Lumen Technologies Inc (LUMN) 2003 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to CenturyTel's first quarter 2003 earnings conference call.

At this time, all participants have been placed on a listen-only mode and we will open the floor for your questions and comments following the presentation.

If during the course of today's call you would like to enter the queue to ask a question you may do so by pressing 1 then 4 on your touch tone telephone.

It is now my pleasure to turn the floor over to Tony Davis, Vice President of Investor Relations for CenturyTel.

Sir please begin when ready.

Thank you John.

Good morning everyone and welcome to our conference call to discuss CenturyTel's first quarter 2003 earnings results, released earlier today.

During today's call we will be referring to certain non-GAAP financial measures.

We have reconciled these measures to GAAP figures on our earnings release which is available on our website at www.centurytel.com.

Your host for today's call is Glen Post , Chairman and Chief Executive Officer of CenturyTel.

Joining Glen is Stewart Ewing, Executive Vice President and Chief Financial Officer.

Also available during the call today is Karen Puckett, CenturyTel's President and Chief Operating Officer.

We will be making certain forward-looking statements during our call today.

Particularly as they pertain to guidance for second quarter and full-year 2003 and other outlooks in our business.

Please review our Safe Harbor language found in our press release and in our S.E.C. filings, which describe factors that could cause our actual results to differ materially from those projected by us in our forward-looking statements.

For anyone listening to a taped or web cast replay of this call or for anyone reviewing a written transcript of today's call please note that all information presented is current as of May 1, 2003 and should be considered valid only as of that date regardless of the date listened to or reviewed.

At this time I'd like to turn the call over to your host today Glen Post.

Glen.

Thank you,.

We appreciate your joining our call today to discuss first quarter 2003 financial results.

We will also review our guidance for the second quarter and update our guidance for the full year 2003.

Overall we had a very good quarter, and we're pleased to report that CenturyTel's first quarter results met or exceeded the guidance we provided during our fourth quarter 2002 earnings call.

These results reflect CenturyTel's second full quarter of operations as a pure play RLEC.

Following the acquisition of force and integration of the wire line properties acquired from Verizon in Alabama and Missouri and the divestiture of the wireless properties during the fourth quarter of last year.

We achieved strong revenue growth cash flow and earnings growth primarily led from the contributions from the Alabama and Missouri properties.

We also outperformed our expectations in several areas during the quarter.

First we experienced lower telephone operating expenses through strong cost containment efforts along with lower than anticipated depreciation in the Verizon properties.

We also achieved better performance in our long distance and Internet operations than expected.

We realized higher revenue from cost stead true-ups of prior period adjustments than anticipated and we incurred lower interest expense due to higher repayment of our credit line and lower floating rates than we had forecast.

We continue to see strong demand for our long distance offerings especially in the Alabama and Missouri properties where we reached 20% penetration in those markets by the end of the quarter.

Revenue from continuing operations increased 37.3% to [$585 million] (audio skips) due primarily to the contribution from these recently acquired properties.

We are pleased with our internal consolidated revenue growth rate for the quarter of 6.2%.

Also, EBITDA from continuing operations from the quarter excluding nonrecurring items increased 41% to $297.8 million dollars.

CenturyTel's earnings per share for the first quarter, excluding nonrecurring items increased 9.8% to 56 cents per share our 4 cents ahead of first call consensus estimates.

As you have seen from others who have previously reported their first quarter results wire line has continued to experience some access losses for the quarter continuing a trend that started several quarters ago.

We expressed a decline of 7400 lines during the first quarter primarily due to the continued soft economy and some competition in selected markets.

We achieved continued solid growth in our DSL service offering where we added more than 7700 DSL customers during the quarter.

We now provide DSL service to more than 60,000 customers or 3.8% of our capable access lines.

During the quarter, we also experienced very good subscriber growth in our long distance business adding more than 41,000 long distance customers ending the quarter with almost 690,000 long distance subscribers a 34% increase over the first quarter of 2002.

