Consolidated Communications Holdings Inc (CNSL) 2019 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Consolidated Communications Holdings conference call (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the call over to your host, Ms. Jennifer Spaude.

Please go ahead.

Thank you, and good morning, everyone.

We appreciate you joining us today for Consolidated Communications' third quarter 2019 earnings call.

On the call with me today are Bob Udell, our president and chief executive officer; and Steve Childers, our chief financial officer.

After our prepared remarks, we will open the call for questions.

Please review the safe harbor provisions in our press release and in our SEC filings.

Today's discussion includes statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties.

A discussion of factors that may affect future results is contained in Consolidated's filings with the SEC, which are available on our website.

Today's discussions will include certain non-GAAP financial measures.

Our earnings release has been posted on the Investor Relations section of our website at consolidated.com.

It includes reconciliations of these measures to their nearest GAAP equivalent.

I will turn the call over to Bob Udell.

Good morning, everyone, and thank you for joining us today.

Thank you, Jennifer.

Jennifer Spaude is back as our Investor Relations lead.

Lisa Hood is taking on a new opportunity, and we wish her the very best in her new adventure.

We are executing on our capital allocation plan, which is focused on deleveraging and creating long-term value for our shareholders.

This plan is about reducing debt, creating additional financial flexibility, and improving our future cost of capital.

In the third quarter, we reduced our debt by $26 million.

We are making progress strengthening our balance sheet.

Now let me update you on the business and the progress we are making, starting with consumer.

I am pleased with the performance in this channel.

Broadband revenue grew more than 2% year over year and quarter over quarter.

Total consumer revenue increased almost $2 million from the prior quarter, with strong broadband revenue growth.

Our consumer results continue to improve as we lead with broadband services and drive ARPU increases with bandwidth upgrades.

In the last 2 years, we have increased available speeds to more than 750,000 connections, primarily rural customer locations.

Increasing speeds is a key driver for our growth.

In the third quarter, we upgraded speeds to 1 gig for 62,000 end-user locations in northern New England.

Capacity upgrades required for carrier growth enabled these speed upgrades for consumer and commercial customers, a good example of our 3 customer channels leveraging our common fiber assets.

Last week, we began turning up subscribers in Chesterfield, New Hampshire, in a first-of-its-kind partnership, leveraging municipal bonds to fund construction of a fiber-to-the-home network.

This is a great example of an effective public/private partnership.

We have 5 additional opportunities in the pipeline, totaling nearly 10,000 passings, all of which would begin construction in 2020.

This is a unique model that is perfectly suited to leverage our capabilities as an incumbent provider in rural markets.

Through a combination of efforts, including public/private partnerships, innovative fixed wireless, new technologies, and targeted investments, we are optimistic on the consumer broadband business.

Last quarter, we announced the launch CCiTV, a cloud-based video service in Portland, Maine.

It is very early in the launch phase, but so far, nearly half of the subscribers are adding a data service, 70% of the customers are bringing their own devices.

This metric will evolve over time and reinforce the broadband lift and low-capital intensity we expect with this product.

We plan to launch CCiTV and a triple-play offering in New Hampshire and Vermont by the end of the year.

We are very pleased with the progress made this year in our consumer channel.

While we anticipate New England's seasonal suspends in the fourth quarter, we are positioned to enter 2020 with a solid run rate.

Within our commercial and carrier channels, we experienced a both year-over-year and quarter-over-quarter growth in data and transport revenues.

The growth rate was just over 1% year over year, and we are on track to realize nearly 2% increase in data and transport in full-year 2019.

In our commercial channel, we are focused on driving a better customer experience through our solutions-based sales approach and expanded portfolio of advanced services.

We've had success upgrading multi-site customers to Consolidated's competitive SD-WAN solutions.

This is a natural evolution, building on our customers' trust in us as a reliable, high-performance WAN provider.

A recent win involved a 7-site customer who added SD-WAN, bringing increased diversity and bandwidth to their network.

The majority of their sites are on our fiber footprint.

With SD-WAN, our customers get even more uptime, speed, and visibility into their network applications, and their critical business traffic is prioritized over other network usage.

