Lumen Technologies Inc (LUMN) 2003 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the CenturyTel Fourth Quarter 2003 Earnings 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.

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

Sir, the floor is yours.

Thank you, Rados (ph.).

Good day everyone and welcome to our call today to discuss CenturyTel’s fourth quarter 2003 earnings results released earlier this morning.

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

We have reconciled these measures to GAAP figures in 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 on our call today is Stewart Ewing, CenturyTel's Executive Vice President and Chief Financial Officer.

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

We will be making certain forward-looking statements today, particularly as they pertain to guidance for first quarter and full year 2004 and other outlooks in our business.

Please review our Safe Harbor language found in our press release and in our SEC 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 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 January 29, 2004, and should be considered valid only as of January 29, 2004, regardless of the date listened to or reviewed.

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

Glen.

Thanks you Tony.

I appreciate joining our conference call today as we review CenturyTel's fourth quarter 2003 financial results, we will also briefly discuss our first quarter and full year 2004 guidance as outlined in our earnings release issued earlier today.

CenturyTel continued to achieve solid financial results in the fourth quarter with results meeting our guidance provided during our third quarter earnings call and also in line with consensus earnings per share estimates.

Our financial performance for the quarter versus the same quarter a year-ago was driven by several items.

First of all, growth in vertical services, intrastate revenues, and increased intrastate minutes of use, which more than offset the impact of access line losses and lower toll revenues, i.e. in our telephone properties.

Also, continued growth in our long distance, Internet services revenues have got top line growth, we had increased fiber transport revenues resulting primarily from the acquisition of regional fiber assets during the year and finally we experienced lower interest expense.

Revenues excluding nonrecurring items increased 3.2% to $604.8m for the quarter.

Operating cash flow for the quarter excluding nonrecurring items increased to $311m.

CenturyTel’s earnings per share for the third quarter -- for the fourth quarter of 2003, excluding nonrecurring items, was 61 cents per share, in line with First Call consensus estimate.

We added more than 24,500 long distance customers during the quarter.

As on year-end 2003, CenturyTel provided long distance services to nearly 770,000 customers, which represented 42.4% penetration of our total access lines.

We also added 7,100 DSL subscribers during the quarter reflecting the continued customer demand for high-speed Internet service in our markets.

As of year-end 2003, we now serve more than 83,400 DSL customers representing 58% growth since year-end 2002.

CenturyTel’s Internet business excluding DSL and dial-up customers was operating income positive -- or including DSL and dial-up Internet customers was operating income positive in 2003 as we continued to gain scale in our DSL business.

We also continued to experience strong free cash flow generation during the quarter.

Excluding nonrecurring items, free cash flow for the fourth quarter was nearly $87m, while total capital expenditures for the quarter were approximately $121m.

This brought our free cash flow generation for full year 2003 to more than $438m, a record year for CenturyTel.

Overall, we increased our financial strength and achieved solid operating results, especially considering continued difficult industry environment in which we operate.

2004 will be a challenging year from a revenue perspective, as we expect intrastate total revenues to continue to decline, we expect lower cost study adjustments during the year, universal service revenue is expected to be lower due to new industry cost factors, and continued access line losses are expected in the 1-2% range in the coming year.

On the positive side, we expect good growth in enhanced calling services and in DSL revenues, and to expand our bundle service offerings and we expect good revenue growth in our regional fiber network business as we continue to catch some more traffic from wireless carriers and long distance providers in our regions as well as reducing our own transport cost.

At this time, I will ask Stewart Ewing, CenturyTel's Chief Financial Officer, to provide additional detail on our results for the quarter and update you on our financial guidance for the first quarter and full year 2004.

Stewart?

Thank you, Glen.

During the next few minutes I will provide highlights of our Telephone Operations results and the results of our Other Operations.

I will also briefly discuss our capital structure and liquidity and conclude my remarks with a brief discussion of the guidance provided in our earnings release.

In our Telephone Operations, telephone revenues grew six-tenth of a percent to $522.7m in the quarter.

Increase in enhanced calling feature revenues, interstate revenues, and intrastate minutes of use were sequentially offset by decreases in universal service fund revenues, lower toll revenues and access line losses.

The internal revenue growth rise in our Telephone segment was three-tenth of a percent during the quarter.

On a consolidated basis including our Other Operations segment, our internal growth rate for revenue was 1.7% during the quarter.

We believe that continued product substitution, competition in selected markets, and the economic environment in our service areas continued to impact our revenue growth.

Data revenue growth, including our Internet business, was 12%; excluding Internet, data revenue growth was 13%.

CenturyTel ended the quarter with 2,376,118 total access lines and more than 2,674,000 voice grade equivalents.

We have experienced the loss of approximately 18,500 access lines during the quarter, which is down from 23,180 in the fourth quarter of ’02.

For the full year, we experienced the decline of about 38,400 access lines, which is about a 1.6% decline, which is in line with the 1-2% line loss guidance that we’ve previously provided.

