Cincinnati Bell Inc.
Q1 2013 Earnings Call Transcript

Published: 9 May 2013

[Operator:]

Good morning, everyone. Thank you all for holding, and welcome to the Cincinnati Bell's First Quarter Earnings Release Call. Your host for today's conference will be Kurt Freyberger. [Operator Instructions] Today's call is being recorded. And at this time, I would now like to turn the call over to your host, Mr. Kurt Freyberger. Your line is now open.

[Kurt A. Freyberger:]

Thank you, and good morning. I'd like to welcome everyone to the Cincinnati Bell's First Quarter Earnings Call. With me on the call today is our Chief Executive Officer, Ted Torbeck. This morning, Ted will provide an overview of the first quarter results and additional information on our strategic investments. I will then provide details around the first quarter segment results and our financial position. We will then conduct a question-and-answer session. Before we proceed, let me remind you that our earnings release and financial statements are posted on our Investor Relations website. In addition, you will also find presentation slides for today's call, which we hope you will find helpful in your analysis. Today's call is being webcast if you'd like to listen to it at a future time. Now I would like to draw your attention to our Safe Harbor statement presented on Slide 3. In our remarks this morning, we will be discussing forward-looking information. Due to various risks and uncertainties, actual results or outcomes may differ materially from those indicated or suggested by any such forward-looking statements. More information on potential risks and uncertainties is available in the company's recent filings with the SEC, including the Cincinnati Bell's annual Form 10-K report, quarterly Form 10-Q reports and Form 8-K reports. This presentation also contains certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to most directly comparable GAAP measures are also available on our website. With that, I am pleased to introduce Cincinnati Bell's Chief Executive Officer, Ted Torbeck.

[Theodore H. Torbeck:]

