Cincinnati Bell Inc.
Q2 2015 Earnings Call Transcript

Published: 30 Jul 2015

[Operator:]

Good day, and welcome to the CBB Second Quarter 2015 Earnings Release Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Josh Duckworth. Please go ahead sir.

[Joshua Duckworth:]

Thank you, and good morning. I'd like to welcome everyone to Cincinnati Bell's second quarter earnings call. With me on the call today is our Chief Executive Officer, Ted Torbeck; and our Chief Financial Officer, Leigh Fox. Ted's comments will provide an update on our strategic initiatives and Leigh will provide a financial overview and discuss our quarterly segment results. Following Leigh's discussion, we will conduct a brief 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 recorded if you would 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 on the company's recent filings with the SEC, including 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 the 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 Torbeck:]

Thanks, Josh, and good morning. Thank you for joining us today. We’ve had a great first half of the year and the second quarter results continue to demonstrate this team's ability to execute against our objectives. If you turn the highlights for the quarter on Slide 6, revenue was up $3 million compared to a year ago, as the 20% growth in strategic revenue more than offset legacy declines. Adjusted EBITDA for the quarter totaled $75 million, and reflects the full impact of discontinuing on wireless operations. We are also excited to announce that we now provide Fioptics video services to more than 100,000 subscribers. During the quarter, we added 9,000 Fioptics Internet subscribers and ended the period with a record high 275,000 total Internet subscribers. In addition, during the quarter, the company monetized 14 million CyrusOne partnership units which resulted in a gain of $295 million. We also announced the sale of 6 million additional units which closed in July for cash proceeds totaling $170 million. Our CyrusOne strategy has worked and our patience is paid off. In total, monetization proceeds have exceeded $950 million and our two most recent transactions were executed during the period when CyrusOne was trading near its 52 week high. These monetization’s have improved our capital structure and eliminated our exposure to the volatility within the equity markets. Subsequent to the completion of the recent transactions, our remaining 11% stake in CyrusOne is highly liquid and valued at approximately $250 million. Following the most recent sale in July, our NOL balance is $500 million. Now turning to our business results. Two years ago we announced the strategy to transform Cincinnati Bell into a growing fiber based Entertainment, Communications and IT Solutions Company with the healthy balance sheet and sustainable cash flow. We have made great progress against this strategy. And in a short period of time, we have significantly reduced debt through the monetization of our investment in CyrusOne, successfully divested the wireless business and created momentum for growth through our strategic investments. Today we have added focus on simplifying our message. Cincinnati Bell effectively operates two separate but complemented lines of business. The first provides on-network solution through our entertainment and communication segment and the second line of business utilizes off-network solutions through our IT services, and hardware segment. Beyond network solutions within the entertainment and communication segment are provided to both consumer and business customers over networks within our geographic footprint. The off-network solutions within the IT services and hardware segment, focus on providing a variety of IT and infrastructure solutions to business customers without writing over our local network. For business customers within greater Cincinnati, we are able to provide a full suite of products that include hardware, on-network bandwidth, professional and staffing services and fully managed solutions which integrate various pieces of all these assets into an SLA driven service. Outside our geographic footprint, these customers are provided the same types of services without the integration to our local network. As noted on Slide 7, business customers account for approximately 70% of our total revenue and generate EBITDA margins approaching 30%. As mentioned in the past, on-network business customers continue to migrate from legacy copper products to more cost efficient Ethernet offerings. Our goal within this transition is to retain the customer relationship, and increase our share of the customers telecom and IT solution spend. This approach is working and as highlighted on the slide, our total business strategic revenues have continued to generate year-over-year growth exceeding 15%. Now moving to our consumer business on Slide 8. We operate in a constantly evolving competitive environment. In the first half of 2015, our largest competitor significantly increases promotional and retention efforts to increase its subscriber basis that are prepared to be acquired. Even in this heightened competitive state, our financial and operational results have been impressive, highlighting the superior quality of fiber assets. We remained committed to expanding our Fioptics network and during the quarter we passed 25,000 addresses with Fioptics, which is now available to 47% of Greater Cincinnati. Fioptics revenues increased more than 30% compared to a year ago totaling $45 million in the quarter. Video penetration rates have remained consistent at 27% and Churn was stable at 2.5% even as we aggressively expanded our coverage. ARPU for the quarter was up on average 3% compared to the prior year. These impressive Fioptics results prove that our fiber acceleration is working. Our fiber expansion enables innovation and growth for the region through technology and re-platform Cincinnati Bell with a future proof asset that will meet customer needs. In closing, I want to summarize that we are executing on our IR initiatives and continue to transform the company. Our strategy is working and we are on pace to achieve the high end of our financial guidance for the year. With each passing quarter, our success demonstrates this team’s ability to create a company with growing revenue, growing profits, significant cash flows and a healthy balance sheet. Now I would like to turn the call over to Leigh, who will provide additional detail on our second quarter financial results.

