Lumen Technologies Inc (LUMN) 2002 Q1 法說會逐字稿

At this time, I would like to welcome everyone to the Century Telephone's first quarter 2002 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker promotes, there will be a question and answer period. If you would like to ask a question during this time, simply press star, then the number "1" on your telephone keypad and questions will be taken in the order they are received. If you would like to withdraw your question, press star, then the number "2" on your telephone keypad. Now I would like to turn the call over to your host, Tony Davis, Vice President of Investor Relation. Thank you Mr. David, you may begin your conference.

Thank you Tammera. Good morning everyone and welcome to our call today, the purpose of which is to discuss Century Telephone's first quarter 2002 earnings which were released earlier today. During our call today, we will be making certain forward-looking statements, particularly as they pertain to the rise in property acquisitions in Alabama and Missouri, Century Telephone's Wireless business divestiture guidance for second quarter and full year 2002, and other outlooks in our business operations. Therefore, please review our language found in our press release and in our SEC filings. At this time, I would like to turn the call over to your host today, Glen Post. Glen.

Thank you Tony. Welcome to our call today. The primary purpose of our call is to discuss the first quarter 2002 results; however, we also have provided updates on a few other issues. First of all regarding the rise in property acquisitions, Century Telephone's acquisitions, and continues to make good progress towards closing the Alabama and Missouri acquisitions later this year. We anticipate closing the Alabama acquisition at the end of June, and that is to be followed by the Missouri acquisition at the end of August. Regulatory matters are on track, and we expect timely receipt of all necessary approvals. As you know on March 19th of this year we announced the signing of a stock purchase agreement for the sale of Century Telephone's Wireless business to Alltel and stock for cash transaction. Consistent progress is being made to close in the transaction. License transfer applications were filed with SEC, and we will make a public notice this week. We have also realigned our staff to ensure continued focus on our wireless business due to closure of the sale. Our transition team is working close with Alltel's designated team to ensure smooth and successful transition and closing; and we have developed, we believe, a good working relationship with them. We anticipate closing this transaction, most probably early in the third quarter of this year. With regards to Century Telephone's financing plans for 2002, as previously recorded, we expect after tax proceeds from the wireless transaction of approximately $1.3 billion. We are still reviewing our financing alternatives. We anticipate financing the remainder of $2.16 billion rise in acquisition and other debt maturity this year through a combination of new credit facilities, equity link security, and public debt. We expect to announce our final financing plans in the near future. Century Telephone's results for the first quarter were or exceeded the range of, previously given by the company. Earnings per share for the quarter excluding now recurring items was 51 cents per share, about 3 cents ahead of first call incentives of 48 cents per share. The false economy coupled with weakness in the telecom industry continued to affect our revenue growth. Century Telephone reported revenue from paying operations of 422.9 million per quarter, an increase of 2.7%. Later revenues continued a strong growth trend increasing 33% during the quarter. Also our free cash flow for the quarter that represent a very strong, $88.6 million. We achieved records on business customer in that ads, a total of 49,000 for the quarter that represents almost 11% sequential growth. Also this brings out total on business customers and service to over 515,000 at the end of the quarter. This represents by the way of 67% increase in net customer additions compared to the first quarter of last year. Also during the quarter, we added over 12,000 Internet customers of which 6,900 are DSL subscribers. Our total was 268.5 million excluding nonrecurring items of 4.4% from the first quarter of 2001 which reflects our focus on expense management and calls containment across the company. Our consolidated revenue margin excluding nonrecurring items for the quarter was 51.1%. I would like to highlight just a few operational items of interest. We will continue to invest in our aggressive broadband deployment, increasing our DSL label lines to over 65% at the end of the first quarter as compared to 61% at the end of the year 2001. We also continue to develop our focus marketing plans and to position Century Telephone to whether the current economic slow down and take advantage of economic recovery when it occurs. These efforts are evident, we believe, by the strong growth and long distance and DSL customers in the quarter. We will continue to develop and deploy integrated bundle offerings in our existing markets and prepare a lot of similar offerings to the variety of properties upon completion of those acquisitions later this year. This time I will ask Stewart, Executive Chief Financial Officer to review our results for the first quarter on a business unit level you on a financial guidance for the second quarter of this year.

