Operator: Our next question comes from the line of Nick Del Deo with MoffettNathanson.
Nick Del Deo: You had very solid subscriber performance in the base markets in the quarter which I guess implies somewhat softer contributions from the expansion markets. I guess, can you talk about that a little bit? And kind of more generally what you see with respect to churn and ARPU trends in some of your more seasoned expansion markets versus your base markets. And then on the commercial front, it sounds like there might be somewhat different headwinds in that business as of late. But Nick, you noted kind of flat revenue year-over-year, ’23 versus ’22. I guess as we look out over the coming years, would you expect commercial revenue to kind of remain flash or do you think the tailwind you talked about can overcome some of those headwinds and get you positive growth?
Scott Beasley: Yes, sure. Let me take the first one and then pass to Nick for the Business and Wholesale question. So on the question about net add performance, let me break it into two parts, base and expansion. In base, we had another strong quarter of penetration gains. We finished at roughly 44% which is up from 41% a few years ago and it’s very close to our terminal penetration of 45%. So we feel really good about the trajectory in our base. And we also feel good about the trajectory and expansion. We continue to be at or above our penetration targets at 12 and 24 months. And if you see in our slides today, we’re within that 15% to 20% range of 12 months and 25% to 30% at 24 months. So with those big picture data points in mind, every quarterly build cohort is going to be different.
You have new geographies, different location types that have different sales cycles and penetration timelines. For example, a multi-dwelling unit may take longer to sell into in the first several months but you’re going to get to the same point at 12 and 24 months or a new state where we don’t have deeper brand awareness, it might take a few more months to build that brand awareness but you get to the same point by 12 and 24 months. And that’s really why we give annual penetration targets externally, not quarterly or monthly. So when we take a step back, we’re very pleased with the net add performance in the quarter. We see it increasing in Q4, increasing into 2024 and feel good about the path we’re on.
Nick Jeffery: Yes — and I’ll take the Business and Wholesale question. I mean just taking a little bit of a step back as I think I’ve said on previous calls, our Enterprise Business, in particular, is perhaps not like the Enterprise Businesses of some of our peers when we kind of analyze it. I mean, in three main ways. The first of which is we don’t really have any large Enterprise customers. So what we call Enterprise is typically medium and below in terms of how other people would describe it. So we’ve got a really small kind of enterprise base compared to others. That means that those customers have a much higher propensity to buy the core product that we are building and selling, so high-speed symmetrical fiber. So therefore, we’ve got a very different market topography than some of our peers.
Second thing is we are a very small part of the market. So the overall market dynamics don’t really affect us so much. And that’s particularly true when you realize that, that business in the past was perhaps not a well-run as it could have been. So I’m really, really pleased with the work that the new leadership teams have put in place there. You can see that flowing through in strong order books. You can see it flowing through in the 5% growth we saw in Business and Wholesale fiber. And of course, that just keeps accelerating as we build more fiber pass [ph] more of these businesses and drive up penetration. Now it is also true that we have a greater proportion of sort of legacy copper in those segments than in our Consumer segment. So the headwinds there are slightly stronger.
And particularly, Wholesale is very, very lumpy in the nature of the way that business comes through. It’s a little bit difficult to predict quarter-over-quarter. But to answer your question directly, I think we are now firmly on a trajectory to stabilize that business this year, as we said previously, very pleased about that. I think that’s going to continue for some time. And then as our new fiber growth continues to accelerate at some point in time, that will outweigh the legacy. When exactly that is, we’ll have to talk about on subsequent quarters.
Operator: Our next question comes from the line of Phil Cusick with JPMorgan.
Philip Cusick: A couple of follow-ups. I guess, first, Brett’s first question, Nick, because I’m not sure I understood your comments. And this goes to a little bit of what Scott was talking about as well. Just talk about the potential to accelerate fiber penetration from here. Or do you prefer to push harder on ARPU as you think about the combination of revenue growth? How should we think about that ARPU trending from here? And then, Scott, I think you just said you expect fiber adds to increase in Q4. Is that quarter-to-quarter or year-over-year? And then in ’24 as well?
Nick Jeffery: Yes, Phil. I think the straight answer to your question is both. If we look at how we’re accelerating penetration in our base which, of course, we’ve separated from our expansion markets, specifically to show the potential for us to grow penetration in a mature market and we are systematically increasing penetration quarter-over-quarter-over-quarter and now well on our track to our terminal penetration of 45% or above. We know that’s doable because we’ve got lots of markets that are already at that level of penetration or indeed some that are higher and then moving the average of that base fiber market up 45% critical indicator of what’s possible as we build new fiber. Now, we’re also tracking to exactly the ranges at the 12-month and 24-month cohort we said in our new fiber build as well.
So I’m highly confident that we can drive penetration up in new fiber builds to match that in base fiber builds over time and that’s an important part of our model. Now separately, I’ve also talked about our pricing strategy and our ARPU development strategy. And there, we’ve taken some very clear and thoughtful actions to grow our ARPU. First of all, we reduced the use of gift cards. We’ve implemented a number of pricing adjustments with unbundled value-added services. And we’ve built a pricing ladder which really incentivizes customers, first of all, to take gigabit speed but then to move up that gigabit speed ladder. And now we have more than half of our new customers choosing gigabit-plus speeds and value-added service attach rates have more than doubled with 40% of our new customers making one or more value-added service.
So as we do both of these things, I believe it is absolutely possible to drive up penetration as we’re seeing and drive up ARPU as we’re demonstrating. Scott, over to you.
Scott Beasley: Sure, Phil. On your question on net adds, you’re correct. We expect Q4 to be up versus Q3 of this year and we also expect it to be up versus Q4 of last year, so up year-over-year and quarter-over-quarter. And then we haven’t given specific 2024 guidance on net adds but we do expect the volume of net adds to be up in 2024 versus 2023.
Operator: Our next question comes from the line of Peter Supino with Wolfe Research.
Peter Supino: I had a question about longer-term penetration, a familiar question but one that we still hear all the time from clients is how your confidence is built in the attractiveness of the next several million homes. The concern is always that you’ve built the best ones first and that the penetration of the later vintages [ph] will be worse. And so anything you can share about your process for evaluating those opportunities, bottom up and what the characteristics are that underpin your confidence?