We generated excellent free cash throw for the quarter excluding nonrecurring items, we had $139 million of free cash flow for the quarter.

This represents a record in quarterly cash flow free cash flow for CenturyTel.

However, it is important to remember that the first quarter capital expenditures are historically lower than the other three quarters of the year.

This time I'll ask Stewart Ewing our Chief Financial Officer to review our results for the first quarter on a segment level and to update you on our financial guidance for the second quarter and full year of 2003.

Thank you, Glen.

During the next few minutes I'll cover the results of our telephone operations segment, and other operations.

I'll then conclude my remarks with a brief discussion of the guidance provided in our earnings release.

Beginning with the telephone operations, our telephone revenues increased 37.2%, to $511.4 million.

The Alabama and Missouri properties acquired from Verizon during the third quarter contributed approximately $126 million of the increase.

The internal growth rate revenue growth rate for our telephone segment was 2.24%, on a consolidated basis, including our other operations segment, our internal growth rate was 6.2%.

We believe the economy continues to impact our revenue growth as well, as well as our access lines.

Data revenue growth excluding the Alabama and Missouri properties including our Internet business was 17%, excluding Internet, data revenue growth was 7%.

CenturyTel ended the quarter with 2,407,152 access line and 2,700,900 forced grade equivalents.

We experienced the lost of approximately 7400 access lines during the quarter or about 3/10 of a percent sequential loss.

For the full year 2003 we anticipate a decline of approximately 1% to 2%.

We experienced an increase of more than 33,000 forced grade equivalents during the quarter or 1.25% sequential quarterly growth.

EBITDA for CenturyTel's telephone operations excluding nonrecurring items increased 35.4% to $280.7 million from first quarter 2002.

Our telephone EBITDA margin excluding nonrecurring items was 54.9%, compared with 55.6% in first quarter of 2002.

As communicated to you in the past, this reduction in telephone EBITDA margin was anticipated due to our expansion -- expectation that the Alabama and Missouri properties would produce margins in the 50% to 54% range during their first full year of operation.

Operating income excluding nonrecurring items for CenturyTel's wire line operations increased 41.9% to $167.4 million from $118 million in first quarter 2002.

Our operating income margin excluding nonrecurring items was 32.7% compared with 31.6% in first quarter 2002.

The Alabama and Missouri properties continue to perform in line with our expectations, and we are ahead of schedule with incremental annual revenue growth in those markets of $34 million from the sale of our products and services to customers in these markets.

Now, to review the results of our other operations.

We continue to experience solid growth and improving results in our other operations segment which includes primarily our long distance, Internet and CLEC operations.

Other operating revenues increased 37.8% to $69.2 million.

EBITDA increased 95.2% to $17.1 million, from $8.8 million in first quarter 2002.

Our operating income from other operations increased to $12.4 million from $5.9 9 million in first quarter 2002, primarily due to improved profitability in our long distance and Internet operations.

Long distance revenue increased to $42.6 million, a 33.8% increase.

Long distance operating income was $9.8 million for the quarter compared to $6.1 million for the first quarter 2002, a 60.9% increase.

As Glen stated earlier, we had a good quarter and added nearly 41,000 long distance customers during the first quarter, resulting in our providing long distance service to almost 690,000 customers at year end.

Long distance customer penetration in our local exchanges as a percentage of total access lines reached 28.3% versus 26.5% at year end 2002.

Internet revenues which include both dial-up and DSL increased 43.5% to $18 million for the quarter.

We added approximately 7700 DSL customers during the quarter, and ended the quarter with more than 60,000 DSL subscribers or about a 4.2% penetration of DSL enabled lines.

Internet business operating income was $353,000 compared with an operating loss of $1.4 million a year ago, reflecting the improving metrics in this business as we continue to grow our DSL customer base.

Our CLEC operating losses were $3.3 million for the quarter, versus $3.7 million a year ago.

Finally, I would like to review the 2003 guidance provided in our first quarter earnings release.

Our guidance for second quarter 2003 and full year 2003 excludes nonrecurring item.