Thanks, Kurt, and good morning, everyone. Thank you for joining us today. Cincinnati Bell got off to a great start in the first quarter, generating revenue of $326 million and adjusted EBITDA of $118 million. Those numbers include CyrusOne for the first 23 days of January prior to the closing of its IPO. After the IPO, we no longer consolidate the results of CyrusOne but rather report its results as an equity method investment. As presented on Slide 6, our revenue, excluding CyrusOne, was $310 million, and our adjusted EBITDA was $110 million. This adjusted EBITDA amount includes $6 million of mark-to-market gains associated with our compensation plans. As such, on a normalized basis, our adjusted EBITDA was $104 million from operations in the quarter, strong results versus the guidance we have provided. As I have said in the past, in Cincinnati Bell, I see a company that has solid existing Wireline operations. I see a company with a great opportunity to make targeted investments in fiber for growth, and I see a company with an investment in a growing data center business that will ultimately allow us to repay debt to appropriate levels and create shareholder value. Our strong first quarter results provide clear indications that this strategy will be effective. The trends illustrated on Slide 7 highlight the importance for the company to invest for growth while managing the declines from our legacy products. As can be observed, the company's investments in growth opportunities produced 22% year-over-year increases last year, substantially offsetting the declines from access line loss and other legacy services. This growth continues into the first quarter of 2013 as revenue from our strategic products increased 12% compared to the first quarter of 2012. The integration revenues primarily represent our low-margin hardware sales. These hardware sales require no capital but are important to our existing business customers and help us to get a foot in the door with prospective clients. The investments we are making will generate Wireline revenue growth from our strategic products that will exceed the legacy declines in 2014. Importantly, although we do not believe Wireline adjusted EBITDA will increase for the full year of 2014, we do believe a nexus point will occur in 2014 in which our Wireline segment will begin producing quarter-over-quarter adjusted EBITDA growth. This is powerful. We believe this strategy, combined with the monetization of CyrusOne, will produce a fiber-based growth company with significant, sustainable free cash flow that commands a high valuation multiple. Over time, this free cash flow provides us strategic optionality for paying dividends, repurchasing shares, repaying additional debt or investing further in high-return business growth. This is exciting for us and for our shareholders. Fioptics is key to this Wireline growth. On Slide 8, we have provided examples of historical metrics by neighborhood that give us confidence in our ability to successfully execute on our strategy and achieve returns of 20% on our Fioptics investment. Our customer penetration in single-family neighborhood is remarkable. Six months after construction to a neighborhood, we obtained average penetration rates of over 15%, and this increases to 35% when we have been in a neighborhood for more than 24 months. We also see significant improvements in our ARPU once neighborhoods are mature and promotional rates have expired. Neighborhoods in which we have been providing service for less than a year have ARPU of approximately $125 as compared to non-promotional rates of approximately $155 in mature neighborhoods. We believe the non-promotional ARPU results are achievable in new neighborhoods once the promotional pricing expires. Finally, our churn results reinforce our belief that consumers prefer our product. Our churn in a single-family neighborhood is 2.2%, and our churn for apartments is 5.2%. We began constructing Fioptics in 2008 primarily to apartment complexes. As we continue to construct to more single-family neighborhoods, we believe our overall churn will decline dramatically. We are excited about Fioptics and its prospects. The metrics we just discussed have already been achieved, and we think these results will be improved with additional scale. Kurt will take you through the results of the first quarter in a few moments, but I want to be very clear. I have confidence in our ability to execute on this plan. My discussions with shareholders over the past few months have led me to realize that many are aware of the strong returns and opportunities associated with fiber investment, yet many have asked why we chose now to increase the level of our Fioptics capital spend. Beyond the attractive returns that this investment generates, we believe in this product's ability to stabilize and grow our customer base. As you can see on Slide 9, 30% of our DSL customers get less than 4 mega speed. These speed levels just aren't acceptable to our customers. Our data shows time is of the essence, and it is much better for us to retain a highly valued customer than it is for us to try to win them back if they leave us for a higher-speed product. Our increased investments have targeted these slower-speed areas for our Fioptics upgrade. By the end of 2013, we will be able to deliver at least 10 mega speed to more than 60% of our market. That's up from less than 50% at the beginning of the year. So we continue to see strong improvements in churn as a result of these targeted upgrades. One final point on Fioptics. This investment is entirely based on success. We continuously monitor the construction, sales, customer satisfaction and ongoing performance of Fioptics. If, over time, the neighborhood dynamics change and we determine that this investment and the returns profile are not attractive, we will discontinue our investment in this product suite. We fully realize there will be neighborhoods that are not economically viable for a Fioptics construction, and we will not invest in those neighborhoods. Turning to our investment in CyrusOne on Slide 10, the monetization of this investment to reduce our debt levels is an important aspect to our ability to produce significant, sustainable free cash flow. We have been very pleased with the market's reaction to CyrusOne thus far as the stock prices traded up more than 20% since the IPO. Last evening, CyrusOne reported its first quarter results, which included 15% year-over-year growth in top line revenue, as well as 11% growth in adjusted EBITDA. The CyrusOne team provided a 2013 full year revenue guidance range of between $260 million and $270 million, which represents an 18% to 22% increase over 2012. The range for adjusted EBITDA guidance was $133 million to $137 million. These first quarter results, full year guidance and the market's favorable response to the IPO support our belief in the demand drivers around the Data Center Colocation business and give us confidence the value of our 69% investment in CyrusOne will continue to grow. 10% appreciation in the value of our CyrusOne investment equates to about $0.50 per share return to our shareholders. Although there are many factors that impact CyrusOne's stock price, this kind of increase and more are entirely possible given the substantial growth CyrusOne has historically experienced. While we don't intend to provide guidance regarding our monetization plan, I would like to stress a few points I believe are important to maximizing the proceeds we are to receive from this monetization. Number one, we understand that selling the full amount of our remaining shares into the public markets at one time will likely create too much supply and could diminish the monetization proceeds we'd receive. Number two, while we remain very bullish on the data center business, we also understand that there are macroeconomic risks associated with owning any investment, and we are believers in taking some of that risks off the table. Over time, we will monetize our remaining investment in CyrusOne in a way that maximizes the proceeds while mitigating our downside market risk. We will continue to actively monitor the benefits and risks associated with our CyrusOne investment, and we'll take appropriate actions to alter our approach when and if necessary. Lastly, I'd like to end my portion of the presentation with a brief update on our Wireless operation. We continue to manage Wireless for cash flow and profitability and are reviewing all strategic options for this business. Our analysis and process are ongoing, and we will update you during the course of this year as we have more information. I will now turn the call over to Kurt to review our results.

