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Windstream Corporation (NASDAQ:WIN)

Goldman Sachs 22nd Annual Communacopia Conference

September 25, 2013 9:40 am ET

Executives

Jeff Gardner - CEO

Analyst

Scott Goldman - Goldman Sachs

Scott Goldman - Goldman Sachs

I think we are going to go ahead and get started. My name is Scott Goldman. I work on the communication services team here at Goldman Sachs. Joining me to my right is Windstream's, CEO Jeff Gardner. I think Jeff we missed you last year but had you the year before so welcome back to Communacopia. We're glad to have you this year.

Jeff Gardner

Thank you, Scott.

Question-and-Answer Session

Scott Goldman - Goldman Sachs

Well, Jeff, I want to start off with some of the topics that sort of came out of the last earnings call and obviously one that I think has probably garnered the most attention, it has been the Holdco, the formation of the Holdco, which I think you guys completed pretty rapidly even after discussing on the call. But help us understand again because I think there's still some confusion out there, what the primary reason for adopting this Holdco structure is and why now is sort of the right time to be doing that?

Jeff Gardner

Yeah, sure. I think it is good to deal with that head on. I was at a conference last week and I received about 200 questions on it, so we should jump right in. Really, everyone recalls that in 2006 Windstream spun off from Alltel. At the time, we really did want to setup a structure like this. However, given the speed at which we wanted to execute on the spinoff it wasn't possible. Shortly, thereafter, we embarked upon an aggressive acquisition strategy to really accelerate our transformation from a consumer business to an enterprise business. As a result, really for the next five years we've been incredibly busy on the M&A front and did not really have an opportunity to proceed with the, what we think is the optimal structure from a corporate structure perspective.

So with PAETEC, we took a pause in acquisition, so about 18 months off. And so we thought it would be a good time to go ahead and implement this Holdco structure, which offers us more flexibility going forward. We think it's really the best-in-class or best bid for long-term structural perspective for our company and it was just the right time to do it from a timing perspective. So there was not anything eminent because we had that pause and we need to go to 21 states to get approval on our Holdco structure, it's something that was very different -- difficult to do when we're on such an aggressive acquisition run.

And so really it's about that we went out and announced that on our call, we're in good shape. I think the way to think about it is now going forward; we just got a better capital structure from which -- that provides us more flexibility on future transactions without anything in mind. I think people were concerned that we're doing it in front of a transaction that we had in mind and that wasn't the case, no.

Scott Goldman - Goldman Sachs

I guess just a follow-up on that. I mean, may be you sort of brought in there is the flexibility, I mean can you be more specific both should -- how should investors think about, does this change the perception of how they should look at you from an operational or leverage perspective? And then, to your last point there right I mean a lot of discussion around the time of the announcement about M&A and what this may mean for you guys. Well help us understand what implications this had if you did want to pursue further M&A of different types, does this change what you could do now versus what you could have done prior?

Jeff Gardner

It really just gives us more flexibility on the structuring side. As we look at it from a bondholders perspective, we still have a companywide goal to get this 3.2 times to 3.4 times leverage. So it hasn't changed our view on leverage. It does give us an opportunity if we were to acquire hypothetical they're so difficult because they dissuade more questions.

Scott Goldman - Goldman Sachs

It does give it low.

Jeff Gardner

Right. If you were to acquire an asset that's indifferent from what we have today, it might be able to offer us better opportunities in the credit markets should we finance this. But again having said that we want to clear with our bondholders that we still have a view looking across Holdco and Windstream that our combined leverage target is still 3.2 to 3.4. So I think people are over thinking it. I think I understand that obviously because where we're at and the quick action after announcement, but really it's just something to provide us more flexibility going forward.

Scott Goldman - Goldman Sachs

That's it. That's very helpful. I will leave it to the audience if they have further questions on the Holdco topic and we will move to some other stuff now.

Jeff Gardner

Right.

