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Consolidated Communications Holdings Inc. (NASDAQ:CNSL)

Citi 2013 Internet, Media and Technology Conference Transcript

January 8, 2013 2:15 PM ET

Executives

Steve Childers - Chief Financial Officer

Analysts

Mike Rollins - Citi

Mike Rollins - Citi

… are available at the registration desk. Well, good morning to those joining us via the webcast. I’m Mike Rollins, Telecom Analyst at Citi. Our next fireside chat, we’ll take a deeper dive back into the wireline sector with Consolidated Communications. I’d like to welcome back Steve Childers, Chief Financial Officer of Consolidated Communications. Thanks for joining us today.

Steve Childers

Thanks, Michael. I really appreciate the opportunity to be here today.

Mike Rollins - Citi

Great. Well, Steve, maybe just to get us kicked off, you had very busy 2012 in a number of respects. Maybe to discuss you enter into 2013 what are your strategic and operating priorities are?

Steve Childers

Sure. I would be happy to do that. I guess, before I jump into 2013, as you said, we had a very busy 2012. We think we had an amazing year maybe just kind of do a highly level review of that before we jump into 2013.

First of all, we think we produced consistent -- very consistent results compared to the peer group throughout the year. We also did major acquisition which we close on July 2, 2012 with SureWest Communications.

We think that transaction really positions us very well for the future in terms of revenue growth, diversification of our revenue base and future cash flows. We are very -- and we are off to a great start on integration and synergies. I’m sure it’s going to be another question here in a second.

We also did refinancing at the -- during the fourth quarter of this year that extended our 2014 maturities out to again the 2017. So the net result of that as we have no current debt maturities until for five years -- until very end of 2017. We are very pleased with the overall transaction -- refinancing transaction there.

And we also end of the fourth quarter we have for those who might be new to the story. We have investments with five partnership interest with Verizon wireless. We were able to actually increase our ownership interest in one of those partnerships and increase in future cash flows from those partnerships and we are very pleased with that.

And the last thing is I think position as well for 2013 as part of the SureWest transaction. We also have $75 million in net operating losses that were part of that transaction. So going, looking forward to 2013 and probably 2014, which really going to have really diminish amount of cash taxes that we’ll be paying over the course of the next couple years.

So, with that background, we really think we are well-positioned going into 2013 and we really kind of so -- again based on results we had over a couple of years especially 2012, we really see 2013 being very consistent play book.

We are going to continue to focus on growing topline revenue particularly the assets from SureWest, really going to be focus on the broadband and business side of the business, and we are also, number two, we really be focus on SureWest, the synergy numbers in making sure we have the seamless integration. Again, we’ll talk -- hopefully we’ll talk a little bit more about that in a minute.

And then third, we just -- like we always do, we have maintained the focus to have the most competitive advanced serve products and services and the best service in all the market areas that we serve with the thought being if we do all the right things in terms of taking care of the business, taking care of our customers will put us in a position to continue to deliver and improve the payout ratio relative to the dividend.

Mike Rollins - Citi

Great. Thanks. And let’s talk a little bit more about the SureWest integration process?

Steve Childers

Sure.

Mike Rollins - Citi

Maybe to talk about steps that you’ve gone through, what’s next and how the things that have incremental synergy realization for 2013?

Steve Childers

Okay. Well, just to set back, the guidance that we’ve given or the outlook that we’ve given for our synergy target with SureWest is $25 million over the first two years from closing. We think we’ve come out of gate very quickly on that. We are off to a fast start. We know have $10 million basically at close of the transaction, another $2 million in the third quarter.

And again, that’s putting the cut start and put the companies together, difficulties -- removing difficult headcount, got some big savings as a result of management team going away.

So the rest is really going to be base on how we put the companies together from an integration perspective and based on all the hard work that our employees have done on both legacy SureWest and legacy Consolidated, and even starting before the closing of a transaction.

We have three major milestones in the fourth quarter. Basically Kansas City and California which were the properties that we acquired with SureWest, they were able to get on the common billing platform for SureWest.

