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Altice USA (ATUS) Q2 2019 Earnings Call Transcript

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Altice USA (NYSE: ATUS)
Q2 2019 Earnings Call
Jul 31, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon. My name is Jesse and I'll be your conference operator today. At this time, I would like to welcome everyone to the Altice USA Q2 2019 Earnings Presentation. 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.

Nick Brown, Head of Investor Relations, you may begin your conference.

Nick Brown -- Head of Investor Relations

Hello, everyone, and thank you for joining. In a moment I'll hand over to Dexter and Charlie who will take you through the presentation and then we'll move to Q&A. As today's presentation may contain forward-looking statements, please read the disclaimer on Page 2. The slides are available on the company's website and a replay of the call will be made available.

And now I'll hand over to Altice USA's CEO, Dexter Goei.

Dexter Goei -- Chief Executive Officer

Thanks, Nick. Hello, everyone. I'm very pleased to report that Altice USA had an excellent second quarter as we continue to successfully execute against our strategic priorities. To summarize on Slide 3, we saw accelerated revenue growth in Q2 to 3.7%, and as the company is performing better than expected we have increased our revenue guidance for the year. We now expect 3% to 3.5% growth for 2019, up from 2.5% to 3% previously. Much of this improved performance is attributable to Altice One in our continuous network investments, which are driving both improved video and approved data customer trends. We are consistently demonstrating that it is possible to achieve this higher growth while still enhancing profitability. And this is before the complete execution of our new growth initiatives.

The launch of Altice Mobile is now imminent with multiple network and handset partnerships in place, putting us in a really unique position to enter the wireless market. The roll-out of our fiber network and new home build activity continues at an accelerated pace. Last month, we completed the Cheddar acquisition to fuel growth in news and advertising, and our advanced advertising platform continued to deliver positive results.

Finally, we executed on 600 million of share repurchase in the Q2, bringing our total year-to-date to 1.2 billion. Altice USA's Board has authorized a new incremental three year buyback authorization of $5 billion as we're coming to the end of last year's original $2 billion authorization, underscoring the company's commitment to return capital to shareholders. Once again, I'd like to thank again all of our dedicated employees as all of their hard work is paying off and we've had such a great momentum right now.

On Slide 4, we show the breakdown of total revenue growth, which was up 3.7% in Q2. Our residential business grew 3.4% and business services grew 6.1%. We benefit from broadband customer trends, a significant increase and the take rate of higher data speeds and data consumption which supported broadband revenue up 13% plus the recent rate event at the end of Q1. Remember, we will lap the later than normal rate event from last year in Q3, so these divisions will likely show slower growth in the second half, ex-mobile.

Growth in advertising continues to be driven by the success of our advanced advertising platform A4 with revenue up 2.8% in Q2. Although this would have been higher at 11% without a drop off in political advertising revenue year-over-year. Political will also be a drag to growth in the second half although we expect this to be mostly offset with our recent Cheddar acquisition.

On Slide 5 on the left hand side we show residential ARPU growth of 2.9% to $144 with growth of 0.5% in the residential customer base year-over-year in Q2. On the top right, you could see we had better video trends again in Q2, with just 21,000 net losses compared to a loss of 24,000 last year. Since launching Altice One this has been our sixth consecutive quarter of better video customer trends.

It's also worth noting that our ongoing network investment and the quality of Altice One's Wi-Fi experience supported improved residential broadband trends as well in the quarter, with net additions of 13,000 compared to 10,000 last year.

On Slide 6, it highlights our progress with the penetration of Altice One where we had just over 400,000 customers at the end of Q2, representing about 13% penetration of our video base, up from just 4% a year ago. Altice One is helping us to reduce churn, increased gross additions and take market share and we've had many more quarters of runway ahead of us as we deliver differentiated video and Wi-Fi service to more and more of our customers.

On the video side Altice One is our solution as a cost effective and convenient content aggregator including seamless integration of linear and non-linear services. And we know from our OTT partners that we are delivering a better quality of experience relative to others in the marketplace.

On the broadband side thanks to Altice One's built in advanced Wi-Fi router, we are seeing Altice One customers consume 20% more data on average than our legacy customers. This is a platform we've designed to evolve and add new features and products and we're excited about our pipeline of future enhancements. This is a perfect transition to Slide 7.

Here we show how customers are consistently taking higher broadband speeds and using more and more data. These trends reflect the work we've done to upgrade our networks, our attractive offers and the benefits of Altice One such as its superior Wi-Fi capabilities. We approach our broadband business with a 'build it and they will come' mentality and this strategy is working well. Not only does this strategy prepares to give customers what we know they will need based on the trends I'm about to walk you through, but there are major business benefits, specifically when you consider the additional efficiencies we gain as we reduce customer churn and see less technical service instance with improved network quality and capacity.

