Cincinnati Bell's Fox: We'll pass 60-70% of homes with Fioptics by 2017

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Cincinnati Bell (NYSE: CBB) has set an ambitious target to pass 60-70 percent of the city's homes with its fiber to the home (FTTH)-based Fioptics product.

Fox

"We see a path to about 60-70 of the city being covered and that's within our return thresholds today," said Leigh Fox, CFO of Cincinnati Bell, during the Raymond James 35th Annual Institutional Investors Conference. "If that changes it will only be because we found new and clever ways to build out and we feel like we need to hit more homes given our return thresholds we look for."

Due to its aggressive FTTH buildout strategy, the telco currently has made 35 percent of the homes it reaches in Cincinnati video-enabled. Within that 35 percent, it has maintained a 28-29 percent penetration rate.   

As of the end of the fourth quarter of 2013, the service provider increased the amount of homes passed by Fioptics to 71,000 units and achieved 29 percent penetration. Fioptics products are now available to 276,000 residential and business customers, or about 35 percent of greater Cincinnati.

"If you think about the weighted average there and the weighted average has to be a see-saw effect where you have some neighborhoods that are way above that," said Fox. "For neighborhoods that were constructed for 12-24 months we're seeing north of 30 percent depending on whether it's fiber to the node or fiber to the home."

Fiber-based products were once again a major factor in its fourth-quarter 2013 earnings, with Fioptics revenues rising 49 percent year-over-year to $29 million.

Although Cincinnati Bell's most popular broadband speed is 20 Mbps, the telco can offer up to 100 Mbps and above. 

Interestingly, it has not seen its main cable competitor Time Warner Cable (NYSE: TWC) respond with similar speed broadband products in Cincinnati yet.

Following AT&T (NYSE: T) and Google Fiber's (Nasdaq: GOOG) moves to debut 1 Gbps-capable services, the MSO recently launched a 300 Mbps tier in Austin, but has yet to make a similar move in Cincinnati.

One move that could become a threat to Cincinnati Bell's broadband base is Time Warner Cable's $14.99 a month 2 Mbps broadband offering.

"We're not seeing a huge impact on that yet, but expect them to be aggressive and we look at competition as being very healthy," Fox said.

One of the other interesting aspects of the Fioptics buildout is how it is making its small to medium business (SMB) services more competitive.

"What we're seeing is in areas where we have built out Fioptics the funnels are growing at large percentages year-over-year," Fox said. "What it says to me is we have a relevant product for small business."

In addition to leveraging the Fioptics network for SMBs, the service provider continues to expand the amount of on-net fiber buildings and its overall fiber miles.

The service provider lit 100 multi-tenant units (MTUs) with fiber in 2013, ending the year with a total of 500 MTUs and a total of 3,200 single family units (SFUs). It also built 900 fiber route miles in 2013, bringing its total fiber miles to about 5,700 route miles.

These moves will help it more effectively compete with established competitors like tw telecom (Nasdaq: TWTC) and other new entrants such as Fibertech and Zayo, which are also aggressively building their fiber network presence in Cincinnati and other parts of Ohio.

Fibertech, for instance, recently completed a network upgrade that added more than 1,000 miles of new fiber in Akron, Cleveland, Cincinnati, Columbus, Dayton and Toledo.

"We're the 900 pound gorilla when it comes to having fiber deployed in buildings and the closest competitor, which is tw telecom, has a fraction of what we have deployed," Fox said. "We are seeing new entrants: Zayo is on the periphery and Fibertech, but we expect competition to come and feel like we're well positioned as the incumbent and we'll compete accordingly." 

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