We are also gaining momentum within our small business, or SMB team, after adding additional sales resources to support acquisition and retention efforts.

This past quarter, we launched Microsoft Productivity Suite as well as easy-to-use website and email management services.

These services provide everything our customers need to stay connected and be productive wherever they are, and whatever device they choose to use.

They're a nice complement to our BusinessOne bundle.

Our care channel has achieved strong, consistent results in 2019.

Total tower connections under contract increased by 129, or 4%, compared to the third quarter of 2018, reaching more than 3,800 total tower connections.

Revenue within our care channel continues to be a solid mix of wire line and wireless transport services, driven by ethernet and dedicated internet.

Our team is doing an excellent job of negotiating long-term carrier contracts that continue to drive ethernet sales and offset TDM special access services.

Our network investments made for carrier services are also benefitting consumer and commercial customers.

Now turning our attention to cost savings opportunities, operating expenses were down more than $20 million in third quarter, year over year.

We continue to identify and implement initiatives to transform the business and stabilize free cash flow.

As an example of cost savings initiative -- an example of a cost savings initiative is the continued automation and consolidation of our customer care functions.

We have developed robust self-serve options and portals for our customers who are choosing to do business with us via these tools.

These changes are helping us streamline and align the customer experience, and realize cost savings.

I will now turn the call over to Steve, who will provide more details on our financial results for the third quarter as well as an update on our full-year 2019 guidance.

Steve?

Thanks, Bob, and good morning to everyone.

We're pleased to achieve another quarter of stable and consistent adjusted EBITDA and revenue.

First, starting with our consolidated performance, operating revenue for the third quarter totaled $333.3 million and generated adjusted EBITDA of $131 million, which is essentially flat with the second quarter.

Now I'll discuss each of our customer channels, starting with consumer.

For the quarter, voice, video, and data revenue all improved on a sequential basis.

Year over year, total consumer was down $5 million, or 3.7%; voice revenue was down $5.3 million, and video, consistent with our strategy to transition away from low-margin IPTV linear video to more broadband-centric services, declined $1.3 million.

However, consumer broadband revenue did grow $1.6 million, or 2.5%, in the third quarter.

Data ARPU is the key catalyst, as we balance rate increases with organic ARPU improvements in all of our markets.

We continue to realize positive momentum by leading with data specifically in our newly updated areas, where we are now marketing to more than 750,000 locations.

And as Bob mentioned, we are excited about the partnership opportunities and new technologies to continue to upgrade and expand broadband services.

Now turning to our commercial and carrier channel, revenue for the quarter was $147.2 million, down 2.9%.

Data and transport revenue grew 1.3 [percent] (corrected by the company after the call) to $88.8 million for the year -- for the quarter.

Voice services revenue declined $3.5 million, or 7%, driven by legacy declines in traditional access lines and associated services.

Other revenue declined $2.1 million.

Network access revenues declined $3.9 million, or approximately 10%.

Subsidy revenues were down $1.2 million, driven by the impact of the final CAF-II step-down in transitional that occurred in August 2018.

We now expect our subsidy revenue run rate to be approximately $18 million per quarter.

We plan to be active participants in the FCC's Rural Digital Opportunity Fund, which will bring urban speeds to rural America.

We are confident our fiber-rich network will give us a competitive advantage over those who don't have infrastructure in these rural markets.

We will evaluate the funding within our service area as well as edge-out locations where we have fiber network.

We are excited about the potential opportunities for Consolidated, as the objectives of this fund align with our commitment to expand and improve rural broadband.

Looking at operating expenses, exclusive of depreciation and amortization were $216.7 million, which improved 9%, or down $21.5 million from the third quarter last year.

Cost of services and products declined $6.3 million, driven by network cost optimization and lower salaries and benefits as a result of reductions associated with the realized FairPoint synergies and ongoing cost savings initiatives.

SG&A costs were reduced $15.2 million in the recent quarter, primarily due to integration and restructuring charges in the third quarter of last year, combined with run rate operational synergies and ongoing cost structure efficiencies.

Net interest expense for the quarter was $34.3 million, compared to $33.5 million for the same period last year.