What are we seeing? On the left, you can see the average speed of our customers take has increased about fourfold in the past three years to over 200 megabits per second. Remember with our fiber network upgrade it won't be long before we are offering 10 gigabits of services, well ahead of our peers. On the right you can see household data usage continues to grow 20% year-over-year to over 280 gigabytes per month with an average of 12 in home connected devices.

The top 10% of our customers are using close to one terabyte of data per month with an average of 30 in-home connected devices, which is just an incredible as a forward indicator. One key point to note is that data usage is correlated with speed, for example, customers that take more than 200 megabits use 75% more data on average than customers that take less than 200 megs. And most of this data usage is being driven by video streaming services.

As I mentioned earlier our customer growth trends have been improving but data usage is the real and sustainable structural growth driver of our residential business. These usage patterns imply to us that the utility of broadband is rapidly increasing for our customers. By contrast, the average data usage for mobile customers in the U.S. is only about seven gigs per month and the average speeds being delivered by wireless networks are much lower than what we can deliver with our broadband network.

This means the average revenue per gigabyte of usage for mobile operators is about 10 times higher than our offers. In other words, customers are getting much less value for money with the current mobile providers, which is where Altice Mobile comes in.

Slide 8 gives us an update on Altice Mobile, where we're still on track for a full commercial launch this summer and we recently launched exclusively to our employees. Altice Mobile is unique in the US as it has its own core infrastructure network, full access control over the customer experience and strategic roaming partners. Altice Mobile will also leverage Altice USA's own upgraded public Wi-Fi, it's fiber assets and shared small cell infrastructure.

By integrating this infrastructure with our own mobile core network, it allows us to maximize Wi-Fi offload coverage and quality of service. Separately, Altice USA's mobile partnership with Sprint will be expanded to the new T-Mobile network, including 5G services with the contract extension as DOJ merger conditions and commitments that T-Mobile has made to the FCC. It's also worth noting that we have signed a complementary new nationwide roaming contract with AT&T as well as new international roaming contracts with multiple other partners.

This will ensure an aggregate 99% nationwide coverage across the US and additional international coverage. The network testing phase for Altice Mobile is now complete, demonstrating excellent nationwide coverage speed and quality. All these factors set Altice Mobile up for a successful launch and a long-term strategy by which Altice can access the latest technologies and deliver a superior and differentiate mobile experience for customers.

And now I'll hand this over to Charlie, who will take us through some financials in more detail.

Charles F. Stewart -- Co-President and Chief Financial Officer

Great, thank you very much, Dexter. Hello, everyone. Dexter mentioned that our EBITDA grew by 7.3% in the second quarter and on Slide 9, we show that our Altice USA's adjusted EBITDA margins also continue to expand every year, and reached 44% in the second quarter. That included $5 million of mobile losses and if you were to exclude that, our EBITDA margin would have been 44.2% in the quarter. That's 800 basis points higher than it was three years ago when we completed the Cablevision acquisition. And as you can see 170 basis points higher than just in the last year alone.

That substantial margin improvement as we often discussed is supporting higher investments in all of our growth initiatives and as always, we'll continue to look for ways to optimize our cost structure. Further. The mindset in our efficiency practices are really ingrained in the company's culture at this point.

Turning to the next page. We've got a breakdown of our capital expenditures, which increased year-over-year as planned due to our growth investment in Fiber, our new home build and some spend on Docsis 3.1 and of course, mobile. Our total Capex intensity was 12.9% in the quarter as a percent of revenues but if you strip out Fiber, our new home build, that percentage would have been below 10% and you'll recall that that's what we see is our long-term recurring Capex level.

Our Mobile Capex is certainly very limited since we've already completed the core network build and it's only a relatively small number of stores that were upgrading given that our product will have more of a digital first focus when we launch.

Turning to Slide 11. Here, we're showing our usual free cash flow waterfall and you'll note that we generated $472 million of free cash flow in the quarter, some of which was absorbed by the Cheddar acquisition which we completed in June. We saw cash outflow from our financing activities of $600 million for share repurchases and that was at an average price in the quarter of $24 per share.

Our cash taxes remained very limited and cash interest, we expect to come down with the recent refinancing activity, we've done this year as well as what we expect to be able to do over the next 12 to 24 months.

And speaking of our balance sheet. Slide 12 summarizes our debt maturity profile at the end of the quarter. This is pro forma for the recent $1 billion 20 to 30 senior note that we issued in July. And that was mainly used to repay our revolving credit facility in full and it's worth noting that that financing was our lowest ever cost for an unsecured note issuance, that was at 5.75% which certainly underscores the continued strong support that we are receiving from the credit markets.

And just to recap for you our weighted average life of debt is 6.3 years. Our weighted average cost of debt is 6.2% and 77% of that is fixed rate. And lastly, with our undrawn revolving credit facility as well as the cash in our balance sheet, we currently have liquidity of approximately $2.8 billion. We have no major maturities in the near term and as you've come to expect, we'll continue to be proactive in how we manage our balance sheet.

