Lumen Technologies Inc (LUMN) 2003 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to CenturyTel's second-quarter earnings release 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. (OPERATOR GIVES CALLER INSTRUCTIONS).

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

Sir, please begin when ready.

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

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

We've reconciled these measures to GAAP figures in our earnings release, which is available on our Web site at www.CenturyTel.com.

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

Joining Glen on our call today is Stewart Ewing, CenturyTel's 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 the third quarter and full year 2003 and other outlooks in our business.

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

For anyone listening to a taped or webcast replay of this call or for anyone reviewing a written transcript of today's call, please note that all information presented is current only as of July 31, 2003 and should be considered valid only as of July 31, 2003, regardless of the date listen to or reviewed.

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

Thank you, Tony, and thank you all for joining our conference call today to discuss the second-quarter 2003 financial results.

We will also review guidance for the third quarter and full year 2003 as outlined in our earnings release issued earlier today.

We continue to experienced strong financial performance in the second quarter with the results exceeding our guidance given during our first-quarter call and meeting or exceeding Street estimates.

The Alabama and Missouri properties acquired from Verizon in the third quarter of 2002, along with further penetration of calling features, long distance, Internet services and these properties, continue to drive strong revenue and cash flow growth during the quarter.

We outperformed our expectations in several areas during the quarter.

First of all, we experienced lower telephone operating expenses through successful cost containment; we also achieved higher operating income performance in our long distance Internet operations than we expected.

We realized higher revenues from finalizing cost studies resulting in some prior-period adjustments to certain telephone properties and we had higher (indiscernible) equipment and features sales than anticipated during the quarter.

Finally, we incurred lower depreciation expense, due primarily to lower than anticipated capital expenditures during the first half of 2003.

Revenue from continuing operations increased 34.5 percent to $590.1 million, due primarily to the contribution from the Alabama and Missouri properties, along with good internal growth.

Our internal consolidated revenue growth rate for the quarter was 5.1 percent, which we believe represents valid growth, especially given the challenging economic environment in which we operate.

Operating cash flows from continuing operations for the quarter, excluding nonrecurring items, increased 39.7 percent to $305 million.

Our earnings per share for the second quarter of 2003, excluding nonrecurring items of 60 cents per share, which is five cents ahead of the First Call consensus estimates (sic).

We also experienced improvement in sequential quarter line (indiscernible) this quarter, losing only 3800 access lines during the quarter, a solid, sequential improvement from approximately 7400 lines lost during the first quarter of the year.

We continue to see strong demand for our long distance offerings across our markets as we added nearly 31,000 customers -- long distance customers during the second quarter.

This brings our total long distance customer base to more than 720,000, which represents nearly 30 percent penetration of our total access lines.

Customers in the markets we serve also continue to show strong demand for high-speed Internet service, as we added almost 7400 DSL subscribers during the quarter.

Our DSL subscriber base has grown to about 68,000 customers in service, nearly 29 percent customer growth since year-end 2002.

We also experienced another strong quarter of free cash flow generation.

Excluding nonrecurring items, our free cash flow for the second quarter was $109.6 million.

Coupled with excellent cash flow results in the first quarter 2003, this brings our free cash flow generation for the first half of this year to nearly $250 million.

We also continued to delever our balance sheet and increase our financial strength and repaid an additional $155 million in outstanding debt during the quarter.

Through the six months ended June 30, 2003, we repaid nearly $400 million of outstanding debt, bringing our debt-to-equity ratio to just below one to one.

Overall, the second quarter represents another quarter of strong operating results, along with continued improvement in the financial strength of our company.

At this time, I'll ask Stewart Ewing, CenturyTel's Chief Financial Officer, to provide additional detail on our results for the second quarter and update you on our financial guidance for the third quarter as well as for the full year of 2003.

Thank you, Glen.

I will begin today by covering the results of our Telephone Operations segment and then other operations.

I'll spend a couple of minutes discussing our current capital structure and then conclude my remarks with a brief discussion of the guidance provided in our earnings release.

In our Telephone Operations, telephone revenues increased 35.3 percent to $515 million.

The Alabama and Missouri properties acquired from Verizon during the third quarter of 2002 contributed approximately $127.7 million of the increase.

