Time Warner Cable (TWC) Robert D. Marcus on Q1 2016 Results - Earnings Call Transcript

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Time Warner Cable, Inc. (TWC) Q1 2016 Earnings Call April 28, 2016 8:30 AM ET

Executives

Thomas Robey - Senior Vice President-Investor Relations

Robert D. Marcus - Chairman & Chief Executive Officer

William F. Osbourn, Jr. - Senior Vice President, Controller & Chief Accounting Officer; Acting Co-Chief Financial Officer

Matthew Siegel - Senior Vice President & Treasurer; Acting Co-Chief Financial Officer

Dinesh C. Jain - Chief Operating Officer

Analysts

Craig Eder Moffett - MoffettNathanson LLC

Benjamin Daniel Swinburne - Morgan Stanley & Co. LLC

Jessica Jean Reif Cohen - Bank of America Merrill Lynch

Richard Greenfield - BTIG LLC

John Christopher Hodulik - UBS Securities LLC

Daniel Lupo - Telsey Advisory Group

Mike L. McCormack - Jefferies LLC

Frank Garreth Louthan - Raymond James & Associates, Inc.

James M. Ratcliffe - The Buckingham Research Group, Inc.

Operator

Hello, and welcome to the Time Warner Cable First Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operation Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time.

Now I will turn the call over to Mr. Tom Robey, Senior Vice President of Time Warner Cable Investor Relations. Go ahead, sir.

Thomas Robey - Senior Vice President-Investor Relations

Thanks, Bob, and good morning, everyone. Welcome to Time Warner Cable's 2016 First Quarter Earnings Conference Call. This morning, we issued a press release detailing our first quarter 2016 results. Before we begin, there are several items I need to cover.

First, we refer to certain non-GAAP measures. Definitions and schedules setting out reconciliations of these historical non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our earnings release and trending schedules.

Second, today's conference call includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 which are based on management's current expectations and beliefs and are subject to uncertainty and changes in circumstances. Actual results may vary materially from those expressed or implied by the statements herein due to various factors which are discussed in detail in our SEC filings. Time Warner Cable is under no obligation to, and in fact, expressly disclaims any such obligation to update or alter its forward-looking statements whether as a result of new information, future events or otherwise.

Third, the quarterly growth rates disclosed in this conference call are on a year-over-year basis, unless otherwise noted as being sequential.

Fourth, today's press release, trending schedules, presentation slides and related reconciliation schedules are available on our website at twc.com/investors.

With that covered, I'll thank you and turn the call over to Rob. Rob?

Robert D. Marcus - Chairman & Chief Executive Officer

Thanks, Tom, and good morning, everyone. My former boss and friend, the late Glenn Britt, was fond of saying that if the numbers are good, the meeting is short. Well, if Glenn's theory is right, then I suspect that this morning's call might be a bit shorter than usual because the numbers are unequivocally good.

250,000 customer relationship net adds, our best quarter ever, north of 7% revenue growth and greater than 8% adjusted OIBDA growth, a standout quarter by any measure. Our first quarter results are the clearest indication yet that our efforts over the last 27 months during the pendency of not one, but two mergers are paying off.

Over that period, we have made our network more reliable, our products more compelling and our customer service far better. We've refined our marketing, enhanced our sales channels and strengthened our retention capability. All of that has driven robust customer growth, which at the end of last year began to yield accelerated revenue growth. And in Q1, we saw the real payoff as strong revenue growth translated into very healthy adjusted OIBDA growth. I couldn't be prouder of what our talented, committed, passionate team has accomplished.

We're succeeding in the big things because we focused on the little things that matter most to our customers. The detailed operational metrics that we've highlighted each quarter are at the heart of our recent success. In the first quarter, we reduced repair related phone calls and truck rolls per customer relationship by 12% and 16% respectively. We also increased first visit problem resolution by 17% versus Q1 of last year and by 33% as compared to the level in 2013.

In addition, in Q1, our techs arrived on time for our industry-leading one hour appointment windows 99% of the time. And to further improve the appointment process, we're adding a new feature to the My TWC app that lets customers see the real-time location of their technician on an interactive map once the tech is en route.

Our progress over the last several years translates into millions fewer care calls and truck rolls per year and millions fewer disruptions to our customers' lives. When we do need to visit a customer's home, we're arriving when we said we would and increasingly fixing the problem the first time. These are significant strides but we're by no means declaring victory. Our entire organization is committed to continuous improvement, and we fully intend to keep working to make the customer experience even better.

