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Cincinnati Bell, Inc. (NYSE:CBB)

Q2 2008 Earnings Call Transcript

July 31, 2008 10:00 am ET

Executives

Traci Bolte – VP, IR & Corporate Communications

John Cassidy – President & CEO

Brian Ross – COO

Analysts

Frank Louthan – Raymond James

David Barden – Banc of America Securities

Simon Flannery – Morgan Stanley

Bill Power – Robert W. Baird

Operator

Good morning, everyone. Thank you all for holding, and welcome to Cincinnati Bell second quarter earnings conference call for 2008. Your host for today's conference will be Ms. Traci Bolte. (Operator instructions) And at this time, I'd now like to turn the conference over to Ms. Bolte. Ms. Bolte, your line is open.

Traci Bolte

Thanks, Steve, and good morning. I'd like to welcome everyone to Cincinnati Bell Second Quarter Earnings Call. With me on the call today are President and Chief Executive Officer, Jack Cassidy, and Chief Operating Officer, Brian Ross. This morning, you'll hear from Jack about second quarter 2008 results followed by Brian's comments on second quarter operational metrics and segment financials.

Before we proceed, let me remind you that our earnings release and financial statements are posted on our Investor Relations Web site. 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'd like to draw your attention to our Safe Harbor statement. Information in today's presentation contains certain statements and predictions that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act.

In particular, any statements, projections or estimates that include or reference the words “believes”, “anticipates”, “plans”, “intends, “expects, “will”, or any similar expression fall within the Safe Harbor for forward-looking statements contained in the Reform Act. 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 Securities and Exchange Commission including Cincinnati Bell's Annual Form 10-K report, quarterly Form 10-Q report and Form 8-K report. This presentation also contains certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measure are also on our Web site. The forward-looking statements made on this conference call represent the company's estimates as of July 31st 2008. The company anticipates that subsequent events and developments will cause its estimates to change.

With that, I am pleased to introduce Cincinnati Bell's President and Chief Executive Officer, Jack Cassidy.

John Cassidy

Thanks, Traci. Good morning, everyone. We appreciate you joining us today. Earlier this morning, Cincinnati Bell announced second quarter results that included the 11th straight quarter of year-over-year revenue growth, and the eighth straight quarter of increased EBITDA from core operations.

In addition, diluted earnings per share improved by 10% compared to the second quarter of 2007. This performance reflects the many steps taken over the past few years to achieve growth in data centers, manage services, wireless and DSL. And Brian will provide further detail on segment results in a few moments. But first, I'd like to take a look at the quarter's highlights.

In our Technology Solutions group, investments and data center capacity over the past few quarters continued to drive top and bottom line growth across the segment. In the second quarter, revenue grew by 37% year-over-year and EBITDA improved by 51% compared with a year earlier. Data center capacity increased 11% in the quarter to 202,000 square feet from the end of the first quarter. In addition, we started billing on 21,000 square feet which led to an overall utilization rate of 87%.

Turning to the Wireless business, revenue in the second quarter was $78 million, driven by a 7% increase in service revenue. EBITDA was also up 7% from the second quarter of 2007 reflecting year-over-year growth in the postpaid subscriber base. In addition to overall subscriber growth, we were also pleased with continued expansion in the number of smartphone subscribers in the base. Brian will have more to say about Wireless in a few minutes.

In Wireline, DSL subscriber growth of 8% over last year helped drive a 7% increase in Wireline data revenue, which also includes data transport. At the same time, long distance and VoIP revenue grew by 24%, mostly due to the acquisition of eGIX in the first quarter of this year. Adjusted EBITDA margin remain flat on a year-over-year basis at 48%. These areas I've just described continue to be the key drivers of revenue growth for Cincinnati Bell.

As you can see on Slide 6 of the presentation, second quarter revenue totaled $351 million up from $329 million a year ago. Wireline Voice revenue declined by $11 million year-over-year, driven largely by in-territory consumer access line loss. More than offsetting the decline was revenue growth in Wireless, Technology Solutions and other Wireline products.

Revenue from the Technology Solutions segment increased $21 million from the second quarter of 2007, primarily due to the 62% growth in data center managed services, and a 26% grower in Telecom and IT equipment. Wireless service revenue was up $5 million, reflecting year-over-year growth in postpaid subscriber base and prepaid ARPU. Revenue growth helped deliver quarterly EBITDA of $119 million, up 1% from a year ago.

