Charter Communications, Inc.

Good day and thank you for standing by. Welcome to Charter's fourth quarter 2021 investor call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Stephan Eninger. Please go ahead.

Good morning, and welcome to Charter's fourth quarter 2021 investor call. The presentation that accompanies this call can be found on our website, ir.charter.com, under the financial information section. Before we proceed, I would like to remind you that there are a number of risk factors and other cautionary statements contained in our SEC filings, including our most recent 10-K 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 curfew 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 Fisher, our CFO. With that, let's turn the call over to Tom.

Thank you, Stephan. We continue to execute well in the fourth quarter with solid customer growth and strong financial growth. In October, we launched our new Spectrum Mobile multi-line pricing and packaging, which allows Spectrum Mobile customers to save hundreds or even thousands of dollars per year on their personal communication spend. We had our strongest mobile quarter ever with 380,000 line net ads. For the full year 2021, we added 940,000 new customer relationships, and we added over 1.2 million Internet customers for growth of over 4%. We also grew our mobile lines by 1.2 million. Finances were also strong in 2021. We grew full-year revenue in EBITDA by 7.5% and 11.4% respectively, and free cash flow grew by 23% year-over-year to $8.7 billion. As we look forward to the rest of this year, we remain focused on several strategic priorities and goals, including product development and network evolution, our rural construction initiative, and driving customer growth and penetration. And although the business environment in which we're operating remains unusual, we believe our goals and priorities will continue to foster our growth and prepare us well when the marketplace returns to historical levels of marketplace activity and sales. Fundamental to our success is the delivery of products and services that are superior to what our competitors can offer. Delivering more speed and throughput to our customers remains a key area of focus. In December, Internet customers who did not buy traditional video from us used over 700 gigabytes per month, more than 35% higher than pre-pandemic levels. And nearly 25% of our non-video Internet customers now use a terabyte or more of data per month. So we continue to see very high demand for throughput by our customers. In order to increase the capacity of our network for next-generation products and services, we've developed a multifaceted approach to our network evolution comprised of a number of technologies which will be deployed where they make the most sense strategically and economically, delivering the very fastest speeds and lowest latency at the lowest cost and time to deploy. In 2022, we'll increase the number of projects to deploy high splits in our service areas. High splits are powerful cost-efficient upgrades that use our existing DOCSIS 3.1 infrastructure and allow us to comfortably offer gigabit speeds at symmetrical speeds and multi-gigabit speeds in the downstream. Additionally, high splits will significantly reduce our network augmentation capital spending, including node spending. We also continue to actively develop our DOCSIS 4.0 technology plant architecture and rollout, which will allow us to cost-efficiently offer higher multi-gigabit speeds in the future. We recently ran a DOCSIS 4.0 test using frequency division duplexing, and we successfully delivered over 8 gigabits in the downstream and over 6 gigabits in the upstream. And there's more to come from that technology. Other areas of product development in 2022 include speed boosting our Wi-Fi connections while Spectrum Mobile customers are on their Spectrum Mobile devices connected to any Spectrum Wi-Fi access point enabled for mobile service. We also just turned on 5G C-band for all Spectrum Mobile customers who have a C-band enabled device, which means they can get faster 5G speeds while on the go. Both are Both of the speed boosting enhancements I just mentioned are included in our mobile pricing at no extra charge. We're also rolling out our 5G hybrid mobile network operation using CBRS small cells in a full market area, allowing selected participants to connect to our CBRS small cell access points when they're outside of Wi-Fi coverage. By furthering the convergence of our fixed and mobile broadband service, we not only improve the economics of our mobile business, but improve the customer experience. In fact, for the last 10 quarters, Global Wireless Solutions has ranked our mobile service the fastest in the country because we combine our internet and mobile connectivity together with our state-of-the-art Wi-Fi service. Another key piece of our long-term strategy is treating customer service as a product itself and giving our customers the flexibility to manage their spectrum services and interactions with us whenever and however they want. We continue to work on improving the quality and efficiency of our interactions with customers by expanding our customer self-service and self-care capabilities and digitizing and modernizing a number of elements of our customer field and network operations groups. Our rural construction initiative also remains a key focus. Our multi-year, multi-billion dollar construction project will deliver gigabit high-speed broadband access to more than 1 million unserved rural customer locations across the country. Through the Rural Digital Opportunity Fund, or RDOF, we will add over 100,000 miles of new network infrastructure to our approximately 800,000 existing models over the next five years. We're also in the midst of hiring more than 2,000 employees and contractors to support our rural expansions. But our rural construction initiative is not limited to RDOF commitments. We'll continue to build in other rural areas as well, and we will pursue opportunities to receive broadband stimulus funds, including the American Rescue Plan Act funds and funds from Infrastructure Investment Act and Jobs Act. We'll also extend our network past homes in areas adjacent to our subsidized builds that our network does not currently reach today. Ultimately, our rural construction initiative is not only good for the millions of rural customers that will finally have access to fast and reliable Internet, but it's also good for Charter and its shareholders. The expansion of our footprint will help us drive additional customer growth and financial returns. Finally, as we look to the balance of the year, we remain focused on driving customer growth, market share growth, and penetration by offering high-quality products and services at attractive prices. Our network allows us to deliver a unique, fully converged connectivity service package while saving customers hundreds or thousands of dollars per year. And our share of household connectivity spend, including mobile and fixed broadband, is still very low. In fact, as slide four in the presentation shows, we only capture about 27% of household spend on wireline and mobile connectivity within our footprint. So there's a large opportunity for increasing us to increase the market share with superior products, saving customers money, and through our latest offering, we can do that. An average household mobile broadband spend with two lines of mobile broadband and wireline broadband is approximately $200 a month. With our new multi-line pricing and packaging launched in October, a Spectrum customer can purchase our internet product and two lines of our unlimited mobile product with faster service for nearly 50% less and save at least $700 a year. So far, we've seen a very strong response to our offering, with our fourth quarter being our strongest quarter for mobile lines net ads yet. In fact, despite a very competitive environment, we continue to gain lines at a very rapid pace because of the value in our bundled service offering, which drives more EBITDA and free cash flow per customer and per passing and value for shareholders. Now I'll turn the call over to Jessica.