Additionally due to new rules implemented by the S.E.C. due to the reporting of non-GAAP financial measures we are no longer providing EBITDA or operating guidance on a quarterly basis.

We have chosen at this time to continue to provide revenue and diluted EPS guidance for the second quarter of 2003.

For the second quarter of 2003 we expect total revenues will range from $575 million to $590 million dollars.

We also expect earns per share to be in the range of 51 cents to 56 cents for second quarter.

For the full year 2003, we have raised revised an increased our 2003 diluted earnings per share guidance from previous $2.05 to $2.15 range to an anticipated range of $2.14 to $2.22 per share.

The primary reasons for increase in our annual EPS guidance are the following.

First quarter results exceeding expectations, secondly, our management and employee team are doing an excellent job in driving revenues in our long distance and Internet and DSL business and of managing costs throughout the organization.

Finally, we've now finalized the appraisals for the Verizon acquired assets and expect appreciation expense to be somewhat lower than was included in our previous guidance.

This concludes our prepared remarks.

We'll now open the conference call for a few questions.

Thank you, Mr. Ewing.

The floor is open for comments.

If you have questions or comments please press 1 followed by 4 on your touch tone phone at this time.

Pressing 1 for a second time would remove you from the Company if your question has been answered.

Please pick up your hand set for optimum sound quality.

Please hold for one moment while we poll for questions.

Thank you.

The first question is coming from Frank Louthan of Raymond James.

Sirs go ahead.

You maybe touched on this but a little upside from the quarter, in regulatory true-ups, can you comment, and comment on the progress of the wireless carriers getting ETS status in your state, how do you expect that going forward, thanks?

Yes, Frank, on the adjustment issue, we do not think that will be going forward.

We think that was a one-time event.

Regarding the CETC status, certainly we are seeing some applications and some activity in that area.

You know currently in the near term we don't expect major issues.

Over a long period of time it could impact us.

Obviously, if this continues in the vein it's begun.

You know, we don't agree with the -- with the current regulatory philosophy regarding CETC’s we don't think it's sustainable long term.

We don't think that universal service and the funding can sustain that.

So we don't think it's -- it is really the intend of the universal service logs, that by Congress in the act of '96.

So we think there are a lot of issues that we think will be corrected over time.

But we don't know how long it will take to really resolve this issue.

Okay.

Thanks.

And just one follow-up.

Can you comment, with your strong free cash, what are some of your top priorities for using free cash over the next 12 months?

Thanks.

Regarding free cash flow Frank, the number one use will be reduction of debt.

And you know, second it will be looking for acquisition opportunities that can drive value.

Our shareholders the kind of returns we think necessary.

If that doesn't occur, the third option will be paying higher dividends or stock buy-backs and our board is continuing to look at those options.

So it just depends on what really -- pay down debt or decide to pay down debt, and then the opportunities for expansion or acquisition.

And then that will lead us to the decision whether or not further down the road to buy back stock or pay higher dividends.

Great, thank you very much.

Next question is coming from Tavis McCourt of Morgan Keegan.

Was there any FAS impact to the quarter or resulting in the increase guidance from the year?

No, Tavis, there is no 143 impact.

We are still on 171, Verizon this past summer, that was taken in consideration and conjunction with the appraisal that we did in allocating the cost to the assets.

Got you.

And I don't know if you would be giving CAPEX guidance anymore, but based on the lower CAPEX in Q1 was that purely seasonal or do you think you come in lower this year relative to the previous CAPEX guidance?

Tavis, the CAPEX guidance we have given was $400 million.

And we still feel comfortable with that.

First quarter is typically the lower quarter.

We usually spend about 20% of or so of our CAPEX budget in the first quarter if you kind of look back at history.

But we are seeing some -- the ability to get better pricing for construction projects than we have experienced in the past.

I think just due to the pull-back in CAPEX from, you know, everyone in the telecommunications industry.

So I think we're benefiting from that to a certain extent.

But we still plan to spend close to the $400 million and feel comfortable with that number.