Scott Goldman - Goldman Sachs

Obviously, if you think its 200 -- if you got 200 questions on Holdco you probably got 199 on your dividends and dividend policy at the last meeting. So I want to focus on dividend and I'm asking, I mean we've seen in the last few years where some of your peers have gone and taken proactive moves or in some case reactive moves on their dividend policies. Windstream has remained pledge for assets with a commitment to this dividend talking how important it is. I think there could be a view or perception that says looking at a 12% or so yield, dividend yields that you may not be getting credit for the dividend that you pay. And so I guess my question to you would be you feel you're being given ample credit for the dividend and if not, that isn't the case why would you continue to pay at the dividend rates you're paying today?

Jeff Gardner

Well, no at 11 -- I think we're at a 11.7% yield, so that doesn't feel great in terms of getting credit for the dividend that we're paying. But I do understand what's going in the market is a fairly unique time. In 2006, when we started Windstream they were about 10 companies like us, who were all local exchange companies at the time who were declining at 4% or 5% a year and to be relevant with investors we embarked upon an aggressive dividend strategy.

And like I said there were probably 10 of us now almost everyone of those say Windstream has done something to adjust their capital allocation strategy for very different reasons. We've taken a different path. We've paid our dividend now for over seven years. I'm proud of that. We've done it through our transformation. We continue to believe that we're improving our quality of assets in terms of positioning us better to move from consumer to enterprise has really positioned us better to deliver stable revenue and OBITDA and to support the dividend. When we spun off from Altel our payout ratio was around 75%; it's going to be less than that this year.

Our leverage is a little bit higher. We did lever up a little to accelerate our transformation into an enterprise player, but over the long run if we are able to grow modestly our revenue OBITDA we think we're in a good position to support the dividend. And it's really a unique way for a company that will be growing albeit modestly to create value for our shareholders. It's always been important to our shareholder base.

And I think to distinguish us from some of the rest of the group; we're not a company that is totally dependent on the consumer communications business for our revenue stream. Today, only 14% of our revenue is coming from consumer voice. We really made this transformation to an enterprise company I think more aggressively than most of our space. We don't have aggressive investment plans in our -- unlike some others in our space we're not investing in a facilities-based video product; we've always relied our relationship with Dish in our consumer channel and that's served us well. We have high penetration in terms of triple-play customers, but we're doing it in a very capital efficient way.

The other thing that people are worried about we had very low taxes this year. That will go up next year a little bit, but we're also going to see that offset by some significant reductions in CapEx as well as lower interest expense. We were able to refinance basically all of our maturities over the last couple of years to take advantage of the market.

So when we think about it, I think we think about it a little differently. We're in a different spot; we're in a position where we can -- we believe we can continue to sustain the dividend and deleverage. And I think that's the best way to return value to shareholder. We've got -- we've had great access to capital; creates tremendous discipline within Windstream.

We do have a different model. I think the other question that comes up often is why don't you have a higher CapEx intensity? And it's a very fair question because in telecom that becomes an issue from time to time. But we have a unique model in terms of the types of assets that we have. Oftentimes, for the last mile access for the enterprise customer rely on another carrier. We're not a 100% facilities-based. We've made a lot of facilities-based acquisitions that have improved our margin but I think we're able to execute in a very unique hybrid approach that allows us to drive the kind of revenue growth that we need on the enterprise side with lower CapEx intensity.

We've talked about our steady-state CapEx intensity to be in that 11% to 13% range. It's been a little higher over the last two years because we've been aggressively investing in fiber-to-the-tower in the consumer business and we were the biggest recipient of stimulus funding. Those are discrete CapEx opportunities that are nearly complete. And I think investors should feel good about that because they've stabilized our consumer business, they've allowed us to be a bigger player there. We built out over 5,000 fiber-to-the-tower projects or some of the biggest carriers in the country and those projects are coming to completion.

And so when I look going forward, what I like about our business is that we've made the shift to enterprise, we've got a unique hybrid capital model that allows us to have less intensity in that 11% to 13% range, even with that almost every company we've acquired was less capital intensive than we are today. And so when you think about companies like NuVox and PAETEC and Hosted Solutions which was the cloud computing business we acquired, all of those companies their capital intensity was under 10%. So we've improved the revenue generating capability of those assets even with staying within that 11% to 13% range.