Thanks, Tom. Let's turn to our customer results on slides six and seven. Please note that we will continue to reference COVID-19 related financial impacts from 2020 and include it again on slides 19 and 20 of today's presentation to help with year over year financial comparisons. We grew total residential and SMB customer relationships by 120,000 in the fourth quarter. and by 939,000 in the last 12 months. Including residential and SMB, we grew our Internet customers by 190,000 in the quarter, and by 1.2 million, or 4.2% over the last 12 months. Although our Internet customer growth remained strong in the fourth quarter, the business environment in which we are operating has not yet normalized. Similar to the third quarter, we saw both lower internet churn and lower internet connects than in fourth quarters of 2020 and 2019. Turning to video, video customers declined by 58,000 in the fourth quarter. Wireline voice declined by 154,000, and we added 380,000 mobile lines. As of the end of the fourth quarter, we had 3.6 million mobile lines, and despite the lower numbers of selling opportunities from cable sales, we continue to drive mobile growth with our high-quality, attractively priced service, rather than using device subsidies. Moving to the financial results, starting on slide eight. Over the last year, we grew residential customers by 847,000, or 2.9%. Residential revenue per customer relationship increased by 2% year over year, driven by promotional rate step-ups, video rate adjustments that pass through programmer rate increases, and $22 million of COVID-related impacts in the prior period. These effects were partly offset by the same bundle and mixed trends that we have 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. Additionally, this quarter includes $31 million in adjustments related to Sports Network rebates, which we intend to credit to qualified video customers. These rebates are also reflected in lower programming expense this quarter, with no impact to adjusted EBITDA. Also, keep in mind that our residential ARPU does not reflect any mobile revenue. As slide 8 shows, residential revenue grew by 5.1% year over year, reflecting customer relationship growth and ARPU growth. Turning to commercial, SMB revenue grew by 5.8%. This growth rate reflects COVID-related impacts of $8 million that negatively impacted the fourth quarter of 2020. Excluding this impact from last year, SMB revenue grew by 4.9%. Enterprise revenue was up by 3.2% year-over-year. Excluding all wholesale revenue, enterprise revenue grew by 6.1%, and enterprise PSUs grew by 5.3% year-over-year, a bit faster than last quarter. Fourth quarter advertising revenue declined by 28.2% year over year, primarily due to strong political revenue in the fourth quarter of 2020, partly offset by COVID impacts last year. When compared to the fourth quarter of 2019, advertising revenue increased by 3.3%, primarily due to our growth in advanced advertising capabilities, partly offset by lower local ad revenue, particularly automotive. If you exclude automotive, fourth quarter advertising revenue grew by 13.3% over the fourth quarter of 2019. Mobile revenue totaled $632 million, with $266 million of that revenue being device revenue. Other revenue declined by 6.2% year over year, driven by lower levels of CPE sold to customers. In total, consolidated fourth quarter revenue was up 4.7% year over year, And when excluding advertising, which benefited from political revenue in the fourth quarter of 2020, revenue grew by 6.4%. Moving to operating expenses and EBITDA on slide 9, in Q4, total operating expenses grew by $203 million, or 2.7% year-over-year. Programming costs decreased by 0.5% year-over-year. due to a decline in video customers of 2.3%, a higher mix of lighter video packages, a $31 million benefit related to sports network rebates that I mentioned earlier, and $19 million of other favorable adjustments, all of which was partially offset by higher programming rates. Excluding both of the adjustments I just mentioned, programming costs grew by 1.2%. Looking at the full year 2022, We expect programming costs per video customer to grow in the mid-single-digit percentage range. Regulatory connectivity and produced content grew by 11.3%, primarily driven by higher Lakers RSN costs, partially offset by lower original programming costs and regulatory and franchise fees. The Lakers' cost growth was primarily driven by the delayed start of the NBA season in 2020, which drove fewer Lakers games charges in Q4 of 20, making for a challenging comparison to this year. Excluding RSN costs from both years, regulatory connectivity and produced content declined by 3.5%. Cost to service customers declined by 0.5% year over year, compared to 3% customer relationship growth. The decline was driven by lower transaction costs, mostly offset by previously announced wage increases, which will ultimately provide all hourly employees at Charter a starting minimum wage of $20 per hour by the end of the first quarter. Marketing expenses grew by 4.3% year-over-year. Mobile expenses totaled $724 million and were comprised of mobile device costs tied to device revenue, customer acquisition, and service and operating costs. And other expenses declined by 6.5%, driven primarily by lower advertising sales expense year-over-year given the decline in political ad