Finally if I was doing the math correct, you're at an operating income margin in the LD business of about 23%.

That seems pretty impressive to me.

But I guess does that marriage ramp up as penetration increases from this point in your opinion or are we kind of at a sustainable level right now?

Tavis, that is obviously compared to LE company it's pretty high.

We don't see it ramping up from this point.

The decision we'll have to make, as we decide to penetrate the market, deeper aspect of the business market, put pressure on those margins and bring them down a little.

But we'll be looking at driving total bottom line income earnings there as far as our decision on where to take margins, from a pricing standpoint, basically.

Got you.

Great, thanks very much.

Thank you.

The next question is coming from Cannon Carr from CIBC World Markets.

Your line is live.

Great quarter guys, Stewart you touch on a little on guidance for the year, access line trends, assuming what you did in the fourth quarter which was a decline of 1% to 2%.

But things did look a little bit more favorable in the fourth quarter so is there any positive news there?

Cannon this is Karen Puckett.

A lot of our losses are still some of the cleanup that we're experiencing from Verizon.

I would say, in terms of business environment, not a lot is changing there.

In terms of residential, when you look at just primary lines, quarter to quarter, quarter 1 to quarter 1 We did see a positive net gain, which we think is a good thick.

And we're watching to see if that sustains into the second quarter.

And second, lines are flattening out.

We've been doing a lot of work around that.

So that's what we're seeing, the drivers on the business I think is still weak economy and just, you know, 28% of our disconnect codes are related to some reason for the economy or bankruptcy.

But net-net, the residential main line did improve, directionally good and the second lines are flat from a net gain perspective.

That's great.

And when you say you're doing a little extra work on the second lines What due mean there?

Well, our call center has had just extraordinary, I think, impact on our business in terms of overall allot of our units that we're selling to our call center from quarter one to quarter one we had about an 87% throughput improvement.

We've had a lot of focus.

So at the point of sale.

And then also some of the bundling efforts that we continue to do.

Great, thanks Karen.

One other question, Stewart, you mentioned the depreciation a little bit better an Verizon.

Is there some sort of change on -- did you just learn a limb bit more, is there a change on how much CAPEX you need to do there?

It's not really the CAPEX Cannon.

It's the original or initial appraisal to record the value of the assets, or the fair value of the assets.

And at the end of the year, we were -- didn't have -- the appraiser did not have it finalized.

And basically, he wound up allocating a little bit less to the fixed assets, and a little bit more to the franchise cost or goodwill than we had baked into the numbers that we gave, that we used to give our guidance in the fourth quarter.

It amounts to about 6/10 of a cent quarter.

So about 1.8 cents or so of the increase in the annual guidance is related to that change in our depreciation.

That's great thank you.

Thank you.

Next question is coming from Greg Gorbatenko from Loop Capital Markets.

Sir go ahead.

Looks like a good quarter.

My question is the profitability of the DSL.

That's an increasing driver that's supplanting some line loss there.

What are we looking at as far as the profitability of that and also if you could touch on cable competition you're seeing in the area.

Thanks.

I'll start with the second question, Greg.

On the cable competition, we have a charter up in the Windskill (ph) area, Missouri, triple play area there.

We have lost some lines but not a large number really.

Actually, our total loss of lines in the first quarter reported lines were own 1700 lines lost.

And we have a total now including the new Verizon properties of 13,000 reported lines.

We actually regained unity lines in the quarter.

We won back unity lines.

And then pre-sold, we lost about 2,000 pre-sold, of course we still have a wholesale piece of that.

So the competition has been limited in our markets for the most part.

Cable competition is not increasing substantially although we do have in certain areas we do have some -- some competition in the cable side.

What about as a percent of maybe DSL potential customers, could you break that out neighbor, like 25% or anything like that?

As far as where we have cable competition?

Yes, I'm just trying to get a flavor.

Cable modem competition is in about 34% to 35% of our total markets.

And we have DSL, we're DSL capable in virtually all of those markets.

Got you.

Resell profitability?

