Cincinnati Bell Management Discusses Q2 2013 Results - Earnings Call Transcript

Aug. 8.13 | About: Cincinnati Bell (CBB)

Cincinnati Bell (NYSE:CBB)

Q2 2013 Earnings Call

August 08, 2013 10:00 am ET

Executives

Kurt A. Freyberger - Chief Financial Officer

Theodore H. Torbeck - Chief Executive Officer, President and Director

Analysts

David W. Barden - BofA Merrill Lynch, Research Division

Simon Flannery - Morgan Stanley, Research Division

Frank G. Louthan - Raymond James & Associates, Inc., Research Division

Ana Goshko - BofA Merrill Lynch, Research Division

Batya Levi - UBS Investment Bank, Research Division

Adam Abbas

Davis Hebert - Wells Fargo Securities, LLC, Research Division

Ben Fenton

Operator

Good morning, everyone. Thank you, all, for holding and welcome to Cincinnati Bell's Second Quarter 2013 Earnings Release Conference Call. Your host for today's call will be Kurt Freyberger. [Operator Instructions] Today's call is being recorded. At this time, I would like to turn the call over to your host, Kurt Freyberger. Kurt, your line is now open.

Kurt A. Freyberger

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. This morning, Ted will provide an overview of the second quarter results and the progress we are making with our strategic investments. I will provide details around the second 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 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 in 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 H. Torbeck

Thanks, Kurt, and good morning, everyone. Thank you for joining us today. Our highlights for the quarter are provided on Slide 6.

We closed the first half of 2013 on a very strong note, generating second quarter revenue of $312 million and adjusted EBITDA of $104 million. Our Fioptics team delivered a remarkable quarter, highlighted by the all-time highs for entertainment and high-speed Internet subscriber activations. Fioptics revenue for the quarter was $24 million, which is up 50% over the prior year. These results are a strong indication of the continued demand for this product and are a key component to the outstanding consolidated results presented on Slide 7.

The strong second quarter results achieved come on the heels of an equally impressive first quarter. As you'll recall, in January of this year we completed a successful IPO of CyrusOne and continue to retain a 69% economic interest in this business that is currently valued at approximately $900 million. After the IPO we no longer consolidate the results of CyrusOne but rather report it as an equity method investment.

Excluding CyrusOne, year-to-date revenue was $622 million and adjusted EBITDA was $214 million. Our adjusted EBITDA for the first half of the year includes $7 million of mark-to-market gains associated with our compensation plans. As such, on a normalized basis, our first half adjusted EBITDA totaled $207 million, very strong results that put us on track to obtain our full year EBITDA guidance of $390 million. The impressive quarter and year-to-date performance are a direct result of the investments we are making in fiber and strategic products.

On Slide 8, we have provided a breakdown of our revenue categories to further illustrate the positive impacts that these investments are having on our results. Revenue from our strategic products totaled $91 million for the quarter, which is up 16% compared to the prior year and 7% from the previous quarter. I am very pleased to note that the $12 million quarterly growth achieved as a result of our strategic investments fully offset the decline from legacy copper-based products. This is very exciting and reinforces our belief that Wireline is poised to achieve year-over-year revenue growth in 2014, especially when you consider the ongoing demand for Fioptics and increased demand for additional bandwidth from our business customers.

Our Fioptics results are highlighted on Slide 9. During the second quarter, we added 5,600 Fioptics entertainment and 6,100 high-speed Internet subscribers, both of which reflect our highest on record. As previously mentioned, Fioptics revenue for the quarter was $24 million, up over 50% compared to the prior year. The revenue growth generated in the quarter resulted in a $3 million increase in Fioptics' adjusted EBITDA. We finished the quarter with 63,000 Fioptics entertainment subscribers and 67,000 Fioptics high-speed Internet subscribers, both of which are up more than 35% compared to the prior year. These results are outstanding and, as you might expect, the key metric indicators continue to be very positive, as well. Total penetration remained high at 28%, similar to our first quarter results, and we continue to see significant improvements in our ARPU once neighborhoods are mature and promotional rates have expired.

Our consumer household ARPU for the quarter was $138, up from $130 in the prior year. More importantly, ARPU in mature single-family neighborhoods that no longer have a mix weighted towards promotional pricing was $156 in the second quarter of 2013, which is up 3% from a year ago.