We’ve also now have made the decision on what the billing platform for Consolidated is going to look like going forward, sort of the hybrid of, what we -- what legacy CCI was doing compared to what SureWest is implementing, that will probably take another year to get that fully behind us. We can go faster but we want to make sure we do it right and don’t cause any customer issues or revenue leakage.

And then, so those are two of the milestones, and then the third one is, we just completed at 12/31, there is still work to be done that we are now on one common release of people swap for all of our ERP systems, payroll, supply chain, general ledger, financial reporting, and again, we think that was a major milestone getting on one system.

So as we talk about the balance of the integration a lot of is going to be tied now to, first quarter there will probably be some opportunities in back office because of the people swap integration and then really the next major opportunity will be as we complete different phases of the billing process.

So, again, we still like that we are really on track and we are hitting on with timelines with respect to the integration timeline that we have establish and we are very confident that we’ll hit the $25 million in that three-year time period.

Mike Rollins - Citi

Because it’s been some time some investors may not realize that you were one of the pioneers of triple play IPTV on your own comp…

Steve Childers

Right.

Mike Rollins - Citi

… and you were very aggressive at pushing that out very early. Talk about the, now you’ve get fiber in some of the SureWest market. What’s been the difference for you guys and what have you learn from that experience relative to the IPTV experience in terms of getting customers, serving customers?

Steve Childers

Right. Well, it is interesting not because SureWest also had really in the ILEC market had a pretty strong copper IPTV play as well. And so, again, where we think that one of the key differentiators that we have based on quality of our network is the fact that we can deliver IPTV over our network. We’re not having to rely on our resale, satellite resale product that some of our peers are doing.

Again, we think that’s the testament to the overall quality and depth of our network, and particularly the speed that we can get out to our customers. Even in Consolidated or legacy Consolidated we were doing fiber-to-the-home in select markets, particularly in Texas and some of our more high growth, high income markets, if we had the opportunity to go in and build fiber in the network or in the community neighborhood and be the preferred provider, we do have fiber-to-the-home there.

So in Kansas, in the California markets we see that as a natural extension, if it’s a greenfield application it will -- we’ll build fiber where we need to, if were -- unlike what Verizon does, we are not going to go in, tear up a bunch of copper and pull that out, because we can get, in some of our market, depending on the location, we can get 20 mg of speed up to 65% to 70% of our ILEC access lines today in some of our fiber markets it’s 50 mg to 100 mg depending on the situation. So we think we can have the best of both world there.

Mike Rollins - Citi

Talk a little bit more about the competitive landscape, so you were not think of being able to provide IPTV if you know at certain density of the network and density usually also some degree of cable competition. It sounds like competition is shifting in the [hybrid] at all and what are you doing to stay in front of the competition there?

Steve Childers

Well, that’s a good question and we’ve seen probably more of a shift on the from cable guys, more shift on the business side. We have on the residential side. I think in all of our markets, the cable guys have been out there since at least 2008 with their voice product, that’s why we were so focused even prior to 2008 of what, as you said one of the pioneers in IPTV, that’s why we were so focused on giving video out in our markets before the cable guys launch with their voice. We think that has served us well in terms of the residential triple play.

Fortunately everyone is behaving I think pretty rationally and we like to think that based on our overall bundle, our quality of service and how we treat -- how we perform in our communities. We think we are the preferred triple play bundle in the markets that we serve.

On the business side, we’ve seen some of the cable guys, particular Comcast in some of our markets be a little bit more aggressive that’s why I think we are spending more time stepping up on. How do we improve the bundle? How do we -- get -- what do we need to put into the relationship to get maybe a little bit longer term to make sure we are protecting ourselves on the margin side.

Mike Rollins - Citi

If I think about the activities that you’ve done on the M&A front over the last couple of years, I think about in a couple of respects. Number one, trying to improve the fitness of your revenue, pro forma revenue and then the other part is balance sheet. If we focus on the revenue for a moment, how would you now rate Consolidated ability with SureWest to grow revenue on the go forward basis?

