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tw telecom inc. (TWTC)

March 05, 2013 9:30 am ET


Mark A. Peters - Chief Financial Officer and Executive Vice President

Larissa L. Herda - Chairman, Chief Executive Officer and President


Brett Feldman - Deutsche Bank AG, Research Division


Brett Feldman - Deutsche Bank AG, Research Division

All right, everybody. If you'll take your seat, we're going to go ahead and get started here with our first session of the morning. I'm very happy to welcome back to the conference TW Telecom. We have the management team up here. With me on stage, we have Larissa Herda, who is the Chairman and CEO of the company; along with Mark Peters, the CFO; and Michael Rouleau, who runs Business Development and Strategy. This is going to be the normal Q&A format. We definitely want to give you guys a chance to ask some questions so we will save time. At the end of that, just please raise your hands so they could bring the microphone over to you.

Question-and-Answer Session

Brett Feldman - Deutsche Bank AG, Research Division

Larissa, Mark, Mike, thanks for being back here. I think the first question -- I want to talk about what you guys are doing to sustain the growth that you have been able to generate consistently over the years. The Intelligent Network product set is a big part of this. You launched 2 phases of it last year, you have more coming up. Can you just recap what it is you're trying to deliver to your product with your customers? What are they asking for and what is the Intelligent Network product suite accomplishing for them and how does it create growth?

Mark A. Peters

Most of the -- before I jump into that, if I can go to the legal stuff?

Brett Feldman - Deutsche Bank AG, Research Division

Go ahead. Sure.

Mark A. Peters

Before we start, I want to direct your attention to the Safe Harbor up on the screen. Information on this webcast contains statements about expected future plans and expectations that are forward-looking and are subject to risks and uncertainties. Discussions of factors that may cause our results to differ materially from our expectations is included on the slide and all of our SEC filings. Thank you.

Larissa L. Herda

So thanks for having us here today. Great question. What we've done with our Intelligent Network is we're -- and it's really the overall Constellation platform. It's all around the concept of being easier to do business with, make it faster and easier for customers to interact with us. What we have found through the many years that we do -- that we've been dealing with our customers is they absolutely cannot stand the typical telco ordering process. And so we looked at our fiber infrastructure and we looked at the way customers are buying and we looked at -- especially a lot of the data center connectivity that they're looking for. And what customers are looking for is on-demand services. They're -- as consumers, we're used to buying on-demand services, use your iPhone, your iPad, you get that app right away, boom, it's there. You want your book, you download it, it's right there. And so business customers -- they've been playing around and doing some things with cloud services, but there's so many applications that they need over a secure infrastructure, a dedicated infrastructure. They really would like to have it more instantaneous. And so we thought we have all this fiber into all these buildings. We're in over 400-plus data centers around the country, we have access to thousands -- literally thousands of applications in those data centers and the probability is very high that most of the customers in our buildings, in our fiber base buildings want some of those apps, and they want them over a dedicated secure network. And so we thought, "Why do we need to just conform with the traditional telco ordering model, where you got to get an order form, you got to do this, you got to wait 45 days when we have all this capacity sitting there at all these locations?" When we provide a service to our customers with a 10 Meg circuit, there's a piece of equipment sitting in that building that has tremendous excess capacity in it that we can open up to that customer. And that was the concept behind Dynamic Capacity to start where we said to the customers, "If you buy these services from us between this location and that location, you can ramp-up that capacity within 12 seconds without any downtime up to 3x." If you have a 10 Meg circuit from Columbus to Miami, you can -- within 12 seconds, you can go online, you can access that capacity, increase that up to 30 Meg and you pay for it by the hour. And that is a service that obviously you're not going to use all month long because you would have been better off buying a long-term contract. But for a lot of different applications needs, for disaster recovery applications, for new applications that you're bringing online where the customer really doesn't know how much capacity they need, this gives them enormous flexibility. So instantaneous connections, dynamic -- being flexible with customers is really, really key, and giving them the option to have visibility into these and to what's actually happening with their network so that they can make these decisions, because customers really don't know what they need 6 months from now or sometimes 3 months from now, where they're putting something on their network and new applications, they don't know how much capacity they're going to need. So this changes the conversation that we're having with customers. We've become a much more strategic part of the conversation. To us, it's about not being a commodity and not commoditizing our business, but being a value-add strategic element and that's actually, that's what's happening with our customers, which leads us to our growth initiatives and why we're increasing the size of our sales force. If you look at our gross sales last year, we had record sales. They just weren't record enough in order for us to install enough to overcome the standard fairly low churn that we have to continue to accelerate our growth. So as we looked at the way our business is evolving and the -- all from the products that we're -- that are evolving, the innovation that we're doing and the types of customers who we're selling to have also been changing. We believe of that we needed to have more salespeople selling in new categories within our -- or categories that we have like national enterprise. Enterprise customers, a lot of the bigger customers are very interested in what we have to say. They've never had that kind of flexibility that we're willing to provide them and it's -- we're getting visibility into much higher levels of those organizations. So we're increasing the number of sales people we have there. We've made a lot traction in federal, we're increasing salespeople we have there. At the data center space, as we sell to the various different data centers, we needed different type of salesperson, and we've been hiring them by the way. But someone who can work with the data centers to help us create these machine-to-machine interfaces so that our services can be ordered seamlessly and turned up seamlessly and that takes a different type of sales force. So incrementally around the country we're putting bodies at a number of different places. And for us in order to get back to accelerating our growth, it's really a numbers game in terms of the number of salespeople we have. You have x number of salespeople who have this much production, which -- by the way, our production, we're very pleased with it. We just don't have enough salespeople to get -- today. It's not enough to just have record sales. You to have to have big record sales to make sure that you're accelerating your revenue. So that's what we're doing.

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