Finally, our churn results reinforce our belief that consumers prefer our product. Our second quarter churn in single-family neighborhoods was 2% while churn for apartments was 5.5%. During the quarter, we passed an additional 18,000 addresses with our Fioptics suite of products. For the year we have passed 33,000 units, keeping us on target to achieve our goal of providing Fioptics to 35% of Greater Cincinnati by the end of the year. Our current view is that we can pass 60% to 70% of Greater Cincinnati over the next several years and achieve returns of approximately 20%. However as we've previously stated, all of our investments are success based and we will continue to monitor the key metrics and cost to deploy the fiber. In the event that we identify trends indicating that high returns are no longer probable, we would cease any further investment in this product.

Moving on to Slide 10. The buildout of Fioptics continues to upgrade our entire network by improving the data speeds for our copper-based product in areas around the fiber deployment. As a result of these upgrades, we are now able to provide at least 10 MB of speed to more than 50% of our market. Customers upgrading to these speed levels have increased by 57% year-over-year. This is important because of the significant churn benefits. Where we've done a DSL upgrade, customer churn in upgraded areas is 1.6%, a very strong metric that is 60 basis points better than in areas that are not upgraded. The discussion regarding consumer demand for increased speeds is very similar to the trends we are also seeing in business and carrier markets.

As noted on Slide 11, the investments we are making in fiber to improve the solutions offered to our enterprise and mid-major business customers are having a noticeable effect. Strategic business and carrier revenue totaled $67 million in the quarter, an increase of 7% from last year. This increase is coming from strong enterprise demand for faster data speeds, growth in cell site backhaul and increases in our managed and professional services. We currently have approximately 4,300 business addresses lit with fiber, more than 5x our closest competitor in Cincinnati, and we are well-positioned to meet the expectations of our customer base.

In addition to our current footprint, we have targeted 400 more MTUs in our market to which we can efficiently expand our fiber services and achieve a high level of penetration and return. To further differentiate ourselves, I would remind you that we are in the process of combining our Wireline business group with our IT Services and Hardware group. This integration enables us to more effectively go-to-market by providing our customers an end-to-end IT and telephony solution with 1 trusted partner.

In addition to our service offerings, we are also able to efficiently procure their hardware needs through our network of premier vendors. Quarterly revenues from these products typically range between $50 million and $60 million. These hardware sales require no capital but are important to our existing business customers and help us develop an initial relationship with prospective clients.

My comments thus far have been focused primarily on our Wireline and IT Services segment. Before moving on, I would like to briefly discuss our Wireless business. First, though, I'd like to commend the remarkable efforts of this team. For the first half of the year, Wireless has generated $39 million of adjusted EBITDA, including $19 million in the second quarter. Despite the backdrop of continuing postpaid subscriber losses, our team has remained focused on cash flows and profitability and maintained solid adjusted EBITDA margins of 37%, comparable with the prior year. We continue to evaluate all of our options for maximizing the value of this business and will keep you informed of any new developments as they occur.

Now turning to our investments in CyrusOne on Slide 12. Last evening, they reported 18% year-over-year growth in top line revenue as well as 8% growth in adjusted EBITDA for the second quarter. The CyrusOne team confirmed that it's still on target to achieve its 2013 full year revenue guidance range of between $260 million and $270 million and the range for adjusted EBITDA guidance of $133 million to $137 million. We remain confident in CyrusOne's ability to execute on their plan. We also believe that demand for Data Center Colocation will continue to be robust. The monetization of our 69% interest in CyrusOne remains a key component in our strategy to reduce our debt levels to a range appropriate for a telco. We will be diligent in our approach and engage in a modernization process that balances our desire to maximize proceeds with mitigation of downside market risks.

In conclusion, I am very pleased with our quarterly and year-to-date results. We are excited about the growth prospects for Fioptics and our fiber solutions for business, as well as our investment in CyrusOne, all of which have a critical role to play in our success. We believe these high-return investments in our strategic products will lead to Wireline revenue growth and will, over time, create a vibrant, fiber-based growth company capable of generating significant sustainable free cash flows that provide us strategic optionality for paying dividends, repurchasing shares, repaying additional debt or investing further in high-return business growth.

I will now turn the call back to Kurt to provide more detailed review of our results.

Kurt A. Freyberger

Thanks, Ted. I will begin my portion of the presentation with a review of our segment and consolidated results and then provide an update on our financial position and cash flows.