Scott Goldman - Goldman Sachs

Okay, great. I guess just one quick follow-up. And obviously, you go back to sort of February. And I know you guys did have a lot of chance to react but one of your peers obviously, took a slightly different approach and that was to go out and aggressively tighten and do a share buyback on top of that and may be raise some of the capital spending in support of perhaps, faster top-line growth. One had you guys look at that sort of option or explored that option and how do you guys think about it sort of in the wake of their decision and what that could mean, any different like for Windstream?

Jeff Gardner

Well, we certainly didn't anticipate it. I think our call was the next day and when we heard that took place obliviously, we knew that the tone of our meeting would change dramatically and I was right. And our stock reacted as we had cut our dividend, so it wasn't the best day as CEO of Windstream. But I understand what drove us down. They had a very different situation with respect to their tax liability going forward. And so yes I mean, of course when something like that happens you always reflect and I think the discussion we had with our board and our management team and I think it's the discussion you have as you look at your dividend policy and there are other things that you are not doing that could help your business grow faster and generate more cash flow over the long run that are the things that you are not doing because of your dividend.

And we concluded, as we looked at our capital investment intensity and the plan that we had for 2013 and '14 and the fact that we made these investments in fiber-to-the-tower and seamless in '12/'13 and we were able to do that with the dividend. We looked that and said, no there is really not anything that we're not doing because of the dividend.

And so again, that's why we felt comfortable going forward with our policy. And we didn't want to make a short-term reaction to someone else's event. We have a very different company. We think that we should be paying attention to our company and focus on generating sustainable, stable revenue in OBITDA.

Scott Goldman - Goldman Sachs

I know we're probably a few months removed from may be seeing 2014 guidance for you guys. You talked about a lot of moving parts already with taxes and CapEx and interest for next year. But as you guys sort of think about the dividend, dividend policy, is there an expectation or a range of payout ratios where if you sort of went above that you wouldn't feel comfortable or because this is -- there is some temporary things that are still taking place in the business you are willing to operate even at elevated payout ratios knowing that that may not be the true run rate?

Jeff Gardner

Yeah, I don't think there is a hard number. But obviously, we've generally, when we spun off we're at 75% payout ratio. We've typically been a little bit lower than that. We've had some one-time items that have driven that up in the last couple of years but as I've said, a lot of those falloff next year. So again, I think it's more about making sure we deliver on three things. Lower CapEx, more stable revenue and OBITDA trend, and managing the interest expense savings that we expect to.

Scott Goldman - Goldman Sachs

Great. Well, with that let's lead into some of the revenue trend, which I'm sure is got a little bit more interesting for you to want to talk about. We'll start off with business services. One thing that I think you guys mentioned recently was sort of certain year on the business service side may be targeting a 3% to 4% type of growth capability. Obviously, I think you've seen a little bit of softer sales like all others and you're not the only ones out there in the marketplace that have seen that. So certainly not that's certainly not stimulating anything out there, but how should we think about this longer sales cycle, is this kind of a new norm we're in that people are looking at more complex solutions and taking longer period of time as they're contemplating things like cloud or managed services into the mix or do you guys think this is temporary and we could start to do some acceleration at business services from pretty decent 2% plus growth now but up to that 3% to 4% target range you're looking at?

Jeff Gardner

Yeah, as we look at the market we did enter the year, you said it exactly right. We thought that 3% to 4% was achievable. We have a lot of good things going on in our business sales channel. But we saw some softness, especially early in the year, and this is a recurring model. So if you start off slow it hurts you later in the year and in particular as we looked at 2012 compared to 2013, in early '12 we had a lot of success with some large sales, a $1 million monthly recurring month type sales early in the year that really gave us a good head start into our 2012 sales growth where we saw it up in the 3% range.

This year we've had more singles than doubles, some smaller sales midsize customers and just people as you said taking a little longer to make decisions. Our channel -- our funnel is full, our sales reps are busy, they're calling on customers. We're just not closing as much as we need to and we've seen some improvement but it's not been consistent across the days. So our expectations are about 2%. I don't think there is anything -- and of course, we've seen that across the industry. People have struggled a little bit this year. I think the recovery is out there but it's tepid and people still have a lot of uncertainty around what's going on with in Washington, what's going on with Texas, I think that's contributing to it. To the extent that our solutions are more complicated, I don't really think that's it because we're now selling into the CIO; these folks understand the value of these solutions very well. The sales cycle, the implementation of these more complicated products does take longer, but that should just be more of a one-time adjustment.

