WideOpenWest chief financial officer John Rego told an industry audience that the overbuilder is open to being a buyer or seller of systems, especially as deal multiples have risen in the past year, but added that the company will most likely remain focused on growing its broadband business and building out its network.

Speaking at the virtual Credit Suisse Conference Tuesday, Rego pointed to two recent deals -- Astound Broadband’s sale to Stonepeak Infrastructure Partners for $8.1 billion and Cable One’s purchase of Hargray Communications for $2.2 billion. He added the forward-looking cash flow multiples for those deals -- 12.5 times for both transactions -- highlight the success of the broadband business. 

“Valuations have stepped up rather nicely,” Rego said, adding that the Astound deal was made when WOW’s stock was trading at about 5.5 times cash flow, and the Cable One deal when WOW’s multiple was around 8.5 times. 

“If we wanted to think about deleveraging quicker [and] faster, we could think about selling a market or two of the 19 that we have,” Rego said. “We’ve done this before. We’ve bought them and we’ve sold them.”

WOW has about 859,200 voice, video and data customers in 19 markets in 10 states in the Midwest and Southeast. The company’s current leverage ratio is about 5 times cash flow -- down from 5.5 times about a year ago. Rego said the company is on the path to tick down its leverage below 5 times this year.

“We’re a public company. Essentially we’re for sale every day. You can buy one share of stock or you could buy all of the shares of stock,” he continued, adding that a merger with a larger company is “always on the table” as well.

But for now it appears that WOW will focus on growing its broadband rolls, as well as rolling out its IP network.  

“A real goal for the company is to get all of our services on the IP network,” Rego said. “That opens up a lot of possibilities for us going forward. Look for us to get that done in the next couple of years.”

Rego also reiterated his guesstimate that WideOpenWest could have fewer than 100,000 video customers in the next three years. Rego first made that prediction in February, during the company’s Q4 earnings call. As of Q1, WOW has 290,900 video customers and 823,800 high-speed data subscribers.  

At the Credit Suisse conference, Rego said only  36% of WOW subscribers have video, while 96% have the data service. He added that in 2019, WOW lost about 32,000 video customers, more than doubling to a loss of 65,000 video subscribers in 2020. 

“Just following that math along it’s very easy to see how we get to sub-100,000 [video customers] in the next couple of years,” Rego said.

On the flip side, broadband subscriber growth has been strong,  WOW added 23,700 high-speed data customers in 2019 and 32,300 in 2020, up 36% and a new record for the company. In the first quarter of this year, broadband subscribers rose by about 10,000. 

Also at the Credit Suisse conference, WOW CEO Teresa Elder said broadband growth has been strong during the pandemic as customers opted for higher speeds and bought products like its WiFi mesh offering for whole-home WiFi. She added that self-install kits for broadband also helped drive sales. At the beginning of 2020, only about 30% of broadband customers took advantage of self-install. By the end of the year that number rose to 80%, she said.  

Operators across the country have shifted their focus to broadband over the past few years, following Cable One which first adopted a broadband-first stance in 2013. The prevailing wisdom is that with costs rising for content, operators are better off focusing on broadband and its much higher margins.   

Rego estimated that WOW’s gross margins for broadband are about 97%, while gross margins for video are “sub-20%.”

While video margins have been an issue with cable operators for years, particularly around the high cost of content, Rego pointed out that TV service has some less obvious costs too. 

Also Read: MVPDs Find Margins of Victory in Broadband 

“TV disproportionately drives more cost into opex than does its counterpart HSD,” Rego said, adding that video service related calls to customer care centers are generally longer and 20% of the time require an additional truck roll. HSD service problems, he said, can mostly be solved by the customer. Video also disproportionately drives capital expenditures through truck rolls, higher-cost CPE and more expensive maintenance at the headend. 

WOW’s emphasis on broadband is showing up on the revenue line. In Q1, 53% of the company’s revenue was driven by HSD. If video subscribers fall below 100,000, broadband would account for 80% of revenue.