As shown on Slide 7, Wireless EBITDA increased 7%, while Technology Solutions was up 51%. Our ability to generate this growth in Wireless and Technology Solutions more than offset a decline in Wireline EBITDA. As a result, net income excluding special items increased by 9% to $26 million or $0.10 per diluted share, which reflects 14% increase from the second quarter of 2007. Double-digit growth in EPS was generated by higher EBITDA and lower interest expense in addition to reducing shares outstanding this year by 11 million or over 4% to the current common stock repurchase program.

As you can see on Slide 9, we continue to diversify the company's revenue across our entire product and service portfolio partly as an effort to limit our exposure to consumer access line losses. As a result, in the second quarter, 86% of total revenue came from areas other than traditional Wireline Voice compared to 82% a year ago.

In addition to diversifying the revenue base, we have also focused on our business customers. With our data center investments, we have concentrated the large part of our CapEx on increasing revenue from business markets. Combining these investments with our long-standing relationships has helped key business customers grow strong.

In the second quarter, revenue from business customers grew by 15% year-over-year. As a result, business market revenue accounted for 60% of the total second quarter revenue. A key factor contributing to this growth has been our ability to keep pace with strong demand for data center capacity.

In the second quarter, we completed construction of 21,000 square feet of new raised floor space, which brought total billable capacity to 202,000 square feet including 9,000 square feet of additional GramTel data center capacity.

The utilization rate equaled 87% at the end of the quarter, leaving 26,000 square feet of inventory. Presently, nearly all of this inventory is under final contract negotiations or is otherwise committed to customers, and therefore, we expect continued utilization rate expansion through the remainder of 2008.

In order to meet expected future data center needs, we currently have 58,000 square feet of capacity under construction at the end of the second quarter. 50,000 square feet of the space is located at our new Lebanon, Ohio data center and will be commissioned in early 2009.

An additional 6,000 square feet is located in Cincinnati and is reserved for the expansion of existing customers. The remaining 2,000 square feet is GramTel expansion. By the end of 2008, both the Cincinnati and GramTel construction should be complete. Our sales funnel for this space is growing with approximately half of that capacity earmarked for specific customers. It's been an exciting year so far at Cincinnati Bell.

In addition to the tenth anniversary here for both Wireless and ZoomTown, earlier this month, we relaunched our UMA service and introduced an Unlimited Wireless Family Share plan. Both products are being promoted with new advertising campaigns that began on July the 7th.

Fusion WiFi is an evolution of the original UMA product that we launched last year. It offers outstanding in-building reception and download speeds that are unmatched by other wireless carriers in the market. The pricing for Fusion WiFi reflects the value available for customers who bundle services with us.

Wireless customers who also subscribe to ZoomTown which is our DSL service can add Fusion WiFi to their wireless plans for as little as $10 a month. For customers who do not bundle, the add-on cost is about $15. Likewise, our new Unlimited Everything Family Pack is another example of how we're leveraging the ability to bundle local, long distance, wireless and DSL. This new rate plan provides unlimited wireless voice, text, and data, and is available when customers bundle their family's wireless service with home phone and ZoomTown.

In addition to new products, we also recently announced some management changes that include the promotion of Brian Ross from Chief Financial Officer to Chief Operating Officer. Brian has performed exceptionally as CFO since 2004. And over the past six months has taken on more operational responsibilities. Our new CFO is Gary Wojtaszek, who comes to us from Laureate Education Incorporated. Gary's first official day on the job is August 4th and we are excited to welcome him to Cincinnati Bell.

In closing, we are pleased with the financial performance in the quarter and will continue to execute against corporate strategy. As many of you know, we believe in order to produce long-term value for the shareholders of Cincinnati Bell we must defend our core Wireline business, pursue growth in Wireless, DSL and Technology Solutions and deploy the strong and stable free cash flow to both reduce debt and to repurchase common shares. Executing this strategy enables Cincinnati Bell to achieve sustained revenue and modest EBITDA growth and to maintain our enterprise value.

At the same time, we're generating the strong and stable free cash flow needed to retire debt and implement our share repurchase program. The end result is that over time as we maintain the enterprise value while retiring debt and buying back stock, shareholders will see the value of their ownership increase.

Now, I'd like to turn the call over to Brian Ross who will provide additional detail and insight on our performance in the second quarter. Brian?

Brian Ross

Thanks, Jack, and good morning, everyone. As you've just heard, Cincinnati Bell had another solid quarter. In my comments today, I'll review both operational and segment performance for the second quarter, then provide additional information about capital free cash flow and 2008 guidance.