As we look going forward beyond 2013, there is no reason that we can't grow this business more in the 3% range and that's really our goal. We've got many things going on at Windstream to support that. That's what we're solely focused on. We know that we've built an enterprise company and we know we disappointed investors when we had to reguide our revenue last quarter. But it was pretty clear because of the slow start if we're working to get to the kind of number that we wanted to. We're still proud of the fact that even with last quarter we delivered 2.3% growth year-over-year. There is only one other company in the state that's growing faster and so we feel good about that but it doesn't begin to get to where we think we can take the business.

And so with our product set and remember we're selling everything from equipment to network to the cloud and we're doing it in a very different way, our sweet spot the middle market and we have very low market share, relative market share in the markets we're in. Remember we're a competitive player and insurgent in most of those markets we think we have good opportunity and that our capabilities will continue to improve as we get further along with our integration of PayPal.

Scott Goldman - Goldman Sachs

You've talked about sort of being in the server setting of that transformation to being an Enterprise Company. So what's left in those final two innings for you guys where I mean is this something where you've all the assets in place, and this is just a matter of completing all the PAETEC integration or are there products or capabilities or geographies that you want to sort of round out to get you to get that ninth inning?

Jeff Gardner

I think we do have all the assets in place. We've totally reorganized the sales team, service delivery. We go to market as Windstream across the company. We're selling the national accounts as one company today. What's going on behind the scenes is that there's a little bit of complexity still within the company that I clearly think is putting some stand in our gears in terms of our sales capability. And really the big things that remain to be done are some network integration, some system integration, where billing systems and our back office so that we can deliver service more easily to our customers. Those are the big things. We've been doing a lot of that over the course of 2013. We did a lot of the pre-work for this in 2012. We'll begin to see the billing conversions happen very quickly and once those get far enough along we talk in the back office and then we'll be in a great position where we can deploy and provision across one system nationally because our benefit again is that we're are a national company now, if we can deploy to national customers in a single provision system will be much more efficient.

And so those that really, the heavy lifting, I think a lot of that will get done between now and June of 2014, and then from really and then I think we begin to look like one company and we begin to realize the full capabilities of this integrated business that we've built. And as you look beyond 2014 we're in a different position then with regards to our acquisition capability. We'll have enterprise system that we've deployed across our organization.

So if we look to do a follow-on acquisition, it will be much easier. We won't have to build an enterprise system from scratch which essentially -- we didn't build it from scratch here but we put together the best pieces from all of our acquired companies and our legacy company, but going forward it will be much more like the deals that we did when we're in the RLEC business that we're more plug and play, very quick to transition, integrate, drive synergies, create value, accelerate our top-line growth, things that I think investors are looking forward to. But we're not going to do any of that until we get PAETEC rights and demonstrate to all of our investors who have built the business that has the ability to grow revenue and OBITDA in scale.

Scott Goldman - Goldman Sachs

I may come back to enterprise but I certainly want to make sure we have time for to cover the consumer side of things and give the audience some time to ask questions as well. And so if we switch over to the consumer and the broadband side of the equation, right I mean we've seen sort of the shift within your business where obviously given your very high penetration of broadband. Right, we've seen some modest subscriber losses, but you've been able to really offset that with very nice ARPU growth within the broadband side and I think your consumer broadband business is growing probably about 6% or so if I remember the numbers correctly. So just curious how you think about that 6% in light of where you're at on some of these. How sustainable is the ARPU growth that you're seeing here and may be sort of frame for us or breakdown for us that ARPU growth that you're seeing on the consumer broadband. How much of it comes from higher speed tiers? How much is coming from the sell through of some of the ancillary services that you guys have been promoting as well?

Jeff Gardner

So yeah I think broadband is our second fastest growing revenue stream, at 6% as you mentioned, the fastest growing part of our business is the cloud business on the enterprise side that's growing in the high teens. Broadband is interesting because we are at 71% or 72% penetration of our access line base, so very highly penetrated. There's aggressive promotions going on, on the cable side. We've been promoting aggressively but not in a way that would put pressure on the revenue stream of our base. It's much more important to us that we maintain our ability to grow revenue year-over-year and to drive incremental cash flow from that broadband business that is very mature. So we've been careful not to chase that. We want to be in the game. But more importantly we're focused on just what you mentioned that 6% top-line year-over-year growth.