The internal revenue growth rate for our Telephone segment was 2.1 percent.

On a consolidated basis, including our other operations segment, our internal revenue growth rate was 5.1 percent.

We still believe the economy continues to somewhat impact our revenue growth. (indiscernible) revenue growth, excluding the Alabama and Missouri properties and including our Internet business, was ten percent.

Excluding the Internet, data revenue growth was about 12 percent.

CenturyTel ended the quarter with 2,403,000 access lines.

We experienced, as Glen indicated, a sequential loss of about 3800 access lines during the quarter, and we continue to believe that the line losses in our markets are driven by the soft economy and the competition in selected markets.

Due to the fact that on a historical basis, the fourth quarter each year is typically our softest quarter in terms of access line declines, we continue to anticipate one to two percent line losses for the full year of 2003.

Operating cash flow for CenturyTel's Telephone operations, excluding nonrecurring items, increased 36.9 percent to $285.9 million from second quarter, 2002.

Our Telephone cash flow margin, excluding nonrecurring items, was 55.5 percent, compared with 54.9 percent in the last year's second quarter.

Operating income, excluding nonrecurring items for CenturyTel's wireline operations, increased 46.2 percent to $173.6 million from 118.7 million in second quarter 2002.

Our operating income margin, excluding nonrecurring items, was 33.7 percent, compared with 31.2 percent in the second quarter, 2002.

The Alabama and Missouri properties continue to perform in line with our expectations.

We are ahead of our incremental revenue growth plan for these markets and at the end of the second quarter, we had generated an incremental annual revenue run rate of more than $37 million from the sale of products and services to our customers in these markets.

Now, a few comments regarding the results of Other operations.

We continue to experienced solid growth and improving results in our Other Operations segment, which includes long distance, Internet and our CLEC operations.

Other operations revenues were up 29.2 percent to $75.2 million.

Operating cash flow for Other Operations increased 30.4 percent to $19.3 million from $14.8 million in second quarter, 2002.

Operating income for Other Operations increased to $14.8 million from $11 million in second quarter last year, primarily due to improved profitability in our long distance and our Internet operations.

Long distance revenue increased to $43.2 million, a 25.4 percent increase.

Our operating income in long distance was $10.7 million for the quarter, compared to $7.7 million in the second quarter of last year, a 38.7 percent increase.

We added more than 30,800 long distance customers during the second quarter, bringing our total long distance customers to over 720,000 at quarter end.

Long distance customer penetration in our local exchanges as a percentage of total access lines reached 29.7 percent at June 30, versus 26.5 percent at year-end 2002.

Internet revenues, which include both dial-up and DSL, increased 35 percent to just under $20 million for the quarter.

We added approximately 7400 DSL customers during the quarter and ended the quarter with nearly 68,000 DSL subscribers, or about a 4.7 percent penetration of our total DSL-enabled lines.

As Glen mentioned earlier, our free cash flow generation for the first half of this year was nearly $250 million.

We believe the strong free cash flows are driven primarily by the strong cash flow generated from the Alabama and Missouri Wireline properties in the first half of 2003, as compared to that of CenturyTel's wireless business in the first half of last year, as well as lower capital expenditures year-to-date 2003 versus a year ago.

As Glen mentioned earlier, through the six months ended June 30, we repaid nearly $400 million of our outstanding debt, bringing our debt-to-equity ratio just below one-to-one.

Excluding the $500 million of equity units issued in May of last year, the debt-to-equity ratio dropped to .73-to-1.

If you look at -- if you annualize our first six months operating cash flow, our debt to operating cash flow was 2.68 times.

If you exclude the $500 million of equity units outstanding, debt to operating cash flow -- again annualized -- would have been 2.27 times.

At June 30, 2003, there were no borrowings outstanding under our $533 million three-year ,revolver which expires in two years.

As a result of that, we decided to allow our 364-day facility to expire earlier this month.

So basically, CenturyTel is an excellent financial shape with a very strong balance sheet.

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

Our guidance for the third quarter 2003 and full-year 2003 excludes nonrecurring items.

