Charter Communications, Inc.
Q1 2014 Earnings Call Transcript

Published: 28 Apr 2014

[Operator:]

Good morning. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Charter Communications’ First Quarter 2014 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. (Operator Instructions) Thank you. I would now like to turn the conference over to Stefan Anninger. Sir, you may begin.

[Stefan Anninger:]

Thanks, operator. Good morning, and welcome to Charter’s first quarter 2014 earnings call. This morning, we issued a press release over PR Newswire at 6

[Tom Rutledge:]

Thank you, Stefan. Obviously we’ve spent a fair amount of time earlier this morning discussing the transactions we’ve agreed to with Comcast. And this call including Q&A, we would like to focus on Charter’s performance and the impact that our operating models have in our business and our first quarter results are noteworthy in their own right. Nearly two years ago, we reorganized Charter. We assembled a new management team, and put in a highly centralized organizational structure in place that essentially changed every job in the company in terms of responsibilities, how we measure performance, and in many cases, physical locations. At the same time, we changed our product structure to offer high quality and competitive projects with pricing and packaging designed to drive new customer relationships with more product and revenue per household. And we fundamentally restructured the way we sell into the marketplace. We have seen positive effects from our operating strategy for at least a year now, with faster customer relationship growth, higher triple-play sell-in, lower service call rates and longer customer lives. It is still early that Charter has become highly competitive service provider. We are winning market share across all our products including video. And customer satisfaction levels have increased substantially, and our employees take increasing pride in the quality, product and services we provide. As you can see in today’s release, our customer see the difference, which translates into strong financial performance as we improve the fundamental blocking and tackling in a high volume transaction and services environment. We also positioned our current product set to further distance ourselves from the competition. Before I get into that, a few comments on the first quarter. Total customer residential relationships grew by 112,000 versus 61,000 last year, an improvement of over 80%. And over the last 12 months, our residential customer base has grown by 4.1% while revenue per household grew by 2.8%. Residential sales activity improved again this quarter, growing 11% year-over-year, a function of how we put our products together and go-to-market. Triple-play sell-in to new video customers in our legacy systems was up 57% – was 57%, up from 48% one year ago. We also continued to see improving levels of customer churn, resulting from improved service delivery and higher customer satisfaction. In the first quarter, we added 206,000 residential PSUs versus 140,000 a year ago. And each of our PSU categories grew this quarter including video. Over the last 12 months, our expanded video customer base has grown by over 30,000 customers. Our improving video product is enabling us to take back meaningful multichannel video market share from competitors. We’ll continue to grow market share to our service, operation and superior products suite under the new Charter Spectrum brand. Compared to last year, revenue grew 7.5% year-over-year and residential revenue grew 6.5%, 50% faster than one year ago. Commercial also continued to be strong with 20% growth. Adjusted EBITDA grew by 7.2% year-over-year, a significant uplift from top line growth and service investments. Looking beyond the single quarter, a few words on our product set service operations. We’re currently at 40% of our all-digital initiative, and we continue to target completion by year end. Over the last six weeks, we began introducing our new product suite, Charter Spectrum in a number of markets that we’ve already taken all-digital including Dallas, Fort Worth and Greenville, South Carolina. Customers inside these markets now have access to over 200 HD channels, with digital pictures and interactive programming guide and full video-on-demand capability on every single TV out there. Minimum internet speeds of 60 megabits for new and migrated internet customers, and in some markets like St. Louis, our minimum speed will be 100 megabits. And a fully featured voice product at all highly competitive price. We’re offering superior products at superior price points whether on promotion or at full price. Moving to all analog content, encrypting the signals and placing a two-way box on every outlet in the footprint, brings significant long-term benefits, but it also is a highly disruptive operational process. We have a solid plan in place and it’s going very well. In fact, we continue to see a positive impact on our customer growth performance in all-digital markets. And each customer on our new pricing and packaging structure will receive the spectrum product suite when their market goes all-digital. So we’re selling more but we’re also creating longer lived customers. We’re doing that with superior product and better service. Our outdoor plan is now in good shape through our investments in call center infrastructure, including increasingly insourced work force and improvement towards we are seeing fewer calls per customer, faster time to resolution and higher customer satisfaction ratings through our post call survey process. As a result, we’re reducing transaction cost per customer. We also offer better service inside the home as we insource higher levels by our work force, improve their training and give them the right tool to do their job to maintain a higher focus on craftsmanship, all of which has led to significantly higher levels of customer satisfaction, fewer transactions and a better return on our growth investments. We continue to move forward with our cloud-based user interface development. Our new GUI has been designed to run on every set-top box we have in the field offering advanced video navigation to all outlets. It has a consistent user experience on all screen and we’ve been testing to guide in employee homes and it has worked as designed. We expect to expand the guide on the customer home in certain markets by the middle of this year to ensure the scales. We also continue to develop Charter TV app with more live feeds, video-on-demand content and other features in the coming months. During the first quarter, Charter also independently certified its new Wi-Fi router, as providing the fastest wireless service in the country compared to any competitor. We’ll be launching this next generation router to customers beginning this quarter. So over the last 24 months, we transformed Charter into a company that offers superior servicing value across its core product lines of video, internet and voice. This quarter’s results indicate that if execute properly, our strategy will win us additional customers and market share including video, leading a greater EBITDA for home passed and good cash flow for our shareholders. And with that, I’ll turn it over to Chris to provide more details on the quarter.