Beginning with Wireless, total segment revenue increased $5 million or 7% to 78 million. Segment EBITDA of $21 million increased 1 million or 7% compared with the second quarter of 2007. As Jack mentioned, a combination of postpaid subscriber and prepaid ARPU growth is driving this increase. This resulted in the EBITDA margin of 27%, even with a year ago and slightly down from the first quarter of 2008.

As Slide 17 shows, Wireless subscriber growth contributed $3 million in EBITDA improvement. Partially offsetting this growth was higher in-collect expense related to international roaming and data usage in addition to higher acquisition costs associated with increased postpaid gross activations and handset upgrade. The acquisition costs consumed two points of EBITDA margin. Without these higher acquisition costs, EBITDA margin would have been at 29%, just shy of our 30% target.

As noted in Slide 18, a 7% postpaid subscriber increase led to a 6% increase in postpaid service revenue compared to the second quarter of 2007. Net activations in the quarter totaled 5,000 and gross activations were up 2,000 from a year ago. The number of smartphone subscribers in the second quarter of 2008 grew 71% from what we experienced a year ago, resulting in an 8% penetration of total postpaid subs.

Higher smartphone penetration of the postpaid subscriber base help drive data ARPU of $7.28 up 19% year-over-year. Data represented 15% of total ARPU in the second quarter and contributes to be a growth opportunity for our Wireless business.

As you can see on Slide 19, prepaid service revenue grew 12% to $13 million compared to a year ago, as prepaid ARPU increased 15% to $26. This reflects the migration of customers toward higher ARPU plan such as the Unlimited Daily Plan. In addition, data accounted for 28% of total prepaid ARPU in the second quarter. We experienced our typical seasonal sequentially prepaid subscriber decline, while year-over-year prepaid subscribers declined by 4%.

Taking a look at Technology Solutions, the chart on Slide 21 illustrates that year-over-year revenue grew 37%. This was the result of both increases in Telecom and IT equipment and in data center and managed services. Of which three points of growth are associated with the GramTel acquisition.

Compared to the second quarter of 2007, gross profit expanded $6 million or 53%, mostly due to a 64% increase in billable data square – data center square footage and growth in managed services. EBITDA grew 51% from year ago, and was up $2 million on a sequential basis.

Turning to the Wireline segment in Slide 22, EBITDA was 97 million in the second quarter, down 2 million from the prior year. A combination of $4 million in higher data revenue and $4 million in lower benefit expense partially offset the $11 million of decreased Voice revenue.

Benefit expense decline is directly attributable to a reduction in retiree benefits as well as the accelerated pension payment made in the fourth quarter of 2007. We continue to grow revenue in our expansion markets where we offer a full service bundle to consumers as well as our complete range of business services. Revenue in the (inaudible) which is located in an area that's immediately surrounding Cincinnati increased $2 million, driven by a 16% access line increase and a 54% DSL subscriber growth.

Moving on to Slide 24, we ended the second quarter with a total of 229,000 DSL subscribers, an increase of 8% compared to a year ago. Net activations were 1,000 and down 3,000 year-over-year, mostly due to lower gross activations. Penetration of Cincinnati Bell consumer in-territory primary access lines reached 46%. DSL churn remained below 2% and slightly improved year-over-year. Access lines declined 6.7%, reflecting a 16% increase in expansion market lines, and in-territory decline of 8.3%.

In-territory net access line losses were 15,000, which was even with the year ago. Churn remained well below 2% and gross adds dropped to 19,000. As evidenced by our recent launch of Fusion WiFi and the new Unlimited Everything Family Pack, we continue to focus on bundling and interoperability initiatives as a means of addressing the access line decline.

Moving now to balance sheet and cash flow items, capital expenditures in the quarter equaled $43 million, a year-over-year decrease of 6 million. As you can see on Slide 26, this decrease is the result of slower data center spending. Wireline and Wireless spending was flat compared with a year ago. During the quarter, we continued to build out of our 3G network overlay. We've been seating the market with 3G-ready handsets and as of today, the network is ready pending final clearing of our AWS spectrum.

Free cash flow equaled $54 million in the quarter, an increase of $16 million from a year ago. Lower capital spending combined with favorable working capital changes related to an accelerated operating tax payment in 2007. Lower interest expense and higher EBITDA contributed to improved free cash flow. In fact, year-to-date, free cash flow is $78 million. We are halfway through 2008 and we have achieved a little over half of our 2008 cash flow guidance which we provided in February.