Thank you Glen. Let me begin today by saying that as result of our pending wireless divestiture and the accounting treatment of this business segment as discontinued operations and of course with general acceptors accounting principles, we will only discuss a few detail operating matrix of the wireless business. Therefore, our business segment discussions today will cover primarily telephone operations and other operations which primarily includes a long distance Internet and Celac operations. In our telephone operations, our revenues increased 4/10th of a percent to $372.7 million. Our internal revenue growth rate in our telephone operations was about 1.7% for the quarter. This is reflecting the significant impact of the weak economy. Data revenue, however, was strong as Glen mentioned with 33% growth during the first quarter. These revenues included our cabs transport, ISDN, ATM, primary line, local area network, wide area network, private lines, Internet, DSL, and web hosting. Excluding Internet, data revenue growth was actually 41%. Century Telephone ended the quarter with 1,795,769 access lines and had a little over 2,010,000 grade equivalence. We experienced a loss of a little less than 1900 access lines during the quarter, again, we believe, primarily due to the economic situation. Operating cash flow per Century Telephone operations increased 2% to $207.3 million from first quarter last year. Our operating cash flow margin was 55.6% compared with 54.8% in first quarter of 2001. Our operating income further while on operations increased 11.3% to $118 million from first quarter of 2001. The operating income margin improved to 31.6% compared with 28.5% in first quarter of 2001. Turning to our other operations, revenues increased to 24.4% to $50.2 million. Operating cash flow from the other operations increased to 8.8 million from 6.8 million last year. Operating income for other operations increased to 5.9 million, primarily due to decreased losses in our Internet business. Long distance revenue increased to $31.8 million dollars, a 15.3% increase from the prior quarter. Long distance operating income was a little over $6 million from the quarter. As Glen mentioned, we added approximately 49,500 long distance customers during the quarter of which a little over 23,000 were in the markets acquired from in the year 2000. Long distance customer penetration of local exchanges as a percentage of access lines reached 28.1% versus 21.1% one year ago. Our Internet revenues increased a little less than 50% to $12.6 million for the quarter as we added again 12,200 retail Internet subscribers. We added also about 6900 DSL customers during the quarter representing 27% growth since the fourth quarter of 2001. We ended the quarter with about 32,400 DSL subscribers or penetration rate of approximately 2.8% of our DSL-enabled lines. Internet business operating losses were 1.4 million during the quarter compared with losses of 2.8 million in the first quarter one year ago, again down primarily due to the growth of our DSL revenues in growing that customer values. Our Celac operating losses which we expect to be in the 15- to 20-million dollar range for 2002 were 3.7 million for the quarter versus 2.1 million one year ago, primarily as a result of the fact that we have two markets admission again that we have opened since the first quarter of last year. Turning to the wireless business and just a few comments on this segment. Our wireless service revenue was $100.2 million, down from 101.1 million in first quarter of 2001 due to $1.4 million dollar decline in roaming revenue, our wireless continued strong at 59.3 million resulting in a margin of 42.1% for the quarter. Our wireless units were 789,000, down about 7900, during the quarter about half of the decline in units related to the lost units from a reseller during the quarter. Our post-pay customer turning rate was 2.35% which is consistent to slightly down from first quarter of 2001. We believe we have been successful in operating the business to preserve and the values of business for Altel and we will certainly continue to do so until closing. Turning to our guidance for the second quarter of this year, we believe total revenues from continuing operations will range from 420 million to 435 million dollars which represents a 3 to 6% increase over revenue in continuing operations in the second quarter of 2001. We believe second quarter of 2002 operating cash flow from continuing operations will fall within the range of 209 to 219 million dollars. For the second quarter of 2002, we believe earnings per share from continuing operations excluding nonrecurring items will be in the range of 28 to 32 cents. We expect total earnings per share excluding nonrecurring items will be in the range of 51 to 55 cents. These estimates exclude rather nonrecurring items and one-time integration cost expected to be in the range of 5 to 7 million dollars relating to preparing for the closing of the pending in acquisitions. I might add that the continuing operations are absorbing all of the overhead cost, the corporate overhead cost that were previously allocated to our wireless business and the continuing operations are also absorbing all of the interest expense of the company which somewhat distorts the picture going forward in terms of where operations will be. We still believe that the divestiture of our wireless operations and the acquisitions of the bourse access lines will be somewhere between 3 to 6 cents during the first 12 months of operations. For the full year of 2002, we anticipate total diluted earnings per share after giving effect to all pending transactions, integration calls, and financing plans; but excluding nonrecurring items and one-time integration cost related to acquisitions to be between 2 dollars and 6 cents to 2 dollars and 19 cents, which is consistent with guidance previously provided when we had not worked in the disposition of wireless and the acquisition of the properties into the guidance that we gave on our fourth quarter conference call. So our guidance remains the same, including the path that we are on at this point from the standpoint of the acquisitions and wireless divestiture. Again, we continue to believe that the net effect of the wireless divestiture and the aquisition will be break-even to 3 cents of during the first four year of operations based upon our current financial assumptions and other assumptions. In just a moment, we will open the call up for questions; however, before we do so, I want to remind you that we will not really discuss anymore specific operating matrix related to the wireless business and we will prefer to focus on with this to continuing operations. At this time, I will turn the call over to the operator for instructions regarding asking for questions.