Starting with Wireline on Slide 14. Revenue for the quarter was $182 million, a $2 million improvement over the previous quarter as we move closer to our revenue inflection point. Adjusted EBITDA for the quarter was $84 million, comparable with the first quarter of 2013 and down $4 million year-over-year. We continue to see the benefits from our fiber investments as the growth from these products partially offsets the revenue and adjusted EBITDA declines from our higher-margin access line loss. As a result, Wireline EBITDA margin was 46%, which is down compared to the 48% margin achieved in the second quarter of 2012. Access line loss was 8.1% for the quarter, in line with prior year results.

Our high-speed Internet results for the quarter are presented on Slide 15. We ended the quarter with a record 262,000 high-speed Internet subscribers as we continue to win market share with our Fioptics products suite. For the quarter, gross activations of DSL and Fioptics high-speed Internet subscribers were up 21% year-over-year and resulted in net activations of 1,500 subscribers in the quarter. High-speed Internet churn was 2%, comparable to the first quarter of 2013 and up from 1.8% the second quarter of 2012 as the buildout of our Fioptics network continues to mitigate the DSL subscriber loss.

As Ted previously described, we continue the process of integrating our Wireline business group with our IT Services and Hardware segment. In addition to enhancing our product offerings, we expect the integration will result in approximately $5 million of annual cost savings. In addition, we recently completed a process that focused on rightsizing our corporate functions in consideration of our smaller size subsequent to the IPO of CyrusOne. We have already started to implement various aspects of this study and, although the full implementation is expected to take 18 to 24 months to complete, we expect that once fully implemented this program will result in total annual savings of approximately $10 million.

Our Wireless results are presented on Slide 16. Wireless revenue declined by 16% to $52 million for the quarter, driven largely by the loss of postpaid subscribers. In addition, prepaid ARPU is down 9% as Lifeline subscribers now account for approximately 35% of our prepaid subscriber base and are migrating to lower rate plans. Partially offsetting these declines, postpaid data ARPU of $19.30 in the quarter was up 13% over the prior year as the percentage of postpaid subscribers with smartphones increased to 43% at the end of June. Postpaid churn was 2.5% in the second quarter, a slight improvement from the first quarter of 2013. Wireless adjusted EBITDA for the quarter was $19 million, resulting in a solid adjusted EBITDA margin of 37%.

Slide 17 details the results from the IT Services and Hardware segment. Revenue for the quarter was $86 million, an increase of 11% compared to 2012, which was attributable to 13% growth in hardware sales and a 9% increase in revenue from managed and professional services. Adjusted EBITDA was $4 million in the quarter resulting in an adjusted EBITDA margin of 4%, both of which are comparable to the second quarter of 2012.

Our GAAP-consolidated results for the second quarter 2013 are provided on Slide 18. Revenue for the quarter was $312 million and operating income was $47 million. Net income of $1 million was recorded in the quarter and included restructuring charges of $8 million driven largely by the organizational initiative I highlighted earlier, IPO-related compensation of $7 million mentioned on the last call as well as our proportionate share of CyrusOne's net loss, which was $5 million for the quarter. In addition to these special items, we also recognized a $600,000 curtailment gain as a result of freezing the remaining future service credits associated with our management pension plan. The impact of this decision is expected to reduce our pension contributions by approximately $1 million annually beginning in 2014.

Slide 19 provides details for our free cash flow in the quarter, which, in addition to EBITDA, is impacted by interest payments totaling $58 million, capital expenditures of $45 million, pension and no cap payments of $10 million, cash dividends received from CyrusOne of $7 million and other working capital items. The free cash flow results do not include IPO's success payments made to employees during the quarter, which totaled $43 million.

An analysis of our second quarter and year-to-date capital expenditures is included on Slide 20. Year-to-date, we have spent $37 million on the Fioptics and another $15 million on strategic business growth products. Investments in these strategic products generate high returns and we are very encouraged by the positive customer response. It is our expectation that these investments are the cornerstones for our Wireline growth in 2014 and beyond.

Slide 21 provides a view of our leverage position. We ended the quarter with $2.2 billion of net debt that results in a leverage of 5.6x our 2013 EBITDA guidance. However, if net debt is reduced for the market value of our investment in CyrusOne, the adjusted leverage ratio would be 3.2x 2013 EBITDA guidance. We continue to believe in CyrusOne and the demand drivers for growth in the data center industry. As we have stated previously, our goal is to monetize our remaining investment in CyrusOne and use the proceeds to repay debt to levels appropriate for a telco. As a reminder, the lockup from the IPO expires in January 2014. The tax basis in our CyrusOne investment is $600 million and we have $1 billion of NOLs to shelter tax gains on the CyrusOne monetization. Over time, we expect that the growth from our fiber investments and the reduced interest payments from our deleveraging strategy will enable the company to generate significant sustainable free cash flows.