TWC Maxx is proceeding at pace. At quarter end, the all digital conversion and broadband speed increases were complete in around half our footprint with another quarter of our footprint in process. Customers are noticing the difference. Customer satisfaction and churn improvements in Maxx markets continue to outpace those in non-Maxx markets. Our focus on details has not prevented us from taking bold steps to transform the business. Just one recent example is our IP video product which promises to create a simple, frictionless experience for our video customers, an experience that reduces the need for calls to an 800 number, installation appointments and lead (5:45) set-top boxes. We think this is great for customers, and at the same time, it could significantly reduce our capital and operating costs.

While it's too early to draw quantitative conclusions from our New York City IPTV trial, the early feedback is encouraging. Customers liked the offering and really appreciate that we're attuned to what they're looking for.

Let me turn briefly to the status of our merger with Charter. As all of you know, earlier this week, FCC Chairman Wheeler circulated a proposed order approving the Charter-Time Warner Cable-Bright House merger with conditions, and the Department of Justice filed a consent decree that effectively completes its review of the transaction. This brings us two steps closer to the consummation of the merger. We now await the final votes at the FCC and the California PUC. And we are optimistic that the transaction will close sometime next month.

I'm really proud of what we've accomplished over the last 27 months, but we're not stopping and we're not slowing down. Our goal is to cross the finish line running at full speed. Our shareholders and our customers deserve nothing less.

Before I turn it over to Bill and Matt for a review of Q1 results, I want to offer a word of thanks. As this is likely our last earnings call, I want to thank all of you for your interest, your constructive criticism and your support over the years. It's been a really good run.

With that, I'll now turn it over to Bill.

William F. Osbourn, Jr. - Senior Vice President, Controller & Chief Accounting Officer; Acting Co-Chief Financial Officer

Thanks, Rob, and good morning, everyone. As Rob said, we're really pleased with our Q1 performance and the key trends in our business over the last several years. Notably, we've delivered nine consecutive quarters of year-over-year improvement in customer relationship net adds, and over that period, we've added more than 1 million residential customer relationships, hitting our ambitious goal three quarters ahead of schedule. Total company organic revenue growth has improved on a year-over-year basis in each of the last seven quarters, and now we've seen a meaningful growth in adjusted OIBDA.

Our best ever residential customer relationship net adds of 236,000 in Q1 reflect positive net adds in all of our geographies. First quarter connects were almost 8% higher than a year ago driven by the strong performance of inbound sales, online sales and direct sales. Connect improvement was broad-based, both the Midwest and Texas delivered the biggest year-over-year increases. triple play selling remained robust at 38% of connects. The increase in connects more than offset a 5.7% increase in disconnects which reflected flattish churn on our larger customer base. Notably, early life and non-pay churn were down year-over-year, and we continued to manage the promo roll-off process well.

As for our individual residential PSU categories, video growth continued with positive net adds of 21,000 and broadband was strong, nearly matching last year's record performance with 314,000 net adds. We ended Q1 with just under 13 million broadband subs. Also, but for last year's all-time record Q1 performance, our first quarter voice net adds of 178,000 were the best since 2008.

With that, let's move on to our financial results. First quarter revenue of $6.2 billion was up 7.2% year-over-year. The growth was much more broad-based than it has been in the recent past when revenue growth was driven almost entirely by our business services segment. We grew first quarter residential services revenue by $272 million or 5.8%, the best organic year-over-year residential revenue growth in seven years. Consistent with our plan, residential revenue growth was more balanced than in recent quarters with 30% coming from rate and the remaining 70% driven by volume. All three primary products contributed to revenue growth with HSD leading the way at almost 12%.

Residential revenue per customer relationship of $107.96 in Q1 was up $1.50 from last year. The ARPU improvement was primarily attributable to rate and fee increases as well as our strong performance in promo roll-off. ARPU also benefited from a 2.6% increase in connect ARPU per CR.

Business services posted another very good quarter. Revenue increased $105 million or 13.4% year-over-year in Q1. This was the 19th consecutive quarter of year-over-year growth above $100 million. HSD led the way, up 18.9% and contributing more than two-thirds of the business services revenue growth. Voice grew 13.4%, followed by wholesale transport and video.

