CenturyLink's Management Presents at Bank of America Merrill Lynch 2014 Global Telecom & Media Conference (Transcript)

Jun. 3.14 | About: CenturyLink, Inc. (CTL)

CenturyLink, Inc. (NYSE:CTL)

Bank of America Merrill Lynch 2014 Global Telecom & Media Conference Transcript

June 3, 2014 8:35 AM ET

Executives

Stewart Ewing - Chief Financial Officer

Analysts

David Barden - Bank of America Merrill Lynch

David Barden - Bank of America Merrill Lynch

We are beginning the afternoon session here for the conference. We are super pleased to have CenturyLink joining us from Monroe, Louisiana in United States. For those of you that are expecting to see Glen Post. He sustained an injury that didn’t allow him to fly all the way over to the U.K. So we apologies for that, but still hearing he was planning on being here in any event and so we pinch hitting for Glen. So we appreciate him stepping in.

I think the way we are going to do this is, Stewart has four or five slides to kind of give you maybe a brief overview of CenturyLink and then we’re kind of jump in with some Q&A, and if you guys have any questions you want to ask, there will be time for that as well. So why don’t we kick it off. Thank you, Stewart, for joining us.

Stewart Ewing

Okay. Thank you, David, and Glen, we heard he is back. So, fortunately, he is going to be all right. But this is a second conference in a row for David Barden. Glen has had to call last minute and say, I am either sick or I have an injury.

David Barden - Bank of America Merrill Lynch

So last time it was a bulldozer accident.

Stewart Ewing

Right.

David Barden - Bank of America Merrill Lynch

I think it is right, absolutely.

Stewart Ewing

But anyway, so we are glad to be here and glad all of you are here -- are here this afternoon. Our Safe Harbor, which is included in our website, we may discuss some forward-looking items and if we do, basically it’s accurate as of today. We also may talk about some non-GAAP numbers, which basically are reconciled to the GAAP counterparts on our website as well.

CenturyLink is the, with the acquisition of Qwest about four years ago, is the third largest telecommunications company in the United States. Our revenues last year were about $18 billion, little bit over $18 billion, with cash flow of about $3.1 billion.

And although, we grew from a very small company and serving primarily rural markets in the United States. We basically have grown into Fortune 150 company that serves quite a few Fortune 500 companies, as well as continue to serve families in rural America.

We have about 240,000 mile fiber network in the U.S. about another 280,000 miles, primarily leased transport that we used from an international standpoint. And then our local markets where we are the legacy telephone company. We are committed to be in the broadband leader in our markets from a customer perspective. We will talk a little bit that more -- more about that in a minute.

And with the acquisition of Savvis three years ago, we are also global leader in managed hosting and cloud services, which we believe significantly improves the business services that we can offer to our enterprise customers.

This map reflects our U.S. footprint, the gold lines represents fiber optic backbone that we have which allows us to control our destiny from the standpoint of customers require more and more bandwidth. We don’t have to pay the third-party to transport that bandwidth for us.

The dark shaded areas are basically where we are the incumbent telephone company in the U.S. The dots on the map basically are the datacenters that we have in the U.S. where we provide colocation services, managed services and cloud services as well.

This map reflects our global data footprint, which we have 56 datacenters internationally or globally, about 45 of which are in the U.S. and 11 outside the U.S. some of those in Europe, right here in the U.K., in fact we have four datacenters, as well as in the Asia-Pacific and Australia area, about 1.4 million square feet of sellable floor space in our datacenters. We are with the backbone network that we acquired as part of the Qwest acquisition. We are Tier 1 ISP and basically have MPLS less core in our revenue -- in our backbone as well.

So over the last five years, the company has grown significantly through acquisitions. This reflects 2008 versus 2013. So as we have grown our employee base with the acquisitions has grown.

So this really reflects the acquisition of first embark which was the Sprint, local exchange business, which was spun-off from Sprint and operated as a separate public company for a couple of years before we acquired it, then the acquisition of Qwest Corporation and then later the acquisition of Savvis.