At this time, I would like to remind everyone that if you will like to ask the questions please press star, then the number one on your telephone keypad. We will pause for just a moment for compare with you and.

Hey guys, two quick questions. Can you give us some color on the minutes to use some side and what is there happening with the network to access and I am curious what draw the long distance increase in the quarter and you are doing some heavy promotion and what exactly showing driving those results and what are you paying for wholesale minutes on the long distance side using any benefits from some of the bankruptcies out there.

Okay, right on the network access issue there. First is just the impact of the minutes of use you see that we believe that the economic impact are also reduced, intrastate minutes of use due to the more expanded local calling areas and some of the states along with some wireless displacement of long distance minutes of use we think just to get the impact. Also the intrastate revenues were impacted from change terminating originating factors for certain that moved intrastate minutes to interstate minutes earlier this year. So, those are the primary factors that are driving to basically reduced minutes of intrastate arena. A call for recovery intrastate revenue on a per-minute basis intrastate as primarily to the pool of return and not on a per-minute basis.

Comes from the Elby Gross I believe your question was what was the, could you restate your question Elby please.

Elby Gross

Sure. Just curiously you are seeing is as far as wholesale minutes I was surprised as you were saying that you are benefiting from any of the other carrier. Thanks.

Just wait, we do not use wholesale minutes.

Elby Gross

Okay, and one of the clarification. Who was the wireless reseller that you lost in the first quarter? Thanks.

We did not actually lose our wireless reseller. I think the net units that they have on our network were just down. And advance from change in tactics of producer in words. I am not sure we should disclose the name of that particular reseller.

Elby Gross

Okay, thanks.

Your next question comes from John Bright of Johnson Wise and Company.

Thank you, first question. Thank you DSL please give me a feel on how it is progressing and point out where are you marketing it or any changes in pricing associated with it. What changes so far have taken place and any other color from that standpoint and one has to follow.

Okay. On the DSL, we did run a campaign that we continued from December, which was basically a $30 price point for 3 months and it goes back to the 49-99 price point. Since very successful for us as well customers get on and experience the high speed, experience and then stay with us. The modem costs are down in the 99 range. Still we are charging for the modems. I think I have reported before that we do offer insulation or installment billing for modems and that is still at about a 45% take rate; and we had a very strong growth. I am sorry what was the other part of your question on DSL.

stock remains at the 90% range. In fact, we are very pleased with a new process that has video component that allows the customer to visually that comes in the CD visually seeing the components and how to load and that has worked very well for us. In the last of couple weeks, we expect that we will even have better results going forward.

Well though it will be still in the low to mid 50% range.

Yes, 60 to 65%.

65% and as far as other are low based and you are kind of turn experience there right now.

Our turn is very low to the industry right now, we are about 2.3% to 2.33%.

Okay.

No John, not at this time. We have just given guidance on the second quarter in terms of the detail and the EPS guidance for the full year. We might, once we get closer to the closing of the and transactions, then you will know a better field for when the wireless will close it will allow us to update that annual guidance.

Okay, and then the last to Glen. If up on the next line standpoint where you mentioned the economy anything that you would comment on as far as the new wireless substitution on the residential side as well as it is not as far as other access line that are out there for sale right ow.

John as far as wireless substitution, our records are not, however, showing very low wireless substitution as far as access line. We know that is minutes of use substitution, there are displacement going on. But we have received a very little evidence of wireless displacement. Now we do think may be the younger generation is using more wireless out there and they would not saying the young pulse going out of school as in many but as far as our reason goes in our call centers we are seeing very low wireless substitution out there. The other acquisition opportunities: There is nothing major to report the lot of all rumors up there, and we continued to mark with that and look for an opportunity.

