An exciting time in the Cable Business with Cable One Julia Laulis ($CABO) (episode #156)
Julia Laulis, Chair of the Board, President & CEO of Cable One, Inc. (NYSE: CABO), joins Yet Another Value Podcast to discuss how the cable industry is positioned right now in 2023, and Cable One's focus moving forward. Cable One will also be at The Markel Corporation's 2023 shareholders meeting in Richmond, VA on May 17, 2023, where Andrew will also be in attendance. Note also that YAVP sponsor Daloopa has a Cable One model available on demand.
This podcast is sponsored by the Roundhill IO Digital Infrastructure ETF – BYTE.
Investing in the real assets that underpin our digital world has never been easier. We are pleased to bring you this podcast in partnership with Roundhill Investments, the advisor to the Roundhill IO Digital Infrastructure ETF – BYTE - which trades on the New York Stock Exchange under the ticker symbol - “B” “Y” “T” “E”. The fund tracks the BYTE Index, which measures the performance of 40 leading global digital infrastructure businesses, such as towers and mobile communications, fiber and fixed line connectivity, and data centers. For a prospectus and more information, please visit roundhillinvestments.com/etf/byte - read carefully. Investing involves risk, including possible loss of principal. Investors should consider the investment objectives, risks, charges, and expenses carefully before investing in BYTE. Distributor Foreside Fund Services, LLC.
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Transcript begins below
All right. Hello and welcome to Yet Another Value Podcast. I'm your host, Andrew Walker. If you could like this podcast wherever you're listening, it would mean a lot if you could rate, subscribe, review it, whatever you're doing. With me today, I'm happy to have Julie Laulis. Julie is the CEO of Cable One. Julie, how's it going?
Julie Laulis: Great. Thank you so much, Andrew.
Andrew: Hey, thanks for coming on. Let me start this podcast with a quick disclaimer. Just a disclaimer to remind everyone. Nothing on this podcast is investing advice. Obviously, we got the CEO of one of the largest cable companies in the world here. It's a little bit different, but everybody should remember there's risk in investing. Please do your own work, consult a financial advisor. That out of the way, Julie, I'm really excited to have you on. I follow the cable space for a really long time. I know the catalyst for you coming on is we're both going to be at Markel's investor day on May 17th in Virginia. We were hoping to maybe shine a little awareness on that to anybody who's interested in the Cable One story, the Markel story, come out and out and join us if they want to. But look, it's a great time to talk because it's a really exciting and scary time for the cable space in general. Just about every cable stock is down 50% over the past year. If you talk to cable investors, you're going to hear fears of fiber overbuild, especially fixed wireless access these days. We can dive into each of those topics, we can dive into any topic that you want. But I just wanted to start, as the CEO of a cable company in March 2023, what are your overall thoughts on the cable business today?
Julie: Thank you. I thought I would just highlight. I don't consider Cable One one of the largest cable companies in the US, certainly not the world. We don't even consider ourselves a cable company, even though that's in our parent name. We're branded to our consumers as Sparklight, because we focus on broadband, on internet service to our consumers. But starting out with what are my thoughts about the cable industry, I think about the how the cable industry and some people call it the connectivity industry. Now, some might even think we're infrastructure. But it started out originally to get television signals to these rural areas that could not get it. They were missing out because the signals wouldn't go that far. In the beginning, cable started to serve the needs of people and communities. I think that's what these businesses are doing today. Now, albeit with different products, which had really big ramifications during the pandemic. But that is what companies are doing today. Cable One specific, Sparklight specific, that is what we're doing. We have really tremendous assets. That's our hybrid fiber cable networks that are either in the ground or on poles, in the air, in our people. The job of those assets is to bring the world essentially to our communities, whether that's entertainment, it's education, it's medicine, it's opportunities for businesses. That is what the cable industry is doing. Now, the outside world seems to think it is somehow different than it was even eight months ago. But that is what the industry started doing and that is what the industry is still doing in my view.
Andrew: Perfect. Well, I guess just one thing. We'll start with the Cable One specific question. This might jive both into the FWA worries and the fiber overbuild worries. But Cable One is different in a lot of ways than other cable companies. As you said, for a lot of cable investors, Cable One, when you guys spun out of Graham, you all were the first ones, you said, "Hey, video doesn't matter." You all were the original people who focus only on opening up broadband, completely ignoring TV. You said, "We'll sell TV if people want it. But we're going to sell it to them at cost. We're not subsidizing." That worked great margins. The stock went on a huge run. The other thing that's different is your safe harbor strategy, right? You focus on small towns, small cities and large towns, and people love that. I do think over the past year, people have started to worry, "Hey, this focus of the small cities, large town, does that leave them a little more prone to fixed wireless coming in?
Julie: So many thoughts in my head? I mean, you did a really nice job of highlight [crosstalk]
Andrew: Throughout about 15 [crosstalk]
Julie: For context, but we're in this industry, so we're lumped into cable. But we consider ourselves contrarian starting with our different strategy back in 2013-2014. Let's talk about where we operate that safe harbor that you talked about. These small cities, large towns, rural America. We have been doing this since we were born, back in '86, for decades. Rural is cool now. We were loving these communities decades ago. If you look at, we're incredibly dispersed. We don't have consolidated markets in large areas. It's definitely not urban and about cities. Our average market is about 50,000 homes past and about 20,000 customers. What that means is, whatever is affecting one market isn't likely to affect another because of that geographic disbursement. It also means that these are markets that tend to be, again, they're smaller in size. You're not going to get a lot of density. The rural nature of them necessarily means at least, probably for both, quite honestly, fixed wireless and fiber, it is going to be more expensive to build into our market. Let's figure this out. It's going to be more expensive to build. You're going to have less density, less access to consumers. Your ROI is going to be less than it is in other areas. Where do you want to put your money?