[Kurt A. Freyberger:]

Thank you, Ted. We are pleased with our early 2013 results, and we remain on target for achieving our revenue and adjusted EBITDA guidance for the year. As a reminder, CyrusOne's results were included in our consolidated results up to January 24, the closing date of the IPO. After the IPO, although we continue to own 69% of the economic interest in CyrusOne, we do not control the entity and therefore, do not include CyrusOne in our consolidated results. Slide 13 provides the details of the Wireline segment results. Wireline reported revenue of $180 million, down $2 million compared to the first quarter of 2012. Adjusted EBITDA for Wireline was down $4 million as the $3 million increase from Fioptics was more than offset by continued access line loss and DSL subscriber loss. Wireline adjusted EBITDA margin of 47% was comparable to the fourth quarter margin and down from the 49% margin achieved in the first quarter of 2012. As we experienced the loss of high-margin access lines, our Wireline margins will continue to be pressured. In addition to our growing Fioptics and fiber-based business solutions, we remain focused on cost-out initiatives, which I will talk about in a bit. Turning to Slide 14, Fioptics revenue totaled $22 million in the quarter, up an impressive 52% compared to the first quarter of last year. We constructed Fioptics to an additional 15,000 homes and businesses, ending the period with 220,000 units passed. Our total penetration rate remained at 28%. Because we are actively constructing Fioptics to new neighborhoods, total penetration includes a mix of mature neighborhoods, where we attained over 35% penetration, and new neighborhoods, where we generally attain over 50% penetration after the first 6 months. Our Fioptics product is being very well received, and we expect neighborhood penetration rates to remain strong. We ended the first quarter of 2013 with 61,000 Fioptics high-speed Internet subscribers and 58,000 Fioptics entertainment subscribers, up 42% and 35%, respectively, from the first quarter of last year. Consumer monthly ARPU was $136, up $10 from the first quarter of 2012 as a result of price increases throughout the year and a higher percentage of customers who are coming off promotional pricing. We continue to be particularly excited about the ability of our Fioptics high-speed Internet activation to outpace DSL subscriber declines, as noted on Slide 15. By adding 3,000 high-speed Internet subscribers year-over-year, we ended March with our largest number of consumer high-speed Internet subscribers ever. This metric is very telling and provides evidence that we are continuing to win share from the competition. This also speaks the benefit of the Fioptics construction to our copper-based DSL customers. DSL customers in areas surrounding Fioptics see noticeable improvement to their Internet speeds, which reduces churn and stabilizes ARPU. For areas that have received DSL upgrades, churn improves by about 50 basis points. Gross activations for our DSL products are up compared to the prior year, and our overall high-speed Internet churn is 2%, which is comparable to last year. Our churn on the entertainment product was 2.8% in the first quarter, up slightly due to the price increases introduced at the beginning of the year. Fioptics closed the first quarter with a very impressive month of March, increasing net subscribers by 2,000. Those positive results have carried over into a strong start to the second quarter. On the business side, revenue from strategic services totaled $36 million for the quarter, an increase of 5% from 2012, driven primarily by growth in Ethernet services from strong enterprise demand for faster data speeds and growth in cell-side backhaul in our carrier market. During the first quarter of 2013, we took the initial steps toward the integration of CBTS and CBT by combining the sales forces of these companies, which will result in over $1 million of savings in 2013. We continue our steps to consolidate product offerings, systems and back office support and believe total cost savings from integrating these 2 businesses will be $5 million annually. More importantly, we believe combining these 2 operations will improve our go-to-market approach by providing our business customers an integrated IT and telecommunications solution with one trusted advisor. Our Wireless results are presented on Slide 16. Year-over-year, we lost 20% of our postpaid subscribers, which caused the 16% decline in Wireless revenue to $53 million for the first quarter. Partially offsetting the declines from postpaid subscriber loss, postpaid data ARPU increased 16% and resulted in total postpaid ARPU of $51.29, which was up slightly compared to the prior year. Churn of 2.6% in the first quarter improved significantly from the 3.2% churn incurred in the fourth quarter of last year. Wireless adjusted EBITDA for the quarter was $20 million, resulting in a strong adjusted EBITDA margin of 38%. The results from the IT Services and Hardware segment are presented on Slide 17. Revenue for the quarter was $85 million, an increase of $11 million compared to 2012, which was attributable to additional hardware sales to our enterprise customers. Adjusted EBITDA was $4 million in the quarter, with an adjusted EBITDA margin of 5%, both of which are comparable to the first quarter of 2012. Our GAAP consolidated results for the first quarter of 2013 are provided on Slide 18. Revenue for the quarter was $326 million, and operating income was $19 million. A net loss of $37 million was recorded in the quarter and included the following special items