As far as on access charges, what are the differences between someone who is calling or terminating a wireless call, then/when access standpoint goes to the land line.

Gentlemen, wireless calls are reciprocal. They are pretty low less than any of 20-year each where as on our intrastate is about 4 cents on the wireless company termination. Thanks.

Your next question comes from David McCord of Morgan Keegan.

Good morning, couple of questions. First, give it on the guidance. I know in the wireless business, the second and third quarters specifically/typically saw an update in terms due to the higher market roaming revenues. Anything seasonal out of the telephone or other operations that would make you think that revenues will go down next quarter and you know that kind of a potential of negatives coming down. Revenue coming down for guidance. Pretty wide range, but anything seasonal we should be aware of.

Well actually in terms of in mean we expect our continuing operations revenues which includes a telephone business and the other operations excluding wireless to be 3 to 6% in the second quarter of this year over the second quarter of last year. So the revenue guidance that we gave is just really the revenue for the continuing operation.

Okay. Alright.

Really did not give any guidance for the wireless revenues for the second quarter.

And on the network acts thus I mean it looks like that was up year-over-year at least. On the numbers that I had the revenues like I presume that in the user up as well. Is that the case?

Actually, first you know we are up about a little less than $3 million or so. Part of that relates to some of the rate increase that we got in Wisconsin and recovery of expenses, somewhat relates to the DSL. Our minutes are actually basically flat from quarter to quarter.

And then finally, Thank you Frank. I have the question on the LD I might have stated down the answer but it was obliviously very strong in the quarter, specifically you know what was done during the quarter. It was a pricing promotion or just more penetration of the older horizon market, high at more and more costs and concentration, kind of give us a flavor for going forward is that something you can continue to ramp at this rate?

In terms of LD.

I know just then we have almost doubled your typical net output business.

But we had intentionally wanted to not load to our first quarter. From a campaign perspective, the residential rate plans and that we are out there with this 80% of acquisitions right now it is 3 to 5 which is well sensed within state prices and intrastate, and we have picked up on our business acquisitions just in terms of final management. The Horizon properties were up to at 22.5% penetration, but that has been a very good opportunity for us to expand there; and we have got close to 30 million on an annual basis, 30 million as incremental revenue just in Horizon properties from the LD penetration that was made there. Our second quarter was looking pretty healthy for us though. It will be as healthy from a net gain perspective as first quarter because we took you know our marketing dollars and applied this for the first quarter, but we do expect to meet our plan in second quarter.

Great. Thank you.

Your next question comes from Donna Jagers of Inbesto.

Hi. Two quick questions on the wireless business. I know you are not talking about it much but is there any material adverse conditions, clause there that would give Altel any reason to back away from this.

No Donna. There is nothing there that would allow now a mark out there.

Great. And then on your just as far as other real lines being shopped in the industry you guys see it much.

That worked very well in but nothing, that is concrete now.

Okay, thanks.

Hi guys. Excellent quarter. Stewart just wanted to hear a little bit more and looking forward about the economy and then you used 1% access line growth number in the past. You still feel like the things are on track for that where they are still kind of too early to tell, and then secondly just had some questions which are on understanding the timing of new horizon and wireless sale if you have things I will ask you about that too.

Okay. You are accounting in terms of the economy just I guess we are still seeing slight deterioration in access lines. You know, we are hopeful that if the economy turns around, we will see, you know, may be 1% access line growth as we get towards the end of the year but at this point it is really too early to tell you.

Do you care if they want to come forward?

Yes just in terms of you know going through with Method review of 19th, I would say that the point that race to me of our communities or again Washington State, they are turning still in Midwest. However, I believe that resale from a local and at times various local communities that things are hopefully putting volume and leveling out, you know not a huge return. When you talk to the account manager who is out there, they would tell you the customers still are very interested in having discussions about how they can lower their bills and you know not purchase things like PTE and other pediac type of large purchase decision. So they are holding off on large purchase decisions; however, they are still pretty aggressive in buying date and pursuing that. But overall, the economy would leave us leveling off that; and hopefully, we will return to some normal year at third or fourth quarters.

Okay. So nothing really changing on the adverse on the margin just still somewhat more visible or may be third quarters kind of year, benchmark for seeing appointment inflation.

I would say more towards fourth quarter.

Okay. And actually just wanted a clarification too. It looks like about 25% margin if you dial on a long distance. That sounds about right.

Actually it is about 20%.

20%.