[Leigh Fox:]

Thanks Ted, and good morning everyone. Our strong financial results in the first quarter of 2015 highlight the continued demand for our strategic products from both our consumer and business customers. Highlighting on Slide 10, revenue for the quarter totaled $286 million, up $3 million compared to the prior year. Operating income totaled $30 million and adjusted EBITDA was strong at $75 million for the quarter and now reflects the full impact of no longer operating wireless business. Income from continuing operations totaled $181 million, including the $295 million gain on the sale of CyrusOne and a $14 million loss on extinguishment of debt. Income from discontinued operations totaled $11 million in the second quarter, as a result of transferring certain tower lease obligations through Verizon. Moving to our segment results starting on Slide 11. Entertainment and communications revenue for the quarter totaled $182 million, up $1 million compared to the prior year after excluding the loss of intercompany wireless backhaul revenue. On a sequential basis, revenue decreased as a result of a combined impact of shutting down the wireless operations and a decline in the sale of low margin Verizon handsets and accessories sold in our stores. Adjusted EBITDA for the quarter, totaled $70 million resulting in 39% margins that are inline with expectations when considering the cost absorbed from shutting down the wireless business and accelerating our fiber investments. Total VoIP lines for the quarter decreased by 5% compared to the prior year as our residential lines continue to be impacted by wireless substitution and increased competition. These declines were partially offset by growth in our business market voice lines, as customers continue to migrate from copper baselines to VoIP. Turning to Slide 12. The IT services and hardware segment generated revenues totaling $106 million for the quarter, up 5% from the prior year as a growth of strategic managed and professional services revenue offset the anticipated decline in hardware sales. Adjusted EBITDA for the quarter totaled $10 million, up from $6 million in the prior year resulting in margins approaching 10%. As noted on Slide 13, we have made significant strides towards improving our capital structure. Our leverage after adjusting for the most recent CyrusOne transaction and debt repurchases now stands at 4.1x. During the quarter we repaid $382 million in debt including a full amount outstanding on our senior subordinated notes and $45 million outstanding on our senior notes due 2020. Subsequent to the end of the quarter, we have repurchased approximately $110 million of additional senior notes. If leverage was further adjusted to include our remaining 11% ownership in CyrusOne, our leverage would be 3.2x. Moving to Slide 14. Free cash flow for the quarter was negative $35 million. Capital expenditures for the quarter totaled $75 million which included investment of $48 million in Fioptics, $14 million in success based fiber built for business and managed services project and $13 million in maintenance. Specifics to Fioptics investment, the Company spent $20 million pass an additional 25,000 new addresses, $60 million for installation and $12 million to expand core network capacity and for enhancing customer experience. Over the next several quarters, the company will be launching customer friendly product initiatives that will improve the channel guide, improve DVR functionality, and integrate over the top product offerings. Interest payments for the quarter totaled $44 million and cash dividends from CyrusOne equaled $9 million. For the year interest payments are now expected to total $110 million and dividends from CyrusOne are now anticipated to be $22 million after considering our new ownership percentage. On an annualized basis, interest payments are now $80 million and CyrusOne dividend now stands at 10 million. Second quarter free cash flow includes pension and OPEB payments of $10 million and we expect full year payments to total approximately $20 million. In closing, the improvements we have made to our capital structure have significantly reduced our risk profile and expanded the options available to further create shareholder value. The growth in our strategic products continue to be impressive as we head into the second half with tremendous amount of momentum. We're confident in our ability to achieve our high end of our financial guidance as we continue to progress towards achieving our strategic objectives. This concludes the prepared remarks for today's call. Thanks for listening. We will now open the conference up for question.

[Operator:]

[Operator Instructions] We’ll take our first question from Simon Flannery with Morgan Stanley.