And then finally on Slide 14 just recaps our financial guidance for 2019. As Dexter mentioned, we're upgrading our outlook for revenue growth to 3% to 3.5% and that compares to the prior guidance of 2.5% to 3%. Year-to-date, we've grown revenues 3.3%. So we're really in the middle of our new target range as of today. We still expect EBITDA margin expansion excluding mobile costs and were up 1.4 percentage points year-to-date in that regard. Capex, we continue to expect in the range of $1.3 billion to $1.4 billion and that certainly supports all the growth initiatives that we've discussed. And lastly, we expect to grow free cash flow this year and that includes any mobile-related costs and our target year-end leverage remains at 4.5x to 5x.

Our share buyback target for 2019 is $1.5 billion. Although, as you can see we've opportunistically front-end loaded the program this year given the lower share price and we've executed $1.2 billion of repurchases in the first half. So you should expect a somewhat slower pace of repurchases in the second half excluding any M&A activity. And just note that the new incremental three-year $5 billion share repurchase authorization is equivalent to about 30% of our market cap and about two-thirds of the free float if you were to calculate that around recent share price levels, which really just illustrates the potential impact of the levered equity returns model that we are running.

And with that, I think we will close our formal remarks and open it up for any questions.

Question-and-Answer Session

Operator -- Co-President and Chief Financial Officer

Thank you. [Operator Instructions] Your first question comes from Kannan Venkateshwar with Barclays. Your line is open.

Kannan Venkateshwar -- Analyst

Thank you. A couple if I may. One is on the Lightpath if you could just give us an update of how the process is going and in that context, how do you see your buyback path, if that transaction was to be completed anytime soon? And secondly, when we think about the expense trajectory. I guess the big surprise every quarter is non-programming OpEx and it looks like you came in lower again this quarter. So if you could just help us understand the trend line there and how long this could go on and what the main drivers are. Thank you.

Dexter Goei -- Chief Executive Officer

Thanks. On Lightpath we continue to review our strategic alternatives there. And as we were very clear when we entered the process this is an opportunistic situation for us. This is not a must do in all respects. And so we're continuing to look at that. Obviously have done a tremendous amount of work here. We continue to like the trajectory of the business. If you've seen our earnings release, the enterprise business is up over 5%, so it continues to perform very well. I don't think it's necessary to think about how we're going to do as something we're going to the buyback, should we do something like that? We'll make that clear to the extent we announce something on Lightpath.

On the expense trajectory it's interesting you mentioned non-programming OpEx because that is something obviously that we don't wait in terms of the nomenclature anymore, but it's clear that everything that we do on a daily basis is focused on revenue growth, but also on making sure that we're very focused on a good capital allocation when it comes to our operating expenses. And the trend line continues to be positive. We continue to see, as I mentioned before, not necessarily home runs, but singles and doubles on lots of different initiatives that we embark upon. I don't think it makes any sense for us to list all those out to you but quarter-over-quarter we feel good about our margin growth which is why we've guided the market to an uptick in our margins from a year-over-year perspective.

So I think it's just we'll continue to have that discussion, quarter-over-quarter, but we're on the right trajectory line which is upward.

Kannan Venkateshwar -- Analyst

Thank you.

Operator -- Analyst

Your next question comes from Philip Cusick with JP Morgan. Your line is open.

Philip A. Cusick -- Analyst

Hey guys, thanks. First a follow-up on Lightpath. Is this process is still ongoing and are you still in discussions with more than one potential partner? Or is it getting a little closer to the end or has it ended for now? And then second on the wireless launch you said 'imminent'. what remains to be done before launching? It sounds like everything is pretty much in place and any preview you can give us on pricing or packaging there? Thank you.

Dexter Goei -- Chief Executive Officer

On Lightpath, it's still is ongoing, we still have the opportunity here to speak to multiple parties. I think there's not much more to talk about than that. The process is a lengthy one, it takes a tremendous amount of work to separate the business and do the work to make sure that we are providing the right information on network as an example and making sure that we have all the materials available to any third party that are interested. So I think, Phil, on that point, we will update the market when it is some timely to update the market. On the wireless launch, imminent means imminent. So what else do we need to do? I think we just hang on, watch the tape. We're looking to launch as soon as practical and making sure that we're launching within the best conditions possible for us to do so. No indication here on price. I think we're not ready. I think you'll see that when we launch.

Philip A. Cusick -- Analyst

As part of the T-Mobile transaction you extended your MVNO with Sprint. Does that change anything else like your renewal options or out of footprint rates?