“We could get to a point where we could have topline revenue not dissimilar from where we are now, but 80% of it is driven by HSD,” Rego said. "That's broadband first at its finest. That's a game changer." 

Altice USA shed about 24,000 video customers in the second quarter -- an improvement over a loss of 37,000 subscribers in the prior year -- and managed to grow broadband RGUs by 10,000 subscribers, fueled in part by growth at its Suddenlink unit.

Suddenlink, which has about 1 million subscribers and was purchased by Altice in 2015, is also gearing up for a footprint-wide release of Altice’s new communications hub, Altice One, which should help drive further improvement in the coming quarters.

"We are very pleased with Altice USA’s second quarter performance, which included improved subscriber trends, accelerating revenue growth and a material step up in free cash flow,” Altice USSA chairman and CEO Dexter Goei said in a statement. “Our residential video business is trending better year over year and we continue to see significant increases in data usage on our broadband network, driven mostly by video streaming across multiple devices in the home. As a result, our customers are demanding faster broadband speeds and enhanced WiFi coverage. 

"We are facilitating these evolving data consumption needs through our network upgrades to provide the best connectivity services and quality experience, allowing us to achieve continued improvements in our subscriber trends and higher cash flow conversion," Goei added. "Our investments in broadband including FTTH, Altice One and Altice Mobile, are advancing this strategy by providing a platform for converged fixed/wireless services and seamless integration of linear and OTT video content, which we believe position us extremely well for the future. Lastly, the strong growth we are seeing in our a4 targeted digital advertising business demonstrates our success in developing new and innovative products for advertisers.”

Altice USA grew revenue by 1.8% in the quarter to $2.4 billion, while cash flow rose 1.5% to $1 billion. Much of that growth was due to Altice’s Suddenlink operations, which improved video subscriber losses by more than half in the period – it lost 11,000 video customers compared to a loss of 25,000 last year – and better broadband customer additions (2,000 in Q2 compared to a loss of 8,000 in the piror year). 

As a result, Suddenlink’s revenue growth (3%) was almost double that of its Optimum New York area systems (1.6%). Optimum, which lost about 13,000 video customers in the period due to a carriage dispute with Starz and severe weather, still outpaced its sister unit in terms of cash flow growth – the New York area systems' EBITDA was up 3% while Suddenlink’s declined 1.6% in the period. 

Hurricanes in Florida and Texas drove down video customer rolls by about 125,000 in the third quarter, but gains in high speed data subscriptions helped boost overall customer relationships by 115,000 homes.

Comcast had earlier warned that severe storms that ripped through Houston, Texas and western Florida would impact video customer growth in the period. At an investor conference last month, newly minted Comcast EVP of Xfinity Services Matt Strauss estimated that the customer losses would be between 100,000 and 150,000 customers. In the end, Comcast ended up in the middle – losing 125,000 video subscribers. But a gain of 214,000 high-speed internet customers helped steer overall customer relationships into the black. For the period, Comcast said it added 83,000 residential customer relationships and 32,000 business customer relationships. Comcast lost about 94,000 phone customers but added 51,000 security and automation subscribers.

High speed data revenue rose 8.9% in the period and video revenue increase 4.2%, mostly reflecting rate increases, additional revenue associated with a boxing event available on pay-per-view and an increase in the number of customers subscribing to additional services. Business services revenue increased 12.6%, primarily due to increases in the number of customers receiving our small and medium-sized business services offerings.

Total cable systems revenue increased 5.1% to $13.2 billion and cash flow increased 5.2% to $5.25 billion.

Consolidated revenue dipped 1.6% to $20.98 billion in the period, while cash flow increased 5% to $7.2 billion.

“I’m very pleased with the company’s operational and financial results during the quarter, Comcast chairman and CEO Brian Roberts said in a statement. “Across Comcast NBCUniversal, we are uniquely positioned with a broad range of growth opportunities that set us up well for the future.