Steve Childers

Well, I think, we are, I think that’s a strong possibility and actually the way that we would think about it is on legacy Consolidated, if you normalize for couple of businesses that, we shutdown telemarketing operator services, if you think about our core telephone operations business with some of the already dilution that we’ve experienced in terms subsidies and access revenues over the last several years. We’ve probably been down 1%, 1.5% on normalized basis. SureWest is being growing at 4%, 5% prior to the acquisition.

We think that’s achievable going forward. Although, we will probably change the focus of their -- of that marketing plan from being so focus on residential to maybe be a little bit more balance with business and carrier type opportunities.

We do expect to see 4% or 5% growth out of those markets and then as we thought to migrate with the upcoming FCC continue dilution of revenue. We fully expect to be at least flat to up slightly maybe 1% on topline, which we think is 1% that sound like a lot but really considering the dynamics and competitive environment in a regulatory model now we think that would put us in an outstanding position.

Mike Rollins - Citi

So when you are growing revenue organically let’s call it at 1%, just take that scenario for a moment and let’s just say that you already done with the synergy realization from SureWest. Does that give you an ability based on the mix of services to maintain or grow margins or do you still have the shift in the mix where you have a little headwind because you might be losing some high margin in voice line or regulatory dollar revenue relative to adding dollar video revenue?

Steve Childers

No. That’s a good question. That is kind of the trade off in our business. The subsidy revenue that is at risk that essentially is 100% EBITDA margin, video, broadband are dot 100% margin products lower than that obviously.

But we are really, we think based on looking at -- we can improve product margins as they exist today have -- we have all kinds of opportunity on -- particularly on the video and some of the high-end business applications that we have. We still think we have even given the synergies on SureWest we still think we can continue to drive cost improvement and radar efficiencies throughout.

But, I guess, I would also remind you that prior to last year when based on the FCC order USF was kind of frozen based on 2011 level and we are fairly use to dealing with, again, just on the regulated revenue piece of our financial, seen that revenue kind of go down 5 million, 6 million, 7 million bucks a year and either based on new revenue opportunities with broadband as you mentioned to focus on business, take particularly our Metro Ethernet applications, as well the contribution we are getting from our wireless partnerships.

We’ve been more than able to hold cash flow even from an overall EBITDA standpoint and we do expect margins to improve overtime. Although with regulatory change or mix, there is a little bit pressure there.

Mike Rollins - Citi

Since you are on the regulatory, can you just help us think through the opportunity and risk to manage that revenue?

Steve Childers

Sure.

Mike Rollins - Citi

In my mind just focusing USF and FCC, there is probably three components, there is intercarrier comp which we are in the middle of the early innings if that reform pass?

Steve Childers

Right.

Mike Rollins - Citi

There is the USF and Federal that you know have some uncertainty around subsidies for broadband home?

Steve Childers

Correct.

Mike Rollins - Citi

And there is state USF and that piece which is separate that’s separate issue?

Steve Childers

Sure.

Mike Rollins - Citi

Can you give us an update on all three pieces that would be great?

Steve Childers

Well, I’ll begin with the state, because that’s a little bit more fun to talk to about I guess. But on the Federal U.S. set we basically have $29 million of total exposure. There is $25 million from the legacy Consolidated and $3 million, $4 million from legacy SureWest.

I think that and in my mind that is actually one of the key points of logic behind doing a SureWest transaction and in fact they didn’t have a very much in subsidy revenue coming over to us.

So the $29 million, again that’s about 4.5% of our Consolidated revenue today. We do not know to invigorate how much of that we will actually lose because as you know the FCC has not yet completed the cost mile that will determine what that -- how the revenues or how the subsidies will be changed from voice to broadband. We don’t -- we're sure we’re not going to keep it all.

We certainly don’t expect to lose it all. So probably a midpoint over two or three year transition period, maybe we have to think about it. And again we’re -- I don’t know if you have any colors and if FCC is going to complete the model but nothing would happen.