Dexter Goei -- Chief Executive Officer

Well, to be clear, we haven't extended our existing agreement. But as you saw from the DOJ's consent [Phonetic] decree, our agreement is expected to get extended through to the life of the consent decree, which is seven years from closing. So we view that as plus or minus a four-year extension of our existing deal. Other than that there is nothing really more to say about that space because that deal hasn't closed yet. So I think we'll see once that closes. In terms of the change how we think about things, absolutely not. We clearly have more time to think about it, if that's one of your questions. I think we are just focused on launching -- currently launching successfully driving good momentum in our stand-alone mobile business and hopefully benefiting from some ancillary benefits to our other businesses, and then we will reconvene internally and see what the path is in the years to come.

Philip A. Cusick -- Analyst

Thanks, Dexter.

Operator -- Analyst

Your next question comes from Brett Feldman with Goldman Sachs. Your line is open.

Brett Joseph Feldman -- Analyst

Yes, thanks. And a few more questions on the MVNO. Just listening Dexter's comments, it sounds like your opinion is that one of the key paying points for the consumer is we just pay too much for mobile broadband. And so it certainly sounds like that's something you're hoping to address with the product and I can't imagine you would want to keep that much of a secret. And so can you give us any sense as to how much upfront investment you want to make to make sure the products has a successful launch? And then what's the right way for us to sort of keep track of the product as it ramps to see that is driving value? Should we be grading you on subscribers? Should we be grating you on how quickly you generate EBITDA on key cash flow? I guess we just want to understand how you're thinking about the impact that it has on the business. And then just the last one, which is kind of an extension of Phil's question. I believe the MVNO allows you to market services where you have assets and operations. If your business were to grow organically or inorganically, does the ability to leverage that MVNO grow with your asset base? Thank you.

Dexter Goei -- Chief Executive Officer

Sure. I'm not going to pine on whether consumers pay too much for their mobile experience, but you'll see in our pricing where we think we can be as we have said consistently that we believe that we have a stand-alone profitable business model in front of us. In terms of our upfront investments. Clearly we're going to put the right marketing dollars behind our launch as we enter the back-to-school season. In terms of how to track this, we are very, very focused obviously in number of subscribers, making sure that the subscribers are profitable subscribers by being very, very thoughtful about managing the traffic.

I think you can take this offline with Nick and walk through the business model in terms of the key KPIs to be tracking, but obviously number of subscribers is important. We don't believe we will ever be marketing negative gross profit subscribers. And so then the whole question is, how quickly can we ramp up to EBITDA positivity, which we think we can do in a relatively near-term basis as we have publicly said historically that within 12 months, we believe we'll be able to deliver EBITDA positivity there. In terms of our MVNO contract, yes we can market to places where we do have assets and operations. Clearly an expansion organically or inorganically will allow us to market more broadly, in more geographies.

Brett Joseph Feldman -- Analyst

Thank you.

Operator -- Analyst

Your next question comes from Craig Moffett with MoffettNathanson. Your line is open.

Craig Eder Moffett -- Analyst

Hi. And I wonder if you could just comment on your thoughts about video? Your larger peers, I think have been quite outspoken over the last couple of quarters and on this round of earnings calls about their willingness to let video subscribers go if they're not profitable. Where is your thinking about the importance of video in the bundle and whether it does or doesn't make broadband stickier and that sort of thing?

Dexter Goei -- Chief Executive Officer

Thanks, Craig. We've been consistent here, which is number one, video was a profitable product for us; two, it does have good stickiness relative to other products, obviously, mainly broadband. So we're going to continue to invest the resources in the video product. We continue to see as you've seen fixed-rate quarters, a better video year-over-year performance here. So I think this continues to be a very core product for us. I don't think we share some of the comments that you're hearing from our other peers and we've been consistent that we may be have somewhat of a unique footprint in the New York Tri-state area, which is a very, very high video bundle consumption market and also a very under-penetrated Suddenlink video market, which is taking advantage of one, the Altice One launch, which is been a very, very strong success; and secondly, maybe some of the difficulties of the other video providers, namely, the Suddenlink guys which we're able to take market share from. So, we're seeing continued good market and momentum in both of our footprint on the video product. So that remains very, very core to our strategy.

Craig Eder Moffett -- Analyst

Dexter would you imagine there might come a time when wireless, it sort of substitutes for video in the importance of the bundle and the way the customers think about it?

Dexter Goei -- Chief Executive Officer

I wouldn't use those words, Craig. I'm not so sure substitution is the way we think about things. We're all about incremental value creation here. So mobile in itself number one is a stand-alone product. We think it's a profitable product for us. Number two, obviously to the extent that we can get bundling effects, a benefit, that is icing on the cake for us. It clearly has been positive in some of the commentary from our peers but also in our experience of our sister company who sees great bundling effects from adding mobile, but it's not a substitution. We are just adding very attractive in online and profitable additional services to our lineup and it's not just in the pure telecom space, it also is in the advertising, a new space, as you know. We're going to continue to try and deliver great shareholder value here across multiple products until there is a point in time where things may be less profitable and will make those decisions at that point in time.