No, including our operating margins more than 20%.

Yes. Okay and either dial a bit higher. And then finally just as Stewart just said makes you understand that you are guiding towards 6218 on EPSO to develop the same, you know, exactly the same which it has been doing all long and that includes a half-year of the wireless benefit and then none after that and then you know in the second half of the year, roughly to give 5 months, 4 months for horizons.

Right then. Basically, it includes you know the assumptions that Alabama transactions are closing in the June. The Missouri transactions are closing end of August and the wireless transactions are closed sometime hopefully in their early third quarter.

And so again, probably the net effect this year it is heard that 6-month period is probably slightly diluted. As I said kind of break-even to three for the first 12 months.

Right.

But that we will think about. Okay.

Why I think probably slightly; and also, you got to think of and consider too the one-time integration costs that we will have this year.

Right. It was about probably 3 to 4 cents per share.

Yes, that is right.

Okay, great, thanks.

Thank you, good morning. I just like to hear more about your data. What components of data were particularly strong? Your number was very good. Can you give us a few more cover on what type of data was particularly strong and any of that were weak?

Our transport rate was strong as far as the land vans, the cabs, their access growth was much strong. We also had good growth in data product line. On the services side of course, we have put DSL and that DSL is a big part of it. We are hosting up some. So really across the board, there was the DSL wholesale figure is low but other than that everything was pretty strong across the board in our data.

Okay.

Hi guys. A couple of questions. Your previous guidance included depreciation for the wireless portfolio and I am assuming your current guidance now excludes depreciation in that business for the next 5 months. I was wondering if you could comment on that. Also, the MCI neighborhood plan, I was wondering if that plan was available in the interview of suburban markets that are tangential to metropolitan markets.

James, the guidance basically, you are correct, it does assume the discontinuance of depreciation on the wireless properties but not for a full year, just through the expected date of divestiture.

Okay.

And the MCI neighborhood plan does not operate in our areas today.

Thank you.

Your next question comes from Karen Sonbay of UBS Warburg.

Hi. I have two questions.

No. It has not.

Okay, and the second question is the outstanding Pacific Telecom public guaranteed by sundry ?

Pardon. Could you give me what is the outstanding Pacific Telecom.

Yes, the outstanding Pacific Telecom.

Yes, the PTI doubt that the medium turned down.

Right.

Okay, thank you very much.

Your next question comes from Michael J. Balhoff of Leqq Mason.

I just want to go back to one of Donald Jager's questions. I know it is the capital expenditures for the wireless were well down this year, and I know you have obligations for industry. Can you give us some idea what the obligations are for this and does that mean that there is going to be some sort of significant investment in the second quarter?

My co-obligation is basically $5 million a month. So you know we would expect to spend 30 to 35 million dollars this year, and I think I would currently not want to comment in terms of where the ports are with respect to the wireless Cap-ex; but we believe in the end we will wind up being close to the $5 million dollars per month.

Yes. In terms of that work, we are well on track to being where we need to be with, all terms of our contractual arrangement.

Do I re-describe the statement here, which indicates that you have invested about 6 million. Is that correct and so it is well short of the 5 million a month if I understand that.

Yes. That is just a kind of a run rate, but we will send contractually what we need to spend for our contractual arrangements.

Okay. Secondly, on the subject of network access, obviously, we went through a lot of changes with universal service and access reform this past year. Are you finding that the payouts that are coming from the pool or from high-cost funds are consistent with your expectations or below or above?

Are just a little below because initially the FVZ on the sizing of the USLs so we hope you get that corrected in the near future working with FVZ. That is the only real issue where we were below expectations.

Then tell how far below are you.

I think it runs about a million dollars a month. Mike.

Okay. And then finally is there any additional update on any of the state regulatory proceedings including I guess the variety of lines in Wisconsin.

Yes. Hi. This is David Collins. As far as the in case, we are pretty extensively involved with staff on the audit of that case at this point. We are looking for that to be resolved later in the third quarter of this year.

Okay. And everything is moving along as fast you can tell David.

Yes.

Okay. Great. Thank you.

Yes. Good morning. Just a sort of a quick followup to some of the earlier questions about the economy. I know in talking with a number of the Orboks so that bigger area of weaknesses is on business access lines and recognizing a typically found breakout business in consumer access lines, I was curious if that was your main area of access line weakness; and as you think about kind of going forward in more prior your outlook many of the Orboks during strong economic times had seen access line growth in the 6 to 8% range annually. Is that what you all built under your expectations for business access line growth? Thanks.