Our weighted average cost of debt was approximately 5.7% at September 30.

Cash distributions from the company's wireless partnerships were $10.9 million in the third quarter, compared to $8.1 million for the same quarter last year.

Adjusted net income per share was $0.06, compared to a net loss of $0.09 per share a year ago.

The improvement reflects $16.1 million decline in depreciation expense as well as ongoing focus on cost structure and operating efficiencies.

We've invested $64.6 million in capital expenditures during the third quarter.

The higher CapEx level is driven by consumer and broadband growth, seasonal construction, and additional hurricane restoration costs, which we expect to be completed in the fourth quarter.

Combining our consistent EBITDA performance and the cash impact of insurance recovery proceeds, the higher capital expenditures will not impact our ability to achieve our stated leverage goals.

Total liquidity, including cash on hand and availability under the revolver, was approximately $71 million.

Our net leverage ratio was 4.39x at the end of the third quarter.

We are executing our new capital allocation policy, which is focused on continuing to demonstrate progress on deleveraging, while improving the balance sheet.

Total debt declined by $26 million during the quarter, boosted by the retirement of $23.1 million in our senior unsecured notes and par value.

The third quarter was our first full quarter without the dividend payment.

Consistent with Q3, we will repurpose the Q4 dividend savings to pay down debt, and we'll continue to prioritize being opportunistic with open market purchases of our bonds.

With this strategy, we are confident we will improve our capital strategy as we -- capital structure as we accelerate deleveraging toward our goal of achieving total net leverage of less than 4x no later than mid-2021, and in advance of our refinancing of our unsecured debt.

We are intensely focused on achieving our full-year financial guidance.

Today, we are forming guidance for adjusted EBITDA, which is expected to be in the range of $520 million to $525 million, cash interest costs in the range of $130 million to $135 million, and cash income taxes are expected to be less than $3 million.

We are updating our capital expenditure guidance, which is now expected to be in the range of $220 million to $225 million, to account for the full-year projected capital expenditures of $11.8 million associated with the hurricane restoration as well as addition success-based CapEx.

With that, I'll now turn the call back over to Bob for closing remarks.

Thank you, Steve.

In closing, this is our first completed quarter since implementing our capital allocation plan, and we are on track with our target debt reduction.

We also have delivered another stable quarter of EBITDA and revenue results.

Expenses were reduced, and we're focused on continued cost savings initiatives.

We are strengthening our balance sheet, and I am confident in our business and our ability to create long-term value.

With that, we'll now take questions.

Operator?

(Operator Instructions) Your first question comes from the line of Jon Charbonneau with Cowen and Company.

For data and transport revenue, do you still expect to hit the 2% type growth for the year?

Because that would imply a notable uptick in the fourth quarter.

And then, longer term, is the 2% type growth still how we should be thinking about that business?

We are optimistic on the fourth quarter.

We've got some very strong carrier tower pipeline that we accelerated into the third quarter, some of which we accelerated in the third quarter.

And we also have some very large sales in our gold and platinum categories, which are above 2,000 per month, that are in queue.

So it's going to be a matter of closing those deals and -- well, the deals are closed, but getting them installed.

And we also saw some very nice growth in our core products, Metro E over 4% increase year over year, and hosted voice is up.

So we're still fairly optimistic about the installs that we've accelerated into third quarter where we could get the construction work done, and the NRCs and the monthly recurring billing that comes with that.

But I think it will be slightly less than 2%.

And then, longer term, is the 2% growth type of -- is that how we should be thinking about that businesses going forward?

Jonathan, this is Steve.

Absolutely, I think for -- internally, our objective is 2% should be the minimum going forward.

That's where we're making our fiber investments.

That's where we're basing our sales resources at.

So we have some work to do, but I mean, that has to be kind of a threshold going forward at the bottom of the [base] there.

Your next question comes from the line of Michael Rollins with Citi.

This is Adam Ilkowitz on for Mike.

Two questions, if I could.

One, on the consumer broadband revenue, can you sort of disaggregate price versus customers?

Are you net gaining DSL customers, given the expansion of the broadband footprint, if you could help us understand that?