Other operations revenue grew 10.6% in the first quarter. Media sales revenue increased 6.1% or $14 million from last year, primarily due to higher political advertising revenue. Other operations revenue benefited from the recognition of approximately $20 million of revenue in connection with the settlement of a contractual dispute.

In addition, other operations revenue reflected increased RSN affiliate fees from our residential services segment as well as other distributors of the Los Angeles RSNs. Note that affiliate fees from our residential services segment are eliminated in consolidation.

Next, Matt will cover expenses, cash flow and the balance sheet. Matt?

Matthew Siegel - Senior Vice President & Treasurer; Acting Co-Chief Financial Officer

Thanks, Bill, and good morning. As noted, total company adjusted OIBDA increased $163 million or 8.2% in the first quarter. I'm very encouraged by the acceleration in adjusted OIBDA. This demonstrates that the plan we set in motion in two years ago to drive subscriber growth, revenue growth and in turn adjusted EBITDA growth is working.

Despite our significant investments to drive subscriber growth, support our expanded customer base and improve the customer experience, pickups in customer care expenses each grew more slowly than revenue in the first quarter, reflecting our improved operational performance. This should bode well for future adjusted OIBDA growth.

Sales and marketing continue to grow faster than revenue reflecting our rapid customer relationship growth. Programming and content costs continues to be a drag on adjusted OIBDA, increasing $132 million or 9.3% year-over-year, primarily driven by contractual affiliate fee increases. In the residential segment, average programming cost per video sub in the first quarter was $46, up $3.72 or 8.8% from last year.

Pension expense was less of a headwind to adjusted OIBDA growth than in recent quarters. First quarter pension expense grew by $8 million compared to an increase of $26 million a year earlier. The first quarter bad debt expense decreased by $38 million, reflecting better quality of customers and improved collection practices. Shared functions costs increased 5% to $763 million in the first quarter, primarily as a result of higher compensation cost per employee and higher insurance expense, partially offset by lower costs due to operating efficiencies.

Moving down the income statement, first quarter adjusted diluted EPS was $1.81, up a strong 9.7% from a year ago, despite higher depreciation expense resulting from the large capital investments we've made over the past several years, and despite the absence of benefits from buybacks.

First quarter capital spending of $1.32 billion was up 16% from last year's first quarter due to customer relationship growth as well as investments to improve network reliability and capacity, upgrade older CPE, and expand our network to additional residences, commercial buildings and cell towers.

In addition, we put in service more than 2.5 million new units of customer-premises equipment in the quarter, an increase of 200,000 over the last years Q1 including almost 700,000 set-tops, over a million digital adaptors and more than 800,000 modems.

Free cash flow was $346 million in the first quarter, down 15% year-over-year, primarily due to higher capital spending. Note that because bonus depreciation for 2015 wasn't enacted until late last year, we had a 2015 overpayment of approximately $120 million. We expect the application of this overpayment to reduce our cash taxes in the second quarter of this year. At the end of the first quarter, net debt stood at $21.2 billion, down $137 million from year end 2015. Our adjusted net leverage ratio was 2.73 times.

So, to summarize, our operational trends remain very strong and we are now translating into strong standard (15:00) performance in revenue growth and adjusted OIBDA growth. We're very encouraged and excited by these trends and intend to continue to drive improvement throughout the organization to further enhance our performance and deliver value to our shareholders.

With that, let me turn it back over to Tom for the Q&A portion of the call.

Thomas Robey - Senior Vice President-Investor Relations

Thanks, Matt. Well, operator, we're ready to begin the Q&A portion of the conference call. We would ask each caller to ask just a single question, so we can accommodate as many callers as time permits. First question please.

Question-and-Answer Session

Operator

Thank you. Our first question is from Mr. Craig Moffett from MoffettNathanson. Your line is open.

Craig Eder Moffett - MoffettNathanson LLC

Congratulations to you, Rob, and to the whole management team, and personally, I extend my thanks to all of you. It really has been a pleasure and a privilege to cover you guys for so many years. Let me ask – I know I was supposed to ask one but I'm going to see if I can lump two together. First, if I could ask, Dinni, what inning are we in, in the turnaround in your mind? And what is kind of left on the to-do list as you hand over the keys? And then, Rob, I wonder if you could just comment on, as you look back over your tenure as both CFO and CEO, what is it that you think stands out the most to you and that you think is your most important legacy?