Andrew: I think that's why people were loving rural up till I'd say mid-2021, right? Because there was the fiber overbuild threat. As you said, these are more dispersed, it's always going to make more sense for an AT&T or Verizon to go upgrade New York City or a big city versus going to a rural town, because there's more people. As you lay that fiber, you can amortize each line of fiber over more houses and all that. But I think what people have started to worry about is fixed wireless, which we're seeing fixed wireless is really targeting places where they have lots of excess spectrum, I think people are saying, "If you think about where you've got lots of excess spectrum, every single gig or every single megahertz is going to get used in a large city." New York City, they're just desperate for every piece of spectrum. If you go out to the rural cities, it feels like, "Hey, maybe these wireless guys just have so much excess spectrum, they can sell the fixed wireless as almost the side but not the side business." That's where they'll really utilize all this excess spectrum. I think people are worried rural is right in the targets of fixed wireless these days.
Julie: I think you're right, Andrew, that is the concern. I find that a little bit interesting, too. First of all, let me be clear, I want every home in America to have access to the opportunities that the internet affords them, right? I mean, we've been working on that way before it was cool. That is what we want. Whether you're going to get your access from Starlink or project Cooper or Kuiper, I'm not sure how Amazon pronounces it, from fixed wireless fiber, traditional cable, we want you to have access. But when I think about fixed wireless, specifically, let's take T-Mobile because they're the most aggressive. They have less than 35% of our footprint is covered by their unlimited service. 65% of our people can't even get it. I can tell you, I just drove through one of our towns. There's not service available. I mean, there's literally nothing there. The vast majority of the West, it doesn't mean it's always going to stay that way. But right now, there's very little overlap.
I do think that fixed wireless for the time being offers some consumers a way into the product, it is at a very low price. If they have coverage, they can take it. But I don't see it as a long-term play, unless they change their strategy. Let's talk about this. I mean, there you've got a couple of players and they're doing things very differently, right? Think about AT&T and they're talking over and over again about, "This isn't profitable, we're not going to do it, we're not going to lose focus, our end game is on something else." I wonder about sustainability or even what the purpose of it is. You said it's sort of like a side thing like, "Hey, we have this here. Let's get some money for it for a period of time." I hope that that's not the strategy because as a consumer, I would feel incredibly let down when three months from now, you have so many, I mean, what's your primary purpose? Is it is it wireless? Is it cellular customers? Well, you've gotten more cellular customers, and now my fixed wireless has focus, right?
Andrew: I guess on the AT&T, I do agree with you, though. They've also said, "Hey, maybe we'll use fixed wireless in the most rural areas as a stopgap to getting them to fiber for a year or two." But on the other side of fixed wireless, I think you guys do have experience with fixed wireless as well, right? Which makes you interesting because you've talked about you using fixed wireless to fill up, I believe, it was your CFO who called them the "doughnut holes" in your coverage. Little areas where you've got cable around the outside and maybe you're missing a spot here or there, you can use fixed wireless. Then you guys have invested in NextLink and Wisper, which are fixed wireless plays. I just wanted to ask you, what have you seen, ignoring the competitive factors, just in your investments in your experience with fixed wireless?
Julie: Right. We have said that what we want to do is reach these rural communities and connect them to the world via broadband. We started walking down the path of doing fixed wireless because of its lower cost to serve in super rural areas. Then we found other folks that were doing the same thing. We had this filter for either M&A or for investments in rural broadband best in class. They couldn't just be offering broadband at 10 megs or something like that. They had to be the best in that marketplace. That is what you have with Wisper and NextLink. Even NextLink, they will serve rural areas with fixed wireless. But once they get a certain amount of density, they go in and build fiber. Then they can move that fixed wireless equipment to another area. We do have a bird's eye view. That's what's really wonderful about our investments. I mean, we have fiber codes, we have fixed wireless codes. We can talk to them about a myriad of metrics, whether it's churn or service calls or sack costs, and compare it to what we're doing. I think one thing that we have to talk about when we're talking about fixed wireless is data usage and the [inaudible]
Andrew: That was going to be my next question. You've guys have a great slide 44 from your 2022 investor deck. That's where I was going to. Please, go ahead with data usage.
Julie: Well, data usage, it popped a bit during the pandemic. But if we look over a five-year period, it's at a 26% CAGR and it is not stopping. I mean, we have about a fifth of our people, they're using over a terabyte of data right now. That throughput is not available with fixed wireless. I guarantee you, there are, I was going to say young people, but that sounds ageist and I'm old. I'm not ageist but there are people in their garages, like some founders that we can think of, that are inventing things that are going to take more data throughput of that pipe. They know that pipe exists and they saw that it was incredibly reliable during the pandemic. I mean, there wasn't Zoom. We weren't using Zoom for everyday life before the pandemic. What is next? What are my grandkids going to be teaching me how to use that is coming in my world, to a pipe outside of my home, and then wirelessly throughout my home?
Andrew: Then tell me this, it's only if this is too simple model. But one thing that I've always thought in my head is like, you and I, I'm sure we're both on Zoom right now. Maybe you're getting your internet over a wired ethernet connection or maybe you're on wireless. But most of the internet you consume is done over wireless route, over just normal wireless, right? There's a cable coming into your house. Then the wireless is doing the last 30 feet. Whether the last 30 feet, 400 feet, 800 feet, or wireless or not, cable in many ways, it ultimately comes back to cable has fiber laid very deeply. It is the best deepest fiber and most of the places it competes. Whether it's over fixed wire or something, it just seems like the cable assets are ultimately going to be the best to handle that increasing data usage, as you said. I don't know if you want to add anything.