In terms of profitability, we are profitability in we are profitable in that segment.

I think we will continue as we get more customer penetration and scale and scope things.

I think although there aren't huge margins in DSL there is room for improvement as we grow.

We will be entering into tiered pricing, and differentiated the sizes of pipe with the pricing differentiation.

Okay.

Thank you very much.

Thank you.

Next question is coming from Victoria Pease from Merrill Lynch.

Touch on your pensions, I know you're going to take an incremental 15, around $20 million for 2002 I was wondering if you could confirm what the incremental increase in Q1 and how much that hit your EBITDA.

Second question, I was wondering if you could quantify exactly how much the true-up was for Q1, I don't know whether you gave that number but I missed it.

And thirdly just looking at your acquired Verizon line within telephone revenues, they seem to have fallen very slightly sequentially from 130 to 126.

I was wondering if you could provide some granularity there.

Thanks.

In terms of the pensions, yes, there was about $5 million of incremental cost in the first quarter related to the pension expense.

The true-up for revenue in the first quarter was about -- about a penny a share.

So about $2.5 million or so concerning the additional profit adjustments we had.

Victoria, what was the other question?

In your release you disclosed that your telephone revenues increased $1`26 million because of the acquired lines.

If I’m not mistaking in the fourth quarter it was $130 million.

So I'm just wondering why that's gone down and possibly is that just a seasonal impact or what?

Yeah, couple of things.

In those markets, one was the USF revenue that both debt at a rate that was higher than the actual rate, when we converted those properties.

About a million dollars there.

And then we've had some access rate issues in Alabama primarily, about $800,000, that's about $2 million of it there.

And then access line losses, another $700,000 or so.

Just from company lines, we had a true-up, really some cleanup of company lines, I think we talked about this during the fourth quarter, that Verizon was building company line as revenue and then offsetting expense.

We don't do that.

Reversed that.

About $400,000.

And then we had just access line losses that we've discussed already about $300,000.

Okay.

Thanks.

Thank you.

Next question is coming from James Lee of Fidelity Capital Markets.

Your line is now live.

Quick question, second line lost the quarter, obviously a good improvement and can you talk about the replaced rate for this quarter from second line to DSL, I believe the last quarter was 0.73.

Thanks?

Your question about DSL, about a thousand lines of our DSL customers disconnected their second lines, which is about 11.2%.

Okay.

Then how do we convert to the same ratio that you gave last quarter, which is 0.73, was it improvement or was it deterioration?

I'm not sure the ratio that you're referring to.

We'd have to follow up with you on that one James.

The ratio you gave during the last quarter, was that for every second line that you lost you got 0.73 of DSL order, and I was wondering what's that ratio for this quarter, if you don't have it maybe we can talk about this offline.

Yeah, we can do that offline.

The ratio.

Just a follow-up on Victoria's question, on the revenues from the Verizon properties, just wanted to make it clear, we're still on schedule within our projections, for revenues, ahead of projections for EPS impact ahead of the Verizon acquisition.

Our margins are on target as well with this new acquisition.

Thank you.

The next question is coming from Roger Lobb of Marksman (ph) International .

Please go ahead.

The $20 million you're contributing to the pension this year, is this to the pension plan or to fund the health care obligation or both?

It's pension plan.

If you could quickly walk me through the K on the health care deficit if you will which seems rather large.

Is that something, I guess the question is, is there something in the accounting that I'm missing that essentially it's expanded from $120 million to $220 million over the past three years, could you just sort of explain the math behind that?

In terms of the postretirement benefit obligation?

Right.

Yeah, primarily the pickup of the additional Verizon employees associated with the acquisition of the properties in 2000 and 2002 is primarily the reason.

But the funding is such, and do you think you'll be funding that with greater contributions going forward or are you going to do a pay as you go, if you will?

No, we have a trust that has a small amount of cash in it and we make small contributions to that for certain of our -- for one or two plans that we have.

But our groups of employees, but for the most part, you know we will just continue to fund that on a pay as you go basis.