We’re still frozen at -- at the current levels for USF until July 1st of 2013 that would be the earliest that anything would happen and again delay by the FCC benefits us at least in the short term.

From the intercarrier comp perspective, we have $2 million in terminating switch access and there is -- that started actually July 1st of last year. We said comp went away. It started sort of mirroring the rates for interest rates and interest rates of over four or five-year period. In that’s $10 million will basically go away. We do have the right to offset with some split charges improving local split charges and ARC recovery charges and things like that.

There is also probably $2 million or $3 million of cost savings as we pay so many in excess to other carriers. So when we put all that together given the transition plan, the opportunities to offset some of them from a cost perspective as well and some revenue enhancement, we do not think is going to be a material at that part cash flow going forward.

The third leg is regulate revenues on subsidy. We have roughly $18 million to $20 million in total and that’s why it’s probably little bit high. Let me say 16 to 18, majority of that coming from Texas. We have a little bit coming in Pittsburgh from Pennsylvania as well. And again this has nothing, the State USF funding and the state USF funding has nothing to do with sort of the ICC orders that we were actually just talking about practice of its own sort of regulatory scheme. That process is looked at every two years to this point not being. Again to be clear, we’re in the small company fund.

You may have seen some other companies in our peer group that have gotten shift a little bit with changes in the big company fund in Texas. But at this point, we think that the Texas USF funding is pretty stable. Again we reviewed every couple of years. We think we have less flexibility in local rates in Texas if we needed to do something and Pittsburgh, that was really nothing under the floor but that could change there.

So again all net-net, there is going to be some changes in the regulatory miles coming forward. Again based on the transition period, we’re totally comfortable what the impact has on our cash flows and to the dividend payout ratio.

Mike Rollins - Citi

And what does this mean to you and to the investors from USF perspective that you were more aggressive in building out projects to higher percentage of whole new front before you were asked by the government. What does that mean from this USF perspective?

Steve Childers

This is me in tape direct. I have a lot of several comments on that. But again I think we have historically used the USF draw to advance broadband particularly in rural markets. So it’s like a lot of the sayings that people are now being asked to do. They didn’t invest in broadband and maybe more natural markets or whatever. But we really feel like we’ve already gone what the FCC is asking to do.

But at the same time, we use that money wisely. We make great investments in our network and that’s why we -- I would put our network and we did RCO is here today. I mean we would -- anybody want to talk to us about how good we think our network is, we are happy to talk to you after the meeting.

We can deliver advanced services over our network. I guess, with IPTV, very high speed of broadband. So we’re just going to continue to leverage that investment going forward. But I hope as the FCC determines the final cost mile, we can’t take the settlement in the consideration as they make a determination how much voice goes in broadband what you’ve already done with your network.

Mike Rollins - Citi

So the test that for [Google] fiber, one of the test beds in Kansas City. What is the level of overlap that you’re seeing with SureWest and what do you think competitively?

Steve Childers

Well fortunately, and like again we realized Google is a tremendous company with lots and lots of financial wherewithal and we never Google on that if there is anything in Kansas City. Our phones ring off the hook about what it means to our business. And to this point, it means absolutely nothing. There is no overlap today from a marketing or network perspective of where our footprint is in Kansas City compared to what Google is doing.

We’re primarily located in [Charleston] County which is primarily -- which is probably -- I think its fourth highest income county in the nation. They belong to Fortune 500 corporate companies based house in that area for the various flow and very upscale, high growth, high income. Google is in the different part of Kansas City, which is drastically different demographic they are targeting. And we understand they have a couple of customers. Now they’ve been added for two or three years and maybe we’re getting contractual in the market, I don’t know.

But from what we understand in next kind of customer wave at their some instillation perspective will be either late 2013 or ‘14. So there is no overlap. We don’t see them as a competitive threat but based on the quality of products we have -- we can get over to the next Kansas City customers from broadband perspective today. We think we have a very -- we found our products out there and our ability to compete against anybody.

Mike Rollins - Citi

In the portfolio you have which is in a few different markets across the country, which are the cities where you’re seeing the most competition and the cities where you get most satisfied with your competitive position?