revenue this year, and a one-time corporate cost in the prior year period. Adjusted EBITDA grew by 7.7% year-over-year in the quarter. Turning to net income on slide 10, we generated $1.6 billion of net income attributable to charter shareholders in the fourth quarter versus $1.2 billion last year. The year-over-year increase was driven by higher adjusted EBITDA. Turning to slide 11, capital expenditures totaled $2.1 billion in the fourth quarter in line with last year's fourth quarter spend, although the components of that spend were a bit different. Upgrade and rebuild grew by $66 million year-over-year due to plant replacement in those portions of our footprint that were damaged by Hurricane Ida. Scalable infrastructure spend declined by $45 million, given a stabilized level of network traffic growth and investments made earlier this year. We spent $127 million on mobile-related cafes, which is mostly accounted for in support capital, and was driven by investments in back-office systems and mobile store build-outs. For the full year 2021, cable capital intensity was lower than in 2020 and in line with our outlook. As we look to the full year 2022, we expect cable capital expenditures, excluding capital expenditures associated with our rural construction initiative, to be between $7.1 and $7.3 billion. We hope to spend about $1 billion in 2022 on capital expenditures related to our rural construction initiative or our construction within census block groups that are defined as rural. That spending includes our RDOF and other subsidized rural construction projects, such as our BRRRR-related bills, and spend associated with extending our plant to rural homes adjacent to our subsidized bills that our network does not reach today. We may not reach that targeted spend, given a number of factors, including poll permitting and equipment and labor availability. Conversely, we continue to bid on additional broadband stimulus projects that could increase 2022 capital spending for our Rural Construction Initiative. Given the variables, our actual Rural Construction Initiative spending may differ meaningfully from our target. As Tom mentioned, the expansion of our footprint into rural areas will help us drive additional customer growth and financial returns, and we view our Rural Construction Initiative as similar to or equivalent to acquiring a rural cable operator. we plan to begin disclosing additional operating information associated with our rural construction initiative in 2022. Turning to mobile, we expect our full year 2022 mobile capital expenditures to be about $100 million less than our full year 2021 mobile capital spend, which totals $482 million. Our 2022 mobile capital spend will consist primarily of back office system spend, the start of our CBRS small sale construction, and some additional store build-outs. We will continue to update you on our capital spending expectations as the year progresses. And as always, if we find new core cable, rural, or mobile projects with attractive ROIs, we'll pursue them, even if that means spending capital above our stated outlook. As slide 12 shows, we generated nearly $2.3 billion of consolidated free cash flow this quarter, an increase of about $200 million, or 10% year-over-year. We finished the third quarter with $91.2 billion in debt principal. Our current run rate annualized cash interest pro forma for financing activity completed in January is $4.2 billion. As of the end of the fourth quarter, our ratio of net debt to last 12-month adjusted EBITDA was 4.39 times. We intend to stay at or just below the high end of our 4 to 4.5 times target leverage range. During the quarter, we repurchased 7.6 million charter shares and charter holdings common units, totaling about $5.3 billion at an average price of $702 per share. For the full year 2021, we purchased 25.3 million shares at an average price of $683 per share for a total spend of $17.3 billion. And between September of 2016 and December of 2021, we have repurchased $56.8 billion, or about 40% of Charter's equity, at an average price of $452 per share. Turning briefly to taxes, we expect to become a meaningful cash taxpayer in 2022. Subject to any corporate tax rate changes for the years 2022 through 2024, we expect our federal and state cash taxes to be approximately equal to our consolidated EBITDA, less capital expenditures, and cash interest expense multiplied by 23 to 25 percent. We expect the cash tax rate in 2022 to be in the mid to high teens range, percentage range, given some of our tax attributes that have carried over from 2021. Those estimates would include partnership tax distributions to advance new house that are captured separately in cash flows from financing in the financial statements. There are multiple factors that impact what I just described, and we're always looking for ways to improve our cash tax profile. So we're looking forward to the rest of 2022 as we remain well-positioned to succeed and grow given strong demand for our products, which is why we continue to aggressively build out more broadband passings and ensure that our network remains state-of-the-art. Our well-proven strategy, which offers customers the highest quality products at very attractive prices, drives customer and share growth, free cash flow growth, and shareholder value. Operator, we're now ready for Q&As.