Julie: I want to think it's too simple. I think about my kids and they don't call it broadband. They don't call it internet. They don't say they have an ISP, they say, "My WiFi provider is." That's what they call it. It is the way people access. I mean, it's what they're doing with their cell phones in their home too. They're riding over WiFi that comes to them from their broadband provider more than likely, the vast majority anyway is.
Andrew: I mean, I think you guys have said it and I know Charter and Comcast have both said it. They say, "Hey, we look at fixed wireless subs as a parking place for future cable subs, right?" As data usage continues to go up or as more people join the fixed wireless network and it gets more unreliable, what is it that ultimately turns a fixed wireless customer into a parking place for a future cable customer? Is it just fixed wireless network collapses under demand? Or is it the demand for speed continues to increase? Right now, I know you guys offer a gig in most markets. I don't think most people need a gig, but maybe five years from now, everybody needs two gigs and fixed wireless just simply can't handle that.
Julie: Yeah, I know. I think that is exactly the case. I think it could be a collapse in local areas based on cell sites that they have or don't have, as well as increasing demand. I mean, you need a reliable service. I mean, you couldn't be doing your value broadcasts and your podcast if you didn't have a reliable connection. I mean, it is based on data. I mean, people are using it now. A lot of times, especially consumers get confused about speed versus data. Both have a value component, right? My guess is that there will be innovations that require more speed, down and up. But at this point in time, at this point in our network, we have utilization that hangs around 23% for both. In other words, there's plenty of capacity for both up and down. A lot of times you hear about symmetrical speeds for fiber. They're not using the 20 gigs up that we're giving them right now, let alone in a symmetrical gig by gig. But our network can do that, too. We'll talk more about that later on the show about IPTV and how that [crosstalk]
Andrew: There were about four different angles I wanted to take in what you just said. [crosstalk] IPTV was one.
Julie: [crosstalk] that's all connected.
Andrew: But let me just wrap up the fixed wireless thing with something I think you alluded to before. When you guys have been questioned on watching an MVNO, I think you said, "Look, the reliability in our networks, we're not watching an MVNO because forget about fixed wireless. In a lot of our networks, our rural customers don't have reliable cellphone service. It would be a brand problem if we partnered with an MVNO and they were getting unreliable cellphone service, even though we're not providing our names on it. We can't do an MVNO because that would be 3g voice, right?" How are people going to come in and launch a fixed wireless? Obviously, that's not all networks, but a lot of them I don't know if you want to talk to that reliability?
Julie: I mean, there's a bunch of pieces related to where we go with potential of selling a wireless service to our customers. Number one, do customers want it? Do they need it? Can we provide a better value? Will it provide something to us in terms of profitability or lower churn leading to profitability, customer satisfaction, those sorts of things? Again, I was driving through a market and I was talking to someone and my call dropped repeatedly. It is a somewhat mountainous area of Arizona. It's hard to build there. I mean, it was hard for us to build there. I get why none of the major provider is in one of these markets. I had to switch my daughter from her provider, which I would love to say who it was because they had absolutely no coverage, to another provider who did have some coverage. Otherwise, I would never be able to talk to her while she was away at school. That is what I think it was Todd that brought it up. That's what he was talking about. If I partner with Brand X but they don't have coverage for our towns, how does that reflect on us? It's a negative halo.
Andrew: Just because we're here, I was going to do a lot later. But since we're talking anyway, you mentioned, "Hey, if we do an MVNO," I mean, the reliability concerns are probably number one, as you said, the negative brand halo. But you also did started talking about profitability, improving churn and stuff. Comcast, particularly Charter, and it seems the other cable players are really all in on the MVNO strategy, right? They're accelerating ads, they're leaning into it. They're cutting price to increase ads, they're doing everything. What are you seeing, again, aside from the reliability issues, is there anything else you're seeing in the data that makes you guys hold back from watching them versus those guys leaning whole log into it?
Julie: Well, I mean, we're definitely seeing convergence, right? But we've seen things, I call them in hindsight, flash in the pan things that were going to be really good. Let's take an example, video on demand. Here's what you need to do. You need to buy this equipment for your head end. You have to do all these complicated contracts, then you're going to be able to offer this. You're going to have to do some software work, and you're going to be able to offer customers this. We think we're going to make money out of it. I was like, "Well, okay, we're not making money out of it." But it's reducing churn. Customers are happier because they have it. We don't know. I mean, I personally looked at the business model for us, not other people. We don't know the scale of other people, but for us to get into the business. If we, again, if our focus being on our customers in our communities, if we believe they need this as a connection point, we could do it in about six to eight months.
But there has to be a reason. Is there a really customer-centric reason, which will end up being profitability related as well or not? Right now, the signs are pointing to it's not our time. We have a focus. It is providing broadband to our communities. We have a ways to go in increasing penetration in the majority of our markets. All markets are different. They're not monolithic. We're going to stay focused on that for the time being. I think Comcast and Charter have a lot of scale. By the way, we talked to them, "Hey, what do you see?" They give us information and they say, "It's early on, but we think this." We talked to the others, the smaller and midsize folks that are trying it through a different method, through a different partner, and get information from them. We'll do the right thing for our customers for the business when the time is right. Right now, it's not right. One more thing. When hurt, we're spending our time with heads down running the business and executing well.
Andrew: Let me switch to the other thing, and this affects Cable One less than maybe some of the other bigger players. But it does affect you, and that is fiber overbuilding. I mean, I think Boise and Gulfport are two larger markets. I think Boise, Google, and Lumina have both said they're going to do a fiber overbuild there and Gulfport. I think AT&T said they were going to do a fiber over. You can correct me if I'm wrong. This just from memory. But fiber overbuilding, investors are worried about it. We can talk specifics, but I guess just first, is this a little bit of deja vu all over again? It's not the first time we've had fiber overbuild worries. We've had cable overbuild worries in the past. We had Google Fiber in 2010. Is this deja vu all over again? Is this something different than in the past? How do you think about fiber overbuilds?