Steve Childers

Well, we like to see less competition everywhere but I think it kind of flows with in our Texas market primarily in Conroe and Katy based on the proximity to Houston and the growth of those markets, the overall attractiveness of the market is probably a little bit more competition there. Again Illinois underpinned by agriculture, we do have a cable competition there but nothing unnerving I guess. And then PA is a great market. Really, our growth markets in Conroe, Katy, Pittsburgh and Kansas City are the one that are probably a little bit more robust.

But again there is not a situation that we’re staying up late at night worrying about because of the competency of our people, the great service that we deliver, how the investors we made in the network and services that were -- there too deliver.

Mike Rollins - Citi

As you mentioned earlier that you wanted to see little bit more mix of business services?

Steve Childers

Correct.

Mike Rollins - Citi

Maybe occurring specifically within SureWest, maybe more broader. You can give us an update on your CLEC strategy?

Steve Childers

Sure.

Mike Rollins - Citi

Maybe the things that you can do to elevate the amount of business exposure you have within the revenue portfolio?

Steve Childers

Well, that’s a good question. I think with the CLEC, ILEC, I think the way that we look at the business in all of our markets except Kansas City, I mean starting point was a 100-year old ILEC that made -- continue to make correct great investments in technology in network over a period of time. We’re now being able to leverage that but really I think we think about incumbent status which really doesn’t mean all that much today when you think about the regulatory model that we’re just talking about.

You think about kind of competitive dynamics of the market place. It’s all kind of the ILEC, CLEC is kind of a blur. So we really think about as one organization. We’re set up, organized functionally meeting. Our team support on all products, all markets across the footprint regardless of its CLEC or ILEC, the products and services really looked -- had the same look until regardless of where they’re located at. Go-to-market strategy is pretty much the same.

And more importantly, we were competiting against is really the same whether its in our traditional ILEC footprint or at the market what you might consider CLEC. So we’re really looking at enterprise like this is that with Consolidated Communication.

Mike Rollins - Citi

Can you give us an update on where you are with fiber-to-the-towers? How many (inaudible) and your collective footprint and I realize it’s probably a different story for where you’re the in-region incumbent?

Steve Childers

Yeah.

Mike Rollins - Citi

Versus where you maybe even searching? Give us maybe the size of the opportunity, how much share you have today, where you like to take that over the next couple of years?

Steve Childers

Sure. One point that I wish -- that I need to make, going back to earlier question on the business and broadband mix. Again one of the reasons we’re sure was transaction. It was their focus on broadband. We work as a combined company. Now we’re going to focus more on business. But prior to the transaction, probably 59% of our business came from broadband and business pro forma for the show was transaction.

We’re now at 73% and we think that’s going to add more lift going over. So I think -- Again we want to protect every residential sort of play relationship we have that we want to continue to focus on business on broadband going forward.

So on the towers that’s something that we think we’ve been very successful at both legacy Consolidated and SureWest. We actually benefited from wireless backhaul in three different ways. One is with our wireless partnership. As we’ve taken initiatives earlier, we have five partnership with Verizon, two in Texas, three in Pennsylvania. So as they go about and their explosion with LTE 4G applications. We’re drawing about $29 million to $30 million a year in cash flow to Consolidated as a result of that growth.

We’re also with the towers. We think we’re taking more than our share. We have something like $50 million under contract as we speak. It is like 650 different towers that we’re getting to now both inside our franchise and outside. And again, like you said we have a huge advantage with inside our footprint regardless of the market that we’re in.

But also based on the one that we’ve done out of footprint. I mean, as we look at the capital investment required for the cash flow that organically goes on and attack very short paybacks for. So we think there is -- again we don’t necessarily data that we’re looking at. We don’t necessarily see a slowdown in that type of opportunity. We’re going to continue to be very aggressive with the carriers in trying to help to offer that.