Dinesh C. Jain - Chief Operating Officer

Thanks, Craig. I would say we're in the third inning, and I'm not really sure whether we're in the top of it or the bottom. I think that we've done a lot of what we set out to do in terms of initiating momentum, particularly through customer service. And I think that we are really seeing that momentum and it's flowing through in all the things that we track very deliberately, like our call volume and our truck rolls and ultimately our churn numbers.

And so I think we feel pretty good about that – very good about that. But I think there's a lot more of that to come because those changes don't happen in just one or two years. Those things start and have a very long tail. I think where we've turned a lot of our attention over the last few quarters has been more to sales and marketing, and I think we still have a lot of good opportunity and upside in improving sales and marketing for a couple of years to come. I think there are many more similarities than differences between the way we're doing things and the way Charter does things. So I think what we're handing them is something with tremendous momentum where many of the changes that I think they would have sought to have made, have been made. And I think they're going to be very pleased with the momentum that (17:59).

Robert D. Marcus - Chairman & Chief Executive Officer

Craig, I'm going to give you two answers to the question you asked. First, if you look back over the last seven years, because you included my tenure as CFO, I would say one of the things I'm incredibly proud of is that we were so consistently focused on maximizing value for our shareholders, whether that was prudently managing our balance sheet, improving operations or ultimately participating in M&A. We repeated it over and over again, but it really was the hallmark of who we were as managers. So that's item number one.

Much more recently, and probably even more significant for me, is that over the last several years, our team really was faced with its share of difficult circumstances, and you're all familiar with – if you go back to the M&A activity that began in mid 2013, that created a tremendous amount of distraction, of uncertainty, even of emotional upheaval amongst our people. And despite all that, the team rallied together and never lost focus, remained totally committed to improving the customer experience and to sticking to our operating plan and delivering great results. And I think this quarter's results are really a capstone on that incredible performance by our team. And I couldn't be prouder of that.

Craig Eder Moffett - MoffettNathanson LLC

Congratulations to all of you. Thanks, Rob.

Thomas Robey - Senior Vice President-Investor Relations

Thanks, Craig. Bob, next question, please.

Operator

Thank you. Our next question is from Mr. Ben Swinburne from Morgan Stanley. Your line is open.

Benjamin Daniel Swinburne - Morgan Stanley & Co. LLC

Thank you, good morning. Rob, I'd like you to, if you could, look to the future for the industry a bit and maybe comment on sort of your IP trial in New York and given the backdrop around the FCC's set top initiatives. If you take a longer-term view of where the industry's going, talk to us a little bit about sort of an asset light or CPE life future which we've been talking about for years, I'm wondering if you think that's something that's closer today than it's been? And how exciting or challenging that might be for the business?

And then I'd love that someone could just comment on the $20 million revenue benefit in the quarter that was called out in the press release, any color on what that was? Thank you.

Robert D. Marcus - Chairman & Chief Executive Officer

Sure. Ben, look, the IPTV trial and where the world is going in terms of allowing customers to experience our products without necessarily leasing CPE from us, I think that's just one example of an overriding trend which is that our industry is increasingly following the consumer. I think in the past we were much less responsive to what consumers wanted. And that is what – that is where Time Warner Cable is certainly heading with the IPTV trial. And it's I think where the industry is going. It's reflected in our redoubled efforts around customer service. So I think that's where the industry is going, and I think it bodes very well for the future of our business.

Of course, I'm excited about delivering video and IP. I think it promises a much more customer friendly experience which avoids many of the pain points that have historically marked our business. But I think that's just one example, and I have no doubt that with very smart people at the helms of the major cable companies, there are going to be a lot of other innovations along those lines.

Bill, do you want to take the...

William F. Osbourn, Jr. - Senior Vice President, Controller & Chief Accounting Officer; Acting Co-Chief Financial Officer

Yeah. As far as the $20 million, from time to time, we'll have disputes with vendors and often times to settle those is fairly immaterial. We typically just don't go into detail for various non-disclosure purposes. But, we settled a dispute we had with a certain vendor during the quarter, and as a result of that, we were able to recognize $20 million of revenue.

Robert D. Marcus - Chairman & Chief Executive Officer

To be, just to be clear, this is – the revenue in question relates to amounts that were previously paid to us that were being spread from a revenue recognition period over multiple years and as a result of the settlement were accelerated to be recognized in the current quarter.

Benjamin Daniel Swinburne - Morgan Stanley & Co. LLC

Got it. Thanks a lot.