Julie: I don't know if it's the exact same thing. I've been in the business for 39 years. I can remember my father calling me up agitated, he's like, "There's this thing. They're launching these satellites and I think it's going to put you guys' business just on a downward trajectory. Are you sure you're okay." He was talking about DirecTV and DVS. I actually remember from a very practical standpoint, being in Alexandria, Virginia, when then Bell Atlantic said they were going to come overbuild us with fiber. We upgraded our plant and launched switch telephony and internet service in the mid to late 90s, before anyone else in the country did it, and ended up doing just fine. You're right, competition from any sort of technology related to either the video business or now the internet business, is not new. We've been dealing with it for decades. Again, when you have markets as dispersed as ours are, I mean, I can think of one where AT&T built fiber. Grande came in and overbuilt us decades ago. There's three of us there. We grow in that market every month. Every month we grow.
Now when it first happened, there was disruption. Then it normalized. Then we went back to getting our share. That's one example. I can think of two of our markets that are overbuilt with fiber, one super small. We've lost no customers. I mean, the people that came, that's an editorial judgment on my part, they're stepping out of their footprint and they just didn't know what they were doing. I said, "God bless them. We do just fine there." There's another larger market that has a fiber overbuilder. We have grown penetration by almost six points since they came in. The thing about competition is if they're doing advertising, if we're the better operator, we can end up growing in terms of units and ARPU. At the year end, at our last earnings call, I talked about our ARPU. Our ARPU grew in competitive and non-competitive markets. It's not just like, "Cable One, you're not taking good care of your customers, you're jacking up your rates in your non-competitive markets." No, the advertising that's being done by the fiber folks, because they're usually their pricing is focused on a gig, which by the way, cost more, means that people are like, "Well, I can get a gig from Cable One, so our ARPU gets lifted.
Andrew: Is your ARPU lifted?
Julie: I mean, another thing I'd say, and I apologize for interrupting, is that 65% of our footprint, well, it's more than that per fiber, we have 25% overlap with fiber. 75% of our people do not have access to fiber. I think 35 is our total competitive. They have a competitor, could be an HFC competitor. Again, the fixed wireless is less than 35%, too. The vast majority have an IF who's doing DSL, potentially and us. That will change over time. But, again, if you have a chance to invest your money in something, are you going to go to less dense or to build expensive developed places or others? I expect there to be more competition over time. That's fine. Competition makes us better. Things normalize. I mean, do you drink Coke or do you drink Pepsi? Do you wear Levi's or do you wear a 7 For All Mankind? Do you have T-Mobile or do you have AT&T? That's the American way, to have choice.
But that doesn't mean that there can only be one provider of service, especially if you're someone who has been in the market for decades. You have a local workforce. 80% of our workforce is local, it's resident in these markets. We are neighbors to our customers. We see our customers at baseball games, at church, in the grocery store. I mean, I myself am wearing a Sparklight shirt and I'm going into a grocery store while I'm in market. Someone may talk to me about an offer, maybe even about a problem. I talked to a customer yesterday, who had moved into one of our markets from Michigan. I called her back to follow up on an issue that she had with our new Sparklight TV. She was like, "I am blown away that you called me." I'm like, "But you wrote me a letter. You had a problem. I needed to fix it. I needed to make sure you're okay." I mean, that is what you get from someone who's been in these communities for decades and isn't just being drawn in now for the money.
Andrew: That's great. Let me just quickly, you mentioned earlier that your ARPU was increasing in both fiber and I'll call it competitive, actually, in both competitive and non-competitive markets. Or is it kind of increasing at the same rate in both? Or are you seeing a divergence?
Julie: I honestly would have to go and look to otherwise be telling you something that I don't know. [crosstalk] But that's a good question. I can go look and follow up with you. But the fact that it's growing in both, I think what people are afraid of is, there's going to be competition, you're going to lose customers. Because they're going to come in with lower price, you're going to have to lower your price. It's going to be just a melee, a chaos. I think that's potential in some places. I don't know what things competitors may or may not do. But I have seen people come into our markets, either in the past or more recently and I found them to be relatively rational. They love the idea of doing things simply. They basically advertise high end service prices. We have the same thing or something very similar. We don't always have symmetrical speeds, right? That's all I have to do.
Andrew: It's funny, this is a little tangent, but less so recently, but especially in 2021 when all investors were obsessed with cam and everything. A frequent question I would get was, "Hey, Cable One is smaller, Altice is levered. If you're Verizon or AT&T, why don't you just overbuild them and then offer fiber internet for $5 per month and take all the share and bankrupt your competitor and then you can raise your prices in a monopoly market in 24 months?" I would always say, I'd be like, "I mean, I guess you could but you'd burn so much money in the meantime. Let's take Altice, maybe you would bankrupt Altice. Altice might bankrupt themselves, who knows? But it's not like those cable assets would go away. You've bankrupted your competitor and all you've done is lit all the money you can imagine on fire. I think people forget, even with the competitor, these are duopoly markets. It's not like we're going to price these things down to zero. You need to get a return on this $3,000 per home per pass that you're spending to do a fiber.
Julie: Exactly. You've seen recently every single fiber provider. I say that because I cannot think of one that hasn't said, "We plan to go more slowly in 2023 for a variety of reasons, right? Whether it's supply chain, whether it's the markets and access to capital, whether it's access to labor, whether it's what they're seeing in their penetration rates, that it's making them go in. A model said we would get this, but real life is different than the model. Because let me tell you, it is very different to build a network versus run a network with customers. Maybe we'll ask Google about that. We're going to go build this thing called Google Fiber. I think, I don't know, I don't work there. But my bet is that they found that, wow, this dealing with customers on a day in and day out basis, that takes a lot of work. Building it was one thing, running it and operating it for the long-term, for the good of those communities is another. That's another thing related to ARPU, which sticks in my craw, where people are like, "Oh, my gosh, of course, your ARPU is high. Your markets are moated." We can't have it both ways. Some people say, "You're moated. You have this safe harbor." The others are like, "That means things are going to be terrible for you." Which isn't, by the way? Gosh, I forgot where I was going. I got myself all riled up.
