Ask chief financial officers how they’ve handled debt within their company, and they will no doubt go over a list of actionable strategies. That’s just what Leigh Fox, CFO of Cincinnati Bell, does when explaining the upside of well-thought-out investing and, more importantly, replacing the telecommunication company’s copper lines with infinitely faster fiber optics.
“Coax [coaxial cable] has its limitations from the standpoint of just physics,” Fox explains, adding that fiber optics is basically passing a light through fiber, and the speeds are dictated by the electronics that are on both ends. “As we upgrade and consumers want to use more speed, it’s really just an upgrade of the electronics on each side of the fiber. So what we’re putting in the ground is what we consider a future-proof network that [gives] us many years of delivering service levels that allow ongoing consumer relevance.”
To put that in perspective, fiber currently offers 1,000 times as much bandwidth as copper, across distances more than one hundred times farther. But as much as fiber has rehabilitated Cincinnati Bell, a leading provider of integrated communications solutions, Fox doesn’t view the fiber build, which he says should start slowing within the next several months, as a magic financial solution for the company. Instead, he sees it as branching off from a bigger-picture approach, a strategy much more abstract than the tactics described by many other financial leaders: humility.
Fox says the first major step toward improvement—the investments, the fiber, all of it—was admitting that Cincinnati Bell was in trouble in 2008-2009. In other words, the company had to own up to the cold, hard fact that it wasn’t as relevant as it would like. “We’re very self-reflective,” Fox says of himself and CEO Ted Torbeck. “We believe that any problem you run into, the first place you look is you. You typically figure out that the rest solves itself. That’s something I think this company does well. We’re very honest.”
Not everyone at Cincinnati Bell was immediately excited about making necessary changes, especially when it came to fiber. Such a fast technology upgrade is always going to result in service issues, something Fox knew going into these new endeavors. “Internally, we had conversations of, ‘We know the speed at which we are deploying fiber will affect some customers in a negative way.’ But the thing to remember is that those customers will hopefully forgive us eventually and we’ll win them back,” he says. “We know that we’re not perfect, but we try really hard to improve. I think we’ve done a great job at balancing speed and service, and we’ll continue to get even better.”
Some of the internal trepidation also came from Cincinnati Bell having made an aggressive mergers and acquisitions leap back in 1999, a risk that eventually contributed to a debt of $2.6 billion. The company started with spending $3.2 billion to purchase Broadwing, a long-haul ethernet company that relied on broadband to connect its customers to the web. While it aided in bringing Cincinnati Bell to the level of other national broadband providers, the purchase ended up nearly crippling the company when the dot-com bubble burst in 2000. They would go on to sell it for $129 million, resulting in a 95 percent loss.
So how did Fox know in 2008 that the conversion to fiber would be different than the Broadwing buyout? Data usage, for one. “You were delivering three to five megabytes of speed to your consumer base,” he explains. “You saw where data usage was going, and you could say that, at this point in a few years, we will not be able to compete. Period.”
Today, we live in a world where even twenty megabytes is on the slower side for a larger-family household. Fortunately, Cincinnati Bell is more than able to compete, thanks to the company’s fiber initiative, or—to put it more accurately—its humility initiative. In addition to having converted 57 percent of its service area to fiber through March, Cincinnati Bell has also reduced its debt to $1.2 billion from the $2.6 billion it was at three years ago, a “good-debt” number that actually benefits the company. It expects to be cash-flow positive this year. As Fox recently told the Cincinnati Business Courier, “We’re healthier today than we have been since 1999.”
That doesn’t mean it’s time for him, Torbeck, or anyone else at Cincinnati Bell to rest on their laurels. Despite this success, there are still many challenges ahead, from replacing the remaining copper lines with fiber to migrating services beyond Cincinnati. Although they’ve already made progress on the second goal, the extensive history of Cincinnati Bell, which many still associate with the declining landline service on which the company stayed anchored to for so long, has become both a boon and a hindrance when trying to expand. Fox likes to describe the perception as “a really nice house in a bad neighborhood.”
“We still get painted with the same ‘telco’ broad-brush description. And that’s frustrating for me, at times, because I look at who we’re compared with, and they haven’t made the investments in the infrastructure that we’ve made,” he says. “For companies like ours, it’s all about the relevancy of the infrastructure.” When joking about changing the name to Cincinnati Fiber, Fox makes a point to still recognize that “brand equity for us in Cincinnati is fantastic.”
“We’re 143 years old and change, and that’s a phenomenal legacy,” he says. “We [recently] found some of the initial stock certificates from the 1800s in storage. One was dated 1883; the penmanship was just amazing, and it was for the telegraph company. You think about the history and legacy, and that’s just so amazing.”
The telco industry has become unquestionably more complex since Cincinnati Bell’s telegraphing days, but Fox doesn’t see that as a reason to over-glorify themselves and the work they do. To keep the company’s ego in check, he often turns to an anecdote from a coworker. “We had just won a pretty nice deal, and I said, ‘It’s good to pat yourself on the back,’” Fox recalls. “He looked at me and said, ‘You know, it’s great to be congratulatory toward ourselves, but let’s not take ourselves too seriously. We’re just IT plumbers.’”