And then, on the SG&A, sequentially, it came down fairly significantly, a little bit more than 10% perhaps.

Can you mention if there's anything in the SG&A expense line this quarter that was a benefit or that may reverse in future quarters?

I'll take the first part of that, Adam, and Steve will take the second.

Really, there's 2 components, as you said, on the consumer revenue.

We've had the legacy consolidated markets in the aggregate continue to perform quite well, and the speed upgrades there have really helped lead both price, ARPU increases as well as continued additions of subscribers.

And so the legacy FairPoint markets are where we've had a significant speed upgrade opportunity, and so when you look across the aggregate, it's really 50-50, and with the price increase opportunity coming from speed upgrades as well as those speed upgrades enabling us to grow penetration.

Adam, this is Steve.

I think your question was on, sequentially on SG&A costs.

The way I would look at that is, Q3 compared to even second quarter of this year or third quarter of last year, we [locked] the window for adding FairPoint integration costs back into June 30.

So we were, on a sequential basis, we kind of accelerated some things into second quarter, so that's one thing that we should see is less [sort of] integration and severance, although we still incurred some severance expense in Q3.

You're also seeing the benefit of actions taking, as we continue to consolidate work groups, particularly on the customer service side.

And then, we also had some tax refunds in Q3, based on some things we have going on at the state level.

So we are going to be continuing to focus on that going forward.

Then maybe, Steve, can you quantify perhaps the level of the benefit from the state tax refunds?

I mean, I understand the integration expenses, which we usually try to remove the impact of.

I don't have that number specifically, but I'd say it's probably $500,000 to $800,000.

Adam, so the ongoing refinement opportunity within the business, this is something that has been typical of every acquisition we've done and it's even, with the size of the FairPoint integration, even more of an opportunity.

We're seeing constant business process refinement, especially across the service delivery channels.

And so as we continue to find automation benefits, those are expediting installs, shortening booked-to-billed revenue cycles, and allowing us to consolidate or centralize more work functions and get the benefit of even virtually-linked centers to cover more flexibility in scheduling and time zones.

So it's a constant refinement process, primarily driven by looking at each customer group and the continued refinement and automation of the service delivery efforts.

Your next question comes from the line of Mike McCormack with Guggenheim.

Maybe just a quick comment on MPLS exposure, and then obviously on the SD-WAN side, which is probably replacing it, what you're seeing from a pricing perspective.

And I guess in the consumer business, what were you guys seeing out there as far as the data connections go with respect to seasonality?

Thanks for the question.

Let's start, as you did, with the commercial side.

For the academic view of SD-WAN, it's logical to conclude that it replaces MPLS over time, but that's going to be an incredibly long lifecycle.

We're actually seeing SD-WAN as a 10% ARPU when it comes to commercial customer growth opportunity for us, and the multi-site example I gave in our prepared remarks is a perfect case study.

We're seeing many of our multi-location customers add SD-WAN in their remote sites, some of which aren't in our footprints, and many are, to get that connectivity and control of their critical applications extended in a way that they couldn't previously.

And so it's an enhancement for us right now, and it's using more transport paths and allowing us to extend Metro Ethernet, even at smaller bandwidth levels than what customers may have bought on a dedicated basis previously.

So to date, we haven't seen that as any inclination of a revenue write-down, so I think that addresses your SD-WAN.

Oh, from a pricing perspective, I don't see SD-WAN as a price compression opportunity.

It's actually been an enhancement, as I mentioned, on an ARPU basis, allowing us to link more sites together for our multi-location customers.

Now moving to the consumer, we do expect some seasonality, as we've typically seen in northern New England, although we have an automated suspend process now that roughly 30% of the customers who we've typically seen in volume begin to suspend in the heaviest month of October are using that process that allows them to suspend for a small fee versus disconnecting the service.

And it takes the discussion out of our call center and puts it in their hands for control when they reinstall it, without having to wait in queue for a scheduled install.

So it's actually something we anticipate, and we don't expect it to be as dramatic, maybe, as what we've seen in the past, but this cycle will be the indicator on how much the automatic suspend process has affected that.

Your next question comes from Jennifer Fritzsche with Wells Fargo.