As a reminder to ask a question, please press star then the number one on your telephone keypad. And your first question is from Doug Mitchelson with Credit Suisse.

Oh, thanks so much. I guess two questions. First, any update on momentum in the broadband marketplace and how you feel the market is trending in terms of the competitive environment versus the market-related slowdown that you guys have been highlighting? And then secondly, just sort of structurally as you sit back and Think about your wireless strategy, obviously a lot of success in the fourth quarter. And, Tom, you talked about wireless a lot in your prepared remarks. I think there's sort of two dynamics that your big wireless competitors would note. One is owner's economics across wireless and wireline for, you know, two of your competitors. And then, secondly, how do you manage wireless customers when it's time for them to get a new phone when the wireless companies are waving a free new iPhone under their noses? Thank you so much.

Hey, Doug, this is Chris, and we anticipated your question, and I have a few thoughts, but just put it in perspective. So, you know, we added over 1.2 million Internet customers last year, and over the last two years, we've added nearly 3.5 million. And the rate of market activity in net additions growth has not been consistent through the pandemic with early on our 60-day offers, keep Americans connected, resulting payment plans, and more recently, subsidy plans. And we have the lowest market churn rate of all types that any of us have seen in cable. So that lower market churn has resulted in lower selling opportunities, which Jessica mentioned with lower connects. And as a share gainer that results in lower net ads and our financial results, they actually demonstrate fully that lower transaction volume. So clearly there was a pull forward of demand in 2020 due to the pandemic. But the lower customer activity environment we saw throughout 2021, including the fourth quarter, has been driven by a number of factors. That includes lower household move rates and housing completion rates. It includes lower voluntary churn everywhere we operate and much lower non-pay churn given the amount of subsidy programs that have been and remain available. And so those lower churn rates across each type of churn, they've been uniformly lower relative to 2019. And even compared to the fourth quarter of 2020, across every region and every competitive footprint. So as a result, our sales and connect activity have also been muted by similar amounts in each part of the geographical and competitive footprint. In the fourth quarter, we continued to grow customer relationships across our footprint, regardless of competitive technology or infrastructure. November activity levels were better than October. December was better than November. And then Omicron provided a setback to transaction volume in late December. So we had good growth in operating and financial results last year. And our expectation is that we'll have a steady return to more normal transaction volume and selling opportunities as 2022 progresses and we get further into the year.

And Doug, with regard to wireless competitive dynamics, you know, I think that the our pricing structure and the monthly recurring fee piece of the pricing value equation is superior net-net to what our competitors are offering. And we're getting some traction with that. And, of course, that's combined, too, with our superior broadband product and the continued investment we make in our broadband product in terms of its capabilities and how we make the wireless product work with our wireline product through the mobile speed boost technology opportunities and the other technology opportunities that we have, all affect the price-value relationship that we're presenting to the customer. But it's true that replacement phones are being given away in the marketing strategies of our competitors, and we haven't done that And I think customers will have to, you know, they're currently making the evaluation that we have a good product and they're buying our product. But I think it's really our challenge is to make sure that the customer's perception of value is appropriate. And that's our marketing and branding strategy. But, you know, if we need to change our competitive posture We can. I don't see, you know, I think what we're doing right now is the best strategy for us, but it doesn't preclude us from future strategies. But the fundamental value proposition that we're providing is superior service, a fully packaged communication service everywhere we operate, which none of our competitors do. and making that a better value and driving customer relationships by having better products and services. And the deeper we penetrate, the lower our costs, and the lower our costs, the better the value we can provide. Understood. Thank you both.