Slide 28 illustrates how we deployed our available financial resources during the year to buy shares, retire discounted notes and fund our acquisition activity. In 2008, we acquired eGIX and closed on a small acquisition of a fiber ring located in our Dayton market. Bought back 11 million shares of common stock for $47 million, and retired 42 million of our 8 3/8% notes, a $2 million discount to par.

In summary, we're pleased with the financial performance of our business in second quarter and are optimistic about the outlook for the remainder of the year. As a result, we are reaffirming the guidance we provided in February.

Now, I'll turn the program back over to Traci.

Traci Bolte

This concludes the prepared remarks for today's call. We'll now open the conference up to question. Steve will give you instructions to participate. We're ready for the first question.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) We'll go to Frank Louthan with Raymond James.

Frank Louthan – Raymond James

Great. Thanks. Can you give a little comment on the changes in the prepaid market? It seems like you're moving up the quality curve there a little bit. Can you give us an idea there? Is that more of a purposeful change? Or was it just maybe taking a breather ahead of the new marketing plan? Or is there some more heavy competition there? And then any change in the competitive environment on the enterprise side either from competitors on the enterprise side in-market or from demand that you see for the data center business going forward? Thanks.

Brian Ross

This is Brian. Let me address the enterprise side first. Yes. I mean, there's no change, I don't think in the competitive environment, although you've got more competitors in here than you'd like. I mean, everybody in the world competes with us on the enterprise side. We've had major customer wins. And as you can see, both revenue and EBITDA across that business is growing. And I think, again, that's in part driven by what we've always called the ultimate business bundle, which includes the data center. So, you know, point to Kroger as an example, or GE Aircraft Engine or some of these other customers as we're not exactly carrier agnostic who is going to put pipe in the data centers. They're Cincinnati Bell pipe or they're not in that center. So, and those numbers by the way are not reflected in the performance of Cincinnati Bell Technology Solutions but are reflected in the overall performance of the business. So, I think the more relationships you have with customers and the more goods and services you can provide them, the better off you're going to be. And I think those results are showing.

John Cassidy

On the prepaid side, there is a better customer in this segment. If you look at customers individually than there was a year ago, because we're sound getting more ARPU and more data out of that prepaid customer, and if you recall, year-and-a-half ago, the latest and greatest thing that supposed to kill Cincinnati Bell was Cricket. Everybody worried about that. Well, we had to change our price plans to be able to keep those high value subs, which we did, which is being reflected in the performance of that business. But, you know, drink from a fire hose or pay by the drink, we are happy to have all kinds of different customers in there. And I think the mix of customers in terms of price plans shows that, in fact, we've hit all ends of the prepaid market. Brian, do you have any other comments?

Brian Ross

No. I think that pretty much summarizes it.

Frank Louthan – Raymond James

Okay. Great. Do you think that that's from the prepaid side as you kind of adjust that mix or should we start to see that grow over the next 12 months? It just take a little while to stabilize or what sort of the trend there?

Brian Ross

Frank, I think it – that market is up and down a little bit. Sequentially, we always see a decline from first quarter to second quarter. First quarter is a very heavy acquisition market – or acquisition corridor, due to the fact that it's a cash-based customer; people are getting tax refunds in the first quarter. So that's always a much better quarter than the second.

John Cassidy

The demographic psychographic mix of that customer is across the board. It could be a 12-year-old kid or it could be a 50-year-old person who for whatever reason, wants prepaid over postpaid. So, you see movement inside and outside of the prepaid to postpaid market. And again, frankly, we're happy to have that, because it is part of the cradle to grave, philosophy that we would have. So, in terms of where that market is going, I think it's going to follow the overall postpaid market in that those subscribers are going to use more data. 3G networks going to enable that, we're going to spend a lot less capital on the incremental manufactured minute. So, we would look to see a lift in both postpaid and prepaid. But, again, some customers, you decide that those are customers that you really, really want and you go after those guys, those are the high revenue, high value customers. The other ones, you price your goods and services where if you can make a profit off of it's fine; but if you can't, let the bad guy have those guys.

Frank Louthan – Raymond James

Okay. Great. Thanks a lot.

Operator

We'll go next to David Barden with Banc of America.