And what's going on in that business is remember on the consumer side Windstream is really the story of two companies. On the enterprise side we're in big cities competing nationally with some of the biggest carriers in country. On the consumer side the biggest markets that we are in are Lexington, Kentucky, and Lincoln Nebraska. From that it get very small, very small cities. And so most of our customers, say two years ago, were subscribed at 3 Meg service levels and which was our lowest level service offering. What's going on today is 63% of our customers are subscribing to 6 Meg and higher. We've increased the capability of our broadband network through our investment in that business and we're selling up aggressively. We've had promotions that we offer our customers for our incremental revenue, the ability to get the fastest speed available, that's been very popular with our customers.

We see even in rural America, the same things that you see in the urban markets where people are using more and more video. So it's that phenomenon that's really driving that top-line growth. The fact that we're still doing well on the growth side, we're seeing a little more disconnect because cables been aggressive than they've ever been promoting and often now broadband has become more strategic to the cable companies and they're offering as a standalone product, but we continue to see uptick in our speed.

In addition to that we've had some real success and from the beginning we knew we would come to a point where we had very penetration and the future of our revenue growth would be depended on further modernizing the broadband pipe into the home by selling other features. And so we've got these bundle adders, things like tech refresh that helps people manage their PC's at home, software virus protection. These are products, webhosting capabilities to provide some webhosting consulting to consumers in some cases that are bundle adders. May be collectively we're getting the incremental $10 a month from some of those. We've had a very high success rate flowing those into our bay. So it's the higher speeds and the bundle adders. Once you get the broadband typed into the home, you've got what tremendous opportunity to sell other services and we've -- our marketing team has done a very attractive job in that.

Scott Goldman - Goldman Sachs

And what's been the penetration of some of those other services and I mean?

Jeff Gardner

It's been very good. I think if you look across the broadband base, I think the penetration would be around 25%. So we've plenty of upside and the average of those is around $10 incremental a month from these bundle adders.

Scott Goldman - Goldman Sachs

And then on the speed side of the equation you talked -- talked a bit about what happened on the speed side. Obviously you mentioned cable being aggressive and there are no strangers to the speed game as well. So as you sort of think big picture five years out, what kind of speed do you think Windstream needs to be at, to be competitive, and what sort of a path to get there from here?

Jeff Gardner

So we've greatly improved our speed capabilities today. We can offer 12 Meg or higher in 50% of our markets and our top 25 most competitive markets we can offer 24 Megs. We'll need to continue to improve on that as the cable companies get better and as consumers continue to use more video. So as we think about it going forward, we think about 20 Meg as being cable fix. Every year compression, technology gets better. We're able to make incremental improvements, and there's several things going on that I think will help improve our broadband capability.

First, over a year ago, we were the largest recipient of stimulus funds from the RUS that brought $183 million from the government matched by $70 million of our money, to invest in un-served areas around the country. We'll complete those projects in early 2014. We're very far along. And so these are areas that are really unique because in every case there's no other competitor on those markets besides potentially a satellite broadband opportunity. So we have, once we build out these stimulus sites they have very high penetration rate, well in excess of 50% of the home staffs will subscribe to our service.

In addition to that we've been aggressively investing or participating in Connect America Fund process that at the end of this week is the last week of the challenge process. So we've applied for essentially $250 million of support, a $125 million of government money and a $125 million of our money that will do two things. Open up new of those rural markets like I just described similar to the stimulus money, but also in markets where we are copper fed -- where our customers are copper fed, we will have the opportunity to convert those to fiber. So these are markets where our mass speed today may be 3 Meg. That will improve to about 12 to 20 on the stock that we need going forward.

So we're doing a lot. In addition to that, we've been steadily investing in our networks. I think that we've made great progress this year but it's something that we have to keep working on. The Connect America Fund is going to have a huge impact because what I was most worried about in these rural markets that have a density about 5 access lines per square mile without government assistance there's no business model that would allow you to invest in those markets. So this gives us a way to take care of those customers and you also have to remember every time we put fiber in the ground for our consumer markets, we're in the enterprise business in those markets as well. We've got fiber deeper into our network as well, okay.