Craig Eder Moffett -- Analyst

Thanks, Dexter.

Operator -- Analyst

Your next question comes from James Ratcliffe with Evercore ISI. Your line is open.

James Maxwell Ratcliffe -- Analyst

Hi, one on mobile and one on video, if I could. On the Mobile front, can you talk about how extensive you expect BYOD to be out of the gate and how long it will probably take for you to start to explore ABS for your handset financing? And on the video side, we're clearly seeing a lot of turmoil around regional sports networks at the moment and the Optimum business has exposure to some of the most expensive and stand-alone. How is your view on the value of those networks versus the cost about if at all? Thanks.

Dexter Goei -- Chief Executive Officer

Listed on the BYOD side, we're going to obviously offer BYOD. We think the simplicity of our offer when we launch it will lend itself to a good BYOD experience. But at the same time, we've got great partnerships with the big handset providers and we'll have a lineup available for people to acquire handsets as well. In terms of handset financing, we continue to look at different financing and working capital advantageous structures, but that's not necessarily core to our discussion today in terms of when we are going to provide handset financing and in what form. But it will be very, very clear when we do launch in subsequent quarters as we add new services and products to our mobile. Those types of features will be very clear to our consumers.

On the video side of this and the [indecipherable] experience, you're very right to flag that maybe the cost is not necessarily pertinent to the viewership numbers in terms of the ratings that you can see, but we do believe that particularly the New York Tri-state area, the [indecipherable] continue to be important for our video consumers. And I can't really give you my personal perspective on the value of those networks, but I do think that we have good relationship with [indecipherable] partners in New York Tri-state area and other parts of the Suddenlink side that we'll continue to have good contract negotiations with them as we look to renew those contracts going forward.

James Maxwell Ratcliffe -- Analyst

Great. Thank you.

Operator -- Analyst

Your next question comes from Andrew Beale with Arete Research. Your line is open.

Andrew Charles Robert Beale -- Analyst

Hi. I'm just going to try a few more questions on the MVNO. Just wondering if you could talk qualitatively about the different front price per gig when you are on or near your network and what Sprint has reciprocal time out versus what it looked like a way from the network. I'm just trying to get some to the picture of this and how much more growth-aggressive you could be? Secondly just wondering if you've made any progress in the remedy discussions on [indecipherable]. I'm just asking that as it seem like that was something as this is managed to GAAP. And then finally could you draw the distinction between your national roaming agreement with AT&T, the new one and the Sprint and new T-Mobile mobile infrastructure MVNOs? What do you use and when do you use them? Thanks.

Dexter Goei -- Chief Executive Officer

Thanks, Andrew. There's a couple of things. I think, on the MVNO price per gig discussion, we have not spoken openly about what those price points are. It's clear. I don't mean to be pandering to the obvious, but our network is cheaper than Sprint and Sprint is probably cheaper than AT&T. Right? So I think we're very focused on making sure that we maximize offload onto our own network. The second port of call becomes obviously the Sprint network, which is the primary network which were tighter to. And then lastly, to your point on AT&T, that's a roaming contract, which is really for the edge side of our business where the Sprint network does not have good coverage.

So the sequencing, the waterfall of the economics are as such. We obviously expect the AT&T usage to be significantly in very, very large quantums, a lot less than the Sprint one. And similarly, obviously the Sprint usage relative to our own Wi-Fi network to be a fraction in terms of the usage. So we think overall, the economics continue to be very compelling for us. You will see with our price points, and as we talk about our price point more openly, we can walk you through those economics, more clearly.

On the remedy side, you guys have seen as much detail as we have seen in terms of the consent decree and the commitments the new T-Mobile has done with the FCC. I can't really talk to you about anything more than that's what's out in the public domain in terms of what dish has received. We do not know the details outside of what's been published in the consent decree as to what dish has received nor we in any position to talk about what we have received because we have never been in discussions one-on-one on these types of very specific remedies with the DOJ and the FCC. This is really been in discussion that they've had directly with some with T-Mobile and Sprint and that has been public information.

Andrew Charles Robert Beale -- Analyst

Okay, that's great. One additional one. It's more of a question about this is agreement as they describe in the queue. It seem like there was a carve out but could apply to you as the permissive strategic as the investor in dish wireless. I don't know if my reading was the same as yours. Is that something that you would ask or is it just a technical possibility and you have no thoughts at this time?

Dexter Goei -- Chief Executive Officer

I have a lot of thoughts, Andrew, but I think as I read it and from memory here, this quarterly time periods when dish has probably not incentivized to do things with third parties and then becomes progressively more incentivized or the value of a change of control potential feature or a co-investment by a permitted strategic comes more advantageous and I think off the top my head, that's three years into the consent decree where there is a shift at which point it may make sense for them to have more strategic discussions with third parties.