As we stated during our first-quarter conference call, due to new rules (indiscernible) Regulation G implemented by the SEC relating to the reporting of non-GAAP financial measures, we are no longer providing EBITDA or operating cash flow guidance on a quarterly basis.

We have, however, chosen to continue to provide revenue and diluted earnings per share guidance for third quarter 2003.

For the third quarter 2003, we anticipate total revenues will range from 590 million to $605 million.

We also expect earnings per share to be in the range of 55 to 60 cents for the third quarter.

Now, Q2's earnings per share was 60 cents, and we believe it will be down -- potentially down a little bit in the third quarter because of seasonality associated with maintenance expense on our properties, somewhat increased marketing expenses and possibly somewhat lower long distance margins for the third quarter.

For the full year 2003, we've increased our 2003 diluted EPS guidance from the previous $2.14 to $2.22 range to a new range of $2.28 to $2.34 per share.

The primary reasons for increasing our annual EPS guidance are the strong second-quarter results that we just discussed exceeding our expectations, stronger telephone revenues than expected and somewhat lower expenses than were originally forecast, as well as the contribution from LightCore, which operates the fiber assets acquired from Digital Teleport in June of this year.

This concludes our prepared remarks.

We will now open the call for a few questions.

Thank you, sir.

Ladies and gentlemen, the floor is now open for your questions. (OPERATOR GIVES CALLER INSTRUCTIONS).

Michael Balhoff of Legg Mason.

Thank you.

Very good quarter, gentlemen.

Could you give us the universal service numbers for the quarter, both paid and intrastate?

Then I have a question on corporate expenses, if I could?

Mike, just a second.

Mike, the interstate universal service was $49,046,000 for the quarter, and the intrastate universal service, or state universal service, revenues was 7,985,000.

Thank you.

On the subject of the corporate expenses, does corporate and other prove to be better than the expected in the quarter.

Could you give us some color on what's going on and what we might model, going forward?

What I'm really asking is is the run rate were seeing in this quarter typical of what we're going to see in the next quarters, going forward?

We believe, first of all, we did an excellent job of controlling expenses in the quarter.

We challenged our people to control expenses and they were very successful with that.

It's difficult to say because the third quarter (indiscernible) we expect to see a spike in our outside maintenance costs, particularly in the northern states.

Also, we expect additional marketing expenditures in the third quarter.

So, we're not anticipating a major decline.

There will be some decline in expenses, going forward.

Stewart, do you want to put a little more color on that?

As Glen mentioned, we do expect the (inaudible) expenses to go up somewhat.

In terms of corporate and other, if you look at this quarter compared with last quarter, some of our IS costs and our operating taxes were down somewhat this quarter compared with last quarter.

That's, I think, what maybe folks would have been underestimating a little bit -- the expenses.

Our bad debt expense was down somewhat as well.

The frontal issue relates to the MCI issues that are obviously in the news.

My assumption is that you would be on the receiving end of (indiscernible) , I guess, receiving too little in terms of access.

I guess the question is whether or not there might be any monies that you might be able to receive from the past?

More importantly, going forward, have you been able to do any kind of quantification as to what you might be able to receive through increased access revenues, going forward?

Mike, at this point, we really don't have enough information to be able to assess what might be in terms of us, but that's certainly something that we will be looking at as the facts develop a little bit more.

Thank you.

Great quarter.

Jeanette (ph) -- (technical difficulty) -- of Morgan Stanley.

Good morning, everyone.

You've made quite a bit of progress on the balance sheet again this quarter.

How much more should we expect on that front?

What other uses of cash flow are you currently considering?

If you could just walk us through your thinking on dividend buybacks and in any M&A opportunities out there?

I'll start with the second part of your question and then ask Stewart to address the first part.

Regarding use of free cash flow, our first look is to reduce debt and that's what we've been doing, de-leveling the Company and (inaudible) positioning ourselves for the next acquisition opportunity, and that would be the second focus of the use of our free cash flow -- is expansion opportunities through acquisition.

If those do not materialize, then our Board would consider either a stock buyback or increasing the dividend, so we are considering all of those possibilities.

We (indiscernible) at those in the near-term, though, we're hoping there will be acquisition opportunities that present themselves and if they do not, we will take other steps.

Stewart?