[Unidentified Analyst:]

Hi, this is Spencer for Simon. Your Fioptics metrics were really impressive, given the context of weaker numbers and where you restricted for the Bills last week and then also pretty good numbers from the cable players. What you think is resonating in your market in orderly that you're seeing in the profit and the private competition?

[Theodore Torbeck:]

Well, thanks for the comments. We were very proud of the accomplishments we executed on in the second quarter. We think that we got a superior product. We think fiber is better than Fioptic, than Cable and the execution that we have were, we have a lot of momentum, there is a lot of positive vibe in the community about our product and we are executing very well. So, we are offering very competitive offers and all that combined is leading the continued growth.

[Unidentified Analyst:]

And if cable being more or less competitive these years?

[Theodore Torbeck:]

They are more competitive. They've been fairly aggressive, especially since the - for the last year and a half, it's been pretty consistent. They have been very competitive.

[Leigh Fox:]

That said Spencer, we haven't seen, since the first quarter, we haven’t seen any type of significant change in promotion. When they announced the acquisition, it became pretty competitive and it’s been pretty stable at that level.

[Unidentified Analyst:]

Great. Thank you.

[Operator:]

We’ll go to our next question from David Barden from Bank of America Merrill Lynch.

[Unidentified Analyst:]

Hi guys, its Jose in for Dave. Thanks for taking the questions. In the release, you know your position to hit the high end of the plus or minus 2% range from guidance. And the EBITDA level implies the second half will stay kind of where 2Q was. Just want to confirm this is what you’re staring for the second half.

[Theodore Torbeck:]

Yes, that's where we are staring. We are staring to the high end which is a pretty stable second half.

[Unidentified Analyst:]

Okay, great. And then you mentioned about enhanced capital structure with the CyrusOne stake. Could you just clarify what that means precisely? What kind of actions or possible now that weren't before?

[Leigh Fox:]

Thanks Jose. The enhanced capital structure we’re really discussing is just the lowering of overall leverage. Over the next few quarters, you’ll see us make more moves. Until we address the credit agreement and items down the term loan, the specifics around what you would be looking for really won’t change. But as we further near, we’ll continue to look at markets and where, especially the high yield market is and will possibly make further moves but right now, we have been really successful on paying down debt and we’re going to continue to be patient and pay it down and continue to watch the market.

[Unidentified Analyst:]

Great, thanks so much.

[Operator:]

Our next question comes from Batya Levi with UBS.

[Batya Levi:]

Great, thank you. Just a follow-up on the Subscriber trends that you saw this quarter. Time Warner Cable actually also reported very good numbers and they were increasingly more promotional they said in the quarter and I noticed that your voice ARPU was slightly lower. Where you tweaking any of the bundles? Is that how some of the subscriber metrics were driven? And also wanted to see if there is any impacts from maybe better housing trends that also helps that and churn in the apartments remains elevated, can you give us a sense of what percent of your subscribers are on that and also if you are attacking that segments in a different way to lower to churn. Thank you.

[Leigh Fox:]

Hi Batya, it's Leigh. On the ARPU question on voice, I think what’s you’re seeing is kind of a gradual waiting shift of sales, as legacy voice declines and sales of Fioptics pick up, obviously we’re more competitive with the voice attach rates with Fioptics. And as revenues are assigned within the bundle, it is a more competitive price and has been for a while. So there haven’t been short term changes in that. I think what you’re saying is effectively the waiting shift as that base shift a bit. I can answer the housing market strong.

[Theodore Torbeck:]

It's strong and it continues to grow, its more growth than the north of the city, that’s where its headed, and we have product to support that growth. The churn elevation every time of this year, July and June, June, July is really the moving season and so it is cyclical and seasonal based on that.

[Leigh Fox:]

The percentage of our base is - around 30% of our base is in the MDU market, now obviously that is shrinking we are selling - the majority of our sales today incrementally are to FFUs but if you remember we started the Fioptics strategy in the MDU space as a test to see that we could actually be successful in this business. So we do have a higher percentage in the MDU space but that is lowering over time.

[Batya Levi:]

Okay. And one question on the wireline revenues down slightly on a sequential basis, I’m assuming that is mostly the wireless backhaul pressure. Can you quantify the impact in the quarter and when do you expect that pressure to start to lift?