Scott Goldman - Goldman Sachs

I want to shift focus quickly just to the margin of the business and then we'll open up to audience questions. You originally talked about network grooming as an area, well let's take a step back, right. I mean you go back to your earnings call. You maintained your EBIDTA guidance for the year despite some of the softer enterprise sales that we talked about earlier. So obviously you're doing a good job on the cost cutting side, which I think has probably been a hallmark of Windstream since its inception. So can you talk to us a little bit about what benefits you're getting? How much more opportunity is there to continue with some of this network grooming type of activities and then as you start to see the PAETEC synergies anticipated from the business. What is the path for either raising margins, keeping margins stable. But how do you think about the margins of the business once synergies are sort of out of the business?

Jeff Gardner

Scott, I knew you would get that margin question in sooner or later. Listen I'm very pleased with, when you look across 2009 through to-date, our margins have been steady at about 40% throughout that period through all the transformation that we've been going on and it's really been a result of what you described that these cost cutting initiatives improving our top-line of that in terms of the trajectory while finding opportunities.

Interconnection is the biggest line item on our income statement, in terms of expense and we've brought a lot of scale to there, for all these businesses that we bought, for all the traffic that Windstream had on other people's networks we can now go to the big players in the country and negotiate much better deals. And we've seen significant interconnection savings already this year. I think we will see more in the year to come, years to come. We've gotten much more precise about managing this expense and going out to vendors and working with them on how we can get the absolute best prices and the best execution for our customers and that really is a difference. I know often people are concerned about our ability to scale on the enterprise side and we've got I think the largest competitive enterprise business in the country and so when we go and talk and negotiate or do an RFP to carry our traffic, we're talking about a lot of volume. And we have a lot of ability to drive very good deals in the marketplace and we've done that and we've got some of our best and smartest people working on that and I think you will see more improvement there.

Going forward, we still have some synergies to realize from the PAETEC deal. I think another $50 million in 2014 we will be taking out of the business and then, beyond that as you think about 2014 and beyond then we're going to be -- we're going to be one -- we're going to look like one company, we're going to be all in the same systems, we've got scale, we've got a very big enterprise business. From there I think we can really get to work and make progress on getting more efficient in everything from service delivery, to customer care, to managing the network. So I think there will be more and more opportunities generated by a lot of the integration work that we're working on today.

Scott Goldman - Goldman Sachs

Want to open up to the audience, if there is questions in the audience definitely we've right here, please raise the microphone.

Unidentified Analyst

I have two questions. Can you provide some specifics around sort of the cash flows next year, as it relates to higher cash taxes mitigated by a lower cash interest and CapEx, this is the first question? Second question is, also can you be more specific about the flexibility that a Holdco provides in terms of the M&A transactions and just give an example how you increase your flexibility versus the structure that you had in the past?

Jeff Gardner

First of all, we haven't given guidance for 2014. But just to say, our taxes were -- because of bonus depreciation they were low this year. They will go up next year. We are not contemplating bonus depreciation in 2014, although we would be very grateful if someone in Washington found it and they're hard to get that done. I think that would be an elegant way to continue to stimulate the economy as we work thorough tax reform. But fundamentally, what you will see is tax is going up. I don't want to be precise on the amount but it will be up from this year, offset by two things. That's lower CapEx from completing the fiber-to-the-tower and stimulus and I -- we've invested about a $125 million in those projects this year and most of that will be done in 2014. And then, also the $40 million of interest expense that really is already in the bank, if you will, because of our refinancing.

And so those will offset -- those two will offset the pressure from the CapEx or from the taxes, pardon me. And we're still working hard I mean, our tax team has been very aggressive. We will do the best job we possibly can there but those absolutely will increase next year.

In terms of an example, really I feel dimension is earlier and people keep asking us about the Holdco structure. 70% of the company is in the communications and cable space have such a holding company structure. And so again, to give a specific example it's hard, it's just gives us an alternative. We were -- we to acquire an asset in a different asset class that may have different growth characteristics and for whatever reason, we could get better access to capital if we had it a different style in the holding company versus the operating company that could be an example where we might have access to capital at a cheaper rate. We did that without anything specific but there is a number of company, 70% of the people in the state have the structure that they really use it for those purposes. Companies like Quest or now Centrelink, PAETEC, Entelos, all of those companies Comcast I believe all of those have a similar structure.