Jeanette, in terms of other potential debt repayments, you know, we've paid down all of the -- we've paid off all of the floating-rate debt that we had at this point and we've really paid off pretty much everything that is prepayable, that makes sense for us to pay off.

Our current maturities for the next twelve months are about 118 to $119 million.

Additionally, we have a $100 million note that becomes prepayable at 103 and some change.

It's $100 million.

I think is at a 8.25 interest rate -- about an 8.25 percent interest rate -- so we can prepay it at 103 and some change in May of next year, so that's a possible additional use of cash flow to pay down debt.

But that is really about all we have at this point that we can pay down.

So in addition to what Glen said, we would expect to be building cash if there's no acquisitions at this point.

Have you seen any change in the appetite of players on the field in terms of M&A activity?

Any sort of more noise or have things remained quite from year-end?

There's a lot of rumors out there but that's really what they are at this point.

I think it makes sense, long-term, for the Bell Companies to continue to consider selling or divesting their rural operations and consolidating in urban areas.

We expect to be a consolidator in the rural market.

But we won't know anything until it happens.

There's a lot of talk but nothing is real active at this point.

Thank you.

Patrick (indiscernible) of Guzman and Company.

Hi.

Again, very nice numbers.

A couple of questions -- number one, could you maybe shed some light on like how much you can grow the EBITDA margin, maybe in '04, considering the upside in the Verizon properties?

Number two is, I guess a big picture look on technology competition from cable, voice and wireless displacement -- I think maybe it could be an '05 issue.

I just wanted to know if you think it's an issue at all.

If so, if you could put a time from on that?

Then finally, in terms of the access line valuations out there, you guys paid like $3400 a line in 2002 from Verizon, and prices have come down a little bit.

Does $3000 a line sound attractive to you?

Does it depend on where it is, or is the price per line below 3000 now?

Thanks.

Stewart will take the margin question last.

I'll get these other two.

The competition with the cable voice and wireless displacement -- you know, they have not been really significant in our areas.

We have a few markets that we are facing competition; we have triple-play competition in a few markets, but we have been successful in bundling services and expanding calling areas, and (indiscernible) competition.

Wireless displacement -- we know there's some wireless displacement going on with minutes of use.

We have not seen a lot of displacement of access lines, actually, and we (inaudible) several hundred or quarter (inaudible) appears to be, so it's not really significant at this point, although we do not know how many people are coming in.

Our markets are never -- no order (indiscernible) wireline phones.

The displacement is relatively low to date for our Company.

I think we do have an advantage of being in rural America. (indiscernible) issues, for cable competition as well as wireless displacement.

Because there's less low hanging fruit, the wireless companies build out to a lower degree in our market, so we have some advantages there, we believe, but certainly, we are concerned about competition and we will see increasing competition in the months ahead.

As far as access line valuations, you know, it depends.

It depends on a lot of things; it depends on the cash flows; it depends on competition, the demographics of the markets we might be looking at; it depends on plant condition.

Plant condition would be a huge factor in what you pay for a line, so I would think the prices would be below $3000 a line now, but in the right situation, it could be in that range.

So there are a lot of variables there that we look at and we do a lot of tough due diligence when we look at a potential acquisition.

The bottom line is, can the cash flows drive value for shareholders.

That's what we will be looking at.

In terms of the margins, of course, the revenue growth that we're adding on a consolidated basis from our long distance business and our Internet business are a lower margin than the average 51 percent or so consolidated margin that we have today.

So I think it's going to be tough to grow the margin on a consolidated basis, but we would hope to continue to grow the aggregate amount of operating cash flow that we generate.

Thanks.

Mike Wylan (ph) of Raymond James.

A couple of quick things -- one, (indiscernible) margins.

Was there anything sort of regulatory (indiscernible) benefited that or playing out for the rest of the year?

Then maybe -- Glen, you mentioned the network access minutes of use erosion to wireless.

Maybe you could comment on what you're seeing on that, any major changes there, and a little bit more color on the fiber network.

Obviously, you are beginning to contribute here.

To what extent, and how is that going to ramp over the next twelve months?

Thanks.

First of all, as far as the regulatory true-ups, we had some, but they were less impact on earnings per share was less than a penny per share for the quarter.