[Theodore Torbeck:]

While there is actually two things, one is the backhaul and that's about $4 million. Then we also have handset sales of - Verizon handset sales and that was about $2 million.

[Batya Levi:]

And the backhaul pressure should that start to rate going forward?

[Theodore Torbeck:]

Yes, it should. Third quarter we expect to be fairly level.

[Leigh Fox:]

But Batya we are seeing the same pressure on our carrier side as most of the other carriers are seeing. The big carriers during network roaming, there is price competition that 's not changed, that's been pretty consistent for the last year or so. So we see the same thing they are but the big jump that we see the $4 million was a tier jump specific to us getting fully into discontinued operations from running the wireless business. So, the way GAAP work, because we were still operating technically in wireless business in Q1, we had to recognize that backhaul revenue and as soon as we got out that went away.

[Batya Levi:]

Got it. And then one final question on the IT services side, that segment doesn't get a lot of attention but it has been growing very nicely, I was wondering how you think about that segment more strategically going forward and lumpy – I desire lumpy but it has been contributing more on the cash flow side also. Is there anything you could structure in that business that could actually expand margins?

[Theodore Torbeck:]

First of all we’re very bullish on that segment. It is the segment that we have taken out of territory. We now have a presence in Columbus, Louisville and Indianapolis. We have been extremely successful and winning business even though we don’t have a network offering there. We’ve just recently won three big VoIP deals at our territory. We won the State Indiana, State Kentucky and a large enterprise there - so all three of those were in the process of finalizing the documents and we won that. Yes we expect continued growth. It is a big area focus for us and we’re excited about the performance we have generated.

[Batya Levi:]

Okay. Thank you.

[Operator:]

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

[Frank Louthan:]

Great. Can you talk to us a little bit about the outlook for small cell business in Cincinnati Bell and no places where you have fibers there? How are those contracts going, is it potential uptick of CapEx if you get that some more of those contracts.

[Leigh Fox:]

Hi Frank, this is Leigh. Yes, it's going very well in territory. We only see one of the major carriers extremely active from a built standpoint and we just -Ted and I had just paid a visit to that carrier recently and I think they are overjoyed with the performance at Cincinnati Bell has given them in that space I think we’ve mentioned in the past our ability to combine our networking experience in our wireless experience. I think is a clear differentiator. I think our promise, we remain in the market and the thing that we hear from especially that carriers, we wish we were in another markets. But as the market grows and other carriers getting a little more aggressive, I think we have a clear like to win in the area and we will ago as aggressively as we need to go in that space. It is slow going now as you’ve probably seen across the nation. I think most of the carriers are still figuring this out and I think they probably feel it’s going pretty aggressively because it is, but it’s going to be a slow roll-out from the standpoint of actually kind of delivering numbers to folks like us. It will mean - eventually it will mean accelerate CapEx, but the returns are nice and we feel like it's definitely in an area we can grow in the future.

[Frank Louthan:]

Okay, great. And did you announce or quantify with this VoIP contracts over the state governments?

[Leigh Fox:]

No, we haven't.

[Frank Louthan:]

Care to do so

[Leigh Fox:]

No we don't know.

[Frank Louthan:]

Okay. All right. Can't blame me for asking. All right thanks a lot.

[Operator:]

We'll take our next question from Barry McCarver with Stephens Incorporated.

[Barry McCarver:]

Hi, good morning guys, and thanks for taking my questions. Just a little more color on the managed services, obviously we don't want to talk about any specific contracts, but can you give us an idea of what are some of the most popular services that are being taken out of that bucket? As already been stated we are seeing nice stable growth in the business. And then can you comment upon just how long term margins of some of the deals that you are seeing that are better off that contracts. Thanks.

[Theodore Torbeck:]

Thanks Barry. In the managed services space, the popular products are really managed voice. So as company's state agencies move to a future voice strategy, a lot of them don’t look at voices being core so they want providers like Cincinnati Bell to provide better utility. So we see that as one of the more popular areas. Also managed infrastructure, server and storage infrastructure and the management monitoring around that, and the outsourcing around that environment is another big one. With certain customers we see, as you kind of tick down from those two. We see VDC, Virtual Data Center and certain customers we have a very - I think well developed Virtual Data Center product, but that’s really - we are seeing success in more mature enterprise companies in that area. With respect to margins, these are fairly capital intensive upfront endeavors. So what you see is, you see a capital investment upfront and then you see as you implement, and you start to especially like in VoIP services. As you see implementation and handsets being taken down by the businesses, you will see increased margins over time. And margins are actually pretty attractive given the capital investment upfront and the fact that we can manage most of it from a semi-centralized operating platform, does that make sense?