Thank you.

Next question is coming from Roger Sachs of Cafe (ph) Financial.

Please go ahead sir.

Most of my questions have I think been answered but could you expand upon you said in the Verizon properties there were some access rate issues in Alabama.

Perhaps you could give more color on that.

And on the fourth quarter call you provided us with the EBITDA levels and the other segment for I guess LD Internet and DLEC.

Thank you.

This is David Cole.

It actually was Missouri we had there and it was really the access rates, carryover from Verizon versus some we had in the fourth quarter and it was really a true-up.

Alabama we have not had any changes in the access rates in that state.

Really most of it has been true-up the minutes of use and getting everything billed.

As we converted over to our access billing in September and getting those trued up.

So I think overall we are seeing increase in access minutes of why is in Alabama.

Missouri is holding steady.

We have seen recent increases there with changes of plans by SBC but we are continue to monitor those.

As Glen and Stewart have mentioned we are on track as far as hitting our revenue for the year on the Verizon property.

This was expected?

As far as the rates and where our revenue is, we're getting a lot of growth in our other areas.

The $126 million there reflects only the telephone operations, does not reflect any of the revenue generated from the other sources in those properties.

Okay.

And the EBITDA levels?

We really haven't disclosed the -- those margins.

However, I can tell you that they are -- you know, we're bringing them up, and expecting them to improve some in the month ahead.

Okay.

I thought you had provided that during the fourth quarter call but I can follow up off line.

Thanks.

Okay.

Thank you.

Next question is coming from Scott Grossman of Campton(ph).

Please go ahead.

Update on the free cash flow guidance for the year.

You know, regulation -- with regulation G, we can't give, our interpretation, our counsel's interpretation at least is we can't give guidance of free cash flow unless we're willing to put a reconciliation out there and you know that would mean us putting, you know, projecting earnings, projecting depreciation expense, and it just seemed to get too involved for us.

So we had decided not to give a free cash flow update for the year in terms of what we expect.

Okay.

So there isn't a number on D&A that we could use it, CAPEX is going to be in the $400 million range you said?

CAPEX will be in the $400 million range or less.

Working cash side, really strong first quarter.

What is the expectation for the year there?

Yeah, we had, you know part of the strong first quarter we had was basically, you know, decrease in accounts receivable.

Part of that related to a recovery, a partial recovery of the WorldCom receivables that we previously wrote off.

We basically received about $5 million in the first quarter for the $10 million that we had written off.

So that provided some additional cash flow.

We also -- you know we didn't have a tax payment in the first quarter, subsequent to the end of the first quarter we made a payment of $17 million on April the 15th.

So you know, the working capital, it will change some during the year but it shouldn't change too much.

Okay, great, thanks.

The other item that I might mention is, just as a result of the acquisition of the GTE properties in 2000 and the Verizon properties in 2002, we -- you know, we get to amortize the franchise cost for tax purposes although not for financial accounting purposes.

The tax benefit we receive for that is about $40 million per year.

And that's not included in our free cash flow.

But it is certainly cash flow that we can use to pay down debt or for other -- for other activities.

Just wanted to go back to the question on Verizon.

EBITDA margins and we are within the range we had given, and that range was 50% to 54%.

And we are within that range.

Thank you.

Let’s move to our next question coming from Phillip Olson(ph) of UBS Warburg.

Please go ahead.

Couple of questions on access lines.

First you mentioned that residential lines were actually up in the quarter.

Was that primary or total residential lines?

Second if you could maybe just provide additional color in terms of the difference in access line trends between your legacy properties and the recently acquired Verizon properties.

And finally, when you look at your potential acquisition opportunities, is there a scenario whereby cable acquisitions may make sense as part of a strategy around some of your core markets?

I'll take the access line question.

On the -- and this is legacy, I'm not -- we can talk about Verizon but with the cleanup it's still hard to say that we're in a normal trend here.

On legacy, the question on residential is that we had a -- from quarter 1 to quarter 1, a negative-positive.

Second line was a negative.