In closing, growth trends from Fioptics and our other strategic services had contributed to a strong start in 2013. We head into the back half of the year with a significant amount of momentum and are pleased to reaffirm the full year financial guidance that we have previously provided.

This concludes the prepared remarks for today's call. We will now open the conference up to questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll go to David Barden from Bank of America.

David W. Barden - BofA Merrill Lynch, Research Division

I just wanted to, Ted, maybe catch up a little bit on strategic side. We heard last quarter about the kind of plans to look at the potential sale of the wireless operation. We've read in the press that maybe you've hired an advisor. And I'd love kind of your thoughts on kind of the status of that process and how AT&T announcing that it wants to buy Leap, which has spectrum in your market, kind of influences your thinking about how that process might unfold?

Theodore H. Torbeck

Okay. Thanks, Dave. First of all, I'd like to say that we're still running the business to maximize profitability and cash flow and I think the team's doing an outstanding job. I really do. But we are looking at options and one of the options is the sale of the business. We have had interest by more than one potential but we really don't have anything to report at this time. We're going to continue to work a process but unfortunately, at this time, we don't have anything to report. But that's the strategy going forward.

David W. Barden - BofA Merrill Lynch, Research Division

In terms of the kind of thought process, I guess, is it maybe you can or can't answer this, is the idea possible that you would maybe hang onto the subscribers and do more of an MVNO in the marketplace or are you really kind of looking maybe exclusively or preferably just a lift out of the entire organization?

Theodore H. Torbeck

I can tell you we're looking at all options. I'm not going to comment specifically on that but we are looking at creative options.

David W. Barden - BofA Merrill Lynch, Research Division

Perfect. And then I guess, just finally on the CONE side, CyrusOne, again just -- we've talked about the greater likelihood that kind of a periodic monetization of that asset is the most likely way forward rather than kind of some bullet sale at some future time. Is that -- should we think about that as kind of annual thought process, a quarterly thought process? How frequently are you revisiting those decisions?

Theodore H. Torbeck

Yes, well, I think that's something we're going to review continuously. It's based on a lot of factors, the macroeconomic as well as the industry and how the industry's doing in collective, but we're also going to watch what the market can handle, as well. So again, we love what they're doing, we think it's got great growth potential but at the same time there is risk and, for our shareholders, we'd like to take that risk off the tables in an appropriate time frame.

Operator

Our next question comes from Simon Flannery from Morgan Stanley.

Simon Flannery - Morgan Stanley, Research Division

If we could talk about Fioptics, a couple of things. Ted, I think you talked about 60% to 70% of Greater Cincinnati could be a target. Any thought given to -- given the market opportunity, to sort of accelerating the buildout and building at a faster pace even if it comes at a cost of free cash flow next year? And then on the ARPU, some nice tick up to $138. Can you just dive into that? In particular, I'm interested in sort of voice take rates [ph] because it looks like you're not really getting the benefit on the access lines from the good Fioptics numbers that some of the other carriers have been getting. So are you getting enough Triple Play? Is there more opportunity to improve that?

Theodore H. Torbeck

Okay, well, we're very pleased with what's going on with Fioptics. We think there's been not only -- we're getting a lot more efficient in the builds and we're seeing good take rate, good demand overall. We have -- the voice take rate's [ph] about 75%, is what we have. Right now, our Triple Play, if you look at the Triple Play, is about 50%.

Kurt A. Freyberger

Simon, if you kind of look at those access line metrics that we supply in the tables, what you see there is a little bit of pressure in the out-of-territory and Dayton-type markets. That's really the place where we're just -- we're not advertising in that kind of -- in that CLEC market nearly like we did previously. And those are less profitable for us and so we're kind of letting those -- we're letting those go without as much effort maybe as what we had in the past because the lesser profitability associated with those. So I think it is -- I think you're right, we are actually seeing pretty strong -- we're very happy with that 75% tax -- 75% take rate on the voice. And it is providing us some benefit. We're just -- what you're seeing is an offset in some of our out-of-territory regions.

Simon Flannery - Morgan Stanley, Research Division

And how do you weigh the build pace? Is their ability maybe to accelerate that?

Theodore H. Torbeck

Well, we've -- we're pretty committed to generating free cash flow next year and so we're going to weigh -- capital's a big piece of that and we'll see where we are but right now we don't see expanding the growth rate than what we currently have. We're about -- we've just about reached the growth point to where we wanted to be and to hold it steady there, I think, is really the strategy going forward.