[Barry McCarver:]

Absolutely. That’s really good color. Thanks guys.

[Leigh Fox:]

And the capital spend is, it's a success space. You're not spending the money until it’s - until you have the deal.

[Theodore Torbeck:]

And the other thing to highlight the difference between the businesses beyond the business - in the managed services business the capital is a lot less than what you are used to hearing about with respect to like entertainment communication. So, it is capital intensive, but from a competitive standpoint the intensity is a lot lower.

[Barry McCarver:]

Is the payback period on that capital pretty quick?

[Leigh Fox:]

It's a lot, yes it's a lot quicker.

[Barry McCarver:]

Like one year.

[Leigh Fox:]

No, not that quick.

[Theodore Torbeck:]

Not that quick but it's a good return.

[Leigh Fox:]

It's within contract terms.

[Operator:]

And we'll go to our next question from Sergey Dluzhevskiy with Gabelli & Company.

[Sergey Dluzhevskiy:]

Good morning guys. So on the competitive environment obviously strong Fioptics numbers, especially in light of pretty intense competition from Time Warner Cable. As you look out six to 12 months, how do you expect competitive environment to evolve and as you compare Chartered to Time Warner Cable, whether sound of things that you've potentially see in your markets at the high-low.

[Theodore Torbeck:]

Well I think some of the things that we’ll see is Chartered offers a very simple product offering. Right now it’s like 60 meg for 39.99 in other areas. They are going to have some work to do when they get here to upgrade the network. But we expect to have very competitive offers and they’re going to tied in the speed. But I think we are very well positioned to compete with our fiber product and so that's what we expect. We expect simpler offerings and they're going to focus on speed.

[Sergey Dluzhevskiy:]

Right. And in terms of potential shareholder returns obviously with every chance of CyrusOne being monetized, the leverage is coming down and eventually it will be around three times and probably even lower. So how should we think about shareholder returns if you look out over the next 12 to 18 months?

[Leigh Fox:]

Yes Sergey. We’re still very focused in the short-term on paying down debt as a part of capital structure. But as mentioned in the past, we’re starting to change and shift focus to the equity and looking at strategies on how to boost equity as a form of currency. And I think you’ll see things in the kind of a mid-term from us but I think we've said in the past that we're more inclined around buybacks than we are at dividend. So as we inch closer, we look forward to the opportunity to execute on some of those strategies.

[Sergey Dluzhevskiy:]

Thank you.

[Operator:]

We’ll take our next question from Jennifer Fritzsche with Wells Fargo.

[Jennifer Fritzsche:]

Great, thank you. Many of my questions have been answered and I know a lot depends if you hit your lower leverage targets. But as we look down the road in terms of M&A, are there - we just have it even on your radar there is so much to do right now. And if so, kind of would you look at like tangent properties in the fiber space. And then any sort of comment on any demand for Dark Fiber if you are seeing that in the market right now. Thanks very much.

[Theodore Torbeck:]

First of all the - your first question yes, we have a big focus on that and we’re seeing great growth dark - was it Dark Fiber. Dark Fiber I think Leigh alluded to in our city we're seeing primarily one carrier that's coming out with contracts, but we’re starting to see interest from other carriers and he alluded to that net with a large carrier last week, it was very bullish on our performance. They were very aggressive in trying to get us to travel outside of our Cincinnati areas, to help them and we'll look at those opportunities.

[Leigh Fox:]

Jenifer we’re seeing - we are not only seeing Dark Fiber opportunities in that area but we’re also seeing opportunities to expand outside of the region with Dark Fiber. So there are, there are opportunities we’re finding to today that would expand our footprint through an IRE structure. And with respect to M&A, we've always been curious. I think - if you look at the two assets that we have on-net and then IT solutions the off-net, it mentioned we’re seeing great success in IT Solutions and on the network. On the network side, I think we have to focus on finishing the build. On the IT Solutions side I think there is opportunities that we could look at over the next several months and expand our footprint, our presence there and I think it’s underserved area. We're huge fan of that segment and I think we need to boost that in the attention of that segment for in the future. If you look at competitors on the market, I think we do a fairly good job on the higher end of those services and yet it still trades, at CBB's multiple right, where its competitors and then recent transactions traded all higher. So we think there's opportunity there but we’re obviously causes given everything going on.