Two, if I may.

I wanted to ask any updated thoughts on the Rural Development Opportunity Fund, or RDOF, as I think it's being called, how you're thinking about that.

And then, secondly, I wanted to see -- sorry if you've mentioned this -- the competitive environment in the old FairPoint territory.

Are you seeing Charter respond in an aggressive way as you roll out your [pasture seed] offering?

I'll take the second part of that first, and then come back to RDOF.

The proof in terms of competitive response is really in the uptick we've seen in revenue and the success rate we're seeing on installs this quarter and last quarter, and the pipeline still looks good.

We think we're in the right niche.

We think we have a better service delivery process, and we're giving the technicians more tools.

We're seeing Charter, aggressive as always on pricing, but no specific response, because our marketing effort and focus on expansion has been a very surgical, neighborhood-by-neighborhood approach, and so we can be that targeted.

Charter's typically followed a national pricing approach, and we compete with them in many of our markets and see the success we're having right now in northern New England, a result of the process improvement and the focus on the upgraded areas, and our ability to hit install appointments when we said we were going to be there for our customers.

So I wouldn't say we're seeing anything different in this market than what we've experienced in other markets.

Now back to the Rural Digital Opportunity Fund.

We're very excited about this.

This is what we view to be the next wave of digital and internet revolution, to some degree, in connecting the rest of America.

So infrastructure in rural markets is something that we're good at, and we believe we've got a competitive advantage, and we're very active with the FCC and through our national associations in giving input to the auction process.

And so we think it's going to be appropriately sensitive to making sure that not only do end users get access to broadband service and the maximum bandwidth possible, with a minimum of 25 and 3, but the weightings also address latency and put us in a best -- in a very good position to extend our fiber networks through fixed wireless or terrestrial means, whatever fits the situation best, and we've got experience with all those end-user types of technology.

So we're staying close to it, watching carefully how the comment period plays out, and preparing for a good order in January that outlines the process for the auction.

Your next question comes from the line of Davis Hebert with Wells Fargo.

I have a few questions here.

The first 2 are follow-ups to prior questions.

On the pricing increases, I just wonder, is that something that was done in one big price increase across your footprint, or is it more surgical, as you suggested, as you upgrade speeds and people take higher speeds?

The price increases associated with consumer match our philosophy on a region-by-region basis, so I guess surgical is probably close to the right term.

We work very hard to only provide pricing increases with something that we deliver back to our customers.

So in this case, the dominant reason for price increases across the broadband customers would have been a speed increase, either at their wish or matched with a automatic upgrade to an area that we had enabled faster speeds, and we moved them automatically as a way to retain them, with a slight $1.25, $1.50 increase.

Okay.

That's helpful.

And then, on the SG&A, just a follow-up there.

The run rate of $70 million, I know, Steve, you said there might be some state tax -- a little bit of lumpiness.

But should we expect that run rate to continue into 2020 on a quarterly basis?

I think it should be close, Davis.

As we said, there's probably some onetime items going both ways in there.

But again, we're looking at continuing to get better efficiencies throughout the markets, particularly in the back-office function, so I think that's probably a good number to start with.

Okay, that's helpful.

And then, on the debt reduction this quarter, that was definitely nice to see, and it was close to your historical quarterly dividend payout.

So I was just curious, is that something we should expect going forward, and is the preference to still buy back bonds in the open market, or are you open to repurchasing some loans as well?

Well, so number one, I think the goal is, to your point, the dividend's right around $27.5 million a quarter savings.

We are targeting that level of reduction, based on the kind of spike in CapEx we had in Q3.

We didn't quite hit that number, but that's where are target is on a quarterly basis, and we'll do more if we can.

I think that, as we're evaluating whether it's open market repurchases for the bonds or term -- or just term debt or paying down the revolver, I think right now we're looking at the highest return, best use of cash.

And where the bonds are currently trading, I think that's where we would go.

But I mean, our focus is on maximizing every dollar for accelerating deleveraging, if we can.

So right now, the bias is probably towards the notes, just based on where they're trading, but I totally understand the bank debt's also trading at a discount right now.

Yes, okay.