So our revenues grew through the acquisitions from $2.6 billion in 2008 to a little over $18 billion a year ago, total assets of $8.3 billion in 2008 to about $52 billion today, our free cash flow increased significantly from $578 million in 2008 to $3.1 billion in 2013 and our market cap has grown from about $2.7 billion to about -- actually about $20 billion today.

So during this period of time with the acquisitions what we have done is really transitioned the company and from a revenue standpoint, we were highly reliant upon regulated revenue in 2008 in the legacy [CenturyLink] (ph) tells which our regulated revenue which is primarily the access revenue that we received as for providing loan.

This was carriers or other carriers access to customers where we have a local exchange company, as well as Universal Service Fund revenue and other substitute revenue we received. It was 20% of our total revenue in 2008. Today it’s a little less than 6% actually.

So we’ve significantly diversified our revenue streams to make them a lot more stable and a lot more and instills a lot more growth opportunity than we had back in 2008.

We went from about 40,000 mile fiber network where we were taken our -- pulling our traffic transport to about 240,000 mile network that we have today domestically. We have no international look back then and really no international customers. With the Qwest and the Savvis acquisitions we picked up both international network, as well as international customers and datacenters.

We had no colocation or managed hosting or cloud capabilities and today, we are the second largest caller provider in the world, as well as leader in managed hosting and cloud. And in fact last week the Gartner Group basically put us in their Magic Quadrant with respect to cloud services. So we are very pleased with that. We think it gives us a really good opportunity to continue to diversify our revenue streams and grow our business customer’s revenues streams.

We had an asset mix that really again did have much growth potential and today we believe that we have the assets in place to allow us to get to revenue stability in 2015 and then EBITDA stability and growth 12 to 18 months or after.

We had limited scope and scale back then as a telecommunications company and today with these acquisitions which really put us in a significant position from the standpoint of scope and the scale of our business.

We have been able to improve our revenue trends. So in 2010 our revenue declined to 5.6%. We have been able to improve that each year, as you can see to last year revenue was down on the consolidated basis 1.5%. Our guidance for 2014 would have our total revenue being down 1.2% to flat. So the mid-point of our guidance is about 0.0036 back down.

First quarter revenue was actually up 0.0036 due primarily to a one-time customer premise equipment sale that we had to the government that we thought was going to happen in the second quarter, but actually got pull forward to first quarter.

So we actually had revenue growth in the first quarter, which is the first quarter we had revenue growth since the first quarter of 2006. So it’s been a long time but we’ve made steady progress and again are confident in our ability to be able to get to revenue stability in 2015.

Our strategic priorities which we think will drive us to revenue growth and then EBITDA growth are basically focused on providing network solutions for our business customers and business customers represent about 60%, when you add the wholesale business represent about 60% of our total revenue today. So it’s become a significant part of our revenue and a revenue stream is growing as well.

Hosting and cloud and IT services which again allow us to be a real provider to our business customers, not only network services, but also IT services as well. Consumer broadband and video and focusing on bringing high-speed internet in our Prism video product to our customer base and then operating efficiency, we already -- not that we’ve worked through all the synergies related to the acquisitions or most of the synergies related to the acquisitions, there are still some cost cutting to do, not any really big buckets of cost, but across the organization, there are numerous areas where we think we can go and continue to drive some efficiencies.

So business network solutions, we will continue to expand our MPLS and Ethernet capabilities, our Ethernet and also the internet offerings. We have grown -- in the first quarter we grew our business revenue in that segment about 3.6% that's been a turn around since the Qwest acquisition where the revenue was flat to down slightly and over the last 24 months or so we have been able to turn that around and get to revenue growth in the business segment which has been a big win for us.

We expect to continue to expand -- extend our fiber-to-the-tower footprint, so we are the -- we are the backhaul provider from the towers for the wireless providers, so AT&T, Verizon, Sprint, T-Mobile, those in our areas where we have the legacy telephone company. We built fiber to about 18,000 towers. We built fiber to another 2,000 to 2,500 towers potentially this year as we continue to provide backhaul services for the large wireless carriers and that will basically help us drive revenue growth overtime as well.