Andrew: No, that's great. Actually, the next thing I was going to ask is pricing. Maybe I'll come back to my last one or two questions on fiber later, but let's stick with pricing. I do think a lot of people, and especially, maybe a lot of the more negative press coverage when they cover cable in general or Cable One in particular, goes and looks at the ARPU for cable or Cable One and says, "Look, how high it is." In Cable One, I think the ARPU from memory is approaching $80 per unit. Charter and Comcast are probably in the 65 to 70 range. I think more negative coverage where, look and say, Cable One's pricing is $10 per month higher than their peers. Or people would say, "Look, how fast they're raising pricing." I think you would rightly push back on both of those points. I've teed you up, I'll just toss it over to you.
Julie: I was like, that's where I started on my rant was this, oh my gosh, they must be taking advantage of these poor customers in these rural towns because their ARPU is so high. That is not our purpose. We are an incredibly purpose driven organization. We start with our associates, who need to be happy in order to take care of our customers in order to get to a long-term profitable business. Yes, we are profitable, but that is put third as part of a natural chain. Our pricing is actually likely, I mean, again, I'd have to do a statistical study. But the lowest, definitely the big operators. Up until last year, our entry price was $55 for 100 megs. We sunsetted the 100-meg product. Now 200 megs is our entry product and it's $65. That is a great value. I am not paying that in Phoenix, I can tell you that. What's happening is customers are choosing to have things that they value. It might be faster speeds, it might be more data throughput. It might be other value-added items that we offer. Because they're adding that on it is a poll, they are coming to it.
We aren't pushing them to it, they get to choose, our ARPU is higher. We haven't done, I mean, anything from 2015 was a rate adjustment year, we didn't do another one for seven years. We recently increased the price of our modem in this fall, because we're launching a new WiFi modem that we know it's going to bring a better in-home experience for our customers. That went up. Now not everyone owns, rents or leases a modem from us. They can own their own modem too. They have a choice. Do you want to buy your own modem? Or do you want at least one from us? That again, we're not trying to create a monopoly situation. What we're simply doing is creating choice for customers. We have actually recent selling rates, which I won't get into because I haven't made them public in other ways. But based on our last earnings call, a third of our people are taking a gig service that costs more than the entry level 200 meg service.
Andrew: All right. Just one of the things you mentioned was data throughputs. I think you guys are the only ones who have the upsell for data caps and it goes away, if I remember I looked the other day. If people take your highest tier, which right now is a gig, they get unlimited data. If people stay under that, I mean, they get a lot of data. You would really have to be using a lot of data to hit the cache. But you guys will charge them about $10 for every 100 gigs over 600-gig if they're on the 500-meg plan or something. I think you're the only broadband provider that's really doing the data throughput. Can you talk about that?
Julie: I think that Mediacom does it as well. [crosstalk]
Andrew: They're not a public [crosstalk]
Julie: But they do it as well. We say data guidelines, not data caps. But yes, there are data guidelines to many of our plans. The way we viewed it was, this was the fair and appropriate way. There are, and I can look it up right now, how many customers use less than, say, 300 gigs, a month? If I use 300 gigs a month, maybe that's my parents, I shouldn't have to pay more because you're using a terabyte a month. That was the reason why we started at the beginning. Less than 10% of our customers went over their data guidelines. 90% plus people were not paying extra for any data guidelines in percentage work. We have launched different options, like an unlimited option. You can have a really low speed service, but with high data throughput. Because again, what do you value? At a gig, we thought, let's make it easy. If you want a gig, we have it. We're going to include unlimited data as part of that. I assume that's one of the reasons why it's selling really well, too. It's an all-in price, unlimited data with my cellular provider. I don't need it, I can see how much I use. I probably should go down to a lower-level plan. But I do it for peace of mind. No matter where I am, I know that I have unlimited data. We do have a portion of our ARPU, but it's really small, comes from that usage-based billing, which is what we call it. But the majority of it is coming through sell into higher tiers and upgrades to higher tiers, or people buying unlimited data.
Andrew: It does strike me like the output-based pricing as you said, it's about $10 per month if you go over, and it's going over once, it's the difference between upgrading to the next year. It's a really nice way [crosstalk]
Julie: The thing is we pivot. If you're at 200, you might as well just jump to the 300-level service, or maybe the 500, or maybe the gig. But honestly, we're looking at our pricing and packaging right now. Because we've learned a lot. We've learned a lot from our investment partners who, again, have different arrays of technology that they get to consumers. We've learned a lot from watching competitors in our markets and others. I think it's time for us to revisit that. There was a point in time, I'm trying to think, it was probably around 2018, where our ARPU growth was just far outpacing our unit growth. I think we're there again and it's time to right size to get those folks in balance. We need to make sure that what we're offering the consumers is a value because they are going to vote with their wallet.
Andrew: Perfect. Let me switch to a completely different track. But we started to allude to it earlier. Look, you guys were the first or among the first to say, "Hey, video, we don't make any money on it. All the money's in broadband. We're going to deemphasize video." Now you guys are taking it a step further. I mean, I've seen some peers talk about doing this in the future. But you guys are the first to actually do this. You all are switching to the IPTV, which is going to free up a lot of spectrum, improve the capacity of your whole network. But I just wanted to talk to you about what is the switch to IPTV? Why is this big for you guys? How does this improve the economics of the business?