[Theodore Torbeck:]

And Jenifer we have a lot of work to do to execute on what we're doing now. But we’re always open to look at M&A and as Leigh alluded too there his opportunities.

[Jennifer Fritzsche:]

Thank you, both.

[Operator:]

We’ll take our next question from Barry Sine with Drexel Hamilton.

[Barry Sine:]

Good morning gentlemen, a couple of questions if you don’t mind. At the beginning of you script, I think you talked about upgrading the user interface on the TV product. I've seen other carriers that have made those changes seen uptick in ARPU, so I'm curious what do you have now, are you moving to a different vendors or just the different version of that, and then what are the benefits - higher take rate on paper view etcetera.

[Theodore Torbeck:]

Well, we’re not going to get into what we have now but we’re looking at a new vendor and we’re very excited about the potential, we are in the process, I think we got about 350 customers on the product right now and we are seeing a lot of positive response. So we are very bullish on what we are trying to accomplish there.

[Leigh Fox:]

Barry the guide piece that we are working on, one the improvements as we look at certain customer surveys, the surveys are coming out to being very comparable or slightly better than even some of like DirectTV. The improvement also allow us to integrate with other vendors also and you heard us mentioned DVR, enhanced DVR solutions, over-the-top solutions, so that is direction - we understand that that's a direction the industry is going. And so the improvements that you will see allow us to integrate the platform across the board. And also just on a personal note, the channel speeds are unlike anything you have seen. So the channel guide piece - is unlike anything you have ever seen. So at this point zero to no delay and channel guide switching, so it is just little things like that that we focus on making improvements around.

[Barry Sine:]

Okay. And that's very helpful. Could you give us an update in terms of the installation process and cost, are you using wireless in home and what are you seeing right now in terms of cost as you install a new customer, just help us in terms of modeling?

[Theodore Torbeck:]

Cost install has stayed pretty consistent in the 750 to 850 range depending current install. From a wireless standpoint, we do use it but we don’t use across the board something that we are developing - technical side of the company does have a focus on improving the installation from a cost basis standpoint and wireless would be big part of that.

[Barry Sine:]

And then a question on over-the-top, Verizon is about the enter the market with their own offering. How has your marketing strategy evolved to address that and how are you take rates, a number of carriers you're seeing less take on video but more higher broadband speeds, so customers can support their OTG. What are you seeing in your market and how are you addressing your strategy?

[Theodore Torbeck:]

We are seeing some of the same things and it is over-the-top we hope to have that operating up early next year, and we see that we will be able to offer a product that will be good, better, and best. And we'll be able to customize it to whatever the consumer would want and that's kind of how we’re adjusting our marketing around that piece. The good part of it is, we have a pipe that today that we can get a gig service to a consumer. So the build out and the continued - we’re about 47% of the city cover, we’ll have by the end of the year hopefully close to 55% and on our way to 70% to 80%. So we’re going to have the pipe that can handle it. We’re going to have a product offering that we can customize based on what the consumer wants.

[Leigh Fox:]

And on the impact of broadband, we've seen just in the past year in peak hours I believe hold me to it, but I believe it's like a 20% increase in broadband usage during peak hours. So, it’s definitely having an impact on broadband use.

[Barry Sine:]

Okay. My last question. Could you give us a sense in your particular markets on DirectTV obviously the AT&T acquisition has closed and, it sounds like AT&T is getting where reinvigorate marketing efforts with DirectTV. So I don’t know if you know the satellite penetration in your markets is it more or less than the national average and what is your marketing sell point vis-à-vis a satellite video solution?

[Theodore Torbeck:]

Well their penetration is about 25%. We are actually a seller of DirectTV in our market and obviously with our product in Fioptics we do compete in some areas and our focus clearly is on Fioptics. But again we’re prepared based on the product that we have. We’re focused on continuing to improve it and offering solutions to customers and consumers that meets our demand.

[Barry Sine:]

Okay, great. Thank you for addressing all my questions.

[Operator:]

And with that, this concludes today's question-and-answer session, as well as today’s conference. We appreciate your participation. And you may now disconnect.