[Tom Rutledge:]

Thanks, Tom. As a reminder, unless otherwise stated, the results we’re discussing and showing in today’s slides are presented on a pro forma basis as if we had acquired Bresnan on January 1, 2012. Our first quarter operating and financial results clearly demonstrates that our business is performing well and as expected. Turning to Slide 4 of today’s presentation, residential PSU net adds grew by nearly 50% and commercial net adds were also up. We gained 18,000 residential video customers during the first quarter versus a loss of 25,000 last year, a 43,000 improvement. Our first question residential video customer net adds, included approximately 16,000 bulk digital upgrades. These are existing Charter residential video customers in bulk sales arrangements that haven’t had a set-top box or direct billing relationship with Charter in the past. As we transition to all-digital, these customers become included in our residential video customer accounts. We have provided data on today’s trending schedule that shows the impact of bulk digital upgrades on our quarterly video customer net adds. Excluding the impact of 16,000 bulk digital upgrades in the first quarter, and 5,000 last year, we gained 2,000 in regular residential video customers this quarter, as compared to loss of 30,000 on a similar basis during the first quarter of last year. In internet, we added 136,000 residential customers, which is a 107,000 during the first quarter last year. And we added 52,000 residential voice customers versus 58,000 last year. While our residential customer base grew by 4.1%, revenue per customer relationship grew by 2.8% year-over-year, driven by higher product sell-in, rate adjustments including retrans and box fees and higher average dollars step-ups and better retention at promotional roll-off for customers that we acquired approximately 12 months ago inside of our new pricing and packaging. At the end of the first quarter, 75% of our customer base outside of Bresnan was in our new pricing and packaging. And Slide 6 shows our accelerating customer growth combined with our continued ARPU growth resulted in residential revenue growth of 6.5% year-over-year. That compares to 1.3% just two years ago. Looking at commercial, we added 14,000 PSUs versus 7,000 last year. Commercial revenue grew by 20%, driven primarily by small business, and excluding the lower growth video base commercial revenue grew by 24.5%. Turning to expenses and adjusted EBITDA on Slide 7. Programming expense grew by $60 million accounting for about 60% of the total increase in operating expense versus the prior year quarter. Programming costs grew by 11% on an absolute basis including 1% expanded video customer growth. The expense growth was consistent with our expectations and driven by contractual rate increases, including a couple of large renewals, as well as the mix shift in expanded base of customers over the last 12 months and the lack of video losses generally. Cost to service customers, which includes field operations, network operations and customer care costs, was flat year-over-year, as our deferred maintenance program is now complete and we start to see the benefits of insourcing investments in lower transactions. On a market-by-market basis, as we go all-digital, we see higher activity in the transition month but in general, we’re reducing transaction cost per dollar of revenue that we generate. Marketing spend increased by $14 million, up 12% year-over-year, given continued sales channel development and consistent with the higher sales activity. Other costs grew by $24 million or 15% year-over-year, driven by higher labor cost to support commercial revenue, as well as the corporate expense. In total, adjusted EBITDA grew by $52 million or 7.3 % year-over-year. Turning to Slide 8, first quarter capital expenditures totaled $539 million, about 60% of that spending was driven by CPE to support our