Just in terms of business access lines, I think that does way for from any enterprise. Looking at some recent just inward activities, I would say that if you were sitting in the ins and the outs, that the residential seems to be hit more than the businesses. The businesses ins or outs outpacing the offices' at this point that is good news. On the residential that is not. That does not hold true, the outs are outpacing the ins. Remember that we have you know, 80% of our access lines are residential. And in terms of the access line growth in business we do not have that number.

Yes, but in our projections we do use the 6 to 8% and this time, well I guess what was used.

Thank you.

But I do not think that will return to that level in the very near future at all.

Correct. Right okay. Thank you.

Your next question comes from Glenn Waldrof of UBS Warburg.

Hi. Just a few questions I wanted to ask about in terms of your bundle plans. Can you just give us some cover in terms of what you are doing and eventually did you have some success of late.

In particular, we have got a couple of bundles out there in terms of a long distance and Internet and from when we are launching some feature from bundles here 1st of June which is requiring that when you have an access line then you can choose this in various features which are well prone to that access line or price point which should hopefully improve our output. Has some calling feature or choices including voice mail in there.

Mild changes. Can you explain what some of the pricing and margins are on these packages versus normal plan.

We could not do that yet we are still in the process of finalizing those. We are targeting at June as a last date.

Okay.

I think we can give you an update the next quarter.

Great and then can you just tell us you know what the success is in Coloran and what we can look forward when you move into the new states.

In terms of I am sorry the new horizon property.

Exactly. Then you said that you know these things were successful and your clear properties and you would both expand once you move into Alabama and Missouri.

Right. A lot of the products that we will be bundling will be voiced and data products. Today, there are not some healthy data products out there so we are working on those packages, but they will leave more of a voice and data package. They are pretty well set on our Coloran feature packages that is the data component. Well I may just add to there it was our previous horizon and acquisitions we did we made in later half of 2000 we anticipated an announced that we would expect to generate between 30 and 60 million dollars of incremental revenue as a result of new services and hand services we would roll out. We had a run rate at the end of first quarter we had an average run-rate of $35 million for those properties and enhanced revenues so we have already exceeded the low side in than less than 2 years. That was a 3 to 4 year of forecasts we were making there. We believe we have good opportunities in these properties as well as Alabama and the various properties where we are buying. We are anticipated in there 45 to 85 million dollars; additionally, along with the revenue which will grow as a result of displaying new services and enhanced services to these markets.

And that is within the same type of time frame, 45 to 85 over the next 4 years. Is that correct Stewart.

Yes. Over the next 3 to 5 years.

Very helpful.

I am shifting gears a little bit. Can you just, one of the big concerns that everyone had was your credit rating, given what we have seen in the rest of the market. If you cancel the credit that is great. Can you just give this any sense of the dialog with the credit agencies, and what they had to say following the announcement wireless sales and what you expect them to say after today's call.

Yes. Right. Glen, you know we of course did talk with both agencies prior to releasing wireless. I believe that view is that it reduces the risk exposure of the company or risk profile of the company basically by divesting of the wireless, and it certainly goes a long way to help in its finance and put a financing package together for the browsing properties. And you know we will continue to speak with them and work with them over the coming weeks.

Absolutely. And finally should think give us one last time, the Celac business. Can you just give us a sense of outstriking grossed your expectations? What the differences that you are seeing in your newer markets are versus your previous markets, and what if any plans you have to expand that.

In terms of Celac expansion plans, we are going to stay right now in the markets that we are in and derive the growth and if we expand a little bit more from an edge out from an perspective. So right now, not comfortable with launching any new market to the newer term. The progress in the Louisiana continues to be extremely a very good port. We are working to this from value proposition challenges that we have in Michigan, but believe that we are on the road where there is improvement. And you know we are still planning on the loss that we have recorded over 13 to 15 million dollars for the share of annualized basis.

Most of sales environment turn I mean is it is easier to go in at the Century Telephone versus it is just another Celac. I mean it is not quite an adjel the way we have seen you know just a mere extension of your wireless business.

I think it certainly helps to have Century Telephone plan especially in the Louisiana, but I believe the real value and asset here of bringing to the table and is integrated voice and data. We have good takeaways. We have an average about 2.5 to 2.7 products per customer and that is increasing so it is really offering the voice and the data package together. Thank you very much.