[Theodore H. Torbeck:]

Thank you, Kurt. Since our last earnings call, I've had the opportunity to speak with many of our shareholders directly. We thoughtfully consider and evaluate recommendations that are received from our shareholders, and I very much appreciate your candor and perspectives. We believe our fiber investment strategies and CyrusOne monetization strategy will lead to a growing fiber-based company with low leverage and sustainable free cash flow. And we believe this approach will enable us to maximize shareholder value. We constantly monitor and reevaluate all aspects of our operations and investments. We expect success, but if we are not achieving results from our fiber investments, we will not hesitate to terminate the investment spending. We greatly appreciate your continued support and are excited about the opportunities in front of us. This concludes the prepared remarks for today's call. We'll now open the conference up to any questions.

[Operator:]

[Operator Instructions] And we'll take our first question from David Barden with Bank of America Merrill Lynch.

[David W. Barden:]

I guess 2, if I could. Just to start off with -- on CONE, you've laid out some factors that are influencing your thinking on monetizing that asset. At the very end, you talked about the tax-free nature of the possible monetization. So I guess what my take away from your comments was that you're looking at maybe a laddered sale that starts after the lockup ends and then maybe kind of pacing that with an eye towards maybe taking maximum advantage of your NOLs, if that is roughly right. It'd be kind of helpful to get some color on that. And then second, just I think you mentioned the topic last quarter of kind of looking at all the options available for the Wireless business. I was wondering if you could give us an update on kind of what those options are and how you're progressing along those fronts.

[Theodore H. Torbeck:]

Thanks, David. I appreciate your call. First of all, on CONE, by indication of the call last night on CONE, we remain very bullish on CONE. When we look to consider how we monetize, we look at, really, 2 things. One is balance in the supply and demand of the shares of CONE, as well as the macroeconomic factors, as we talked about. But we're -- it's something that we're looking at very closely. I'll turn it over to Kurt to talk about the NOLs and how we look at that.

[Kurt A. Freyberger:]

Sure. I mean, yes, as we mentioned, we have significant NOLs remaining and a pretty big tax basis in CONE as well. So we do think that the monetization, over time, will be essentially tax-free, and we still think we'll have NOLs remaining at the end. I think you're essentially on track, David, with how we're thinking about CONE in terms of monetizing portions at a time in order to give us good upside but also to take some of the risks off the table over time. But it's something where we do monitor that investment very, very regularly, and it's something where if we get to a point where we think it's the right time to monetize and move on, we'll do so.

[Theodore H. Torbeck:]

Okay. Your second question, Dave, is on the options of Wireless. We are looking at every option that we have and talking to people about a possible partnership, possible sale. At the same time, we're looking at how we optimize the running of that operation from a cash perspective. We still got a healthy business. We got about 390,000 customers. We got a good network in Cincinnati, and we offer good service to our customers. So running and optimizing the cash flow is a clear option that we're exercising right now, but we are talking to people about other possibilities, as I described.

[David W. Barden:]

Ted, is this on some sort of clock, or is this just going to kind of happen or not happen in a kind of organic way?

[Theodore H. Torbeck:]

It's going to happen over time. We don't have a clock, but we're -- so we just continue to run it.

[David W. Barden:]

And just, I'm sorry, just a follow-up on that, obviously, there's a lot of kind of chaos, generously saying, in the Wireless world right now. Is this something -- are these conversations -- are people focused on this sort of thing given the land-grab scenario, or do you get a sense that there's a lot of distraction and then maybe when the larger national landscape is figured out, things will be easier to figure out?

[Theodore H. Torbeck:]

We've got interest. It isn't that we're not getting attention. We are. We're having good discussions, but there's nothing to report on right now.

[Operator:]

. And we'll take our next question from Ana Goshko from Bank of America Merrill Lynch.