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

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

Thanks. Two questions. First, Tom, the 27% of the total connectivity market today, taking a sort of a very long-term view, if we look at the market in its end state, what do you think your fair share of that total revenue opportunity is? And what are the margins for an integrated infrastructure asset look like when we get to that end state? And then Looking more near term, there's been a lot of investor concern recently around the impact to future ARPU from some of the competitive entry that we've seen from fiber, but more so from fixed wireless broadband. Can you give us just some insight into what you're seeing around pricing dynamics in new fiber build markets, and then how you think about Verizon offering a $30 product over wireless. Thank you.

Well, my point of showing the 27% share was that we have a lot of runway and that there's a huge opportunity for us to grow our business both horizontally and vertically. And what I mean by horizontally and vertically is I think we can have more customers that's horizontal. And I think we can have higher revenue because we have more product being sold, even though those unit prices are going to be lower in the future than they are today. Um, what does a converged network look like in the future? I think, you know, uh, we continue to, um, enhance the experience on the mobile device where it's used, um, the most first and, uh, and continue to enhance that value by using our superior Wi-Fi network and the new Wi-Fi 6E spectrum available to us, and our ability to provide better managed Wi-Fi services through technological change, along with the use of other spectrum, like CBRS, in a smart, capital-efficient way, apply technological solutions that reduce cost to us and improve service to the customer. And by doing that, you get a very virtuous product development cycle in that you get better and better services available at lower and lower costs. And so I think we can do that by using our network and using the tools available to us both in unlicensed and licensed spectrum, and the technology management tools that we can use to manage the experience on those mobile devices, as well as all the other devices that are connected to our network. And I think that when you think about mobility and wireless, those two notions somewhat from a technology point of view, are converging as well. And most wireless devices are connected to our network. And so I think we can continue to build value and build share using the mobile marketplace as a sort of fuel for that. Do you want to?

The second question, I'll start, and then others can chime in. The question was regarding our group pressure in competitive markets. And Jonathan, you know that over the years, our strategy has always been about providing high-quality service at an attractive price in the marketplace, first and foremost, so that we could grow faster. And that's always worked for us. But secondly, it makes our markets less attractive from an overbuilt situation, and it puts us in a different position today as we sit in our markets with very competitive prices already on the entire base. So that's how we think about our positioning in the marketplace. It hasn't changed. We have a retail strategy and standard pricing across our entire footprint. We react competitively as needed in the marketplace. But we already have attractive prices. We have great service. And we have a product combination that Tom was just talking about that our competitors can't replicate in all of our passings, which is the ability to extend that good broadband service that we have together with an integrated mobile and converged internet product over time. And we have the ability to upgrade our network at a faster pace and lower cost than any of our competitors across all of our passings, not just cherry picking where we think it's most attractive demographically. That's how we think about the marketplace in the past. And I know others have always said the investment community, you know, should you take rates up? That hasn't been our strategy. their strategy actually works very well in this type of marketplace as well.

Yeah, the only thing I would add to that is, you know, so funded, what that all means is that we have fundamentally a lower cost structure than our competitors, and our capital investment strategy is designed to maintain that capability, which we think ultimately gives us a better competitive posture So we can grow and have better products working at lower costs than can be replicated by our competitors. Anybody can spend enough capital and replicate your service, obviously, but we can do it more efficiently, which is, I think, our competitive opportunity. The other thing I would say just about the current environment is that from a competitive point of view, that when we look at our churn, our move churn is down. Our non-pay churn is down. And our voluntary churn is down, too, at historic levels. So our actual ability to operate in the environment is pretty effective.

And what Tom said is what I said as well earlier. That's across all competitive footprints, all geographies. Jonathan, you asked this other question about fixed wireless broadband. I know you've written on it in the past, and we agree with you, that the utilization of scarce resources in spectrum or somebody else's densification to get a, you know, one out of 50 type return on the utilization of your asset, which is what happens with fixed wireless broadband applications versus mobility. We agree with that. You've written about it. I know Craig wrote about it a couple weeks ago, and that pretty concise way and there wasn't anything in there that we actually disagreed with. And, you know, you've made the point yourself previously and we think that's right and we think that's going to become pretty evident to most everybody over time.

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

Your next question is from Ben Swinburne with Morgan Stanley.