And basically we are driving -- we're extending our fiber reach to more and more buildings, both in the areas where we have the legacy telephone company, as well as outside of our areas to give our sales people more buildings that they can sales that are on map to where there is not incremental third-party cost associated with us providing the network services to the customers.

From the hosting, cloud and IT services standpoint, we are adding datacenter capacity. We just, in the few months turned up datacenter in Minneapolis, Minnesota, which is a legacy telecommunications market.

We think there is really good demand there for us to move business customers into that datacenter. We have also with the Tier 3 acquisition, which gives us the ability to able to automate the private cloud service that Savvis had and also enter the public cloud market as well.

So we -- and with the Savvis acquisition and the hosting and cloud services that we provide, we grew and focused on trying to sale those services to our network customers, because it basically increases the time between us and the customer, and about a third -- over the last two to three quarters, about the third of the new bookings that we’ve seen each quarter of the hosting and cloud and IT services have been to customers that were network customers of CenturyLink.

So, again, we think that this enterprise network customer base that we have and midsize customer base provides a great opportunity for us to drive the IT and cloud and hosting services long term.

Consumer broadband will continue to deploy fiber deep into our network. About two thirds of our customers can get 10 mega or higher high speed internet service. About 40% of our customers can get 20 mega or higher. We last year build fiber to the home to about 45,000 homes in the Omaha market. It’s had a very good impact on our competitiveness in that market and even outside of the areas where we deployed fiber to the home in the Omaha area.

We have seen a change in our propensity to be able to add customers to the network. We expanded our Prism TV footprint which is our network-based television service that we provide. We have about 200,000 customers now to the 2 million homes that we passed. We added about 800,000 of those homes and made them capable a year ago.

We’ll make about an additional 300,000 homes capable of receiving that service during 2014. From an operating efficiency, again we’ll continue to focus on driving cost out of our business as we work on automated, improving some of our processes.

So in summary, basically we feel like we are very well positioned and have a solid foundation with the national fiber network that we have, the high quality network that we have in our service areas and the good products that we have that we can bundle to sell to our customers.

We have a strong cash flow, over $3 billion last year of free cash flow and a solid balance sheet. Debt to EBITDA was about 2.8, 2.9 times. And we’ve returned significant cash to shareholders through the combination of our dividend as well as $2 billion share buyback program that we instituted in February of ‘14 which we’ll complete this quarter. And the Board authorized another $1 billion share repurchase program in February of 2014 that we will execute over the next 18 to 24 months.

We believe we have differentiated products that we can offer to both our business customers as well as consumers. On the business side, we have our service that we offer that’s VoIP based business service that we call Managed Office that gives voice and data capabilities that customers can purchase on a per-seat basis as opposed to having invest in a new PBX or key system. And we are building on the improved revenue trend with our strategic services to get us to revenues to build in and grow, EBITDAs to build and grow 12 to 18 months. Thereafter which we believe we’ll continue to drive growth in shareholder value over time.

So David, with that, we’ll be happy to answer any questions.

Question-and-Answer Session

David Barden - Bank of America Merrill Lynch

Okay. Great. Thank you, Stewart. So I guess, my first question is not meant to be an insult to you. But the wireline business has a reputation for being very buoyant and yet, over the last 18 months, we’ve seen CenturyLink stock go from probably $42 beginning of last year hit a low of $29 probably in January of this year. Now, in fact at $39 and so it’s kind of 50%, 100%, we will start atypical for a company that’s suppose to be in a pretty straightforward buoyant business. Maybe we could kind of, the people that aren’t familiar with this story walk us through what you think made the stock go from $42 to $29 and what made the stock go from $29 to $39 and that it would be a place where we could start talking about where we go from here?

Stewart Ewing

Okay. So basically in February of 2013, we reduced our dividend. We had a dividend of $2.09 a share. We looked out a few years when we would become a full cash tax payer because we have been utilizing in our net operating loss carryforwards that we acquired when we bought Qwest to reduce -- significantly reduce our cash taxes.

