Final part in my series on FWA. Given that I’ve historically written about Charter, I wanted to round out this series by looking at FWA through a cable lens.
- margins have expanded: Charter op. inc.: 2021 $10.5B, 2023 $12.5B (what am I missing?)
- FWA has limited runway - even TMobile admits that.
- fiber at $1,500/passing, 8% interest, 40% penetration and $65 ARPU, needs 38% operating margin to break even. Do you think that they can achieve it to keep on building?
Thanks for the comment, put some responses below - let me know your thoughts.
Adj. Ebitda margins were ~38.5% in 2019, and ~40% in 2023 (so you're right they've gone up), but low margin video has gone from ~40% of revenue to ~30%. My thesis was margins would expand as internet became the dominant part of the business. 2024 has some tailwinds like lapping wage adjustments and SpectrumOne rolloff, but with the pressure on broadband adds, i'm not as convinced as i was when i invested.
FWA definitely has a limited runway, but it's started from 0 - if you assume 15mn connections, that's still ~10% of the broadband market. Given the market is close to maturity and cable is ~50% penetrated, it's reasonable to assume a decent amount will come from cable? I think there's more to it than there's just a limited runway, so cable will be fine. The demand for the product is still important, it creates optionality and the method of competition is very different with FWA; Winfrey's comments on the call were basically we're struggling to compete with FWA because we don't even know if they're offering the service or not.
I think fiber has mostly followed historical patterns. Once it's in the ground we're looking at cable and fiber splitting the market, with some variability based on execution and financial position. FWA appears to be impacting cable more than fiber, given it's focus on more price sensitive customers. There's going to be a stopping point for fiber, where the footprints aren't dense enough to support a two (wired) player market. But i think we'll continue to see steady buildouts.
Hi Matt,
as always very interesting read.
To your points:
- margins have expanded: Charter op. inc.: 2021 $10.5B, 2023 $12.5B (what am I missing?)
- FWA has limited runway - even TMobile admits that.
- fiber at $1,500/passing, 8% interest, 40% penetration and $65 ARPU, needs 38% operating margin to break even. Do you think that they can achieve it to keep on building?
Tks for sharing your thoughts,
Tom
Thanks Tom,
Thanks for the comment, put some responses below - let me know your thoughts.
Adj. Ebitda margins were ~38.5% in 2019, and ~40% in 2023 (so you're right they've gone up), but low margin video has gone from ~40% of revenue to ~30%. My thesis was margins would expand as internet became the dominant part of the business. 2024 has some tailwinds like lapping wage adjustments and SpectrumOne rolloff, but with the pressure on broadband adds, i'm not as convinced as i was when i invested.
FWA definitely has a limited runway, but it's started from 0 - if you assume 15mn connections, that's still ~10% of the broadband market. Given the market is close to maturity and cable is ~50% penetrated, it's reasonable to assume a decent amount will come from cable? I think there's more to it than there's just a limited runway, so cable will be fine. The demand for the product is still important, it creates optionality and the method of competition is very different with FWA; Winfrey's comments on the call were basically we're struggling to compete with FWA because we don't even know if they're offering the service or not.
I think fiber has mostly followed historical patterns. Once it's in the ground we're looking at cable and fiber splitting the market, with some variability based on execution and financial position. FWA appears to be impacting cable more than fiber, given it's focus on more price sensitive customers. There's going to be a stopping point for fiber, where the footprints aren't dense enough to support a two (wired) player market. But i think we'll continue to see steady buildouts.
Hi Matt,
a different way to look at margins:
2019-2023 CHTR change in revenue +8.8B, change in ebitda +4.7B -> incremental ebitda margin 53%.
Increase in mobile costs (ebitda negative - SAC, devices) more than offset programming costs savings. Plus loss of voice revenue (99% ebitda margin?)
on fiber:
Interesting that GFiber is looking for outside investors. Why isn't the parent investing when the returns are presumably good?
Maybe i'm reading too much into it.
Thanks for the thought provoking comments.