On the increase, it was really not significant.

As far as the wireless minutes of use erosion, it's difficult to say.

Our minutes of use are down slightly, but I think we are down a little less than the RBOCs are reporting.

Percentagewise, I don't have the number right here, but it's less than a lot of companies have experienced.

We do think that it's part of the reasons minutes of use have declined some in the past months.

Your last question, Frank, again, was what?

The fiber network beginning to have some contributions -- can you give us a little more color on that?

Where do we see the ramp for that for revenue and profitability, revenue and EBITDA over the next twelve months?

Well, it's a small acquisition.

It's a $38 million (indiscernible) acquisition, so it's not going to show up that much.

It is accretive to earnings per share about a penny (indiscernible) basis.

We expect that to continue.

We think there's certainly opportunity.

The initial value there is going to be improving our margins because we can move traffic from our telcos over to this regional network, regional fiber network, so it's going to be a positive for us there. (indiscernible), we think we can drive additional revenue streams through bringing (indiscernible) services to customers as part of our CLEC network.

So we think there's certainly opportunity there, but we're not ready to count that as being a major factor in future growth.

Have you already transported the majority of your traffic that you can over to that network, or is there still some improvement there?

No, the improvement really has to come.

We are just beginning to transfer it over, so you really haven't seen a lot of improvement yet as far as the cost reduction is concerned.

That will take some time, Frank because we are under contract with Genuity on Level Three now for the fiber network that we were using in Arkansas and Missouri that belongs to them.

So it's an 18 to 24-month process, at least, of transferring the traffic over to this network.

A penny per share is basically just reflecting the value of the revenues and margins there that they are currently earning.

Thank you.

Cannon Carr with CIBC World Markets.

Great job on the quarter.

A few questions, if you don't mind?

One, just on the access line front -- ALLTEL and Cincinnati Bell showed some heavier losses; you guys showed a little bit better.

Any comments you can provide there?

Are you're seeing a (indiscernible) bottoming out on line losses, or some things pick up again in the third quarter?

Because right now, it looks like you kind of come in toward the better end of your guidance on line-lost expectations.

In terms of access lines, if you look at the losses, (indiscernible) thousand to competition (indiscernible) (indiscernible) a few hundred, and Glen said they are cable modem wireless substitutions.

Then in terms of DSL substitution, people that have purchased DSL's and cancelled second lines, it's pretty consistent -- about 1,000, you know, 11 to 12 percent of that.

In terms of what drove, or what's driving the improvement, if you look at from quarter-to-quarter, we did have an improvement in business lines -- a pretty significant improvement.

We have done a lot of work around promoting, especially internally within our call center organization, additional lines to both business and residential, so we had an improvement in business lines as a result of, we believe, this promotion and focus.

We did have a decrease in residential lines from quarter-to-quarter.

However, we had a positive second line for really the first time since the fourth quarter of 2001, so we're very happy about that.

Again, primary second line is up due to promotion and focus in the call center.

Now, competition losses, I would say when I mentioned the number, are down.

We've done a lot of work around competitive value propositions, and kind of each market has its own challenges and where we do have competition, we've gone in with a very laser focus and gone after that competition pretty hard.

I know you can't speak for your peers, but I don't think they're seeing those things yet.

Any sense of are you guys ahead or just being more proactive on some of those fronts and getting some early traction?

I really can't speak for the peers.

I would just say we are incredibly focused.

Okay.

One other question (indiscernible) Sprint came out with (indiscernible) more aggressive regional Wireless offer this morning and Cingular has been doing more on the regional front.

Any sense of the increased regional wireless offers that may start picking off more minutes of use or even second line or even primary line usage at all -- just from a regional (indiscernible) basis, less from a national?

I haven't seen exactly what they've promoting (sic), but I would say, in general, you know, Wireless competition -- it's more of a challenge on a residential than it is a business market.

I think we will continue to see pressure there, in particular when you look at perhaps second lines, but we are doing some packaging work with second lines that are working pretty well for us.

Okay, good.

In other words, just to rephrase that, does a regional wireless offer (indiscernible) your interest more from a competitive line loss or minutes of use loss standpoint than a national plan?

No.

Thank you.