Our operating cash flow for CenturyTel’s Telephone Operations, excluding nonrecurring items, was $289.1m in the fourth quarter of 2003.

We believe the next 12 months will remain challenging in terms of access line growth as we anticipate line losses of 1-2% for 2004 as well.

Our Telephone cash flow margin, excluding nonrecurring items, was 55.3%, compared with 55.8% in the fourth quarter 2002.

Telephone revenues for fourth quarter were in the low end of our guidance, primarily due to lower than anticipated prior period revenue adjustments while telephone expenses were lower than expected, primarily due to continued cost containment.

Operating income, excluding nonrecurring items, for our wireline operations was $175.5m for the fourth quarter of 2003.

Our telephone operating income margin, excluding nonrecurring items, was 33.6% compared with 34.0% in the fourth quarter of 2002.

Now turning to our Other Operations, Other Operations’ revenues, which include long distance, internet, fiber transport, and our CLEC operations, increased 23.6% to $82.1m in the quarter.

Our operating cash flow for Other Operations increased a little less than 17% to $22.3m from $19.1m in the fourth quarter of '02.

Operating income for Other Operations increased $16.8m -- increased to $16.9m rather, from $14.2m in the fourth quarter of last year, primarily due to improved profitability in our long distance operations and continued growth in our DSL customers.

Our long distance revenue increased to $42.9m.

Long distance operating income was $11.2m for the quarter compared to $9.6m in the fourth quarter of 2002, a 16.3% increase.

We added more than 24,500 long distance customers during the fourth quarter, bringing the total long distance customer serve to nearly 770,000 at year-end.

Our long-distance customer penetration in our local exchanges as a percentage of total access lines reached 32.4% at year-end 2003 versus 26.5% at the end of 2002.

Internet revenues, which includes both dial-up and DSL, increased 31.6% to $21.6m for the quarter as we added more than 7,100 DSL customers during the quarter.

We ended 2003 with nearly 83,500 DSL subscribers or about -- a penetration rare of about 5.6% of the total DSL enabled lines.

Fiber transport revenues increased $7.4m primarily due to the fiber asset acquisition from Digital Teleport, Inc. in June of this year, which is now operated as LightCore.

From a liquidity standpoint, CenturyTel is very strong.

As Glen mentioned earlier, CenturyTel continues to drive strong free cash flow from our business generating more than $438m in free cash flow for full year 2003.

This represents $102m or a 30% increase over the free cash flow generated in 2002.

The strong free cash flow drivers are primarily the continued top line revenue growth in a difficult industry environment, excellent cost containment by our employees, the contribution of the Alabama and Missouri wireline properties acquired in the third quarter 2002, and lower capital expenditures during 2003 as compared with 2002.

As of the end of the year, CenturyTel's debt-to-equity ratio was 0.91 to 1 and our net debt to EBITDA for the year -- net debt at the end of the year to EBITDA during the year was 2.4 times.

At year-end 2003, our -- we had nothing drawn in our revolver and we had a little bit over $200m of cash on the balance sheet.

So, we’ve continued to strengthen our financial position during the year through debt reduction of more than $467m, which is about a 13% decline over the end of 2002, and an increase of nearly $200m in our cash position which provides us excellent liquidity and flexibility to support our business strategies.

Finally, I’d like briefly discuss the 2004 guidance provided in our fourth quarter 2003 earnings release.

As we said in prior earnings calls, due to Reg G implemented by the SEC in March of '03 relating to the reporting of non-GAAP financial measures, we no longer provide EBITDA or operating cash flow guidance on a quarterly basis.

As you saw in our press release, we provided revenue and fully diluted earnings per share guidance for first quarter of 2004 and diluted earnings per share guidance for the full year of 2004.

As always, our guidance excludes nonrecurring items.

For the first quarter of 2004, we anticipate total revenues to be in the range of $585-600m.

We also expect fully diluted earnings per share to be in the range of 49-53 cents for first quarter of '04.

To reconcile fourth quarter results to first quarter guidance, the majority of the decline is due to expected lower cost study adjustments and lower universal services funding due to an increase in the nationwide average cost per loop.

Now, the decline in universal service has nothing to do with the ETC status that some of the wireless carriers are receiving.

This is basically just a decline due to a change in the amounts that are used in the formulas to calculate our universal service.

Additionally, we expect the increase in the effective income tax rate of 38.5% to impact earnings approximately 2 cents per share in the first quarter.

For full year 2004, we expect diluted earnings per share to be in the range of $2.05-2.20 cents per share.

When comparing our 2003 results to our 2004 guidance, the primary drivers of the year-over-year reduction are as follows; an anticipated decline in telephone revenues due to continued declines in intrastate phone usage which is averaged about $1m a quarter decline over the last year, approximately $12m of lower cost study adjustments due to the timing of cost study settlements and also decline in investment levels, approximately $8.5m of lower universal service funding as a result of an increase in the nationwide average cost per local loop, and additionally continued access line declines, which are partially offset by increases in interstate access revenues and enhanced calling services.