Julie: Well, we definitely were the first and I think other people are still having a hard time. Look, people want to be entertained and informed. You get that through video programming. But we could see that there were other choices and opportunities that were very customer-driven that were coming on the scene, a.k.a. streaming services. We were a size of a company that did not have the ability to get really great pricing from these programmers. We have double digit, triple digit increases. We were like, "Our poor customers, we don't want to pass these increases onto them." We ended up subsidizing our other products and not passing that along. We're like, "Wait a minute. That coupled with doing a really simple analysis of here's what video brings in. Here's the direct costs. But we have all these indirect costs. This is ridiculous. Wait, this is bringing no value to us." We had the negative halo thing going on too, because every time we got an increase from programmer X or Y, we passed it along to the consumers and the consumers hated us not understanding. We were simply taking the money and giving it to someone else like keeping a dime. That started our path. The next thing that led to this idea that IPTV would free up spectrum in a very capital efficient way, was us remembering how we launched gig.
Now we launched a gig across the majority of our footprint for any of the majors did it. We did as a defensive move back in 2016. Having a gig everywhere, so like, "Hey, we have a gig everywhere. Why should anyone come into our markets?" What we did is we bonded 30 channels together. We dropped video programming, so that we could use that frequency for internet. We launched a gig quickly. We didn't have to upgrade our networks to 1.2 gigs. I mean, it was an incredibly capital efficient and fast way to get a gig out to our customers. We think IPTV is like that. I mean, IPTV just takes, and I am not a technologist. Our CTO is probably would be rolling around on the floor as I discuss technology. But if we take the spectrum that video is taking right now and use that for internet, some internet-based video IPTV, we call it Sparklight TV, we can take that bandwidth and allocate it back to broadband. For downstream, more downstream and more upstream. We're doing that in a couple of our markets and we'll continue to do so throughout the year and throughout the future in order to free up space. It doesn't mean that we're never going to put fiber in the ground. We will, we have been doing that for decades as well. But it gets rid of us buying boxes, which was huge capital outlay and tracking that inventory. Consumers are by and large used to that. Not all of them, believe me, I've talked to some. Streaming is a way of life for people and it gives us access to more capacity for internet in a relatively quick manner.
Andrew: There's a great slide from your 2022 investor deck that everybody should go check out. I think it was slide 47. But it shows just how much people don't think about it. But legacy video, you have to have dedicated channels, as you said, for all that it shows [crosstalk]
Julie: For each channel, each one.
Andrew: You take this legacy video away that, as you said, you guys have been deemphasizing for 10 years. Not many people get if you took it away, most people would just instantly switch to streamers. You take away and it just frees up so much capacity for downstream and upstream, as you're saying. You mentioned fiber, I do think and you've heard a couple of people ask you guys and we've seen Altice go out and do this. A lot of people said, "Hey, why not just skip DOCSIS 4.0 and go straight to fiber to the home or do fiber overbuild yourself?" Most cable companies had said DOCSIS 4.0 is going to be fine. We're going to be very competitive. We got a roadmap very far into the future. I mean, if you ran things out to infinity, eventually everyone will be fiber to the home. But you don't have to go there right away. You can do DOCSIS 4.0, maybe DOCSIS 5.0. Then you can get there. But I rambled a little bit. What is your view? What do you think about the idea of fiber to the home overbuilding your site?
Julie: First of all, I think about Altice who says, "We're not going to follow the DOCSIS 4.0 path." They're not CableLabs members. I guess that doesn't surprise me all that much. But they walked that back a little bit recently, where they're saying, "Look, we're going to do it in old Cable Vision areas, right? But we're not going to do it in the old Suddenlink areas." Suddenlink areas are our areas, they're more rural. But they're likely seeing that it costs a lot of money to do this and the density isn't so high. We have a reoccurring story. Again, I don't know, I'm not Altice. But we revisit them to make sure that the data isn't stale. But we've done the models too. What should we be doing if we have a network that has lower capacity than what we want, should we rebuild it with classic architecture, HFC architecture, which is a mix of fiber and cable or fiber to the home. We've been doing fiber for new build for two decades. This is the way we build anything new.
But if we're going to look at our existing networks, and this is a beautiful thing, we built them years ago. We already had that there. Anything we do to that is going to cost us less than our competitors. We've looked at what DOCSIS 4.0 provides us. We've looked at what fiber provides us and DOCSIS 4.0 has a more capital efficient runway to get to essentially the same thing. I mean, we need reliability, redundancy. We need speed, we need symmetricity, if that's even a word. We get that with DOCSIS 4.0. Why would we spend more money? By the way, again, we have investment companies that are fiber to the home 100%. By the way, we have markets that are 100% fiber to the home, too. We know what it costs to operate them. We know what their trouble calls look like. We know what their churn looks like. If there was a better way of skinning a cat, we'd be doing it. What we're doing is DOCSIS 4.0.
Andrew: I think a big misconception among probably generalists is, "When you've got cable, that means the fiber runs to outside the city and then you run HFC to every home for miles and miles." You can correct me if I'm wrong. I know you guys said it at your investor day, you have fibers to within at most, a few hundred feet of every home. It's just the last 100, 200, maybe 300 feet that are getting laid HFC. It's not like, as you said, we call you cable but you're more broadband and fiber, if you actually think about it.
Julie: Yeah, we actually are and the vast majority, over 90%, again, our CTO will be able to give you the exact number of our data runs over fiber, not coax.
Andrew: Let's switch to [crosstalk]
Julie: By the way, I noticed this yesterday, too. I noticed several fiber cuts. One was down south in Arizona, an operator that owns that fiber. The other one was through Windstream. Two operators, not us, supplying us with fiber to our market and there were fiber cuts. Just because it's fiber doesn't mean that you're never going to see an issue. That isn't the case. If you're an AT&T fiber, if you're a low fiber, if you're a filling the blank fiber, your fiber is going to get cut just like anybody else's. Just saying that we're all constrained by the same real physical factors.