Grace Lee of Bear Stearns.

I think most of my questions have been answered -- just a couple more things.

On the CapEx side, would you still maintain your 400 million guidance for the year, given that you are under-spending so far?

Then secondly, just on your expenses, I guess earlier this year, you sort of guided that you would be spending extra on billing systems -- you know, the overlap there as you transition assistants over, and then you also had some additional tension impact of about five million per quarter.

I mean, we really didn't see that much this quarter.

Should we expect that to kind of come back, or is your cost-cutting really offsetting a lot of that?

First of all, on the CapEx -- we continue to think we will spend our budget.

We are at about 38 percent, 39 percent of our budget through the second quarter, and we expect the third quarter to pick up quite a bit. (indiscernible) fourth quarter.

We're going to maintain our forecast for the 400 million for the full year.

On the expenses, on the billing system, this year, we will have less amortization.

We're not going to convert as many customers as we had planned initially, so we expect less amortization; the direct cost will still be in there, so we won't be quite as much in the billing system this year.

When we convert the majority of the customers over to the new billing system, then we will see more amortization and a bigger hit there. (inaudible) expense?

We're still in the same range we had talked about previously on pension expense.

We don't expect any major hits.

The two major hits in the third and fourth quarters (indiscernible) we saw in the second quarter really.

Yes, the increase over last year, in terms of pension expense, as well as our medical, is still in the $20 million range.

Thanks.

Travis McCourt of Morgan Keegan.

Good quarter.

I take it, given the results, you didn't have much of an impact from a lot of the weather-related issues in the second quarter.

Any clarification on that would help.

Then secondly, just a technicality -- Stewart, where are the LightCore revenues in your release?

Which segment are they going in?

The LightCore revenues are going in the Other segment.

Other within another?

Which subsegments there?

Is it going in ISP or -- (MULTIPLE SPEAKERS)?

It's in Other Other.

Okay.

As regards to weather impact, we did have some weather impact, Travis, but it was not materially enough to really (indiscernible) really offset the other cost reductions or cost containment.

Really, we were able to repair that without showing a big -- a major increase.

Great.

In terms of getting back to the access line question -- and great job on stemming the flow there.

Do you have more of a fourth-quarter seasonality relative to a lot of other companies and industries that have the second-quarter seasonality because you have a lot of the northern properties, or do you notice much seasonality in access lines at all (indiscernible)?

Yes, we have seasonality.

I really can't comment relative to peers;

I haven't looked at that.

If you look at our fourth quarter last year, you would definitely see the seasonality.

Thanks.

Greg Gorbatenko of Loop Capital Markets.

Good morning.

It looks like some really good numbers there.

My question is around the USF.

I guess you guys said it was about 57 combined, and we've heard a lot of rumblings about changing in USF, going forward.

I just want to hear what you're hearing at your level and kind of what you're seeing.

Also, you spoke to acquisitions, and I know you can't say anything like, you know, we're looking at Qwest or phone lines or anything like that, but maybe you could just talk about was there something you're working on and whether you might even consider getting in the wireless MVNO (ph) business, since everyone and their brother seems to be getting into it lately?

I will take the USF (ph) question.

In our view -- our view is that USF (ph) is very important and we will continue to get support from legislators and regulators on that effort.

There is a lot of activity, as you know.

In particular, there is (indiscernible) going on right now in Denver, which is the kind of joint state set -- board meeting; there are some hearings going on today around EPC (ph).

We think the good news out of that one is that, given the joint board has that, once they make a recommendation back to the FCC, I believe there is a one-year timeframe, so the FCC will be forced to make some decision there within one year.

We are very involved in what Senator Burns is doing for this hearing; we're hoping some legislation will move forward there.

We are supporting and promoting that the USF (ph) fun be broadened, both with types of revenue and the number of players in there.

Regarding the M&A activity, there's nothing imminent on our acquisitions.

We are all the time looking and talking with folks and looking for opportunities, but nothing imminent there today.

Also, on the wireless side, we're not really interested in really going out and acquiring any type of wireless assets.

Over time, we do expect, as part of our product offering, bundle offering to offer a wireless alternative probably through resale or carve out some type of wireless technology there to offer customers, but there's nothing that we are really (indiscernible) as acquisitions are concerned (inaudible).