David Barden – Banc of America Securities

Hi, guys. Thanks. Just maybe follow-up more on the Wireless, just on postpaid side. You know, kind of year-over-year, apparently higher pressure may be in the Voice side of things than we were expecting, and usually, this is a seasonally stronger quarter. We've actually been seeing some softness relative to, I think, overall expectations in ARPU and the postpaid market. We saw it at Verizon and AT&T this quarter as well. Could you guys talk about what, if anything, you're seeing that's different in the postpaid pricing or competitive market that would be affecting kind of the ARPU side? Thanks.

John Cassidy

David, I thought you were going to congratulate us on our data center operations.

David Barden – Banc of America Securities

Excellent data center operations, Jack. Good job.

John Cassidy

Thank you, David. I appreciate you saying that. That's a private joke between me and David, folks. Let me ask Brian to address the ARPU question. It – you know, in terms of real ARPU, again, we see things marching up. But, Brian, do you want to talk about the USF?

Brian Ross

Yes. I don't think we've seen a dramatic change in competitive pressure in the marketplace. Our postpaid ARPU was down approximately about $0.50 as a result of changes in USF collection. So that number will be quite variable quarter-to-quarter. So, we didn't see the lift in ARPU in the second quarter that we might normally see as a result of that.

David Barden – Banc of America Securities

I'm sorry, Brian, could you elaborate a little bit on that? Was it definitional calculation change or was it actual revenue change?

Brian Ross

It's a tough quarter; it's an assessment quarter to quarter that we end up. We get a certain percentage of – the assessment is a certain percentage of service revenue and it's assessed quarter to quarter based upon what we've received from the FCC. But that was the biggest fluctuation in the quarter on a year-over-year basis. Data ARPU continues to increase. Voice ARPU decreased – has – it continues a trend of decreasing slightly. But we didn't see the uptick in the second quarter that we did in the first quarter, principally due to that – due to the change in our USF receipts, which are basically EBITDA neutral. What we collect, we turn around and pass on to the Federal government.

David Barden – Banc of America Securities

So your lower ARPU would have been offset by lower expenses at–?

Brian Ross

That's correct. So if you look at our EBITDA growth, our EBITDA grew right in line with what we would have expected. EBITDA grew – EBITDA expanded and expanded high enough to fund additional acquisition expense.

David Barden – Banc of America Securities

Okay.

Brian Ross

So from a profitability perspective, the lower ARPU related to the USF had no impact.

David Barden – Banc of America Securities

Okay. Thanks for that.

Operator

We'll go next to Simon Flannery with Morgan Stanley.

Simon Flannery – Morgan Stanley

Okay. Thanks. Good morning. Wonder if you could talk a little bit about pricing trends given some of the slower volumes we're seeing across the board on things like broadband? Are there opportunities to do more on pricing there, move to usage based pricing, things like that we've heard some other companies look at? On the data center side and on the enterprise side with pricing, with some of the new business that you're doing, is revenue per square foot that you're looking at coming in, in line with your installed base, in line with what you put in earlier in the year are you getting some price increases? How's that trending? Thanks.

John Cassidy

Thanks, Simon. Pricing in terms of – let's talk about broadband and DSL. The issue is always going to be – and we faced this back in the old days, for those of you are old enough as I am to remember the long distance wars. The issue is you don't want to price down your base and end up with 100% of the market share if we can't make any money. What we see in DSL is, is that with slowing demand given higher penetration that everybody is looking to eek out the next subscriber. So, everybody discounts the price of the new guy. But, the old guy is paying much more money on a monthly basis and therefore that person then has a reason to complain. So, what we have implemented recently that I think is a way to mitigate cannibalization of the revenue of the base is, is that you give your longer class customers more value for the money. Okay? So there's a couple of things we've done. Number one, we've introduced data storage and backup automatic at a certain price plan. And we've also introduced – and haven't really rolled it out yet, but we'll be actively doing so in the third and fourth quarter, is tiered pricing in terms of 5 meg to 10 meg to 20 meg to 1.5 meg. And I think the more value that you give your customer in terms of speed and application, the better that is as they compare the value in the price value equation. So, that's what we're doing on the consumer side. On the data center side, the pricing that we're getting on data centers is roughly in line with the pricing that, that you've seen us do in the past. And the reason for that is because we can – we think that that's a really good price place to be in the kind of data centers we run, which is collo, and it delivers a really good margin and obviously an increase in the EBITDA base as shown in the numbers. I think we're right in the middle of the road, right where we need to be, and driving the financial results. I don't think that we need to discount that data center space, and I also don't think that we need to raise price go forward, as the build and the utilization indicates that, again, we're building things, coming on line just in time to take care of capacity requirements for the customers. So we're out there six to nine months in front of actually coming on line and selling that space. So, again, I think the margins and the revenues in that business are good. And as long as that utilization rate stays where it's at then I think you can look for stability in pricing and profits in that business. If utilization rate was to dry up, meaning no space was available, then I think you'd look for pricing pressure to go up and vice versa.