[Ana Goshko:]

I just had a couple of questions on the Wireless segment. So the metrics are better this quarter. So as you cited, the postpaid churn improved both sequentially, when you had a spike last quarter, and year-over-year. And then prepaid was a lot better on the net add front as well. And so I wanted to understand, on the postpaid side, do you attribute that to something that you guys proactively did? And then on the prepaid side as well, that's increasingly a competitive area of Wireless, so I'm just wondering how you felt you were able to get that kind of positive impact. And then I have a follow-up after that.

[Theodore H. Torbeck:]

Ana, it's a good question. The team has done an outstanding job of managing Wireless. And we've got lower activation cost, but we also have done a good job on managing churn. So I mean, I think that's the answer. We're doing a good job of managing it, and it's a compliment to the team.

[Ana Goshko:]

Okay. And then anything on the prepaid side and your ability to actually add some subs there?

[Theodore H. Torbeck:]

Well, we run pretty good incentives, and it's -- we've been pretty successful in some of the incentives we've ran. Lifeline is clearly one of the things that is helping us. And so again, it's execution, and I think we've done a good job there.

[Ana Goshko:]

Okay. And then if I can just sneak in 2 follow-ups. So the first one was as part of your commentary last quarter on the guidance, you said that you expected Wireless EBITDA to be down about $20 million year-over-year. And based on the performance first quarter, you're really not tracking to that kind of percentage decline. So I'm wondering if maybe you're already feeling that may have been too pessimistic based upon how you're tracking so far. And then...

[Theodore H. Torbeck:]

Well, we're very happy with the first quarter results. I'll tell you that. We're not ready to up our guidance yet, but we're -- execution is key. And I think our first quarter results, hopefully, those can continue, and we'll go from there. But right now, we're not ready to up our guidance.

[Ana Goshko:]

Okay. And then finally, just on the strategic options that are on the table, the Wireline and Wireless business are very nicely integrated. Is the sale of the whole company one of the options that would be on the table?

[Theodore H. Torbeck:]

Well, I think we've said in the past, I think anything in this business could be for sale at the right price. And so that could be a possibility at some point in the future.

[Kurt A. Freyberger:]

Ana, the last thing I'd point, though, is that those are very separable businesses for us. From a systems perspective, a management perspective, it's not difficult for us to separate out Wireless from Wireline.

[Operator:]

And we'll take our next question from Armintas Sinkevicius with Morgan Stanley.

[Armintas Sinkevicius:]

Just curious regarding -- looking forward, you talked about merging the IT Services, Hardware and the Wireline bit to draw some EBITDA cost savings. Just if you could talk about the margins and where you see the business trending to eventually on the margin side.

[Theodore H. Torbeck:]

Okay, well we're in the midst of the integration. The CBTS side is more of a services organization focused on new products, new initiatives for customers. We're integrating that with CBT. We started with the sales team. They're actually going through training on the CBT side to learn the services side. We think there's an opportunity in, like, the major market in Cincinnati. We think that's somewhere in the size of $200 million to $400 million opportunity. So that's where we're focused initially. And it's basically selling the services of CBTS to these major markets. And so that's really where we're focused.

[Kurt A. Freyberger:]

Yes, on the margins, with Wireline, we've consistently been in that 46% to 48% kind of range. I think you'll see that very slowly start to trend down as we replace the higher-margin legacy products with the lower-margin, more strategic products to us. But it won't -- we're pretty good at taking out costs, and we still see opportunity to do so. And so it's not something where you'll see a radical -- any kind of radical or quick decline in that margin. We'll have solid margins for the foreseeable future. And then on the IT Services and Hardware side, because of the hardware elements, those have -- that's generally been -- that segment as a whole has had lower EBITDA margins, and we'd expect that to continue as well.

[Operator:]

And we'll take our next question from Anthony Bauer [ph] with CT Capital.

[Unknown Analyst:]

I wanted to ask about CyrusOne and the plans there going forward that you articulated. Obviously, for longer-term shareholders, the CyrusOne IPO got done and the share price has not reacted positively since that time. And my understanding, and I may have this wrong, going through the documents is you could spin off some of that stocks to your shareholders per your debt agreements and further restricted payments. Why not consider that? Why not consider rewarding shareholders who have been with us for a while who have not been rewarded so far given the decline in the stock price since the CyrusOne IPO? It seemed like a more logical thing to do, to reward your long-term shareholders.