We saw that basically when you get out to 2015, 2016, we would be paying out at $2.09 rate about 80% or so of our free cash flow and got concerned that we had seen others in our industry go through situations where the market starts questioning the ability to be able to continue the dividend and it puts pressure on the stock price. We bought basically that we were getting some credit potential on our stock price for the fact that we thought we’d get revenue stability. But when we cut the dividend, basically the stock price went down equivalent to the dividend cut, the same percentage basically.

So we -- we were trading more or less like a bond. So basically we use that as an opportunity to reset the dividend rate at what we think will be about 60% payout ratio when we become a full cash tax payer which we think is very sustainable going forward. We basically implemented a $2 billion share buyback program to further stabilize the dividend.

We said we would execute that program over about a 24-month period or so. We ended up -- we will complete at this quarter about 15 months or so after the program was instituted. So we bought -- we bought back about $2 billion of our stock, about 9.5% of our shares outstanding and that further reduces even at the low dividend rate, further reduces the aggregate dividend we’d pay, about $120 million a year.

We got the board to authorize another $1 billion of share buyback program this past February which we said we would execute over an 18 to 24-month period. So that’s why the stock price went down. We had a quarter -- we are very transparent in terms of the guidance that we give. And we give guidance in a lot more detail probably than other companies do. And basically after the first quarter of ‘13, we had a good quarter. We upped our guidance a little bit in the second quarter.

We basically brought it back down, the kind of where it was from an annual standpoint at least that we gave first in ‘13. And also we basically at that time deferred the time that we would hit revenue stability from 2014 up to ‘15. And I think that further brought some credibility issues. And I think it’s just taken us about three quarters of really good operations and hitting our guidance to basically get credibility back. And I think people see now with the continued improvement that you’re saw in the chart in terms of our revenue improvement and the rate of decline decelerating that we’re getting some credit now for getting back to revenue stability in 2015 and just to the operations that we had and the successes that we’ve had over the past few years, few quarters rather.

David Barden - Bank of America Merrill Lynch

Can you mind us Stewart when current course and speed when you expect to be a full cash tax payer and if the bonus tax depreciation, extenders those path which seems like that is more likely the consensus now whether that’s true or not. What would that do to the timeframe for being full cash tax payer?

Stewart Ewing

So if it -- basically at this point, we expect to pay $50 million to $100 million in cash taxes in 2014. If Bowers depreciation does not go into affect, we would expect to pay an incremental $600 million in 2015, so a total of $650 million to $700 million. In 2016, we would expect to pay an incremental, again $100 million to $200 million of cash taxes.

Our cash tax rate will get higher than the book effective rate that we have because of the acquisition accounting and because of some amortization of intangibles that we have for book purposes that we can’t deduct for tax purposes. It Bowers deprecation is put into affect until someone incorrectly earlier detect and sort of basically defer a year, the increase in our cash taxes to the $600 million incremental. It actually would defer probably in a couple years until we get to where we would be to a $600 million incremental rate and then it would probably -- we haven’t run the numbers up at par. But it would stand a reason that it would probably be an incremental $100 million to $200 million after that as well incremental.

David Barden - Bank of America Merrill Lynch

So the stock has come back to levels where I think, let’s just call it pre-crisis, a pre-dividend cut level. You’ve done one small acquisition with two or three cloud acquisitions. But looking back over the totality of time and CenturyLink has built itself through M&A. I think most people believe it’s in your DNA as a company. And I think a lot of people kind of look at you as always a potential acquirer. Are you in that mode? Are you respective to potential acquisition opportunities? Do you think it’s -- given where your currency is and the valuation and the leverage? Do you feel like there is a lot of opportunities and so how do you see yourself as a acquirer right now in the market?

Stewart Ewing

So we have grown through acquisitions in the past. And we’ve continued even through the last couple of years to make a couple of small acquisitions. We believe we have all the assets in place that we need to have today to get to revenue stability next year and EBITDA growth throughout 18 months thereafter. That being said, we would still look to opportunities to be able to strengthen our business and strengthen our growth profile going forward.

