WOW! settles old Sprint patent suit, expects Q2 sub slide

Wide Open West (WOW!) had a tough first quarter, as a decline in high speed data subscribers and the settlement of patent lawsuit with Sprint led the company to post a substantial net loss. But executives on an earnings call touted the operator’s penetration progress in its trio of greenfield markets and expressed confidence that this would help it achieve subscriber gains by the end of 2023.

CEO Teresa Elder noted the company lost 2,900 high speed data customers in the quarter, ending the period with a total of 509,000. She appeared to attribute this slide primarily to lower gross additions, stating it continues to see fewer moves and switchers but “we usually win” when there is a chance for head-to-head competition. She added fixed wireless “continues to be a non-factor” in its markets.

WOW! said it expects to lose between 0 and 4,000 broadband subscribers in Q2. But it reiterated its full year forecast calling for 6,000 to 10,000 net additions overall. Asked how it plans to achieve this given its expected two quarters of losses, Elder and CFO John Rego pointed to WOW!’s greenfield markets in Florida, South Carolina and Alabama.

Rego said that in Q1, WOW! spent $20.2 million on its greenfield builds, as well as $4.2 million on edge outs.

Elder noted that it added its first customer in Central Florida in January and ended the quarter with 1,700 passings and a 23.5% penetration rate there. In Alabama, where it lit up its first customer in February, Elder said it had a penetration rate of 10.7% as of the end of Q1.

She added its construction machine continues to ramp and she believes that be the end of Q2, it could be close to reaching 10,000 cumulative new passings.

“Keep in mind, we will be working in multiple markets, not just one delivering homes passed,” Elder stated. “So, I think that ramp for the year is significant, and you will see them following that, of course, the penetration with all the subscribers.”

Elder also pointed out that greenfield markets have stronger uptake of higher speed tiers than its base markets. Around 75% of customers in the latter are taking speeds of 500 Mbps or higher, compared to 90% in the former.

“We believe we will continue to see HSD ARPU increase as we add fiber customers in new markets, including greenfields and edge-outs and as existing customers continue to upgrade to higher speeds,” she said.

Lawsuit and metrics

Rego noted WOW! finally settled an old patent infringement battle with Sprint for a total of $48 million. The lawsuit, which dated back to March 2018, related to the provision of voice over internet protocol services. The settlement is set to be paid over the course of three years, with the first installment due in May.

WOW! reported in a 10-Q filing that the patent litigation was the primary driver of a 123% increase in selling, general and administrative expenses to $47.2 million.

Consolidated revenue of $172.2 million fell 1% year on year in Q1 2023, despite a 5% increase in high speed data revenue to $105.2 million. This was due to declines in video and telephony of 13.4% and 9%, respectively.

The company posted a net loss of $38 million, compared to a profit of $5.7 million in the year-ago quarter.