all-digital initiative and new customer acquisition. Specifically $119 million were CapEx that was dedicated to our all-digital initiative, with most of that spend inside CPE. We also spent $59 million on commercial CapEx. That figures excludes any all-digital spend for commercial properties. In the full year 2014, we continue to expect approximately $2.2 billion in capital expenditures. Let me put that spend in perspective. If you take $2.2 billion in the debt before $100 million one-time all digital spend, which makes us more competitive, it has discrete revenue attached to it. And then we deduct the $100 million of insourcing capital I mentioned on our last call, we’re left with about $1.7 billion of spend. Conventional 2013 capital expenditure for our commercial business, about $300 million last year and just used that as a proxy, we are now down to about $1.4 billion in capital expenditures for residential business with an expected high growth rate. So we’re very comfortable with our level of spend relative to our current growth rates and one-time all-digital. We generated $74 million free cash flow in the quarter compared to $118 million during the same period last year. The decrease was primarily driven by higher capital spending and the timing of cash paid for interest, partially offset by our higher adjusted EBITDA and the working capital benefit from the timing of CapEx payments. We ended the quarter with $14 billion of net debt and our leverage ratio is 12x to 4.7x on an LTM basis. Just above our target leverage ratio of 4x to 4.5x. Our weighted average borrowing cost remains 5.6% and Slide 10 shows the weighted average life of our debt is now 7.2 years with over 95% of that debt maturing beyond 2016. We finished the quarter with $1.2 billion of available liquidity. Turning to Slide 11. Our tax assets continue to offer us significant value. And as I mentioned on the fourth quarter call, we’ve actually grown not only from last year’s Bresnan acquisition, but we also liquidated one of our tax partnerships resulted in a step-up of our tax basis of approximately $400 million and freed up some NOL. As a result, after M&A including what we discussed this morning, we do not expect to be a significant cash taxpayer until after 2018, full year later than our previously disclosed estimate. Today’s transactions that we announced are expected to accelerate that utilization and the present value of our significant tax assets. As we look towards the balance of the year, we remain well positioned to continue to execute on our operating plan. We also have a lot of listing in front of us to close and implement the transactions we announced with Comcast this morning. But as Tom mentioned at the outset, we’d like to focus our Q&A here on Charter’s first quarter operating and financial results and we will refrain from replicating the call that we had earlier today. And so I’m now happy to hand it over to the operator and open it up for Q&A please.

[Operator:]

(Operator Instructions) Our first question will come from the line of Jeff Wlodarczak with Pivotal Research. Please go ahead.

[Jeff Wlodarczak:]

Good morning guys. I’ll refrain from asking about the transaction although it’s going to be tough. Tom, obviously second quarter is seasonally weak for you all, but do you believe we’re near the point in your markets where you can sustainably begin growing your video sub base as you take back shift to satellite? I have a follow-up.

[Tom Rutledge:]

Well, I guess I’m not going to forecast our video growth for the rest of the year, since we haven’t given guidance on it, but as a general proposition, yes, that there is seasonality in our numbers. And we’re growing, but we are not growing that fast yet but our momentum is good. And so I have expectations that we can grow our video business on a year-over-year basis and – but with the recognition that there is still seasonality inside of our business.