But our net for total residential line was positive for legacy.

Okay.

Karen Puckett;

And your question around Verizon, I just don't feel comfortable enough with all the cleanup that we're still going through that I could give you any kind of consistent visibility into that right now.

Okay.

And the answer to, I think James Lee that asked before, it wasn't a DSL.

The ratio you were talking about, this is back to James Lee, on how many outs to my ins is it's .73 -- excuse me .88 from .73 for the total 2002.

It's .88 this quarter.

I'll address the question regarding cable expansion.

Actually we own a couple of small cable properties today that we have inherited and some other Telco acquisitions.

We think it makes sense to from time to time buy cable properties in [particular with us markets] (ph).

Opportunistic driving synergies and have good penetration and bringing value to customers.

Okay, thanks.

Thank you, if there are any remaining questions or comments, press 1 followed by 4 on your touch tone phone.

Thank you.

The next question is coming from Richard Klugman of Jefferies and Company.

Please go ahead.

Thanks a lot.

Nice quarter.

Could you touch a little bit on the CLEC revenue, I know it was up substantial year over year with the acquisition last February, but I believe it declined sequentially.

How important is that going forward, how does digital teleport fit into that when you close it?

And then I had a follow-up question as well.

First of all, on the CLEC revenue, the reason there was a decline sequentially was, we had a specific comp issue with Bell South.

We booked a $500,000 negative entry to revenue during the quarter.

We've gained -- we had good customer growth there.

We did lose a couple of customers including a couple of customers, large customers with financial issues there.

But overall we continue to see good customer growth in our CLEC operations here in North Louisiana.

When you say financial issues, I assume you mean the customers went under?

Yes.

Okay.

So is that a line you expect to see grow in future quarters?

Yes, we do.

And how does -- how will that be impacted by Digital Teleport when that closes?

Gives us a lot of synergies.

We haven't projected exactly the impact but we expect it to have a positive impact providing more end to end solutions for customers as well as bring customers into our network that previously was not possible to bring into the network.

In addition to that, the DTI network will provide synergies for us reducing the cost of our telephone network throughout the region that it covers.

Got it.

So it is more of a margin play than bringing in additional customers upfront?

Additionally that's correct.

The follow-up question I had was you mentioned I believe Glen about potential access line acquisitions.

And I know you've talked about this going forward -- you've talked about this in the past but I just found it interesting that both you and Commonwealth this morning, both noted that as a potential opportunity in your opening remarks.

And I was wondering if you're seeing any pickup in the, you know, the interest level of potential sellers, to put access lines out there.

Because I was under the impression that that's been pretty quiet for a while.

Richard, we are seeing a few of the smaller companies, more activity there.

We're hearing a lot of rumors that maybe the Bell companies will be looking to divest of lines.

There is no certainty to that.

That's just rumors we're hearing., there is nothing out there of a significant nature that we're looking at in the immediate future.

We think there will be opportunities over time.

We think it make sense of the [RBox] (ph) of divesting.

We think that is a strategy they will find attractive in the months ahead.

But there is no guarantee there will be anything available out there.

Richard Klugman;

Great, thank you.

Thank you.

The next question is coming from Simon Flannery of Morgan Stanley.

Please go ahead with your question.

Thanks a lot.

Stewart, on the balance sheet you've made good progress on deleveraging(ph) and as the year goes on there will be substantial progress.

Do you have anything to help think of a target debt equity or target EBITDA to interest type ratio would be, where would you feel like this is the sort of area we would feel comfortable maybe a target credit rating.

Second question is on pricing plans.

Can you talk a little bit about pricing trends for DSL and for long distance, are you seeing any real change there?

You've obviously had some strong adds.

Has any of that been driven by pricing action?

Thanks.

Simon, first of all we added the quarter with debt to total capitalization of about 52%, 51.9% actually.

Our target that we've discussed with the credit rating agencies is always been about 50-50.

That 52% includes the mandatory convertible as debt.

So that's $500 million of debt that's included in that 52%.