Scott Goldman - Goldman Sachs

Any other questions in the audience. One right here in the front, can you wait for the microphone please.

Unidentified Analyst

Just a follow-up to that, I mean if you're going to utilize the Holdco and potentially borrowed at a lower rate, doesn't that assume that you've got lower leverage or a more attractive financing profile to Holdco than at the OpCo where the legacy financings are -- I mean it's hand and glove in it that it would have to be that way?

Jeff Gardner

It is hand and glove. And I think that what we've said is that, we have no intention on changing our view on what our target leverage is. And looking through both the companies, we still want to maintain our leverage at 3.2 to 3.4. So I think people were concerned that we're looking for an opportunity to increase the overall leverage of the company and that's not at all what we intend to do. And so we look at it as a whole, that's how our Board looks at it, that's what our bondholders got comfortable as we raise that last in that last bond race.

Unidentified Analyst

I know that you've got nothing currently on the plate as I think you said for -- on the M&A side and you're working hard on the consolidation of what you previously bought but as you look forward a year to two years out what areas of the business would you look to expand of the portfolio that you currently hold or would it be something that would be may be outside the current product offering?

Jeff Gardner

Yeah. Well, right now we're in a good spot right now with after PAETEC, I think we're in a position as we integrate and execute, we have a chance to grow the business organically and that is exciting. We've never had that been in that position so as it relates to acquisitions we can be patient. But where we would be focused is definitely in the enterprise space. Any opportunity, we believe that we've made the right choice to focus on enterprise versus consumer and so when you think about our ability to grow our fiber assets we love the data center business. In the last three years, we've gone from four data centers, the company we acquired had four data centers they had it particularly Specialty and Cloud and Managed Services. We've grown that from 4 to 26 organically. So we've done that all over the last three years and we've got great opportunities now to sell into these data centers that we've already invested the capital in. So we'll be looking at assets like that may be obviously like assets that would allow us to expand our geography across the country. Anything we can do to drive a greater percentage of our business to the enterprise that we think will result in a higher growth rate going forward.

Scott Goldman - Goldman Sachs

Have any other questions in the audience? Okay. I think we have time for one last one. I'll ask hopefully a quick one here Jeff and that's just may be on the fiber-to-the-tower stuff that you guys have talked about. I think you guys are pretty much ramping up the 5,000 or so that that's planned I think 60% in territories, 40% out of territories. What can you tell us about the demand trends within those towers that you've seen, since you've built them, have you been successful being able to get a secondary or tertiary provider on them which really obviously boost the business case beyond what already seemed to be attractive for you. And secondly what have you seen from a demand side in terms of if the customer signs up for 50 megabit per second connection today, how quickly are you seeing a number of those customers come back and wanting to up and obviously getting more revenue out of that customer?

Jeff Gardner

Well, that's been a real success story where they've been upgrading to the next level very quickly in fact; one of our big national carriers is deploying these at a 100 Meg today. And so we've seen very good uptick. The growth in wireless data across the country has been strong. We've been a leader in fiber-to-the-tower deployment and a good partner with some of the biggest wireless carriers in the country. So that's in terms of our fiber-to-the-tower revenue that's been a very, very good story.

We have a few instances where I don't know the precise percentage Scott where we have got in the second tenant we'll see more of those as some of the second or third and fourth level players get into the marketplace, but not as many as we would have expected early, but I think there's still some of that to come with very little capital deployment you're already built out in those markets but that's been a very good story. We're nearly done with that project, both the big carriers in the country are very far along with the 4G rollout and so I think without that our carrier revenues would have really suffered. We really found an opportunity to create some growth in the carrier space with this fiber-to-the-tower opportunity and drive our more stability into our business.

Scott Goldman - Goldman Sachs

Okay. Well I think we're out of time. So Jeff greatly appreciate to being here. Thank you very much.

Jeff Gardner

Thank you all. Thanks.

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