Operator

Our next question comes from Frank Louthan from Raymond James.

Frank G. Louthan - Raymond James & Associates, Inc., Research Division

Can you give us an idea of the right-sizing, some of the other cost initiatives, when should we expect to see those start to impact the business?

Theodore H. Torbeck

Well, I think -- I'll start out and then, Kurt, you can add on, but I think we're already seeing some of that cost-reduction. We've put a big initiative on G&A and we've made quite a few moves there. And you should start -- well, we already are starting to see some of that in the second quarter but we'll see more in the third and fourth as we go on.

Kurt A. Freyberger

That's right. I think I mentioned in the prepared remarks that it's kind of -- it's an 18 to 24 months kind of process. We -- with a smaller company, we do think there's opportunity there but we're going to be careful, we don't want to -- we're going to try not to break anything as we go. And the thing I'd mention on that, Frank, is that, that's an -- those are a couple of examples, maybe some of the bigger examples, of the things that we're doing every day. I mean, we're getting cost reductions from procurement, from lean initiatives in the field, from just the raw kind of cost-reductions at G&A. Those are the kinds of things that we're doing. I take kind of a holistic view as we're -- as you move forward in terms of our Wireline operations. Where we're getting 46%-type margins today, we'll -- as we lose the higher-margin in access line and replace it with the lower-margin strategic products, we have to cut costs every single day. And we'll still have some margin pressure over time even with that cost-reduction. So as you look at us over time, if we're at 46% margins today, you'll see that kind of just tick down a little bit over time as we have a little pressure on those margins.

Theodore H. Torbeck

I just also would like to add some of it is IT projects that we can gain efficiency on and that's what's going to take the time to get those implemented and get the cost down. So we got a long list of projects that are in the queue for IT to tackle. So that's kind of -- that's what's taking 18 to 24 months.

Frank G. Louthan - Raymond James & Associates, Inc., Research Division

Okay, great. And can you comment on the competitive situation on the video side? Any changes in competitive offerings that you've seen from the cable company there in town that you're able to take advantage of or just a little bit more color around your success on the marketing front there?

Theodore H. Torbeck

Okay. Our market has always been competitive and continues to be. But as we get share, I mean, we're still seeing price increases being pushed in the marketplace. We're not seeing anything out of the ordinary that would cause us to be concerned. So Time Warner continues to pass on price increases and -- as well as we do.

Operator

Ana Goshko from Bank of America Merrill Lynch has our next question.

Ana Goshko - BofA Merrill Lynch, Research Division

When you put out the outlook for the year, one of the things you talked about was Wireless EBITDA probably being down about $20 million year-over-year, which would be to about $65 million. And you seemed to be tracking very well on that, at about 60% of that in the first half and I realize that there's seasonality in the back part of the year but wondering how you feel you're performing in terms of the EBITDA generation relative to the plan that you set for yourselves at the beginning of the year?

Theodore H. Torbeck

Well, we're very pleased where we are year-to-date but you're exactly right, there is some seasonality in the back and there's also concern on the Wireless front. We think that, right now, that we're heading towards the higher end of our guidance but we're not comfortable yet to go beyond that.

Ana Goshko - BofA Merrill Lynch, Research Division

Okay. And then specifically on the Wireless. Are you -- do you still have that $20 million year-over-year decline in mind?

Theodore H. Torbeck

Yes, I think it's very conceivable that's where it'll end up.

Ana Goshko - BofA Merrill Lynch, Research Division

Okay. And then secondly, if I could. I just wanted to put a finer point on free cash flow expectations this year and, in particular, kind of the actual free cash flow that includes the bonus payment on the CyrusOne IPO success? As we looked at items like the pension and OPEB payments and working capital, what are your expectations for the second half of the year on those?

Kurt A. Freyberger

For the second -- well, I think, for the total year for pension and OPEB payments will be right around $65 million. We've not really changed what we're thinking on that. On the -- on what we've classified as working capital in that -- in the presentation, there's a couple of items there. We include preferred stock dividends in that number and so that will be $10.5 million for the year. And we also do include our restructuring payments that go out into that number. Year-to-date, that's been about $8 million and I could see where that number will end up at between $15 million and $20 million, as well. Other than that, a lot of it are -- is more of the true working capital, which, as we proceed through the year, we'd expect to get some favorability versus what it is year-to-date.