Thomas Robey - Senior Vice President-Investor Relations

All right, Ben. Thank you. Bob, next question.

Operator

Thanks, sir. And our next question is from Jessica Reif Cohen from Bank of America Merrill Lynch. Your line is open.

Jessica Jean Reif Cohen - Bank of America Merrill Lynch

Thank you. I have to echo Craig's sentiments. This is kind of sad to have it be your last call, but obviously, we loved working with all of you guys and wish you the best – really all the best.

Robert D. Marcus - Chairman & Chief Executive Officer

Thanks, Jessica.

Jessica Jean Reif Cohen - Bank of America Merrill Lynch

I'm going to try to – you're welcome. I'm going to miss you guys. Also wanted to try for two questions. So, Rob, everybody is asking you kind of bigger picture questions and obviously now that you are where you are today, what do you see as the biggest challenges for the cable industry? Is it regulation, or do you think it's competition? Or is it simply the maturity of the market?

And the second question is, if anyone could comment on, as you sit here today, SMV has had amazing strides but they still seem like really small penetration. Where do you think you ultimately can go in all three, small, medium enterprises in terms of penetration?

Robert D. Marcus - Chairman & Chief Executive Officer

So, Jessica, on the first question, look I think all of the factors you raise are factors that we grapple with every single day. I think it's ironic that in the same breath we took about competition and regulation as being risks because part of the problem with the current regulatory trends seem to be that there's a narrative out there that the market is not sufficiently competitive, and I am here to tell you that we fight the fight every day and it's plenty competitive out there.

So I certainly think we're always going to have to be better than the next guy. There's new entrants into the businesses we're in. And that just causes us to raise our game in order to succeed. And I think that's an entirely healthy dynamic and we're going to have to continue to demonstrate in the marketplace that our offerings are better and more compelling for customers.

Regulation, you know, it ebbs and flows depending on who is in power. But it's something we've been grappling with since the beginning of cable, and we'll continue to manage our business despite some regulatory headwinds.

In terms of the B2B market, I agree with your point. We've grown exceptionally well over many years. We keep talking about 19 consecutive quarters of $100 million plus revenue growth. But I agree with you, there's plenty more to go. We're still low on the penetration front. And I can't give you an end state. But for our part, we'll just continue to tap the opportunities as we see them and I think we're very well positioned to do that.

Jessica Jean Reif Cohen - Bank of America Merrill Lynch

Great. Thanks so much. All the best.

Robert D. Marcus - Chairman & Chief Executive Officer

Thanks.

Thomas Robey - Senior Vice President-Investor Relations

Thanks, Jessica. Next question please, Bob.

Operator

Our next question is from Richard Greenfield from BTIG. Your line is open.

Richard Greenfield - BTIG LLC

Guys, all I'm sad about is the fact that this is one of the only conference calls that people let me ask questions on anymore, and so I'm going to miss having you as a public company. But no, taking a serious note, Glenn Britt was pretty adamant about consumers wanting or needing to pay for the bandwidth they used, and Time Warner was really one of the first companies to explore usage-based pricing. And I think when Comcast was finally able to force Netflix to pay for peering and interconnection, Time Warner Cable was a pretty fast follower. Wondering how you think about the cable business long-term if charging for usage-based pricing and peering and interconnection are simply not possible in a meaningful way?

Robert D. Marcus - Chairman & Chief Executive Officer

Yeah, you invoked Glenn's views, and I think to round out the picture, Glenn was a believer that usage-based pricing was a customer-friendly alternative, but that at least Time Warner Cable would always remain committed to offering an unlimited offering as well. And that's exactly the path we've been on. Interestingly enough, despite offering a usage-based pricing alternative for customers, virtually all our customers continue to take unlimited, which reflects an interesting preference in the marketplace. That might be reflective of price points, but I think there's a value proposition out there in the form of unlimited that's exceptionally compelling.

Hard to know how the market plays out. Obviously, as part of the Time Warner Cable-Charter merger, Charter has agreed for a period of time to refrain from usage-based pricing; hard to know what others in the industry do. We'll have to see. I think either way, we feel great about the future of broadband with or without usage-based pricing. And I think the recent quarter's results are just another reflection of how terrific that business is. I think our resi HSD growth was somewhere in the 11% to 12% range revenue wise. We added subs. We grew ARPU. So I think the business is healthy with or without usage-based pricing.