Thank you. Good morning. First, a question on the network and high splits. I think, Tom, you said, I think it was Tom talked about spending some capital on that this year. I think that's inside of the 7.1 to 7.3. So maybe you could help us with kind of sizing that investment either qualitatively or quantitatively and sort of how much of the footprint do you expect to impact with that technology deployment and what it does competitively or from a product point of view? And then I just wanted to come back to wireless. I know you guys have been working hard to put the pieces in place to sort of be more aggressive in the marketplace. Are we there now, or is there more as you look into 22 that you're going to do on the wireless side, whether it's billing system-related or sales channel-related or something else that can offer you an opportunity to even further accelerate what obviously has been a pretty impressive acceleration over the last few quarters? Okay.

Well, on the high splits, I'll say this, that we're deploying the technology. And I said in my prepared remarks that we can go to symmetrical speeds, gigabit speeds. We can go to multi-gig downstream speeds. And as I said earlier, we're holding our own competitively as it is. And the value of the high split is that by re-architecting the network that way, which is basically just an electronic drop-in, we can quit spending money on augmentation or node splits at the same rate that we've been spending it. So I think the best way to think about it is that... depending on speed of construction and on a relative basis, yes, it's in the 7.1 to 7.3, and the general capital intensity over a multi-year period associated with that kind of upgrade will maintain the kind of capital intensity that we heretofore had. With regard to wireless billing, The wireless billing opportunity is that we've just built a new billing system and it's just being deployed. It was deployed to some extent at the end of the fourth quarter, but not the full fourth quarter. And it gives us new opportunities for selling and making the selling process easier. When we initially launched mobile, we launched it on a platform both us and Comcast together through RJV launched a common platform that was segregated from the traditional cable platform. Obviously, we did well with it, but we've re-architected all of that and deployed a brand new system that gets us better integrated sales capabilities and better integrated billing capabilities that ultimately makes the sales process easier. Our ability to go faster with less friction is enhanced by those capabilities. And so we're optimistic that we can continue to accelerate our growth there.

You asked about other developments. The deeper deployment of our advanced in-home Wi-Fi, which includes giving customers more control over their Wi-Fi in the home, the deeper deployment of that across our base as well as more functionality that will be applied to there. Tom mentioned as well the mobile speed boost as well as a way to enhance the value of this converged offer that we have. So there's a number of product development pieces that are in the pipeline that are going to continue to add value. Obviously, the CBRS test this year, which Tom also mentioned, That's a market rollout, but that's not going to be across our entire footprint just yet, so I wouldn't hang too much on that just for 2022. But there's a lot of development that's in the pipeline to continue to make this product better than our competitors and more integrated.

Thank you both. All right. Thanks, Ben. April, we'll take our next question, please.

Your next question is from Craig Moffitt with Moffitt Nathanson.

Hi guys. Um, a couple of questions staying with wireless for a minute. First, um, can you just talk about the wireless sale? That is, you know, are you primarily selling at the time that people move and they're establishing a relationship with, with charter for, for broadband and other services and you're selling that as a bundle or are you selling into existing, uh, broadband subscribers? And then second, um, As I think about the offload that you've already achieved, can you just talk about the kind of margins that you think you can get to in this business and how much traffic you think you'll be able to fully offload so that relative to a traditional wireless customer at one of the three majors, how much lower you think the cellular usage for your customers might be relative to those competitors as a benchmark?

Okay. In terms of moving and upgrading, we're in a low-churn environment, so the yield on that segment of moves and people who are in a moment where they're more likely to be changing services is lower. We've achieved additional sell-in using mobile as part of that process. But the bulk of our mobile growth is still coming from upgrades at the moment, if you just look at net changes in broadband versus net changes in mobile. And interestingly, the mix is changing, too, to more multi-line because of the way we've priced it and the value proposition and more full unlimited service. I expect that through time we'll get more pull-through on the new customer creation side of it. But, you know, just when you do the math in terms of where the opportunity is to grow mobile, given our existing broadband penetration, just mathematically, we have more upside in upgrades. But it has both effects. In terms of offload and margins, you know, I've said previously that we could do more than 30% of offload. I think, through CBRS. We also are already offloading enormous amounts of traffic on Wi-Fi. And I think that we have the ability to take that up significantly, too. So I'm not going to give you a full number, but it's substantial.

And I guess the piece that I would add to that is that We have margin that we're generating from our mobile customers today. So you have negative EBITDA in the mobile business, but that's driven really by customer acquisition costs and our rate of growth in the business. We're generating margin from those customers today, and we can do the CBRS deployment in a very targeted manner. So we can look at the CBRS deployment targeted – in an ROI generating fashion so that every radio we deploy really increases the margin and increases the value of the mobile business. So I think that that piece is important as you think about how we grow profitability in that business that we will grow profitability by adding CBRS and by growing the offload but those customers stand alone are generating margin today.