[Jeff Wlodarczak:]

Thanks. And then, both AT&T and Verizon had very weak first quarter results, especially relative to you and Comcast. Both have noted that they are going to give materially more aggressive to try to reaccelerate their growth. Has your competitive intensity changed recently, and any other color you can give us on trends in the second quarter would be helpful. Thanks.

[Tom Rutledge:]

I haven’t – I can’t describe the market is different. It’s a highly dependent marketplace and a variety of competitors in it, who are offering different promotions at different points in time, but we think in aggregate that we have a very good product that stands up competitively and that our service operation and ourselves bunching – put some pretty strong competitive posture and we think that gives us the ability to grow.

[Jeff Wlodarczak:]

Okay. Thank you.

[Operator:]

Your next question will come from the line of Vijay Jayant with International Strategy and Investment Group. Please go ahead.

[Vijay Jayant:]

Thanks. Looks like this is like the first quarter we’ve seen where we’ve started to see real operating leverage. Can you sort of give us some direction, is this the new path? I mean, have we sort of annualized or calendarize the step-ups and costs and this is the run rate. Obviously your marketing costs were higher, but costs of servicing customers seem to sort of normalize?

[Chris Winfrey:]

Hi, Vijay. It’s Chris. I think and maybe the first one that you’re saying is that we’ve been seeing it for quite some time. If you take a look at the amount of growth rate that we’ve had increasing for several quarters now. That drives additional one-time expenditure for that relative amounts of year-over-year growth. And marketing sales reaching at all that type of activity, all of which is investment that you’re not happy to make happen. So it’s not just in CapEx, it’s in OpEx as well. And we’ve been describing that that’s what’s been taking place this past several quarters as we continue to have higher growth. We still have higher growth this quarter, but all of that growth momentum was inside the P&L. And yes, if you just look simplistically at the pace of it, we’re starting to see that benefit. There is not any strange one-time effect taking place inside Q1 this year. So it’s faired representative of what we’ve been doing for a long period of time. But it’s also representing in the same areas, step-up with growth rates in the expenditures to drive that. So I think the underlying EBITDA as I mentioned over the last call is significantly stronger than anything what we show, given the amount of growth that we’re investing in.

[Vijay Jayant:]

And in fact just to follow-up, programming costs of subs seems like 13%. Is that sort of the low double-digit number we should think about for the year, or was there some timing on that cost?

[Chris Winfrey:]

Well, I am not exactly sure if you are looking at perhaps too simplistically. Programming costs year-over-year are up by 11%. Our standard basic customer relationships were up by 1%, which means our rate base increasing programming costs of around 10% which is consistent with what we said that we would expect for 2014 to look somewhat similar to our peers and competitors. So the key difference being that we’re growing. And if you’re growing, you’re not only going have to rate increase, but you have volume increase. It’s not something that we should be all pretty happy about.

[Vijay Jayant:]

Okay. Thank you.

[Chris Winfrey:]

Thanks.

[Operator:]

Your next question will come from the line of Jonathan Chaplin with New Street Research. Please go ahead.

[Jonathan Chaplin:]

Thanks very much. Just to follow-up quickly on Jeff’s question. It looks like your flow share this quarter must have – again to the AT&T and Verizon has improved quite nicely from last quarter. And I’m just wondering if you could give us a little bit more context on what the shift was from last quarter to this quarter that drove better more effective share gains? Was it just the accumulation of all the things that you’ve been doing in terms of improving the systems and customer care and the programming packages and the pricing that also showed up more definitively in one quarter, or were there some other specific issues that you can point to?

[Tom Rutledge:]

Chaplin, I think that our competitive posture and our improvement and ability to sell has been not a quarter-to-quarter kind of outcome, but the result of a consistent approach to the marketplace that has been building for quite some time. And the results of improved satisfaction, reduced churn, less transactions per customer translate into financial performance as you move down the road. And so the financial performance actually lags the operating performance. And we’ve been seeing the operating improvements for quite sometime. In terms of flow shore, the only thing I would say is that the number of phone customers who have video inside of our footprint is a fairly small numbers. A vast majority of the video customers that we – that are competitive to us inside of our footprint are provided by satellite companies.