We would be less likely to look at the traditional type acquisition that we have done in the past of legacy telecommunications companies, although it wouldn’t be -- you can never say it’s a 100%, as a question but because of the significant cost synergies there. But we wouldn’t want to do anything that would delay us getting into revenue stability and growth and EBITDA stability and growth.

The areas that we said that we would focus on would be fiber in metropolitan areas, which would give our sales people more buildings that we could sell to on that. So it would give our business, our sales people more opportunity to sell what for us would be higher margin customers. Those -- yeah, that being said, we’ve looked at a number of opportunities there over the last couple of years and the valuations and always been a little too rich for us.

The other area would be in the hosting and colocation area as well as the cloud and managed services area. And we’ve looked at opportunities there and basically just executed on a couple of small opportunities with two or three opportunity, being one that we believe really will enhance our ability to be able to be compete with the platform that we have today on a going-forward basis.

So, yes, I guess we would be a little more open to look at opportunities but I think we will be very cautious in that. The other caveat that we’ve had is that we would expect acquisitions that we would do to be cash flow accretive on a per share basis in at least the second year after the acquisition.

David Barden - Bank of America Merrill Lynch

And how would you characterize the elements, the market opportunities that fit your criteria is being abundant or what is it?

Stewart Ewing

I don’t know. There are always opportunities out there and we are always looking at opportunities. But I guess we’ve been -- it's just, we feel like we have the assets that we needed it unless we can find something that really we believe significantly improves our opportunities, we are not willing to go there so.

Unidentified Analyst

So speaking of M&A, there is a lot of M&A that’s going on in the market around your market. And I guess one of the things that people see is post the Comcast acquisition of Time Warner Cable and I think that the consensus for you would be that Comcast is a much more aggressive, capable, savvy business operator relative to Time Warner Cable and that as they infused the Time Warner Cable properties with that deal, it will become tougher at the margins from a competitive standpoint. So, I guess two questions on that. One, can you share what your exposure is to those two entities and second, in today’s world, are you seeing very different experiences competitively with those two guys?

Stewart Ewing

So, first of all, Comcast is the largest competitor that we have. They cover about 40% of our areas where we are the legacy telephone company, so they cover 40%. Time Warner covers about 6% to 7%. So not as significant increase in the areas that Comcast would basically do to the operator.

We do believe we see Comcast being a tougher competitor than Time Warner, especially on the small business side. So we would expect to have some additional competition there and some of the markets that are currently Time Warner markets. But it’s not anything that we think would have a significant impact on our ability to be able to continue to grow revenues in the business customer segment.

David Barden - Bank of America Merrill Lynch

So, obviously, you faced lots of competitors in the market, the Time Warner Telecoms of the world and other CLEC type properties. If a larger cable company sought bid to acquire a larger CLEC footprints to augment small and midsized business capabilities, with the combination of two guys that exist make a difference, do you think that you kind of sit back in the loss, I hope they don’t do that, or do you say well, gee, well they are competing against two and putting together one plus one because two doesn’t matter?

Stewart Ewing

Yes. That’s hard to say. I mean, Time Warner Telecom is a competitor. We do see them from time to time in some of the RFPs that we respond to and we see Comcast. So if they were to get together, who knows what would happen to transition. Transitions can go well too and provide opportunities for us, and we’ve seen that happened in the past. So it’s hard to say. I just think that we -- with the product set we have and our sales people have the services that we need to be able to be competitive against one or two or three of those, however they might be combined, okay.

David Barden - Bank of America Merrill Lynch

So the other one is AT&T DTV. So there is a lot of potential intersection point here. You’ve got a relationship with DTV and so that could change. You’ve got the idea that putting wireless and satellite together could be some incrementally more compelling bundle than two are separate today. And then there is the third element, which is AT&T promise that if the deal allows to go ahead, they will put 10 million fixed wireless broadband connection down the rural market. So walking through what the AT&T DTV merger means for CenturyLink?