Jessica, do you think this could be a sort of a 10% margin business long term, a 20% margin business ballpark? How profitable might this be?

I like the try. We're not going to go there on guidance for margin in the long term. But I do think that it's an important part of thinking about the growth story for EBITDA in the long term and that as we find those opportunities to increase the margin through deploying capital through CBRS or by sort of upgrading the way that the system offloads traffic overall, that we'll continue to do those things.

I would just say we don't have to do CBRS to make mobile work.

Yes, agreed.

And margins will improve regardless.

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

Your next question is from Brian Kraft with Deutsche Bank.

Hi, good morning. Maybe just to follow up on that, Jessica, you talked about how you could be very targeted with the CBRS deployment. Just wanted to follow up. Could you talk a bit about the coverage requirements you have with the CBRS licenses? I understand the goal is to move traffic onto your network where there's high traffic density, but I guess I'm just trying to understand what you're required to do from a coverage perspective and how that might impact the breadth of the deployment. Thank you.

Yeah, so I'll take that. We do have across the... The regions that we acquired the spectrum, some minimum amount of deployment across those areas, it doesn't have to be deep and it doesn't have to be expensive from a deployment standpoint. It's over a multi-year period. And so in every market where we've acquired spectrum, there's always going to be extremely high traffic areas and we feel really comfortable we can satisfy the deployment commitment at a pretty low cost. and then go from there in terms of just picking and choosing where it makes sense, either from a product capability perspective or from an ROI perspective is what Jessica was saying.

Yeah, and when we talk about a full market deployment, we're talking about a full market deployment where it makes sense. And what that means is we're putting these radios where traffic dictates that the radio should be and that the amount of offload would reduce our costs sufficiently to pay back the investment in the radios.

Quickly.

Yes. And so it's opportunistic capital, which generates a higher margin on the mobile business.

Thank you. If I could just ask one follow-up, could you just remind us what the dates are around this license for you to meet coverage milestones, minimal coverage milestones?

Yeah, it's public, and so we're not, you know, I'm not hiding it. I just don't know it off the top. I don't remember it off the top of my head, but it's a multi-year outlay. But if you follow up with Stephan, he can get you the exact dates because it is public as part of the FCC process.

Okay, great. Thank you very much.

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

Your next question is from Phil Cusick with J.P. Morgan.

Hi, guys. Thank you. A couple of – actually, one follow-up. You commented on the pace of broadband through the fourth quarter, and I know there was – I think there was a New York runoff there as well. But I'm curious how you think about seasonality versus typical. Is seasonality sort of running in the business these days, or is the sort of underlying engine – just running more normal through the year. And then second, on SMB, that decelerated this quarter. Maybe you can talk about any update on efforts there, as well as conversations with enterprises. What are you seeing? Thanks very much.

So I'll pick up on two of those. First, just around seasonality, certainly our results looked different over the course of this year than you would see from a seasonality perspective over a normal year. One of the things that we've been thinking about is that we see a lower number of college student enrollments. Some of those markets have looked different from what we would normally expect. And the overall environment does appear to be sort of more impacted, as Chris mentioned, by things like COVID waves and seeing lower activity when something like Omicron happens. We also did see some impacts from other things. On the New York State side, New York had a moratorium on certain disconnects. It did drive a one-time spike in internet non-pay disconnects. It was about 20,000 in the quarter. So if you had backed that out, we would have been at 210,000 rather than 190, but not a huge impact in terms of the overall net ads for the year, which we still thought were very good if they were dispersed a little less evenly.

And, you know, I guess to speak to seasonality, you know, video was very seasonable. In the fall season, you had a tremendous uptick, and fourth quarter was big, although cable vision, because of the Hamptons, has a sort of opposite effect. But fourth quarter is a big issue in video. But as Jessica said, the college student situation has been unusual lately. And wireless has its own cadence, too, which I'm not sure we fully grasp yet, although we have people who think they do. And whether there's an underlying broadband seasonality is hard to say. So I do think that the traditional seasonality in the business is going to be different. And obviously, the effects of COVID have been dramatic in terms of quarter-to-quarter changes and growth. Even in the last quarter, it was very interesting in that the activity levels had hit their lowest level in about October, and November was better than October, and December was better than November, and Omicron affected us at the end of December, so it's hard to say whether that trend will continue, but my guess is it will steadily improve.

There was a second question on enterprise. I didn't catch that. Was that also tied to seasonality? And SMB, thank you. In terms of seasonality there with those businesses. Enterprise has been from a retail perspective.

I just noticed that SMB was down sequentially. Thank you.