[Jonathan Chaplin:]

Got it. Thank you.

[Operator:]

Your next question will come from the line of Jason Bazinet with Citi. Please go ahead.

[Jason Bazinet:]

Just a quick for Mr. Rutledge. You guys have talked a lot about the number of changes, the wide array of changes you have made. But I was wondering, within your footprint, if you look at the 40% that you said, it’s all-digital, but is that portion of your footprint demonstrably different in terms of the operational or financial results versus the 60% that is you have to go all-digital? Thank you.

[Tom Rutledge:]

It’s different, but not hugely different. And the reason it’s not hugely different is most of it is relatively recently transformed from the current operating model to an all-digital model. And so yes, we’re getting better results inside the all-digital footprint, nice growth, but it’s relatively recent. And we’re getting growth across the entire footprint.

[Jason Bazinet:]

Okay. Thank you very much.

[Operator:]

Your next question will come from the line of Craig Moffett with MoffettNathanson. Please go ahead.

[Craig Moffett:]

Hi. A question on CapEx for Tom and Chris. Tom, you said that your new IP guide will be available on all outlets. As far as I know that’s the first time you’ve formally committed to that. Does that change your long-term CapEx expectations for the number of IP-enabled set-top boxes you might otherwise have needed? Chris, if I take your numbers for the $1.4 billion normal, that’s about 15%, 16% CapEx to sales ratio. How well could that get, or is that kind of the long-term run rate?

[Tom Rutledge:]

So let me take the first part of that, Craig. First of all, the ideas that every outlet that Charter has and involve digital footprint has a two-way interactive set-top box capable of video-on-demand and other interactive functions. All the new boxes we’re buying have DOCSIS modems in them and can display an IP-based call-based guide. We’re also working though, i.e., backwardly compatible technology using active video and other software from other companies like Zodiac and others that allows already deployment MPEG boxes that don’t have DOCSIS modems in them to have the interactive call-based guide using the MPEG platform. And that’s what we’re testing. And if that works the way that we hope it does and the way so far the test indicated it will, we’ll be able to put that user interface on all boxes without having to buy new boxes. So Chris?

[Chris Winfrey:]

So the second question was around capital intensity. And look, we’ve consistently said, there is nothing structurally different at Charter that will drive the different capital intensity measured as a percentage of revenue, other than all-digital, the insourcing activities that we’re doing this year which is why we’ve split those out and separated them. The difference I think between the percentage that you listed where have some others have gotten to that is growing. And so the answer to your question is that, we can go a lot lower but I don’t think we want to, because it would mean that we’re not growing. And if we’re going to be acquiring additional customers, triple-play customers, there is installation cost and CPE, and all of that has revenue, as I’m sure, attached to it and its very good ROI. But absent that growth, yes, you can see it go lower but it’s not to go.

[Tom Rutledge:]

But as a general proposition, capital intensity is coming down for other factors like the cost of set-top boxes. And we continue to make improvements in our ability to buy boxes. We have a downloadable security system that we’ve developed. We’re buying integrated boxes currently. And as a result of that, both the volume and the technology platform that we’re deploying, our cost per digitally deployed box is going down.

[Craig Moffett:]

Very helpful. Thank you.

[Operator:]

Your next question comes from the line of Bryan Kraft with Evercore. Please go ahead.

[Bryan Kraft:]

Hi. Just want to ask on the insourcing effort, Chris. Can you just talk about how that impacts the P&L. And sort of you when you’re absorbing the cost and when you’ll start to see leverage from that? And also in which category or categories is the CapEx related to that effort being reported? And also want to see if I could ask one other one on churn. Just wondering if you can quantify, even if it’s just a rough percentage terms, just how much you’ve been able to bring the churn down since you started the turnaround effort? Thank you.