Andrew: Let's switch to M&A and capital allocation. I don't want to go too crazy deep in here. But obviously, you guys have a history of M&A: Multiples have come down a lot in the past 12 months. You guys have been very creative with the M&A, JV's and everything. But with multiples down in the past year and, multiples down, and I think a lot of smaller cable players starting to look and say, "Hey, we've got to lay out some capital for a DOCSIS 4.0 upgrade." Are you guys starting to see the M&A environment pick up a little bit?
Julie: I don't know if I would say pick. We definitely have had some of the smaller family-owned folks come to us and say, "Uncle". We're looking at those, right? We believe that the melee that's going on with I'm going to build fiber, I'm going to build fixed wireless, I'm going to fill in the blank, get to consumers across America, is going to create opportunities for people who do know how to take care of customers. We think that that's over some time horizon to be determined. But we think more opportunities are going to come from that than not. But yes, there are smaller operators that are finding this market very hard to navigate through.
Andrew: You mentioned Suddenlink earlier and Altice obviously put Suddenlink up for sale. A lot of people have said Suddenlink looks a lot like Cable One. Did you guys take a look at Suddenlink?
Julie: Well, we got their book. But quite honestly, those markets would have loved to have owned them when Altice got them. But at this point in time, quite honestly, it'd be easier for us to overbuild them than buy them and then put the capital into them that they require. That's my opinion.
Andrew: That makes total sense. The other alternative to M&A is share buybacks. You guys, I mean, I think the cap allocation here has been pretty outstanding. You do the convert deal. When the stock set over 2,000, look at Charter. Charter was a leverage here but for sure, they buy back the most of their shares when the stock's seven and 800 and they're not doing it when the stocks three or 400. You guys, the stock goes under 1,000, you guys have gotten more and more aggressive buying their share. I just want to ask the other alternative to M&A is share buybacks and capital allocation. How are you thinking about that?
Julie: You actually sound like Tom Gayner who's our lead independent director and also CEO of Markel.
Andrew: Well, the Markel is why we're talking.
Julie: He's like, "Hey, the price is high, we sell some stock. The price is low, we buy some stock." We definitely think investing in ourselves at the price point that we are these days makes sense. You've seen us do it throughout '22. We still have authorization available to us. I guess that's about all that I will guide to at this point in time.
Andrew: As an investor, I mean, I think all the cable companies are trading under seven times EBITDA. What that is and free cash flow varies by leverage structure and how much they're putting into near term capex. But I think if you're buying a cable company for seven times EBITDA, there's not much better you can do with your capital.
Julie: Honestly, Andrew, you couldn't build the network we have. The value, it's mind boggling to me. What's in the ground and in the air is worth more.
Andrew: The last I looked, I mean, you guys do have the JV investments, which I don't want to get too hung up on the book value, the JV and everything. But the last time I looked, you guys are trading for under 2.5k per home pass. It's like, "Hey, you want to go do a rural overbuild?" You're talking, I mean, Charter is doing rollover. This is probably more rural than you, but they're talking 4.5k per home pass. You're buying this cash flow in a cable company that's already got the customers for 2.5k for home pass. You want to talk about buying below replacement cost? That's fine. [crosstalk] Let's see, just a few questions to wrap this up. I realized you've been generous with your time and we're close to an hour. I think one thing cable companies have said, you guys included, "Our churn is low. Our churn is at record lows. One of the reasons we're not adding subs right now, yes, fixed wireless is probably taking particularly the people who used to come to the DSL to cable to Pixar is taking chair, we're not getting our chance to add the move the people are moving because moves are down and everything." I agree with all that. But I think a bear case a lot of people point out is, "Hey, the cable companies have been saying this for a while." A, broadband ads have gone negative for probably the first time ever in the half of last year across the board. B, if churn's so low, why are the cable companies not just disclosing churn? Frontier does it and you can see their results. Why don't the cable companies just disclose it if there's nothing to hide? Again, I've thrown four different thoughts out at you. But I'll just turn it over to you.
Julie: I know, I'm taking notes. First off, on losses, the big folks started their losses in the second quarter. We lost for the first time that I can remember in the fourth quarter and it was a very small loss.
Andrew: It was 2,000, if I remember correctly.
Julie: It was less than 2,000. It was very heartfelt by our entire team. Net gain is a byproduct of connects minus churn, right? You can see what our net gain is. The pieces and parts you might not get, but we talk about it. We say, "Wow, our connects are really down." We believe that is a byproduct of the housing starts and the lack of moves, right? It's 7%, now six and a half percent for mortgage. Moves are down. Housing starts, like new build and folks are pulling back on doing the construction, is starting to slow. Now it came to us more slowly than the big guys. That's the way it always happens. Whatever happens in the NFL cities usually ends up coming to our markets but later. We have time to see it and adjust. It also, I think, has to do with fixed wireless taking connects. I mean, fixed wireless is just like DSL, where we get most of our connects from either a DSL provider or potentially a competitor in the marketplace who is an operating as well. Both of those things depressed our connects. But our connects are depressed in markets that don't have any fixed wireless access. I believe that it is more a general environment that's just talking about what is going on. I can't speak for Comcast and Charter, but at the beginning they may have said that they felt like it was only the housing start issue. It wasn't fixed wireless.