So you know, again, 50-50 is still about our target.

But we've told the agencies that, you know, from time to time, we'll go below 50%, and then, you know, in preparing to leverage back up to a certain extent, to look at other acquisition possibilities.

So really, our discussions with the agencies are really the same as they've always been.

In terms of debt to EBITDA target, we are, you know, about three times or so, you know, and we like the credit ratings that we have today, and you know, it's important for us to remain investment grade, to give us the good access to the capital markets that has benefited our shareholders in the past.

Regarding competition on the LD frond, no real difference in first quarter here.

AT&T is pretty much where they've been.

MCI has got a couple of things they're do doing from a Promo perspective but nothing causing us huge amount of heart burn right now.

DSL is sticking where it is right now.

Next question from Grace Lee of Bear, Stearns.

Your line is now live.

Hi, quick questions.

Update on the billing system implementation and then anything else additional on Digital Teleport and when that would close.

Thanks.

Billing system implementation is going well.

We've just put in another upgrade to the system this last weekend, and including well response time so we feel good where it's headed.

Certainly it is going to take a little more time to bring it in.

There will be synergies and efficiencies that it will bring us.

It is on track to where we've planned.

DTI?

Digital Teleport we expect it to close during the second quarter.

Okay, great, thanks.

Thank you.

Next question is coming from Jeff Hutz (ph) from Conseco (ph).

Earlier question on acquisitions, can you comment on your preference for large access line acquisitions like the Verizon, versus smaller acquisitions, how small are you talking about deals that could make sense for you?

That's question one.

Question two is on your DSL business, is that included in your rate base for rate of return regulated revenue, and does that therefore make that business more profitable than someone who would not be rate of return regulated?

Thanks.

Okay.

Jeff, first of all on the access lines, we certainly prefer the larger deal because it's just the amount of work involved to convert it and time involved.

Disproportional to a smaller deal.

So we prefer the larger deals, obviously it can have a greater impact on the company.

However, there are a lot of small deals that make a lot of sense, especially a small acquisition in a state we're already in, could be contiguous to our current property.

Small access line property could make sense where we go in and absorb it with very little incremental cost to us.

I wouldn't put a limit on it.

Certainly we would prefer something in 20, 30,000 lines area.

We would look at something smaller if it really was a good fit.

Our preference again would be the larger opportunities.

And in terms of our DSL, the -- on the 1.8 million access lines that are rate of return regulated in the interstate jurisdiction, our DSL equipment is basically included in the telephone companies, own by the telephone companies.

And it is included in the rate base.

They wholesale DSL service to anyone who wants to provide the basis.

The numbers that we give with respect to our DSL operation really is totally the deregulated operation.

So regulated standpoint, we were profitable, positive operating income, in the first quarter.

And that does not include earnings that we are experiencing on our telephone operations as a result of the investment in the DSL.

Thanks.

Thank you.

Our next question is a follow-up question coming from Greg Gorbatenko from Loop.

Your line is live.

My question has been answered.

Final questions or comments, press 1 and 4 on your touch tone phone at this time.

I just want to make clear that the -- our Internet, our dial-up Internet operations are also included with the DSL in the results that we report.

We'll take one more question.

Actually there's no questions remaining in the queue.

Mr. Post, do you have any questions comments you'd like to finish with?

CenturyTel is good start for 2003.

Reflected in our solid results for the first quarter.

Considering the economy and industry issues we are very pleased with the 6.2% revenue growth rate for the quarter.

Also, we believe that 11% increase in net income and almost 10% increase in earnings per share reflect a successful repositioning of our company as a leading pure play rural local exchange provider.

Integration of the properties acquiring from Verizon is progressing according to plan.

We are very pleased with that acquisition.

And the past quarter we strengthened our balance sheet and positioning ourselves for further expansion in the month ahead.

Thank you for participating in our call today, we appreciate your interest in CenturyTel, look forward to speaking to you again in the future.

That concludes this conference call.

Please disconnect your phone lines at this time and have a great day.

Thank you for your participation.