Cincinnati Bell 2007 Deutsche Bank Media & Telecom Conference Brian Ross, CFO

Transcription

1 Cincinnati Bell 2007 Deutsche Bank Media & Telecom Conference Brian Ross, CFO June 4,

2 Safe Harbor Certain of the statements and predictions contained in this presentation 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 statement for a variety of reasons, including but not limited to, Cincinnati Bell s ability to maintain its market position in communications services, including wireless, wireline and internet services; general economic trends affecting the purchase or supply of communication services; world and national events that may affect the ability to provide services; changes in the regulatory environment; any rulings, orders or decrees that may be issued by any court or arbitrator; restrictions imposed under various credit facilities and debt instruments; work stoppages caused by labor disputes; adjustments resulting from year-end audit procedures; and Cincinnati Bell s ability to develop and launch new products and services. More information on potential risks and uncertainties is available in recent filings with the Securities and Exchange Commission, including Cincinnati Bell s Form 10-K report, Form 10-Q reports and Forms 8-K. The forward-looking statements included in this presentation represent estimates as of the date on the first slide. It is anticipated that subsequent events and developments will cause estimates to change. 2

3 Table of Contents 1. CBB Overview 2. 1Q07 Summary 3. Segment Overview 4. Outlook & Strategy Overview 3

4 CBB Overview $1.3B diversified telco Main segments incl. local, wireless, technology solutions ~875k access lines ~550k wireless subs ~90k sq ft raised floor Local ILEC and CLEC within licensed wireless area 4

5 $1B Telecommunications Company with a history of innovation

6 Cincinnati Bell 1Q07 Summary 6

7 1Q 2007 Accomplishments Year over year growth in revenue, EBITDA and net income Increase in wireless service revenue, margins, and subscriber base 20%+ revenue & EBITDA growth in Technology Solutions Nearly 10% increase in business enterprise revenue 7

8 2007 Revenue Growth $ s in Millions $10 $315 $17M growth $12M services $298 ($6) $7 $7 Highlights: 25% technology solutions revenue growth 12% wireless service revenue growth 10% wireline data growth 1Q06 Revenue Wireline Voice Data/Other Wireless Technology Solutions 1Q 07 Revenue * May not foot due to rounding 8

9 Continued Diversification of Revenue Base (includes Long Distance) Technology Solutions Other 15% 10% 19% Wireline Voice - Consumer Majority of total revenue derived from sources other than traditional consumer wireline voice 81% vs 78% in 1Q06 21% 16% Wireline Voice - Business Wireless 19% Wireline Data (before intercompany eliminations) 9

10 1Q07 Revenue by Market...increasing business % of total Consumer 46% Business 54% Revenue growth from business customers 54% vs 53% 1Q06 Business y/y revenue growth of 9% (before intercompany eliminations) 10

11 2007 EBITDA $112 $5 $ s in Millions $1 1Q06 EBITDA Wireless Technology Solutions * May not foot due to rounding ($2) $1 $117 Wireline/Other Broadband 1Q07 EBITDA Key Drivers 12% service revenue growth 25% technology solutions revenue growth Broadband reversal of legacy liability 10% wireline data & 35% CLEC revenue growth + productivity improvements partially offsetting consumer ILEC line loss and increased business sales costs 11

12 Free Cash Flow Strong In Spite of Capex Increase ($ in Millions) $5 ($7) Earnings growth offset by increased capital and interest payment $30 ($5) $22 +$12M data center capex partially offset by lower local and wireless 1Q06 Free Cash Flow EBITDA Capital Interest Payments / Other 1Q07 Free Cash Flow Interest payment up $4M on timing of bank credit facility payments 12

13 Net Debt Crosses Under $2B Mark $2,123 $1,995 Continue to reduce debt with free cash flow Partially offset by cable asset purchase and data center building lease 1Q06 $ s in millions 1Q07 Optimizing debt with A/R financing On balance sheet treatment No increase in debt or decrease in A/R 1% annual approximate interest rate savings on up to $80M debt 13

14 Cincinnati Bell Segment Overview 14

15 Y/Y Access Line Loss remain near the top of the pack -4.5% -4.9% -5.0% -5.6% -5.8% -6.5% -6.8% WIN CBB CZN CTL EQ T Q -7.9% VZ Source: Merrill Lynch, Company Data 15

16 Access Lines Net Adds by Quarter sequential net add improvement despite 4.9% annual loss 1Q06 2Q06 3Q06 4Q06 1Q07 (8.4) (9.7) (11.1) (12.0) (in thousands) (13.5) 1Q07 consumer ILEC gross adds and churn are less than 1Q06 Lower gross adds primarily wireless substitution Low churn evidence of the power of the bundle 16

17 DSL Subscribers and Penetration DSL Total Subscribers Q06 2Q06 3Q06 4Q06 1Q07 (in thousands) DSL Penetration % of In-Territory Consumer Primary Lines 1Q06 2Q06 3Q06 4Q06 1Q07 28% 29% 32% 34% 36% 1Q07 metrics remain strong 9K net adds Churn below 2% Out of territory consumer penetration up 14% y/y to 18% 1k naked DSL net adds Continue to market to under-penetrated segments 17