Your next question comes from Christine Scalputo of Salomon Smith Barney.

Hi. Most of my questions have been answered but quickly just to follow up on the universal service, one question. The one million per month that you had quoted. Is that how much you get in universal service funds or is that how much is lacking relative to what you were expecting and then may be you know what percent of your overall revenues do come from the universal service fundings. Secondly, you have mentioned or in the press release you have mentioned that there is a charge related to you know for bad debts related to bankruptcies. How you know has that tracked and you know are you really feeling a large impact from you know bankruptcies within your territories and then lastly just on Capex if you can give an update on what your guidance is and may be let us just know whether that includes wireless or not and what kind of maintenance levels of Capex you guys expect. Thanks.

In terms of, Christine, I will take it from the bottom-up, in Capex our guidance is about $425 million for the year and that basically includes about 315 million in the telephone business, about 30 to 35 million or so in the wireless business assuming a closed midyear, of about 40 million in other operations, and the balance in the gross profits that were picked up hopefully in the third quarter. In terms of maintenance level of Capex, you know, our guys are working on that with probably somewhere around $125 of access line or so is probably what our maintenance Capex level would be of course. First thing regarding the bankruptcy issue is we are since seeing, we are seeing with the help lot of pressure on bankruptcy are our areas as the one issue is the one I see carries the business up the largest. We are seeing high bad debts, but it is not a substantial issue for us today in our markets.

Yes. This time it calls for the USF beginning at a million dollars a month, is the incremental amount. It due to the capping of the fund, and it is being calculated differently than we have asked completely consider ourselves. That would be about a million dollar a month incremental on top of what we have. Our percent on a quarterly basis runs somewhere for the interstate USF, probably around the 10 to 12% level.

Great. Thank you.

Thank you.

Your next question comes from Bruce J. Roberts of Dresdner Kleinwort Wasserstein.

Hi. Good quarter guys. We have just started USF question, your guidances here does not include the one million per month is one of my questions. Another question I had is just, you know, Stewart just in terms of what we might see down the road in terms of financing you are getting 1.3 billion, I guess, after tax from the wireless and, I guess, your free cash flow generation for the year is, I don't know if she mentioned what she expects that to be this year, but you developed about 85 million in the quarter so a shortfall between if you add, you know, if I just annualize at 85 for the rest of the year and then stick to 1.3 billion, there seems to be about a 400 to 500 million dollar shortfall, could you do all with that, without, you know, hurting your credit ratings is one of my questions, you know, what are the of not doing it and all that and using the same equity-linked security and so those are my questions.

Okay. Bruce. In terms of the guidance note, the guidance does not include the additional $1 million per month and Internet service revenue that hopefully will pickup some time later in the year so that is not included in the guidance. In terms of the financing, we had previously mentioned, I think, in our fourth quarter conference call that we expected free cash flow to be 250 to 300 million dollars for the year, we still expected to be in that 250 to 300 million dollar range. The recent debt free cash flow was a little higher in the first quarter as well as our Capex was not basically at the run rate level for the year to get to a $425 million Capex amount, so that is the reason when you annualize this quarter's free cash flow, it is higher than the guidance that we have given previously. In terms of the financing, again we really can't say too much more than what we have said about that at this point and, you know, we are and will be shortly in the process of talking with the agencies and, you know, the reason for not financing with all that is, you know, if we want to keep strong credit ratings that we have and retain some flexibility in terms of looking at other possible acquisitions.

As to the free cash flow guidance for this year, is that pro-forma excluding wireless or does that include the wireless.

It is basically pro-forma when you are excluding wireless and including the rise in acquisitions.

Great. So, and that is the accessing from the purchase sort of accounting thought process, so the free cash flow next year should be directly higher than that.

Yeah, you know, we have not really given you the guidance for next year.

Right.

But, you know, you can basically look at our wireless business and look at what you, you know, would expect the properties to do on annual basis.

Okay. So I get a sense on what you guys are going to be up for next access, you know, good quarter.

Thank you Bruce.

I have got no more questions.

Okay.

Your next question comes from Marty Dropkin of Credit Suisse First Boston.

Yeah, hi. On DSL that 6900 lines you had in this quarter. Do you think that is kind of where it trends to going forward factoring in your provisions and capabilities and where you think that is going to react to, and I think you about 65% of that ability with your year-end 2002 target and which is the radical maximum or not?