Richard Greenfield - BTIG LLC

And what about peering and interconnection?

Robert D. Marcus - Chairman & Chief Executive Officer

Look, I think that interconnection as a revenue source has always been overrated. To the extent that we have in fact received revenue as a result of paid interconnection agreements, the numbers are exceedingly small in the scheme of our overall business.

Richard Greenfield - BTIG LLC

Thanks so much.

Thomas Robey - Senior Vice President-Investor Relations

Thanks, Rich. Next question, please.

Operator

Our next question is from John Hodulik from UBS. Your line is open.

John Christopher Hodulik - UBS Securities LLC

Okay. Thanks. Congratulations on the results, Rob. The growth that you that guys are showing here, which I think led the major cable companies, really puts an exclamation point on your tenure at the company.

Robert D. Marcus - Chairman & Chief Executive Officer

Thank you.

John Christopher Hodulik - UBS Securities LLC

If we could address that. I mean the – first of all, how sustainable would you say this kind of growth is given the assets of the company? And a lot of the change came through ARPU. So I guess related to Rich's question, I mean, could you talk a little bit about sort of the pricing power, do you think maybe the cable industry in general has as it relates to data and maybe video as well? Thanks.

Robert D. Marcus - Chairman & Chief Executive Officer

Well, let me just comment on your point about ARPU. In fact, if we look at our recurring residential revenue, it's actually nicely balanced between volume and rate with volume, in fact, being responsible for 70% of the improvement and rate being 30%. So I think that the combination of the two and the fact that the revenue growth is coming from multiple sources really supports the sustainability of the model. We feel very good about our ability to continue to do this, I mean if we were obviously continuing to do this as Time Warner Cable, and I feel very good about Charter's ability to do it going forward. So, Dinni, you want to add to that?

Dinesh C. Jain - Chief Operating Officer

No. I mean I think that says it all.

John Christopher Hodulik - UBS Securities LLC

Okay. Thanks, guys.

Thomas Robey - Senior Vice President-Investor Relations

Thanks, John. Next question please.

Operator

Thank you. Our next question is from Tom Eagan from Telsey Advisory Group. Your line is open.

Daniel Lupo - Telsey Advisory Group

Hey, guys. This is Dan Lupo stepping in for Tom. Congrats on the quarter. Question on broadband. So TWC has about a 39% penetration rate, and you look at Cablevision with about 55% penetration. Is there any reason why TWC can't get to 55% or higher and what do you see as like a ceiling for this?

Robert D. Marcus - Chairman & Chief Executive Officer

Yeah. I'm always hesitant to give end state predictions, suffice it to say that we feel really good about the business. We think we offer a really competitive product, and I see no reason why we can't continue to grow both units and revenue going forward. But I'm not going to tell you where I think we'd tap out.

Daniel Lupo - Telsey Advisory Group

All right. Thank you.

Thomas Robey - Senior Vice President-Investor Relations

Thanks. Next question, please.

Operator

Thank you. Our next question is from Mr. Mike McCormack from Jefferies. Your line is open.

Mike L. McCormack - Jefferies LLC

Hey, guys, thanks. Rob, maybe just a quick comment on the video adds, sort of what you're seeing from a connect versus churn scenario. And then maybe a comment, if you would, on the TWC Maxx deployments, what you're seeing from a cost perspective over time. Is it getting better?

Robert D. Marcus - Chairman & Chief Executive Officer

Okay. So, on video, a couple of comments. First, you asked about connects versus disconnects and the good news is that, again, we're benefiting from both improvements in connects and improvements in disconnects. So the story is a good one, but I'll elaborate further. I don't think we called this out in our prepared remarks. The quality of the video subs is strong as well once again this quarter. I think it's been true for all of our recent quarters. The mix of video connects is disproportionately coming from our preferred TV offering which is our big bundle. I think 83% of connects this quarter came from preferred TV with about, I don't know, 12%-ish coming from our Starter TV and the balance coming from what used to be called expanded basic, we now call it standard. So that gives you a flavor for the mix. But on the connects and disconnects, it's pretty balanced. We had a really good connect quarter all the way around. Tell me again what the second question was.

Mike L. McCormack - Jefferies LLC

Just on TWC Maxx deployments, what you're seeing on a sort of a cost per market deployment, is it getting – how is it trending?