Thanks, guys.

Again, good numbers.

Adam Quinton of Merrill Lynch.

I've got two questions.

First, I wonder if you could give us sort of a regulatory update of issues at the moment, what rate cases are pending and what is there on the horizon that we might be mindful of that could impact you in the next couple of quarters?

Then secondly, a more general one -- through the second quarter, a number of companies have commented on their thoughts about bundling video with telephony services, given, obviously, what SBC (ph) did with Dish and generally a bit more concern, obviously more true of some of the bigger telcos than the rural guys like yourself -- but given there's a bit more concern about cable competition -- so I'd be interested to hear what you're thoughts are on video.

I know you've looked at some of the technologies and have commented in the past that it's all about the price of the technology, but again, (indiscernible ) appreciate it.

Thanks.

I will talk about the video and ask Karen to talk on the regulatory question.

On the video side, we are looking at a lot of alternatives there.

We think that broadband video is important over time.

We have looked at EDS (ph) opportunities.

What's interesting there on the SBC (ph) deal is that they are allowing, the first time it looks like, for the telco -- SBC (ph) in this case -- to brand and (indiscernible) the customer, and that's a big step for the DBS (ph) companies in that direction, so that makes it more interesting.

We also continue to look at the technologies and what's feasible and not feasible with the DDSL (ph) type technologies (indiscernible) home it's prohibitive in cost, so that won't be happening anytime soon, but we are looking at that really on a real-time basis with our planning group and looking for the right mix (indiscernible) the last mile is still difficult -- in providing the video offerings.

So, it's something we're very interested in, looking at it closely, but we have no plans to date for major investments there.

In terms of rate cases, just to remind you, we did get the Wisconsin rate case results quarter four of '02, and so we're still benefiting that with a $10 million rate case.

I believe this quarter, we benefited about 1.5 million from that.

The key rate case we have going on right now is in Arkansas, and we're looking for a resolution mid-quarter -- well, it would be first quarter 2004.

Thank you.

We have time for one more question.

Tom Seitz of Lehman Brothers.

Most of mine have been answered, but real quickly, Stewart, you mentioned that LD margins -- which were really nice compared to the peers -- may come down a little bit in the second half.

Can you comment as to sort of the magnitude there and whether we will see a continued step down over time as you increase the penetration, or whether it will be kind of a one-time step down?

Tom, it's really some of the new plans that we're selling that give the customers a benefit of a little bit lower rates and then also some of the bed debt associated with long distance that we would expect to bring the margins down a little bit (sic).

But we're not talking about a significant move in the margins, just slightly down.

Thank you.

Mr. Post, that was our final question.

Do you have any closing comments you would like to finish with, sir?

Thank you.

Our financial results for the second quarter and the first half of 2003 are strong and we believe reaffirm our decision to reposition CenturyTel (inaudible) pure play (indiscernible) rural exchange carrier.

We are pleased with our second-quarter topline revenue growth, with our increasing cash flows and the strong earnings for the quarter (inaudible) we believe is a very difficult environment and a changing industry landscape obviously.

Our focus on providing our customers additional products and services, including broadband solutions, continue to drive good results during the quarter.

Our employees continue to do an excellent job in controlling costs and working to drive additional efficiencies in our business.

We believe our strong and growing cash flows, coupled with our strong balance sheet, provide us the flexibility to respond timely to expansion opportunities, should they arise in the months ahead, and we continually seek those opportunities.

We have several analysts conferences scheduled for this quarter, first at San Francisco on Tuesday, August 12.

We will hold our annual West Coast analyst conference.

Then New York on Tuesday, September 16th, we will host our annual East Coast conference.

We hope will be getting (indiscernible) information.

If you have not received information from that, you can contact Tony Davis and he can provide you the details of those conferences.

I hope you can join us at one of those meetings.

Thank you for participating in our call today.

We appreciate your interest in CenturyTel and look forward to speaking with you in the weeks and months ahead.

Thank you, ladies and gentlemen.

This does conclude CenturyTel's second-quarter year 2003 earnings release conference call.

Thank you for your participation. (CONFERENCE CALL CONCLUDED)