efforts across the board, particularly in rural buildout to support our growth. We are also exploring mobile opportunities as mentioned in my previous response to Peter. We are committed to implementing multi-gig symmetrical services wherever we operate. Therefore, I think what you described in both scenarios is indeed accurate.

And there's some execution opportunity, too.

Yes.

The pandemic created employment issues for us and operational issues that have an impact on our ability to generate orders as well. So we're aggressively trying to improve our ability to execute.

If you consider the long term, it connects to that as well. We discussed broadband, ARPU, and RDOF in relation to mobile convergence and its potential benefits. Another aspect we haven't covered is how digitizing our service platform can create a long-term strategy not only to improve customer satisfaction in their interactions with us but also to significantly lower our service costs per customer. While we've made progress over the past few years, that's just the beginning of what we can achieve in this area. This will lead to higher customer satisfaction, allowing them to engage with us on their terms, reducing service interactions, and addressing issues proactively before they become apparent to the customer. When customers choose to interact with us without a physical transaction, it benefits both them and our financial results.

Thanks, everyone, and we will see you next quarter.