Robert D. Marcus - Chairman & Chief Executive Officer

It's a little tricky to compare market-to-market because we find the markets in different conditions and the markets have different geographic characteristics. I will say that we're – putting cost aside, we're getting better at the deployments. We're much more efficient. We know where the actions we take are likely to result in customer impact and we're avoiding those negative customer impacts as we roll things out. So the whole process is getting smoother and that's about all I can say there. But different markets definitely have unique characteristics based on what's happened before. Dinni, you want to add?

Dinesh C. Jain - Chief Operating Officer

No. I mean I think that your last comment kind of says it all because I think as we have done the more urban areas, we're moving much more now into the Midwest into upstate New York. So they're a little bit more geographically diffused and so that changes the cost parameters a little bit but not that much.

Mike L. McCormack - Jefferies LLC

Great. Congrats, guys, and best wishes.

Robert D. Marcus - Chairman & Chief Executive Officer

Thanks, Mike.

Thomas Robey - Senior Vice President-Investor Relations

Thanks, Mike. Bob, next question please.

Operator

Thank you. Our next question is from Mr. Frank Louthan from Raymond James. Your line is open.

Frank Garreth Louthan - Raymond James & Associates, Inc.

Great. Thank you. Just following up a little bit on the Maxx question, can you quantify sort of what you're seeing across the board now that this product is a little bit more mature, in terms of churn reduction or customer care improvements that you're getting from Maxx? And then just quickly, you gave a very interesting statistic I think on the last call, that the percentage of your customers that bring their own modems, if you could update us on where that is, if that's changed materially off that 14% or 14.5% that would be great?

Robert D. Marcus - Chairman & Chief Executive Officer

Yeah. It hasn't changed materially. I think we're at 14.8% or 15% of customers bringing their own modems nowadays. So it's not a material change at all. In terms of Maxx, we're not going to give you specific numbers but suffice it to say that the trend is very encouraging and reinforces our view that the actions we're taking in connection with Maxx are good ones for customers. Internet and video churn are improving more in Maxx markets than elsewhere in the footprint.

I characterize it that way because as a general matter across our entire footprint, we're doing better on those fronts but we're doing even more better in the Maxx markets. And customer satisfaction, not surprisingly, is pretty consistent what with what we're seeing in churn. I would, I actually would phrase it the other way around. It's not surprising that customer satisfaction would lead to better churn characteristics. So we're very pleased with the results, and as a result, we're not slowing down in terms of our rollout of Maxx to other markets.

Frank Garreth Louthan - Raymond James & Associates, Inc.

All right. Great. Thanks a lot. Appreciate it.

Thomas Robey - Senior Vice President-Investor Relations

Thanks, Frank. Bob, I think we'll take one last question. Who is in the queue?

Operator

Our last question is from James Ratcliffe from Buckingham Research Group. Your line is open.

James M. Ratcliffe - The Buckingham Research Group, Inc.

Thanks for taking the question, and it's been fun working with you guys. Good luck with everything. Just wanted to ask the FCC apparently today is going to be doing something on special access, I guess business data. Do you see any material difference between a scenario where your wholesale access business gets regulated and one where just the telcos with which you compete get regulated and presumably lowering whatever price umbrella you have to work with? Thanks.

Robert D. Marcus - Chairman & Chief Executive Officer

James, I think I'm going to withhold judgment on what's been speculated about coming out of the FCC on special access or business data services until we actually see what's included in this further notice of proposed rulemaking. The regulation of this area has been something that's been on the FCC docket for I think a decade in one form or another. And various iterations have been bandied about with the most recent speculation following a speech that Chairman Wheeler made. But I think we owe it to ourselves to see what the specifics are because that will very much determine what any potential impact would be on our business relative to the ILX (37:17). The one overriding philosophical point I'd make is generally we think that where there's a lot of competition, the market is working. There's no need for regulation, and we certainly think that this marketplace is a competitive one. So we'll bring a skeptical eye to anything that results in increased regulation, but other than that, we're going to withhold judgment until we see the specifics.

James M. Ratcliffe - The Buckingham Research Group, Inc.

Great. Thank you.

Thomas Robey - Senior Vice President-Investor Relations

All right. James, thanks very much. That does it for us this morning. Thanks for your interest. Thanks for joining us and wishing all the best.

Robert D. Marcus - Chairman & Chief Executive Officer

Thank you.

Operator

That concludes today's conference. Thank you for participating. You may now disconnect.

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