Ana Goshko - BofA Merrill Lynch, Research Division

Okay. So more of a source in the second half, you're saying?

Kurt A. Freyberger

That's correct, versus where we stand at June.

Operator

Batya Levi from UBS has our next question.

Batya Levi - UBS Investment Bank, Research Division

A couple of follow-ups on Fioptics and Wireless. On Fioptics, net adds have been offsetting the pressure you're seeing on DSL. How has that trended through July and would you expect that to continue into the second half? And can you just remind us about what percent of the base on Fioptics is on promotional pricing right now and what kind of retention do you have when they come off contract?

Theodore H. Torbeck

Okay. First of all, yes, we've been very successful with net adds and we expect that to continue through the year. So we're very bullish there. About 50% of our base is on promotional right now.

Batya Levi - UBS Investment Bank, Research Division

Okay, and on Wireless, as you integrate the Wireline and IT segments and drive more synergies over the next year or 2, do you think that there is more alignment that could be done in maybe taking some of the costs out of Wireless to maximize the profits there?

Theodore H. Torbeck

Well, first of all, we'll always look at that to see if there's opportunity but Wireless is a totally different entity and a lot of the back room is consolidated already and -- like call centers and things like that. But we're always looking for efficiency in -- but I don't see any major change in the organization in Wireless.

Batya Levi - UBS Investment Bank, Research Division

And on a standalone basis, do you anticipate the CapEx there to remain around that $50 million that you're targeting?

Theodore H. Torbeck

Yes, we do. Again, the tricky part is we're still seeing a lot of growth -- even with all the subscribers that we've lost we're still seeing significant growth in data and a lot of that CapEx is focused on capacity for the data product.

Operator

Our next question comes from Adam Abbas from Driehaus.

Adam Abbas

I just have a couple of questions about your capital structure and then CyrusOne. You guys have a significant secured [indiscernible], you've actually mentioned it before on a couple of calls that you have available and the bank loan markets are obviously wide open right now. You have 8 -- 17s and 18s coming callable in October and March. We think it makes a lot of sense to get aggressive and you could take out significant cash interest that could float equity here. I just wanted to hear your guys' thoughts on that and if there's any restrictions on the subs. And then on CONE, CyrusOne stock looks cheap versus its peers and I just wonder if some of that is from potential overhang from your monetization plan? Do you guys plan on getting more transparent with how you talk about the monetization plan as you get closer to that lock-up Xperia?

Kurt A. Freyberger

Adam, on your first question, on our capitalization, yes, it's -- we do have a secured debt basket that's still available to us. We're looking at those markets every day at this point. As we get closer to the first call date of the 2017s and, as you know, the 2018 bonds are -- hit their first fixed call date in March of 2014, those opportunities start to look more attractive. And so we'll -- we continue to analyze that and it's something that we're considering as we sit here today.

Theodore H. Torbeck

As far as any more transparency, I mean, we're -- again, there's a lot of things you got to look at, as I mentioned earlier, as we look to monetize this asset. And it's how much the market can handle at one time, as well. Our lock-up period is over in mid-January and we'll get very clear to what our plan is as we get closer to that.

Operator

Our next question comes from Davis Hebert from Wells Fargo Securities.

Davis Hebert - Wells Fargo Securities, LLC, Research Division

Just one for me, most of mine have been answered. But just talking about potential monetization of Wireless or something strategic happening there. Given where your leverage is currently and I guess if you were to monetize that business you would lose $65 million of EBITDA based on your guidance, would it be fair to say that any sort of thought process there would have to be deleveraging?

Kurt A. Freyberger

Yes, Davis, that kind of speaks to the valuation of the Wireless business and we're not really -- we're not going to comment on that as we sit here.

Operator

Our next question comes from Ben Fenton from Hutchin Hill.

Ben Fenton

On Slide 21, on the leverage position you guys show the pro forma leverage post the monetization of CONE. Is that kind of how you guys are thinking, capital structure-wise, what the appropriate leverage level should be for the business? Or given the growth you're seeing in Fioptics, is there appetite or would there be appetite for increased leverage or how do you think about that?

Theodore H. Torbeck

Yes, we're -- again, we'd like to be in line with other telcos, which would put us somewhere around 3 or under and that's where we're kind of focused on.

Operator

And it appears there are no further questions. I'll turn the conference back over to you, Kurt, for any additional or closing remarks.

Kurt A. Freyberger

Thanks very much. This concludes our call for today. Thanks, everyone, for joining us for the call.

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