Stewart Ewing

Yes. So first of all, I think, it’s probably too early to sell the licenseship with DTV, but I mean, we have been a very good partner, DTV. We have been a great agent for them. We brought a lot of customers to them that they didn’t have before. So we don’t see any reason why that relationship can’t continue and we would expect that it would.

Secondly, in terms of AT&T and potentially competing with them in some of the rural markets for broadband, again about two-thirds of our customers can get access to 10 meg or higher that continues to increase year by year. Our belief is that with the increasing demands that customers have for bandwidth, the Netflix bandwidth requirement, just the increasing video that customer are watching and downloading over their Internet pipes, we believe will drive customers to using a provider that basically has a wire in their home because we believe you will get generally higher bandwidth, a much better experience at lower cost. And so that’s our belief, that’s been our belief, and it’s our belief going forward.

At this point, we don’t really have any concerns about the -- because people -- on the margin some of the folks that don’t use much bandwidth, probably use a wireless connection today to download. But as the bandwidth demands grow, the wireless connection becomes more and more expensive and that could tend to drive people our way. So as long as we have 10 meg or better to the customers, we don’t really think there is that much exposure.

David Barden - Bank of America Merrill Lynch

So that’s the way we referred to the base but we need to get there. Let me ask you this question, so the latest stand volume data that I saw was that median U.S. household is consuming 22 gigabyte of data a month. The average is actually closer to 50 to 60. So, is there a huge difference between your experience in the rural markets where rural people use less because they are less sophisticated or the rural people use more because it’s a higher percentage of their total payment budget?

Stewart Ewing

Yes. So, in general, our numbers are a little bit lower than what you spoke up, but not a lot in the sense this year and we really don’t have a breakdown between how much our rural customers use versus how much the customers in urban areas use the high speed Internet. I would think that probably there is not a whole of difference just from the standpoint of -- I think the consumer behavior is probably pretty much the same across all. Folks in rural areas might actually can use Internet more for buying things that they can’t source relatively, but it’s hard to really count. But, I mean, I think our customers in the rural areas probably are not that much different than folks in urban areas.

David Barden - Bank of America Merrill Lynch

The another thing that -- and I want to talk about the rural and broadband in a moment, but one other thing that interesting is the cable companies are floating the idea of kind of deploying WiFi as a way to kind of monetize the portion of the wireless consumption and then maybe even hypothetically in the longer term future create mobile wide area networks in partnership with wireless carriers. And it’s interesting to me that you guys are actually the largest physical phone company in U.S. in terms of geographic footprint and you are wireline-only company and you have the ability potentially to play that same game which is to create endpoints in the network that are two-sided gateway and do SSID type of networks where you could monetize the mobile WiFi opportunities in a very similar to the way cable company.

People are talking about it, but no ones talking about it for the telephone companies. Is it something that’s on your radar screening, is it something people are missing, is it an idea that is interesting that the cable companies are toying with it, that you will kind of see how it goes in future. What does it mean to CenturyLink?

Stewart Ewing

So from our standpoint, I mean, we’ve done Wi-Fi networks but I mean, we took a community in Colorado and basically provided a Wi-Fi network there. From our standpoint, it was difficult to have monetized the investment that we made there, that may change some overtime. I don’t know but it’s something that we would monitor and see if there is opportunity there. And like you say, we have with the physical network that we have and the footprint that we have.

We would have the opportunity to do that, should it become something that would be worthwhile. But I mean, we basically, we sold our wireless business years ago because we saw wireless is been really a national. We had to be a national player and have a national footprint to be able to compete with AT&T and Verizon and we just never saw ourselves getting there. So our belief is really still the same. I mean, we have a wireless product that we can offer as an agent through Verizon. And for now really that’s all we really connect with it.