Well, it's really hard to measure something you're not getting, Andrew. I mean, it's like a false negative. This is slow down and it takes a while to figure out what goes into that recipe, what is causing that. I mean, for us, we actually went in and changed our disconnect codes for our people, so that we could track it like, "There never was this thing before." Now there is instead of saying it's competition, we're going to denote what kind of competition, so the end, we also now have a third-party company who's tracking that movement for us. Now coming to churn, I mean, I've seen cable churn used to be video for us since at least 2014 and we only talked HSD. This is the lowest I've seen churn. We're talking about Cable One as a monolith. We know that we have competition in about a third of our marketplaces. Even with competition likely driving higher churn in those markets than in others, our overall average churn is the lowest that I've ever seen it. Why don't we give it? We're still relatively an immature public company. I'm going to say I'm sure I don't know all the ins and outs, but what we should be disclosing and what we shouldn't, what I do know is that our peer companies don't and we don't. When I think about it at a deeper level, it's almost like the difference between a board director and management.
Same with investors and management. Do you want to run the business? Do you want to know every inch? Do you want to know what our salary is for field techs? How much information do we do we need to give versus you're entrusting us to run the business? The bottom line, which for us is free cash flow, is where you want it to be. That is what we are driving for. We're driving that free cash flow conversion. We're driving high return on invested capital. If those are the metrics that an investor cares about, we would want to hear about that. By the way, we talked to them. I mean, I just went through our top 25, having conversations. They might bring up things related to ESG. They might bring up things related to compensation. I mean, we listen to that and we take their suggestions to heart. Now, quite honestly, they'll get disparate views. But I guess the question is, how much do you need to disclose? Because once you do it, you're going to get doing it. They'll be like, "Hey, that's not enough. Now, I want to know the churn by market." Where do you want me to spend our time?
Andrew: We want to know churn by voluntary versus involuntary churn. Now I certainly hear you, but [crosstalk]
Julie: I'm not trying to hide it, but I'm telling you honestly. I think in most cases, like in the case of business solutions, there is no right or wrong. There's a whole continuum. But when it comes to morality and ethics, there is a right or wrong. I have no reason to lie, because even about churn, because if I did it for a quarter, by the time you got to the next quarter, the quarter after, the numbers would show whether I was being truthful or not. We have no reason to [crosstalk]
Andrew: Look, I 100% agree with you. I just know there are people who think cable is a terminal zero. Everybody's going to be getting their internet from Starlink. I think if that happened, actually, there would be people getting vaporized on the street by satellite arrays. But some of the bear cases have been, "Hey, they're not disclosing churn." Maybe it was stupid, especially in Q2, when Charter and Comcast are saying, "No, fixed wireless isn't hurting us. But we just lost subs. It really went negative after that." They were saying, "T-Mobile added 200,000 broadband fixed wireless subs. It was all bodegas on the corner or something." But I 100% hear you. That is just a frequent bear case.
Julie: I think that Frontier needs to be disclosing that. Let's just be real. By the way, it's not really helping me to see what they're disclosing because, again, I can go to point broadband or I could go to clear way fiber to see what their churn is vis a vis ours. I can tell you very similar. Not head and shoulders above us at all. The other thing is, we have to be careful about the majority of our competitors are not public. I don't know if that's true, I should be careful about what I say. There are some competitors of ours that are not public. Anyway, they can get information about us. I mean, I'm very competitive. Ask anyone who works with me, if they can find out information about us, and we're making it easy, I don't like that. On the other hand, I do love the idea of being transparent with the people that put their money into our company. If they want to know what's going on, here's what's going on. Fixed wireless is taking some of our connects. In certain Midamerica, not West, where we have the majority of our customers and moves and housing starts are down. Our churn is really low. Our job is to go get connects and it's not to get connects at any price. It's not to go out there with a...
Andrew: $10 per month home broadband internet.
Julie: I mean, you see some of our peers saying, "For $40, you can get a 300-meg internet and a cellular line." I know what things cost.
Andrew: Not a lot of profit there.
Julie: They do profit. They're not going to do that, We might consider it for a test and try it out in a small area to see what it gets us. But ultimately, we have been very focused on cash flow and free cash flow, and not just units for units' sake.
Andrew: This is a value investors' podcast. Every investor is going to love to hear that. That's what people want to hear. Obviously, free cash flow can vary if you do a big capex build out. But ultimately, the bottom line is free cash flow per share over a long period of time. Just last thing on churn and then we can wrap this up. I think it was the Q4 call. I would use that as the bottom line. You said, "Every quarter, we hit a new record for churn low, and I think we can't go any lower. Then the next quarter, we hit a new record for low churn. Is that the right way to think about how you guys are seeing churn even in today's environment?
Julie: It is, which is what is, I think, really amazing. Because again, 65% no competition, the 35% does have competition. In some of those markets, that means nothing. Again, the one I told you about that's growing, it's also into other competitors, we're growing. I look at it, the market's up again. That's great. Some have people coming in. When they first come in, there's a power grab, right?
Andrew: You lose the 10% of customers who just, no matter what you do, that you're never going to be good enough for him.
Julie: Even with that, our churn is really low. Actually, that might make our jobs harder in that it is incumbent upon us to maintain the trust of the consumers that we are serving. I mean, our ambition is to be the most trusted broadband provider. That means that we are there when they need us, that we respond quickly, that we treat them with empathy. Maybe it's fun to do offers and go get customers. But keeping them over the long-term, that's the really hard work. That's the work that we are up for.
Andrew: Perfect. Well, Julie, you've been super generous with your time. I think we'll go ahead and wrap it up here. Your 2022 investor day, I remember you said being on camera isn't your jam. I think you did a fantastic job. I really appreciate you coming on. I look forward to seeing you in May at the Markel. [crosstalk]
Julie: I said I love to fly below the radar. I mean, really, I love our people. Our people are our secret sauce and they take care of our customers and that's where I love spending my time. Of course, I speak to investors and banks and have fun with them too. But if I can do it while I'm not on camera.
Andrew: I think this is great. I look forward to seeing you at Markel day in May and we'll chat before then.
Julie: I will see you in Richmond. Thanks so much. Have a great day.