[Chris Winfrey:]

So two questions you had on insourcing. One is the P&L impact. We’ve been insourcing gradually for a long period of time, really since Q3 2012. And the net effect of that is you’re increasing your cost from the P&L perspective as you have higher cost labor but the offset to that is overtime you reduce the number of transactions per customers, which means that you can have an expensive phone call that have less outcome [ph] and have less costs inside your P&L. And that takes time to build up capabilities and to have a swing from the investment to neutral, which is kind of where we’re at today, to turn into benefit which is where we’d like to go overtime. The same philosophy exists as it relates to field operations and physical labor. And that’s been taken place similarly since late 2012. Both of those categories are the major categories you asked, have increased the amount of the in-house labor activity that’s been used as close to offshore or outsourced labor. And so you can take a look at Q1 P&L, the cost of surge includes field operations, network operations and customer care. And that’s been primarily – you can see the year-over-year flat, despite the fact that we’ve had substantial customer revenue growth and that shows that the ever growing cost of service that’s hitting the operating leverage, despite the ongoing investments that we’re making to continue to insource. In CapEx, its fleet tools, test, trucks, equipment and the real estate to house those people falling aside to support line inside of CapEx. And you’ll see some chunkiness for lack of a better word, as we go along and see, how trucks are ordered and how buildings are built and those type of things, but it’s that category that’s incurring that $100 million spend. So that was on that. And churns, actually we don’t publish the churn number consistent with our peers. But it’s safe to say that once the month has varies high single-digits to double-digit improvement in terms of trend reduction year-over-year. We get as you would expect in a blips in market-by-market as we grow all-digital. So really we’re not talking about that impact, and we’ve got the normalized effect absent the one time impact of taking a market all-digital, which has been offset by higher sales in growth coming out the other side.

[Bryan Kraft:]

Thanks very much, Chris.

[Chris Winfrey:]

Thank you.

[Operator:]

Your next question will come from the line of Amy Yong with Macquarie Research. Please go ahead.

[Amy Yong:]

Thanks. I have a question on pricing. Can you just lay out the roadmap for ARPU growth? At what point will ARPU exceed volume growth? And as you rollout Spectrum and all-digital, are you seeing up-selling within your customer base? Thanks.

[Tom Rutledge:]

When will pricing growth exceed volume growth? That’s the fundamental question you had? I hope it’s a long-winded way. So I don’t think we want to forecast that, but our objective fundamentally is to create customer relationships and superior competitive product. And you can see already that we’re growing relationships on an annual rate of 4%. And our actual volume growth is substantially less than from an ARPU perspective. And we like it that way. We take a market share driven strategy.

[Chris Winfrey:]

And Amy your second question was on Spectrum. It’s just been introduced. So it’s far too early to make comments or speculate or give a measure. So we look forward to talking about it generally in future, but there is no data as of yet.

[Amy Yong:]

Okay. Thanks.

[Chris Winfrey:]

Thanks.

[Operator:]

Your next question comes from the line of Ben Swinburne with Morgan Stanley. Please go ahead.

[Ben Swinburne:]

Thank you. I have two. Chris, on the ARPU front, I think last quarter you talked about some modest headwinds from migrations of more a price sensitive customer, even though if that was material to the Q1 ARPU result. If you could help us think about that? And then I have a follow-up.

[Chris Winfrey:]

The same trend exists. And so as I mentioned at the time, you have the barbells of transactions. One is, what’s the ARPU that you’re reporting at? The other one is that what’s the ARPU those customers are disconnecting, but the vast majority – not the vast, but the majority of transactions taking place in the middle which is upgrades, downgrades and migrations. And we’ve had a lot of that. I wouldn’t try to read too much into one particular quarter’s movement in those middle categories. The key point is that more of our customers are on new pricing and packaging. They have a better product, they have a better service. They are more competitive in relative to other offers and they’ll be longer lives. So even if they cost us a dollar or two for those migrations in a particular quarter, you’re much better off in that. That was the point that we’re making last quarter. Some of those trends still continue. We’re now at 75% excluding Bresnan and it should start to slow. And that’s really benefited us both from churn as well as stabilizing better impact to ARPU overtime.