What do we think about that? I think it's obviously an opportunity us to have discussions at the right time and if it makes sense. But again, those are things that are so far away from our thought process today given that we're so focused just on the launch of our existing product. We do have a seven-year plus, let's call it, because the transaction hasn't closed in the consent decree. The seven-year consent degree fund closing. So we've got a seven-year plus lifeline of our existing MVNO and the time to think and to speak to all the relevant parties out there as to the next step and evolution of our product and potentially network, to the extent that makes sense.

Andrew Charles Robert Beale -- Analyst

Great. Thank you.

Operator -- Analyst

Your next question comes from Doug Mitchelson with Credit Suisse. Your line is open.

Doug Mitchelson -- Analyst

Hi, thank you so much. Dexter are you still building out Wi-Fi nodes in the New York City area? I'm not sure if there's other target coverage or other metric you have discussed there and then I think the main line of questioning the fiber strategy is a big differentiator for Altice, an addition to your mobile strategy and you've made comments on this in the past but I continue to get a lot of investor questions on the fiber plan.

So if you could just maybe walk us through again the cost per home pass is substantially below what other companies in the U.S. have been able to achieve. So what's the secret sauce there and if you could just confirm sort of how many homes passed in the end you think fiber will have? And then the second part of the fiber question is just, when do we start to see proof points in potential to remarket against buy outs and upsells to faster speeds in the cost of Capex benefits you've previously outlined? Is there a geography or a market you might launch the product first to be able to sort of report back in a certain time frame? Anything on those lines would help. Thanks.

Dexter Goei -- Chief Executive Officer

I'm fast and furiously Doug, writing down all of your questions. So, let me try and go through these one by one. Yes, we are continuously, regularly enhancing our Wi-Fi network in the Tri-state area. That is an annual commitment that we do as part of our capital expenditure budget and we'll continue to do so, not just for mobile usage, but obviously for our residential and SMB clients who will get access to our Wi-Fi network.

In terms of the fiber strategy. Yes, it is core to our plan. I think the secret sauce is none other than we have an attractive footprint that we're working with in terms of the geographic and the density features and the relationships that we have with the local communities. But more importantly, I think the secret sauce is that ourselves and our sister company at Altice Europe have been rolling out fiber for many, many, many years and very, very large quantities, which is probably unique relative to some of the other providers here in the US who have not done as much fiber to the home roll-out as we have, and probably don't benefit from relationships such as we have with Altice Labs as an example, which is core to our fiber strategy and really all of our infrastructure strategy that we have globally between Altice Europe and Altice USA.

In terms of the number of homes, I think we are looking to fiberize the entire Optimum footprint, the Tri-state area, which is five million homes. We've been consistent talking about that. We are currently at about 300,000 homes ready for service and about a million homes cabled or passed today which will then become obviously ready for service as we continue to drive our investment. In terms of proof points a couple of things. Number one is we've been also very clear that we are upgrading and the interim, our Optimum footprint to 1 gig on Docsis 3.1.

So that is almost complete. It will be completed by the end of this year. So our entire footprint pretty much will be 1 gig ready by the end of this year. So in terms of competition relative to a file a 1-gig product, we will be delivering that competition before year-end. Secondly, I think the most relevant proof point relative to our fiber, the home is that we believe we're going to be 10 gig ready as early as the first half of next year. So we will market, a 10-gig product. We're expecting to be able to market at 10-gig product up and down within the first half of 2020. I think that is probably the best proof point for you in terms of our ambitions to create a differentiated experience for our customers, but also provide our customers with more alternatives for in advanced product relative to file to any other of our competitors out there.

Doug Mitchelson -- Analyst

All right. Thanks so much Dexter.

Operator -- Analyst

Your next question comes from Marci Ryvicker with Wolfe Research. Your line is open.

Marci Ryvicker -- Analyst

Thanks. I have two. The first for mobile, are you launching across your entire footprint on day one. And then my second question, related to the raise to your revenue guide, is that all just from advertising or something else also driving that?

Charles F. Stewart -- Co-President and Chief Financial Officer

On mobile, yes, launch across the entire footprint on the race. I think it's a confluence of from all of our divisions doing well or better than expected. You have to remember, Marci, that we are launching mobile also in the second half. So given that we are imminently launching that, we feel comfortable that that will produce also on some revenue. So it's not advertising per se. I think I flagged in the presentation part of our discussion today that advertising on a year-over-year basis will be softer given that last year, the third and fourth quarter were heavy political quarters. So it's clearly not the advertising side of the business that is driving that. Really seen our B2C business beat expectations at least in terms of our expectations of the performance. The B2B business continues to do extremely well. Advertising per se is doing better on a relative basis than our peers, given the investments we've done there.

Cheddar obviously has come online and it's going to deliver some incremental revenue contribution. And then as mobile which will not be zero. So it will just be higher than zero and that will also be contributing to the top-line. So we feel good about our new [indecipherable] there and we'll see how that pans out.