And then, the last question, you mentioned CapEx a little bit higher on the guidance.

I know the (inaudible) issues may be playing a role there.

Should we expect in 2020 -- I know you haven't given guidance, but should we expect maybe a slight rollback in CapEx for next year?

Yes.

If you look, this year's guidance puts us in a $20 million CapEx reduction, largely with the integration activities and some of the prep for broadband growth, core network growth, behind us.

And so with half a year still of integration and the storm recovery, which has been over a year cycle, it feels like, in structure replacement in Florida as a result of Hurricane Michael costing somewhere near $11 million -- a little bit over $11 million, actually, by the end of this year, would expect that not to be reoccurring.

So we definitely expect a stepdown in CapEx, and we'll give that guidance in the next call for 2020.

Your next question comes from the line of Jason Kim with Goldman Sachs.

Any updates on noncore asset sales to help your deleveraging goal?

And in terms of bond buyback, the pace picked up nicely this quarter with the elimination of the dividend.

Your revolver balance is up modestly versus second quarter as well, to $45 million.

Is the current revolver balance a level that you're comfortable with as you look to direct free cash flow to bond buybacks?

Steve will address the bond buyback piece, but I'll tell you, just to reiterate, we're committed to allocating the dividend to leverage reduction, and as Steve mentioned, we expect to continue to do that.

I think the revolver is up slightly as a result of some of the lingering hurricane replacement activity, rebuild activity, but we're also seeing insurance proceeds lag that recovery, and we're feeling good about that progress.

Steve, do you want to talk about the bond repurchase, anything else to add?

Well, regarding the first question on asset sales, we've talked about asset sales in the past -- we are continuing to evaluate.

We are getting some inquiries on different market -- different opportunities.

We are evaluating those on a kind of a valuation basis, what it would mean for leverage, what would we do with the proceeds.

And I want to be clear, we're not doing anything on any kind of a distressed basis.

We are looking for valuation to accelerate deleveraging our investment in the business.

Nothing to talk about today, but that is under consideration.

To your question and the same one Davis asked, we are focused on targeting the dividend savings on a quarterly basis to debt reduction.

Obviously, we would like to see the revolver be less, because we're using that, too, in the short term.

We'd like to take that to 0, if we could, but we're also kind of using that in the short term to help on some of the bond repurchases.

As Bob said, it's kind of elevated in Q3 because of the timing and the hurricane relative to insurance recoveries, but we are going to be very disciplined in how we balance liquidity relative to the opportunity to do open market repurchases.

Your next question comes from the line of Matt Swope with Baird.

Just to continue on that same line, Steve, how much do you expect those insurance proceeds to be?

I'm not sure I'm going to give you a number.

So the way it works, though, we would expect, even though it's not a direct cap loss from an accounting perspective, we would expect the refunds in total to be close to what the CapEx is.

But, to be very direct about it, the refunds are basically -- or the recoveries are basically offsetting expense first, and then it goes to offsetting the loss on property that we're having to write off.

So I think in total we're looking at a claim of $10 million to $15 million coming back, and I think we've received like $7.5 million through Q3.

Got you.

No, that is helpful.

And on the use of free cash flow, are there any covenant limitations on how you apply that?

Could you use every dollar, other than the term loan required amortizations, could you use every dollar to buy back bonds?

Does anything restrict that?

No.

There's no language in the restricted payments basket to prevent us from doing exactly what you said.

That's great.

And then, thinking about your wireless partnerships to the question of noncore asset sales, are the wireless partnerships something that could be a target for there, and are there any restrictions from Verizon or otherwise on who you could sell those wireless partnerships to?

Well, we'd be open to direction on that or feedback, but the way we think about it is, they're putting off $35 million or $37 million a year in annualized free cash flow.

We have no operating expense going against that.

We have no capital requirements.

We are limited partners.

Our share, our cash flow shares are based on our percentage ownership of the cash flow in each one of those partnerships.

So we have -- we acquired the properties years ago in a couple of acquisitions, so we have carryover tax basis from the predecessor company which, based on when the investments were made, we have a very, very low tax basis in these.