And then the third opportunity that we have on wireless backhaul is that we have 2500 mile footprint or transport network in Texas that basically touches all the major cities in Texas and we’re also providing a carrier-to-carrier solutions on that. Some of that are being driven -- some degree of buying via backhaul.

Mike Rollins - Citi

On the capital side, it’s sort of interesting. This is, I think, the last year of elevated CapEx for SureWest, is that right?

Steve Childers

Yeah.

Mike Rollins - Citi

And you got the extension of bonus depreciation. So what does that mean from what is NOL perspective or a cash tax perspective. I realize you gave us some indications earlier but does that bonus factored into your analysis there?

Steve Childers

Well, this is the $75 million in NOLs and factors in bonus depreciation at SureWest had taken through -- let's say 2012. I’m being a little bit conservative there. I think with the number but we haven’t really factored in bonus depreciation for 2013. That was just passed last week. So where we’re at with the NOLs we have, we think those will provide pretty significant shields for 2013 if not 2014.

We will -- our current think it is that we will like to take bonus depreciation for 2013 and that would just add the NOL whenever it got used say 2014 or whenever. So from a CapEx perspective, I think this year we’ve give pro forma guidance. That’s not again pro forma basis would be at 110 to 115 in total spend. We think that given just the synergies from putting the companies together, we’d expect to see $5 million to $10 million in synergies going forward.

We also -- SureWest at your point had invested very aggressively in network expansion primarily in Kansas City even before the transaction. They’ve given guidance that that was going to kind of slowdown. So we think beyond the synergy numbers that we’ve given there is probably another $10 million to $15 million overtime. If you come out of the CapEx and again I’m saying based on how proud we are of the existing network for services that we can already deliver how robust they are.

So we would continue to look for growth opportunities that we think was a path with CapEx to come down. We haven’t really talked about whether there is an opportunity to accelerate for investment based on bonus depreciation for 2013 at this point in time. But I think like the preliminary bonds and CapEx, we’re pretty much in line, I just outlined there.

Mike Rollins - Citi

As soon as investors think about dividend payout for you guys, they self reported free cash flow for the next couple of years?

Steve Childers

Well, the way that we think about compliance with the credit agreement, we always -- again our calculation is to be cleared back that the people do a different. They were looking as just the EBITDA minus CapEx cash taxes and cash interest.

We think and again the number has been in the way we calculated it low mid 50% to 60%. Again that’s what cash taxes being virtually nothing compared to based on bonus depreciation. We think we’re even with the regulatory headwinds, we’re still investing aggressively in CapEx. We just did a refinancing that lose interest cost up a little bit but we’re still pleased and leaving up to maturity.

We still think the payout ratio is kind of in the 60% to 65%. Again that’s what we’re obviously very focused on getting our cost synergy numbers on SureWest and growing EBITDAs and all the things we just previously talked about. So the way our board and the way our management team thinks about it, we’re sort of in that range of 60% to 65% payout ratio and leverage today given effect to a $25 million in synergies would be about four times. We thought we had a past to get to the mid -- kind of the mid threes in the next two, three years.

We’re comfortable with that but again we do come under pressure from the time on what our leverage number is. So we’re looking to address that.

Mike Rollins - Citi

When we look at future M&A opportunities, how do you think about trying to get more scale with ILEC assets versus (inaudible) enterprise or business asset?

Steve Childers

Sure. Well, again, there is a higher lot of discussion in our team about how we should be positioning net going forward. I mean, with SureWest it’s kind of less than cable assets. It is probably more of CLEC focus than a traditional ILEC. I think as we look at -- so let me be clear for the short-term, we are totally focused on SureWest, making sure that we had our integration timeline. We extract all the synergies we publicly committed to.

But while we’re still thinking about what the future might be. We are much more comfortable doing true play ROF based on the foundation going on the last three years, there aren’t that many of those out there. So I think, we’re thinking about fiber assets, the cable assets. How do you build on to where we’re sort of going to a new state, all the time. Are there opportunities to tack on interesting and to existing asset base. But again a lot of is really based on valuation, how we finance with 10% to 12% payout ratio when we’re at from a leverage standpoint.