Marci Ryvicker -- Analyst

Thank you.

Operator -- Analyst

Your next question comes from Ben Swinburne with Morgan Stanley, your line is open.

Ben Swinburne -- Analyst

Thanks. Good afternoon. Just, Charlie, on the balance sheet, going back to your guidance slide. Should we expect or are you expecting to be at five times or below level by the end of the year? That's sort of the implication of the slide, but I wanted to just ask specifically because you've been, as you know, operating above that level. So I just wanted to start there.

Charles F. Stewart -- Co-President and Chief Financial Officer

Well, yes, Ben, thanks. That's on an L2 QA basis. Because of just seasonality of the quarters and so on, that's why we're a little bit higher this quarter. But as you also know, we were within that same guidance at the end of last year and it's our expectation that that's where we'll be likewise at the end of this year.

Ben Swinburne -- Analyst

Okay, got it. And then question on the Sprint, T-Mobile front. I think they had built out -- they being Sprint -- I think 19,000 small cells. I think that was the number. Assuming that this transaction between, Sprint, T-Mobile closes, do you guys have any expectations, whether they're going to add more small cell capacity on your network or what are your expectations around that, if any?

Dexter Goei -- Chief Executive Officer

Ben, 19,000 is the right number. I think that's a dialog that we're going to have with the new T-Mobile, whenever that comes about. I don't think we're privy yet to their network strategy in the New York Tri-state area as to whether they're going to keep their own existing T-Mobile network or prioritize the Sprint network, which has been heavily invested in or do some combination of both. So I think the expectations obviously is that they have the ability to use us to continue to densify the network. I don't see why they wouldn't want to do that, but I can't say for certain that that's what they're planning on doing.

Ben Swinburne -- Analyst

Okay. And then just lastly, back on the advertising question. I guess Dexter, now that you have Cheddar closed and you've got a number of news businesses, any update on sort of how you feel about these businesses and how they're performing relative to expectations? Whether you think tucking in more digital media assets might make sense for the company as you build out this business? I don't know if you guys are going to size the Cheddar contribution in revenue for the back half, but I thought I would at least ask.

Dexter Goei -- Chief Executive Officer

Yes. We were very clear that the Cheddar acquisition was very specific to two things: number one is it fits a product that we don't have in our portfolio of news and so now we have a full suite of news products both on the linear and the digital side; and secondly, bringing on board an exceptional management team that's proven out to be differentiating in not only driving news coverage and good content, but also being exceptionally good at driving national advertising. And with two months into it today I can tell you that we are thrilled to have, Jon Steinberg and his team as part of Altice USA. He's already done wonders internally with driving strategy, integrating the various news assets, thinking about the next suite of products and content that we can deliver in a very unique fashion and has pushed the organization toward, let's call it new thought processes and new partnerships with third parties, which were not part of our quiver of things that we were thinking about or doing. So I know it's early in the life of our experience with Cheddar and the team, but I think we're over the moon is probably a good example of how we feel about that acquisition.

In terms of the contribution. I'll let Nick kind of drive that discussion with you then in offline to the extent he is willing to do that with you.

Ben Swinburne -- Analyst

Okay. Thanks.

Operator -- Analyst

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

Jonathan Chaplin -- Analyst

Dexter, just high-level question to start off. There was talk at the beginning of the process with Sprint and T-Mobile that cable could get involved and maybe pick up some nationwide spectrum. It seems like it could be a great opportunity for you guys collectively, obviously maybe not such a great opportunity for Altice on its own. But I'm wondering what might have stood in the way of you guys collectively taking advantage of an opportunity like that. And then, I'm wondering just more broadly, how you guys think about spectrum down the road. Given the size of your footprint. Would you be interested in C-band or CBRS in your own right or is that something that only really make sense in the context of the cable industry all acting together?

Dexter Goei -- Chief Executive Officer

On the first one. There really wasn't necessarily an opportunity here to get nationwide spectrum. I don't know what our peers are saying, but the process was very much away from -- let's call it at least Altice USA -- in terms of our opportunity to be a potential acquirer of any of the third-party assets that are being the best as it might. So we were never given the opportunity to look at it so I can't say anything more than that because I don't know.

In terms of spectrum down the road, we have been obviously looking at all the different alternatives as to the extent we wanted to build anything else from a future standpoint. It's really too early to tell as to what we would do or what we would really think about doing, given that we are on the eve of launching here our infrastructure based on [indecipherable]. So I can't really comment on anything because we don't have a path until we really see the success among this business and are able to map out the right capital allocation strategy going forward to the extent we do want to allocate more capital to mobile business.

Jonathan Chaplin -- Analyst

And one quick follow-up if I may. Dexter, is there an opportunity for you guys to improve your deal with T-Mobile further as they go through their discussions with the states? Could you get full core control way dish has potentially. Was that something that you try to get in the last set of discussions and they weren't willing to give?