So again, the way we think about it, if somebody came knocking on our door that would give us a tax-adjusted multiple for it, we would certainly consider it.

But in the short term, we're not really seeing that -- we don't expect that to happen.

So again, we're going to leverage the $35 million to $37 million a year on operating the business, investing in the fiber network, or paying down debt.

And just to stay hypothetical with that concept, or really, any asset sale concept, can you use -- another covenant question -- can you use the proceeds for -- whether it be that asset or a different asset -- could you use the proceeds to retire the bonds, or would that have to be offered to the loans first?

That's a great question, and one I think I probably need to talk to our administrative agent on the credit agreement.

But there are rules -- there's an asset sale basked under the credit agreement that you have -- if you are inside the basket, you have more optionality than if you're above the basket limitation on asset sales.

But again, to your point, even though we're focused on deleveraging, we like the optionality of being able to invest in the business if we can.

But if we're paying down bank debt, we're paying down bonds, they're both trading at discount, they're both going to help us on deleveraging, so if we raise some capital through asset sales, it's a good thing, no matter how you look at it.

Your next question comes from the line of [Arun Seshadri] (inaudible) with Credit Suisse.

Quickly, on your term loans, sort of term loans itself, I just wanted to see if you had started to have conversations with banks in terms of potentially refinancing that, and do you have any sort of potential to do some creative structures around the Verizon sort of partnership that could theoretically help you get a better rate on a refinancing?

I think there's always optionality and always strategy, but nothing we're ready to talk about today.

Your next question comes from the line of [Ron] (Consiglio) with UBS.

I just wanted to follow up on the opportunity fund.

Are there -- is there a chance that you have certain areas that you would not be looking for funds and that you might forego providing service to those areas and use that as a possible way of saving costs and not having to provide in high-cost areas?

I think there's always that chance.

Right now we're going into it with the interest in understanding of what we think the minimum break point is for return, and if the option were to go beneath that, then we want to be in a position to walk away from all the costs associated with it -- with that particular census block.

So there's always that chance, and if we do walk away, it's going to be because we believe we can shake the cost and the carrier-of-last-resort obligations that come with that, both from a capital avoidance perspective and from an operating expense perspective.

So it does present that opportunity, but we're starting out with the intention of having a threshold for each census block in which we have interest or we currently operate.

Your last question comes from the line of Jennifer Fritzsche with Wells Fargo.

Sorry, I just wanted to revisit fiber to the tower.

There's been some, I'll call it chitchat, that T-Mobile has been slowing in some markets, more in the traditional tower space.

I'm wondering if you're seeing that.

Has there been any sort of pregnant pause from either Sprint or T-Mobile, or both, until we get some resolution on their merger?

I can't say that we've noticed that.

And I have to be careful because of the NDAs we have with all of our carriers we're going to be respectful of.

What I would say is, we're seeing consistent higher demand than what we saw a year ago, and so the backlog is good.

It's coming from all 4 carriers, a little bit less, maybe, from Sprint at this point in time, but that's not atypical, based on the coverage that we already have for Sprint with our existing run rates and existing markets.

So I can't say definitively if there's anything unique or obvious with regards to T-Mobile.

And then, Bob, if I could just press a little on Verizon.

Verizon has kind of had a model also of working with regional partners to build more fiber in certain areas.

They're building fiber themselves in 60 markets.

Are you seeing them come into your markets more as a partnership relationship or not, I guess, is how I'd say it?

We're seeing those -- some of those opportunities.

Those are, at least in our markets, more speculative at this stage versus -- and we see them as opportunities versus being very aggressive buildouts.

It seems those interests that Verizon has had is in their noncore NFL larger markets.

And so where we have facilities on the fringe of those markets, we tend to benefit.

But we're not, an NFL market-oriented business.

We're predominantly in suburban and rural, and so I think those opportunities come to us later, and I wouldn't see this being any different in terms of the way that strategy typically plays out.

There are no further questions at this time.

I will turn the call back over to Mr. Bob Udell.

Well, again, we thank you for your interest in our company, for the questions, and your continued support.

We look forward to chatting with you on the next earnings call.

Have a great day.

This concludes today's teleconference.

You may now disconnect.