Simon Flannery – Morgan Stanley

Okay. So, pretty stable, then?

John Cassidy

Yes, sir.

Simon Flannery – Morgan Stanley

Thank you very much.

Operator

We'll go next to Bill Power with Robert Baird.

Bill Power – Robert W. Baird

Great. Thanks. Good morning. Just a couple of quick questions on the access line front. As I look at in-territory access line losses, I wonder if you could give us just kind of a qualitative sense for how much your losses might be attributed to the seasonality versus economy, competition, et cetera. Has there been any change really in the trend lines there? Have you seen much change with regard to the economy? I guess from kind of the Q1 trends. And then, secondly, on the out of territory lines, looks like residential component there has more or less kind of flat lined, you still have growth on the business side, and I guess I'd just be interested in any color as to how you expect those trends to move going forward. Thanks.

John Cassidy

Let's address the 800 pound gorilla in the room here which is the economy. And you know, we have not seen what I would call significant changes quarter-over-quarter second quarter to first quarter. I would tell you that bad debt is up – not significantly, but it's up. And I would tell you that there are inflationary price pressures both in terms of energy, fuel to put in the trucks and across all the expense base that we have, inflationary pressure is up, as you might expect in today's world. On the other hand, we really haven't seen people turn in cell phones or drop their broadband or access lines due to the economy. I think the consumer is very fixated on price, and they demand as they should, an outstanding price value relationship, and the good news is, is again, the more they buy from us, the better their price gets, so that if they bought a wireless phone from Verizon and they bought a cable entertainment from Time Warner and they bought long distance from somebody else, if you put it altogether and buy it from us, you're going to pay about 20% less than you're going to pay the collective group of bad guys for their services. So, in a way, when you have the best price value relationship in a bad economy, I think people find a way to your door given price pressure. All that said, given a choice, I'd much rather be in economic expansion than a contraction. Again, on the enterprise side, we really don't see a pull back on the economic front. On the consumer side, we see people getting very fixated on the price and the value that they're getting for those goods and services. As far as consumer access lines out of market go, our out of market territory is, frankly, not all that huge. I mean, you're talking Dayton, Ohio, here. So, we've been doing the (inaudible) business up there for four or five years, and we're going to achieve penetration rights that in the consumer business are going to slow. If I had the choice, I'll always take an enterprise line over a consumer line. And in fact, the total – in those out of primary market areas outside of Cincinnati, the total has grown quite nicely, and we expect that the people we have up there will continue to deliver on that. Brian, other comments?

Brian Ross

I'd say the access line trends are pretty much the same. We – our in-territory loss was equivalent to what it was second quarter of last year, and the loss continues to come from a lack of gross. Our churn is still very low. In fact, churn on access lines is lower than our other products. It's principally a gross problem, and that's largely – we think is related to wireless substitution. So, I think the – you know, I think, pretty much more of the same there.

John Cassidy

So, the number of people that actually left us was flat. Okay? The number of people that we didn't get that we never know we never [ph] had was up. And that's going to come from one of two places

It's either going to come from cable getting to them first, or is it going to come from people who would rather have a cell phone than a Wireline phone. The good news is, last time I checked, we're in the wireless business. So, we can at least have an opportunity to augment the financial effect of that by being a primary carrier in the wireless market. The industry is nobody needs to tell anybody who's listening on the other end of this phone is, is that the industry continues to struggle with the relevancy of a copper pipe. And is that a business? Or is that a product? And so lots of people are addressing it lots of different ways. Cincinnati Bell continues to be the only communications company in America outside of Alaska that offers long distance, local, broadband and wireless to the consumer. And frankly, we don't look at ourselves like many of you do as an (inaudible). We're not fish, we're not fowl, may be we look more like frog legs. I don't know. But, we look at ourselves as a communications company, not as an access line voice company. That said I wish we didn't have access line loss.

Bill Power – Robert W. Baird

Okay. That's helpful. Thanks.

Operator

And having no further questions, this will conclude today's conference. We thank you for your participation. And you may now disconnect.

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