Dexter Goei -- Chief Executive Officer

I don't mean to be presumptuous on anything here which is, we've been very clear as to why we initially opposed the transaction. The FCC and DOJ have gone to great lengths to assuage our fears and our concerns. And so we got a lot of great, great benefit out of both agencies. I don't know what the state AGs are looking for and whether or not they will be pushing for additional things for people like ourselves or other third-party competitors. But anything is possible, Jonathan. We clearly will take advantage of opportunities to the extent they are present for us to get improved deals including the things that you talked about in terms of real full network control, which is really driven by the hand-off side to it. But we already have very good core control, which is already a big advantage and we'll see what happens over the next months.

Jonathan Chaplin -- Analyst

Got it, thanks, Dexter.

Operator -- Analyst

Last question that we have time for today comes from the line of John Hodulik with UBS. Your line is open.

John Christopher Hodulik -- Analyst

Okay, great, thanks. Maybe two quick follow-ups on wireless and the one on data. Dexter the press reports say that with the MVNO you're currently testing with employees at a price point of $25 a month for unlimited service, is that not the right price that we should think about going forward? And number two, and you may have touched on this a little bit earlier, but if Altice is acquired by say, another cable company, does the current MVNO terms, would they travel to the acquired company? Say, cable company? That's it on wireless.

And then on the data side, 13% growth in data again is sort of industry-leading nice acceleration from last quarter. Now your anniversary, the July price increase, but we talk about the runway you have in terms of growth on the data side and do you think you can maintain that industry leading growth going forward? Thanks.

Dexter Goei -- Chief Executive Officer

So, John, I don't mean to be coy, but you see the price point for employees. So you see the price point for employees. I think when we launch, you'll see the price point that will come to market with. So I think that continues to be something that we're going to keep close to our best until we actually launch.

John Christopher Hodulik -- Analyst

Okay. I figured I'd give a shot though.

Dexter Goei -- Chief Executive Officer

It was a good shot. If Altice gets acquired, I think it's really based on the proper structure and the transaction. You're not privy to the actual agreement, but there are scenarios that we clearly see that deals survive and so we think that's an attractive asset that we own for us to allow that to survive. On the data side, yes, we're very pleased with our data revenue growth performance. We continue to believe we have incremental one way going forward. What we are seeing primarily and I know that we're lapping a price increase from last year, so we may see some year-over-year comparisons in Q3 and Q4 which are less than the 13% we're seeing here in Q2. But the most important thing that we're seeing is a super, super majority of this growth in data revenue is driven by up-tiering of our clients. Proactive up-tiering on their behalf of higher and higher speeds.

We've seen that consistently. If you go back to all of our all of our Investor Relations material, you'll continue to see the curve going in the right direction from left to right in an upward trend. We don't see any slowing down of that today so we do believe that we continue to have good runway. And as I mentioned, answering one of your colleague's questions here with the launch of fiber to the home 10-gig product next year, we obviously between 1 gig and 10 gig, have a lot of room again to have multiple tiers of products which are not available to consumers nationwide, other than to us. So that's really the differentiator for us that we continue to drive great network investments, good capital allocation decisions that we believe will continue to drive good upward trends in our businesses.

I can't tell you whether quarter-over-quarter, we're going to be at 5%, or 13%, or 20% or something like that in terms of our data revenue growth, but all the trends continue to push in the right direction on the data growth side.

John Christopher Hodulik -- Analyst

Great, thanks, Dexter.

Operator -- Analyst

And with that I'll please go back to the presenters for any closing remarks.

Nick Brown -- Head of Investor Relations

Thank you. Thank you for joining and we look forward to catching up with you in the next few weeks. Thank you.

Dexter Goei -- Chief Executive Officer

Thank you.

Operator -- Chief Executive Officer

[Operator Closing Remarks]

Questions and Answers:

Duration: 55 minutes

Call participants:

Nick Brown -- Head of Investor Relations

Dexter Goei -- Chief Executive Officer

Charles F. Stewart -- Co-President and Chief Financial Officer

Kannan Venkateshwar -- Barclays -- Analyst

Philip A. Cusick -- JP Morgan Chase & Co -- Analyst

Brett Joseph Feldman -- Goldman Sachs Group Inc. -- Analyst

Craig Eder Moffett -- MoffettNathanson -- Analyst

James Maxwell Ratcliffe -- Evercore ISI Institutional Equities -- Analyst

Andrew Charles Robert Beale -- Arete Research Services -- Analyst

Doug Mitchelson -- Credit Suisse -- Analyst

Marci Ryvicker -- Wolfe Research -- Analyst

Ben Swinburne -- Morgan Stanley -- Analyst

Jonathan Chaplin -- New Street Research -- Analyst

John Christopher Hodulik -- UBS Investment Bank -- Analyst

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