And when the key decision are what’s the network, what’s our opportunity to make sure that we’re delivering very high speed on broadband video services and whatever in the coming business sight. So we’re -- I hope I’ll get a great answer for that. We’re evaluation on all opportunities.

Mike Rollins - Citi

We have the microphone roaming around if anyone has questions from the audience. While the microphone makes its round, can you describe the four that you took your ownership up to one of the wildest partnership to increase your income. And I think the for some when they hear they have wildest partnerships, some are surprised because it’s a legacy of the old teller business. And they’re able to increase that with also interest. Can you talk a little bit more about it. Are there hidden opportunities, we even get those ownerships in some of these partnership given up further or that kind of it.

Steve Childers

Well, I don’t if it’s there. We would certainly any opportunity that presented itself with those partnerships, we would certainly take a hard look. And again just -- we have five partnerships that I mentioned earlier. We own anywhere from 2% to 23% on an equity interest with Verizon being the general partner. There are -- again depending on the partnership they are anywhere from two to four other IOS owners just like Consolidated one.

Again we got -- we were able to maintain these interests as a result of the acquisition that we made for Texas and PA, respectively these partnerships have been existing since the mid ’80 on the SEC, we are trying to distribute the license.

So the way they set up is that a partner, non-Verizon partner wants to sell out then the other partners get the keep their -- they have first (inaudible) to maintain very existing pro rata share and we jump all over doing that. And again, the valuation for what we pay, what like six times wireless cash flows, which we thought was, which were, we’ll be very interested and continuing to repeat that.

So the opportunity, there won’t be, there is not the opportunity to invest in branding partnerships or anything like that, but to the degree that existing partners do in the five that we are in want to sell out at a certain point in time, we would strongly evaluate maintaining our interest.

And if, and I think, some time we did ask whether we would ever sell those partnership interest. We have such, and again, an offer maybe will get us to think about that. Again $30 million of cash flow that they hedge against our -- against our core business, also is our wireless strategy, if you will, I’m not sure we could the replace those dollar, but if you really think about that can, the $30 million of cash flow again into the calculation accounts, in our leverage calculation and if, we have such a historical low tax bases in this partnerships that even if we sold them, there will be, wouldn’t really do much, actually pay the tax piece of that, there really wouldn’t be a lot left to paydown debt, really be a meaningful deleveraging of that. We like them.

Mike Rollins - Citi

We have about minute for one question.

Question-and-Answer Session

Unidentified Analyst

Yeah.

Steve Childers

We can’t hear you?

Unidentified Analyst

Can you hear me?

Steve Childers

Yeah.

Unidentified Analyst

So have you learned any thing from the places where you have fiber to the premise from SureWest, let say on how the triple play churn rates for instance or how the product performance in general that would lead you to look at the places where you have poor broadband available on the copper network and selectively upgrade some areas?

Steve Childers

We have, again, we have learned from this, the two quarters we had running SureWest and have -- what response rates they have both in the copper footprint as well as fiber. But as I said earlier, we’ve already kind of experience that in our Taxes market where we’ve been able to build fiber-to-the-home going as an exclusive preferred provider for new community.

I don’t see, what, we are able to get 35 -- at least 35 mg in broadband out on our copper network today. We can probably with partner bond being other avenues that we have we can use that up if we need to for some new customer applications.

So even in the SureWest plan or Consolidated, their combine model and Bob, maybe, Bob will jump in here, but I’m not sure of any area today that we’re looking at that we are not getting the speed that we need over the copper network.

I guess, what I will say is, if it’s a greenfield application really we are probably going to do fiber but we are totally comfortable with the [loop links], the quality of the network and again, we’ve been thinking about this for multi years and we think we have first class copper networking to get the broadband speed that we need there today.

Mike Rollins - Citi

With that, that brings us to our time to say, Steve, thank you very much.

Steve Childers

Appreciate it Mike. Thank you

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Source: Consolidated Communications' Management Presents at Citi 2013 Internet, Media and Technology Conference (Transcript)
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