[Ben Swinburne:]

Got it. That’s what I was thinking. Okay. And then Tom, kind of a bigger picture question around over-the-top video in the context of what a lot of people are speculating Dish may do and you compete with Dish obviously quite a bit on the video side, but if they launched sort of this $30 skinny video over-the-top, bundle that with Disney contract, which as they may. I’m curious from a Charter perspective, how you see that product versus what you offer? Is there a competitive response you think at the lower end of the market that you need to do? And then as an ISP which is this product would be great for your broadband business given how much traffic it would drive, how do you feel about the position of the ISP in the context of net neutrality and all those who buzz around ISP interconnect all that stuff, if you have a service coming over-the-top of your own network that drives a ton of capacity. So it’s a linear video service. So I know it’s a lot, but I was just curious. Love to get your thoughts on how do you think about those things?

[Tom Rutledge:]

Okay. Here is a lot. First of all, I don’t know what Dish is going to do but my understanding of their agreement with Disney is that it’s contingent other services being available and they may or may not be. And I believe that we have similar opportunities to do the same kind of services with Disney that Dish has. And with regard to over-the-top in general and the use of our network, no, that’s a general issue, but we support net neutrality as a company, and we are able to use our network and to expand the capabilities, to make our internet service valuable to customers. And our general view is that while the video business may change through time and products may come in the traditional cable service and they may come from on-demand providers and service providers like Netflix and potentially Dish or anyone else who – we’re comfortable with that, and the fact that we have a better ISP we think for a variety of reasons, including our plant capabilities and our service offering and our price, and things that there is an opportunity to grow our business, however the video business evolves.

[Ben Swinburne:]

Okay. Thank you.

[Operator:]

Your next question comes from the line of James Ratcliffe with Buckingham Research. Please go ahead.

[Denis Kelleher:]

Hi. This is Denis Kelleher in for James. Two if I could. First, could you give us a sense for what subscriber trends in the 40% of your footprint is now digital, are you taking share here, and is there any way you can quantify payback to that on your video net add performance this quarter? And secondly, just any color around the ARPU pick-up you saw in telephony? Thanks very much.

[Chris Winfrey:]

So look, we’re not going to get into market-by-market specifics, but as we’ve said that in our markets performance has improved year-over-year whether it’s going all-digital or not and that the performance is even better were have gone all-digital despite the disruption that Tom talked about at the point of transition. So we think it’s all positive. Your second question related to what, telephony ARPU?

[Denis Kelleher:]

Yes. Just a bit growth you saw this quarter.

[Chris Winfrey:]

Growth in telephony ARPU?

[Denis Kelleher:]

That’s right.

[Chris Winfrey:]

Okay. We’re selling a triple-play package. And so in some sense, telephony; one, we don’t report telephony ARPU. So that’s going to be pretty compelling what we think of that, because we’re selling the triple-play package, and depending on how we allocate technology – if you talk about growth in telephony ARPU or decline in telephony ARPU, in some sense it’s irrelevant because it’s just how we sell that product. This existing customer is a very small portion of our base that actually pays telephony on a stand-alone basis. And so it’s almost irrelevant. I think the right way to think about this is look at residential customer ARPU and watch the trends and how is that developing, what’s the overall penetration by bundle.

[Denis Kelleher:]

Okay. Thanks very much.

[Chris Winfrey:]

Thanks.

[Tom Rutledge:]

That was our last question. Thanks for joining us today. And operator, I’ll pass it back to you.

[Operator:]

Ladies and gentlemen, this does conclude today’s conference call. Thank you all for joining and you may now disconnect.