[Kurt A. Freyberger:]

I mean, thanks for the call. I think with CONE, our communication and our strategy around that has been pretty clear. We're highly levered as we sit here. We feel like we need to get our leverage down to something that's much more appropriate for a telecommunications technology company that we are. And we think that, that's the first step. I mean, we would like to get that done, and then we can -- and then, as Ted mentioned in his note, we'll have significant free cash flow that will give us a lot of optionality around dividends, share buybacks and things that can really give some return back to the shareholders.

[Unknown Analyst:]

Yes, and that's understood. But it just seems like there's an easier way to get return to your shareholders more immediately with a lot less risk. It seems like, again, the only people who didn't make out well on the CyrusOne IPO seem to be Cincinnati Bell shareholders. So frankly, I'm a little stunned that you guys aren't giving that more consideration, but I just wanted to put that 2 cents in.

[Operator:]

And we'll take our next question from David Hebert with Wells Fargo.

[Davis Hebert:]

I wanted to ask a question on the capital structure, longer term. You're sitting on a lot of high-coupon debt. The high-yield market's doing very well. Is it credit facility or bank debt? Could that be considered as a path to value, longer term?

[Kurt A. Freyberger:]

This is Kurt. It's certainly something that we'll be considering between -- with the CONE monetization and given some of our bonds that are entering call periods during the next year or so, the way we refinance them or pay them off will be -- all options will be considered, including using lower-rate secured debt.

[Davis Hebert:]

Okay. And any thoughts about which bonds you might target? I guess the subs become callable next year, I guess around March, and then you have some that are callable in October of '13, correct?

[Kurt A. Freyberger:]

Right. So we'll look at that from an economic -- an NPV basis kind of decision. And we look at that pretty much every day from that standpoint. So we'll-- as we have money that we can use to pay down or as it makes sense to refinance, we'll assess what we refinance and how we do it based on the NPVs of the refinancing.

[Davis Hebert:]

Okay. And the covenants in your bonds are fairly loose in terms of what you would be able to raise in terms of credit facility, correct?

[Kurt A. Freyberger:]

That's correct. The baskets are very much available to us.

[Davis Hebert:]

Okay, fair enough. And then just a few cash flow items. Is there any change to your expectations on interest taxes or the pension contributions for this year?

[Kurt A. Freyberger:]

No, the rates we gave at the beginning of the year are -- still hold.

[Davis Hebert:]

Okay. And then lastly, another cash flow item. IPO success payments, I know you guys have talked about a first half sort of event. Does that still hold?

[Kurt A. Freyberger:]

That's correct. We reported expense of $35.5 million in the first quarter, and we'd expect another $7 million in the second quarter, and then that will be it. It will be done.

[Operator:]

And we'll take our next question from Frank Louthan with Raymond James.

[Alexander Sklar:]

This is Alex here for Frank. I just want to ask one more question on the Wireless segment. With EBITDA being a little bit better than we're expecting, it looks like you did a good job taking costs out of the business there. Is it a more realistic possibility that you're just seeing better value and holding on to the business and its cash flow and then selling the spectrum years down the road? And then real quick on the Wireline side, can you give us an update on how many buildings are now on fiber, commercial buildings, and if you have any update as far as that overall opportunity?

[Theodore H. Torbeck:]

Okay. On the Wireless front, we still have -- no doubt about it. We have great results in the first quarter. We're going to continue to operate this as we stated we have, that we're going to continue to manage it for cash flow. We're going to still look at where we can take out costs, as well as trying to hold the customers as long as we can. So an option is to hold on as long as we can and at the end, sell off the spectrum. So that is an option that we are considering. And so -- but again, I think that the team's done a great job, and they continue to do a great job in managing that business.

[Kurt A. Freyberger:]

Yes, on the business side, we continue to have some pretty good success this quarter. The strategic products growth in that area was up about 5%, as we mentioned, primarily due to the metro Ethernet products that we continue to sell. That's going to be a focus area for us into the future. As Ted mentioned, we hope, in the next couple of years, to build to another 400 multi-tenant units, where we think we can get some pretty significant returns versus not building to them. And that's something where -- we'll continue to focus on that. We will -- I think you'll see a little higher CapEx level associated with the business in the next 3 quarters than what you saw in the first quarter. The first quarter, I think we had about $4 million of capital, which was a little bit less than the run rate that we expect. But it's really -- that's a timing issue I terms of payments, and so you'll see us have higher level of CapEx in the remainder of the year.