18 DSL Growth Amongst the Leaders despite leading penetration vs. the large telco s DSL Penetration CTL 2.3% WIN 2.0% CBB 1.6% Q 1.5% CZN 1.5% EQ 1.4% T 1.3% VZ 1.3% 0% 5% 10% 15% 20% 25% 30% 4Q06 1Q07 Net Source: Merrill Lynch: Broadband subs/ilec lines 18

19 Postpaid Driving Wireless Revenue $43.4 Postpaid Service Revenue $48.1 $48.9 $49.6 $49.8 Total wireless revenue of $69M is +$6.7M from 1Q06 Postpaid service is +6.4M 15%+ y/y subscriber growth 1Q06 2Q06 3Q06 4Q06 1Q07 (in millions) 9% Postpaid Subscriber 15% 17% 16% Q06 2Q06 3Q06 4Q06 1Q07 (in thousands) 15% 1.4% churn even with 1Q06 slight improvement over 4Q06 $44.75 ARPU 8% y/y data ARPU growth 47% data attach rate on activation 19

20 1Q07 Wireless Margin Expanding 18% 9% ( 3%) 24% $ % EBITDA growth 6 point % margin increase to 24% $11.3 margin 1Q06 EBITDA $ s in Millions * May not foot due to rounding Subscriber Base Acquisition Expense 1Q07 EBITDA Key Drivers: Postpaid service revenue network and supply chain efficiencies 19% increase in prepaid gross activations and increased sales and advertising costs 20

21 Wireless Growth Favorable to Peers further opportunity for data growth and margin expansion 33% 24% 15% 17% 15% 17% 11% 12% 12% 13% 9% 4% -1% 0% Serv Rev Growth* ARPU Growth* * CBB Postpaid only ** as % of total revenue MOU/sub Growth* Subs Growth* Industry CBB Data % of Total ARPU* EBITDA % Capex %** Source: Merrill Lynch, Company Data 21

22 Technology Solutions solid growth in key lines Professional services $48M 1Q07 Revenue +23% 1Q 07 EBITDA +$4M 30% Data center and managed services 67% Telecom and IT equipment distribution $3.1 $3.8 +$10M y/y growth +$6M 1Q06 1Q07 (in millions) 22

23 Technology Solutions... provides outsourced IT and telecommunication infrastructure & services CBTS Revenue Categorization Data Center & Managed Services Professional Services Telecom & IT Equipment Distribution Category Definition Complete management of a customer s data needs including network management, hosting, disaster recovery, storage, security and redundancy. Continue building relationships with customers through IT outsourcing and consulting on an ad hoc or longer term basis. Value added reseller of over 10 branded technology vendors. Implementation and maintenance services of that equipment are also included. Total IT Sourcing for Fortune 500 Customers Migration to Full Managed Sourcing 23

24 Technology Solutions... data center & managed services Recurring Services: Colocation, Managed Hosting, Security, Disaster Recovery/Business Continuance, Server Consolidation/Virtualization, Managed VoIP, Storage Assets: enoc, Data Centers, Fiber Network Service offerings combine network, monitoring and data center assets to offer complete end to end infrastructure hosting, monitoring, and management capabilities 24

25 Technology Solutions... professional services Refocused strategy in Q on a complete IT staff augmentation model One stop shop for all technology and application development outsourcing expertise General IT outsourcing NOT management of customer s data Builds relationships with equipment distribution customers to enable migration toward managed service model. 25

26 Data Center Build Out Update Estimated Capacity Growth (sq ft) Q07 2Q07 3Q07 4Q07 1Q08 Existing New Capacity (in thousands) by qtr end % 1Q07 utilized capacity Additional capacity available in 3Q months to build $12M 1Q07 capex Selected as the data center provider by both prospective and existing customers Contract negotiations underway for ~70k sq ft Begun construction of ~20k sq ft to address sales pipe line 26

27 Technology Solutions... key takeaways Customer demand for complete outsourced IT infrastructure is increasing Customers are purchasing these services in conjunction with traditional telecommunications services Cincinnati Bell is deepening its unique relationships with local Fortune 500 companies Attractive data center returns over extended period Targeting 20%+ return on data center invested capital Includes the opportunity cost of accelerating the use of NOL s Ancillary service and equipment sales augment data center 20%+ returns Larger contracts can be up to 10 years in length 27

28 Cincinnati Bell Outlook & Strategy 28

29 Outlook is to Maintain Guidance Actual 2006 Guidance Delta Revenue $1.3 B $1.3B EBITDA $458M $465M Wireless & technology solution growth offsetting local segment decline Capital Free Cash Flow 12% of revenue 19% of revenue ~90k sq ft data center & 3G investments $148M $ 50M Approx. +$90M capex & +$30M non-recurring working capital 29

30 CBB Strategy Remains Consistent Cash flow repays debt Aided by $1.6B federal NOL carryforward Grow Data center and enterprise revenues Wireless and wireline interoperability De-lever Generate free cash flow Drives shareholder value Modest EBITDA growth Wireless & Technology Solutions offsetting local decline Defend Manage consumer wireline loss Minimize local decline Bundle to drive data and control ILEC line loss CLEC growth and productivity improvements 30