David Barden - Bank of America Merrill Lynch

Okay. So just going back to broadband real quickly and then, I want to touch on revenue driver and then, open up for some questions. But one of the other things that’s happening in the broadband where the rural market is, the U.S. have changed their rural regulatory support mechanism from high cost of voice loop support to under serve broadband. And they created this model that looks like what it might take for each of the given carriers to accomplish the FCC’s objective and those rules are up for comment right now. So, what are the rules changing from voice support to broadband support mean for CenturyLink more money, less money, more risk, less risk, what does it mean for you guys?

Stewart Ewing

Yeah. So a couple of things, one, we’ve received a little bit over $300 million today in Federal Universal Service Fund support. Switching over to the new program that supports broadband, if we accept all the areas that we think, we might have an opportunity to accept, it would be close to $500 million, around $500 million a year.

The FCC recently, when they put their proposal making out, increased the bandwidth capacity from 4 meg, which they have been talking all along to 10 meg, which makes it more difficult to and more expensive to provide that service. So from our standpoint, we’re going to have to see where it gets to the coming period and out the other end from the standpoint of the FCC finally promulgating the rules.

Really what it means for us, we’ll have the right of first refusal and to accept on a state-by-state basis, the markets that have money attached to them. The difference between what we’re receiving today and what we would receive in the future under CAF2, is that CAF2 would have requirements tied to it that the current USF money does not have tie to it.

So with the CAF2 money, we would basically be required to provide a 10 meg service in the areas that they identify needed to be build out. It would really depend upon the current state of our plan and the CAF2 dollars that we feel a lot where necessary to upgrade the plan to 10 meg as to whether or not we would accept that commitment.

But there would be a commitment to capital expenditures to make that happen with the new program that’s not there with the existing program to that.

David Barden - Bank of America Merrill Lynch

Do you think that the FCCs 10 megabit and they’ve just changed the definition to 4, like I guess, 2010, four years ago or I’d say three and a half year ago. So do you think that this is a negotiating tactic like they want you guys to promise 6 and can you do 6 for roughly the cost of 4 or is it more to 4 like a non-starter?

Stewart Ewing

It depends on the area and the density in the area and the quality of the plan that we have there today. I don’t know whether it’s negotiating tactic. Basically and certainly, more viable for us to be able to put potentially 6 meg out there or 4 meg out there that is 10 and we just have to see. I mean, we don’t really expect the rules to be finalized until the end of this year or sometime in the 2015. And you don’t know the impact of the AT&T direct TV transaction and the Comcast Time-Warner transaction on that time schedule.

David Barden - Bank of America Merrill Lynch

I can’t overestimate how much time I have spent. For the time, do you guys have any questions out there? You guys want to hit something at least one quick topic before we ramp up because I asked ton more questions and I’m not going to ask anymore.

Unidentified Analyst

(Indiscernible)

Stewart Ewing

So we reflect and report our revenues as strategic revenues and legacy revenues. The legacy revenue carries a much higher margin than the strategic revenue does. So actually -- even though strategic revenue today is growing and it’s 50% of total revenue, legacy revenues 44% or so, we need to get to revenue stability and still have the strategic revenue growing and legacy revenue declining. There’s slightly lower rate than it is today to be able to get the EBITDA stability. Just because of revenue mix shift it’s going to take -- its EBITDA stability that will not come at the same time.

Unidentified Analyst

(Indiscernible)

Stewart Ewing

It’s like 12 to an 18-month out for period afterward. And the beauty of that though is CenturyLink has a very high relativity to the industry’s capital investment rate of revenue. And so you have a greater deal of commission I think that one, you got revenue growth and EBITDA margin stability. You actually have a cash flow investment that’s probably will generate the cash flow stability as oppose to your guidance investing a 11% of revenues. In order to get real growth, its going to have to have the ratchet of the CapEx up. And then I certainly thought the cash stability kind of isn’t there anymore.

David Barden - Bank of America Merrill Lynch

Thank for the question. Thank you guys for coming in. I appreciate it. Thank you Stewart and [Christine] (ph) for making a trip and we’ll see you guys around the meetings.

Stewart Ewing

Thank you Dave.

David Barden

Thank you, Stewart.

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