[Theodore H. Torbeck:]

So we got about 3,600 buildings lit. 3,200 are single-tenant, 400 are multi-tenant. We're going to probably light another 300 to 400 this year. And in the first quarter, we did about 40, a little over 40. So that is a focus of ours as we look to grow fiber on the business side.

[Operator:]

And we'll take our next question from Batya Levi.

[Batya Levi:]

Just a follow-up on CyrusOne. When you consider the monetization of that asset on a laddered basis, is there a ceiling on leverage that you're willing to take that could actually prompt spending of that portion of that asset earlier than you originally thought? And then a second question on Fioptics. Can you give more color on what percent of your base is on promotional pricing right now and what kind of churn do you see when they come off contract? Also, what percent of the base saw a price increase, and what is sort of more -- is there more to come when you consider the overall base?

[Kurt A. Freyberger:]

Right. Thanks, Batya. On CONE, I think what I pointed out there is we've mentioned that we will be free cash flow-positive next year. So you'll see us incur a little bit of debt here this year, and our leverage ratios will go to that 5.5 kind of level where they're at. And then because we won't be adding debt in the future, that's kind of where it's going to be topping out, almost regardless of what we do with CONE. The triggers for us to return back to positive free cash flow next year, the 2 big triggers really are the monetization of CONE, which we could use to pay down debt and lower our interest payments, or a reduction of capital if we decide that that's appropriate. But in any event, what we we're committed to is having positive free cash flow starting in 2014. On the Fioptics side, the promotional subs are -- we're roughly 2/3 promotional and 1/3 non-promotional. We're a little -- the industry is probably closer to 50-50, but we're a little above that just because we're kind of -- we're a little bit starting into the game with the build that we're doing. Did that answer your questions, Batya?

[Batya Levi:]

Yes. And when you see customers coming off promotions, do you see a pickup in churn?

[Theodore H. Torbeck:]

Yes, we see about 0.5 percentage point go up, but we see it as short term, and yet usually, we get it back. So initially, we do see a little bump, but then it settles back down.

[Batya Levi:]

And what percent of the base already saw a price increase?

[Theodore H. Torbeck:]

About 60%.

[Operator:]

And we'll take our next question from Sundar Varadarajan.

[Sundar Varadarajan:]

Just one more question on your options to monetize CONE. Is there anything either from a regulatory tax or shareholder agreement standpoint that precludes you from selling your stake to another strategic lender -- I mean, strategic player? And if you're allowed to do so, is that something you will consider?

[Theodore H. Torbeck:]

I'm sorry. We're losing you. We didn't hear the question.

[Sundar Varadarajan:]

On CONE, is there anything that precludes you from selling your stake to another strategic player?

[Kurt A. Freyberger:]

No.

[Theodore H. Torbeck:]

No, there's no restriction.

[Sundar Varadarajan:]

All right. And if that's the case then, is that something you would consider, too, as you look at your options to monetize?

[Theodore H. Torbeck:]

Like we said earlier, I mean, any of our assets that we have, for the right price, we would sell it. So absolutely, it is.

[Operator:]

And we'll take our final question from Jonathan Epstein with Deutsche Bank.

[Jonathan G. Epstein:]

On the Fioptics side, can you talk a little more about the competitive dynamics right now? So for example, as you try to take share, how much of the addressable cable subscriber population is essentially up for grabs by virtue of being either month-to-month or off contract? And then on the pricing promotions you mentioned, as you observe Time Warner Cable's response, do you think they look at you guys as either too small to make a dent or maybe as a worthy duopoly partner, or do you think things could get more aggressive as you build out further?

[Theodore H. Torbeck:]

Competition is strong. Time Warner Cable is our primary competitor in the entertainment Internet space. They have about 50% of the market, and they have meg speeds of about 50 megs. DISH is about 15% and DirecTV is about 30%. So we are cutting in and taking share from both, and we're seeing -- I think we're hurting Time Warner, to be exact, and I think they have not responded with aggressive pricing. They've responded with -- they continue to raise prices just like we do every year and -- but we are taking share from them.

[Operator:]

And that does conclude today's question-and-answer session. I would now like to turn the call back over to your host for any closing or additional remarks.

[Kurt A. Freyberger:]

Thanks a lot. This concludes our call for today. We'd like to thank everyone for joining us.