We are not planning any further extension at this point. We are working through the economics those like the territory markets which are a little bit more challenging, up from an incremental DSL perspective that is the challenges in the back call expenses and working through some aggregation technology that we need. So the run rate, you know, that is probably a little aggressive run rate. We will probably be in, you know, 5000to 6000 range going forward, and we are continuing to drive these with what we have with no further extension until we evaluate some further technology of the economic and even territorial free market.

Okay thanks. On the Celac revenues that you are, I think, the 1.23 million in revenues in the quarter that came from KMC, can you give us an impact for the quarter and how much of the quarter can you attribute that to.

Well KMC is just one month of a quarter.

One month.

Right.

And is there is a impact associated with 1.3 million.

No, we are not going to give out an impact for that.

Okay. Finally, I don't know if you covered this or not when we hit on regulatory issues earlier but the Arkansas, the recent remand in Arkansas, can you give us an update on that and is there going to be any charge taken, what do you think?

Marty while we are in Arkansas, basically the exposure there is about $8 million or so. We have appealed to the Supreme Court, the appeal's court dedicating that the order and the issue related to access rates in Arkansas, the cause of dispute there basically is the commission believes in marrying the interstate rights for intrastate purposes and Southwestern belt primarily, you know, it is fighting against that, the commission basically is far from reaching of the half with the Supreme Court as did the attorney general to basically remark disposition when the appeal's court dedicated the orders so, you know, we are right at this point, you know, it is, I guess, we followed 2 weeks ago, a little over 2 weeks ago with the Supreme Court. They have not decided one way or the other at this point as to whether they are going to accept the appeal and review it or not but basically, you know, there are good ways to go on this in terms of, you know, from the worst case standpoint, I guess, you know, if it got remanded back to the commission, they are prepared to give us on the interim CC and, you know, allow us to continue to operate the properties; and so there is no exposure there whatsoever, and it is really all related to the excess revenues as noted above. Again if we had to refund that the commission were to order us to refund down to the rates which we are charging which, you know, are certainly lower than the rates the commission approved for us. It would be about $8 million from the time we purchased the properties until today. So there is not a lot of exposure there.

Okay. Thank you very much.

Thank you Marty.

Your next question comes from Thrice Snow, EBC Capital Market.

Good morning. Thanks for squeezing me in. Quick questions. On the other line in your other operations, looks like you had a pretty substantial year-over-year sequential increase, how much of that was due to Celac and second question is looks like the tax rate was pretty low this quarter. Is that the run rate we should be looking for for the full year?

Like a a number here. Yes that is the tax rate that you can look at for the rest of the year. The other operations basically, the revenue was up about $10 million for the quarter and about $4 million of that was related to the Internet business, about $4 million related to long-distance business, and the remainder to others. The other 1.5 to other which of that about 1.3 was KMC acquisition.

Okay. So almost all read. Other line is Celac now.

It is basically long distance with the other way. Yeah. Our security business or Celac business, the front in business that we have.

Okay. Great. Thanks.

Your next question comes from Randy Caron of SM Investment.

Hi. Guys. On the Celac, I am wondering what were the revenues in the first quarter of 2001 and first quarter of 2002.

Yeah the Celac revenues were a little less than $2 million in the first quarter of 2002 of a million 978 versus about $118, 000 in the first quarter of 2001. So Celac revenues were up about $1.9 million.

Great.

At this time, there are no further questions. Mr. David do you have any opening remark?

Mr. David

This is Glen. have just a brief closing comment. Although economic slow down across the nation has become somewhat old news and redundant. I can tell other many cases companies do contain of the impacted by this sluggish economy. We are focused on continue to build our high quality network infrastructure and our role of slowing markets. Across the country, we expect to continue to deploy enhanced services and advanced technology, particularly broadband and data services in the months ahead. We are very pleased with the success of our marketing efforts in growing a long distance and VSL customers during the quarter, and we believe that off duties exist for our continued penetration of these services. We also believe the anticipated acquisition of the rise in profits and have a bal in Missouri about additional revenue growth opportunities for Century Telephone. Upon the completion of these acquisitions, our wireless business year and our financing plans to tell we well position as a premier while our service provider with an excellent network infrastructure of solid balance sheet and strong free cash flow. We believe our strategy will continue to be a winning one that provides excellent customer service for all communities and smaller cities and one that creates value for shareholders. Thank you for joining in us today for a call. We appreciate your interest in Century Telephone.

Thank you for participating and with this retail first quarter 2002 earning conference call. You may now disconnect.