Yeah, the S&B business is doing very well. I know relative to last year, it may not look quite as much. But last year, you had an S&B surge coming out of really the lockdown tied to COVID. So the year-over-year comparison there is less favorable. But the underlying trends that we're seeing coming out of Q4 and the S&B, despite everything that COVID has brought, S&B is continuing to do well and steady. despite everything that would suggest there might be some pressure there, we're performing well in S&P. On the enterprise side, there are markets that are still coming back underperforming, New York City and L.A. in particular. But despite that, if you take a look at the underlying retail PSU growth and revenue growth, we're on a steady march to sequentially improving over many, many quarters now. And that business is looking more healthy. And once we get back into a normal environment, there won't be that much seasonality tied to enterprise as it will continue to get better is our hope.

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

Your next question is from Vijay Jayant with Evercore.

Hi, good morning. I just wanted to, you know, now that we're going to start seeing some RDoC CapEx really come through, Can you sort of remind us, and actually, Jessica, you mentioned it looks like as though you did another cable acquisition. Can you sort of remind us sort of what are the sort of levered or unlevered IRRs you think you can get, especially in sort of a divergent opportunity there? Obviously, it'll be an impact on total company free cash, but, you know, it's probably a fantastic project. Can you just help us think through the long-term returns on that investment?

Sure. So I would point out that you used the word long-term, and I do think that we think of the investment in RDOF really as a long-term investment in terms of creating returns. But based on the kind of markets that those were in and the success, really, that we saw in the New York State build-out, we think that we can generate mid-teen IRRs in the long-term from building those passings. From a project perspective, I'd also point out a lot of that has already started and has to be. The spend there will be a little lumpy, so you have to spend money up front to do things like do walkouts and figure out how to attach to the poles and design your construction, and that all takes time. So what you're going to see is you'll see sort of cash investment going in up front that's going to happen before we light up the passings. And the passings then will sort of trail behind that. And that's all sort of factored into the way we think about the IRR of the investment, but it will look different from what I think our sort of normal placing in service of passings on a year-to-year basis looks like.

If I could, another one on the taxes. You know, you talk about being a meaningful taxpayer in 22, and you still have some tax credits and NOL carry forward. Any help on, you know, how close to being a full statutory taxpayer I'd like you to be in 22?

Yeah, I mean, I think you can look back in the comments in the script, but it's – If you take our EBITDA and subtract from that capital expenditures and cash interest for the year and then multiply that by a mid-teens number, you get there. So you can see the credits and the carry-forward on the balance sheet. There is some of that carry-forward that's still subject to limitations on our usage going forward. And so based on that, we sort of come through that that process to get to what we think is an appropriate rate for 2022. Great.

Thanks so much.

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

Your last question is from John Hodlick with UBS.

Great. Thanks, guys. Thanks for all the detail on the rural build out. Can you give us a sense, I think you guys have been adding about a million homes past a year for the last few years. And does that ramp from here? If you could give us a sense on, it sounds like it may be the ramp is a little bit slower this year, but what's a good sort of run rate once all the money's coming in and you're getting it out there and sort of executing on that strategy. And then a follow-up on pricing. I think you guys typically take a price increase in November, December on the broadband side. And I don't believe that happened this year. Is that something we could expect early in 22 here? Or has your view on sort of slow methodical sort of price increases on the broadband side changed? Thanks.

Sure. So I can start on the sort of home pass per year. I think the rate that we are typically at is around a million a year. I think the commitment that we've made around RDOF is to build a million additional FCC locations, a million additional passings over the course of five years. I think that if you pace it in that way, that you'll be close. Though the caveat that I would add to it, that we do continue to bid on additional subsidized build projects. And in addition to that, we have spaces that we'll build that are, you know, the space between our network today and where the subsidized build projects are, or that are in rural areas that aren't part of those projects that are sort of close to what we passed today. And so in addition to those passings that we've committed under RDOF, you might see additional passings. And if we're really successful in the subsidized build space, You might see even more, but I think that's a good place to start as you think about what we'll be able to place in service.

So just as a clarification, is that all incremental to the million you were doing previously?

It is incremental to the million.

Got it. Great.

Yeah. And with regard to broadband rates, you know, our view is that – has always been that we – think that our total packaged product should be able to drive the bulk of our revenue and EBITDA growth. And we have tried to continue to make our product more valuable so that we sell more customers. And our anticipation is that that's going to be our continued strategy and that we'll be able to grow our business nicely and grow our revenue nicely by combining our mobile products with our wireline products. And so there is no rate increase in broadband planned in the short run. Got it. Thanks, Tom.

Thanks, John. Thanks to everyone. That concludes our call.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.