We do expect to reflect higher revenues in 2004 related to the acquisition and expansion of the fiber networks we acquired in 2003 as well as continued growth in long distance and internet.

Also, as I mentioned during our conference call last quarter, the continued conversion and operating cost and amortization expense related to the new billing and customer care system will result in total of approximately $10-15m of additional amortization and duplicate cost during 2004.

We also expect, as I mentioned earlier, our effective tax rate to increase to about 38.5% during 2004.

This is primarily caused by the fact that we’ve recognized the benefit of most of our state income loss carry-forwards for financial reporting purposes and additionally, state tax law changes.

This concludes our prepared remarks; we'll now open the call for a few questions.

Thank you.

Ladies and gentlemen, the floor is now open for questions.

If you have any questions or comments, please press the numbers "1" followed by "4" on your touchtone phone at this time.

Pressing "1" "4" the second time will remove you from the queue should your question already been answered.

Lastly, we do ask while posing your question that you please pick up your handset if listening on speakerphone for optimum sound quality.

Please hold while we poll for questions.

Thank you, our first question is coming from Jeannette Baez with Morgan Stanley.

Your line is live.

Thank you very much.

Two questions if I may.

First, on free cash flow utilization, how does the current '04 outlook like you think about using your cash going forward to make M&A more attractive from a growth perspective and given where the stock price is, how are you thinking about potentially buying back your stock?

And second, if you could just walk us through a little bit on the USF impact and the dynamics between where the national average cost per loop went versus where you are currently are and why the differential there?

Thanks.

Hey, Jeannette, this is Glen.

First of all, the free cash flow utilization, and the amount of it does position us well to look at acquisition opportunities, obviously, with the stock price where it is today, it just enhances our need to look at the possibility of stock buybacks, but that will be a Board decision.

But, you know, the real positive here is that it gives a lot of flexibility with cash on the balance sheet -- $200m cash in the balance sheet plus the expected free cash flow generation, it gives us the flexibility to make some -- to make investments, we believe in a shareholder value or -- of course, increase the dividend or stock buyback.

So, it’s -- those are good opportunities and good alternatives to have.

Steve, do you want to talk about the --

Yes, Jeannette, in terms of the low universal service funding that we expect to receive in 2004, which is about $8.5m reduction from what we received in 2003, it's a result of the nationwide average cost per loop going from $271 per loop to $282 and, you know, I don’t know what our cost per loop is, it varies on a company-by-company or study area by study area basis, but, obviously, our costs are not increasing as fast as the nationwide average cost and therefore the amount of universal services that we are able to draw will decline somewhat, but again, this has nothing to do with the wireless carriers getting ETC status.

And any reasons why your cost bases aren’t going versus the national average?

Jeannette, I think we’ve just, you know, we've done a good job over the years, I think, over the last 10 years or so investing in our plant and, you know, getting our network in good shape and as a result, we have been able to decrease our capital expenditures somewhat.

Jeannette, Puckett.

This particular trip was driven by some adjustments that USAC made; there was a company and that was doing not [well], they were taken out, so that impacted -- their real line were -- their lines were taken out of the count which impacted the calculation and then dollar was seemed [inaudible] and so, that impacted.

And so it was really the factor of those two events that drove this adjustment for all of the national carrier loop subscribers.

The other reason that our costs wouldn't be increasing would just be the fact that we've been very diligent in terms of maintaining our expense control.

Great, thank you.

Thank you.

Our next question is coming from Frank Louthan with Raymond James.

Please pose your question, sir.

Good afternoon.

It's actually Ben Gordon for Frank.

Could you talk about MOUs and what you're seeing in terms of wireless substitution?

And can you quantify MOU growth this quarter versus the third quarter, and what you expect in 2004?

And also does your guidance include any impact from the rate case in Arkansas?

Thanks.

Ben, on minutes of use growth -- the growth was -- we had slight growth in overall minutes of use, interstate was down, and intrastate was up somewhat about -- little less than 1% total minutes of use growth fourth quarter to fourth quarter.

I don't have the third quarter -- we were up, the growth was a little higher than that in the third quarter.

So, we saw less growth in the fourth quarter than in the third quarter.

Little bit seasonality.

And in terms of the Arkansas rate case, it is built into the guidance, and it was a little over $3m.

Great.

Thanks.

And on the competitive front, are you seeing any more significant competitive pressures from cable or VoIP, especially in the Missouri property?

Thanks.

Ben, we are not seeing anymore -- any greater competitive pressures today.

We expect the competition to increase, but for the last quarter or so it's been pretty steady and we've really stabilized the loss of lines in Missouri that we had initially when we first bought those properties and we are -- overall it has stayed pretty constant.

Great thanks.

Thank you our next question is coming from Saul Patio (ph.) with SM Investors.

Sir, please pose your question.

Elaborate a little further on -- just referring to the lower cost study -- lower revenues, I think, it was $12m as the cost study, can you elaborate?

And then DSLs -- what percent of lines of your lines are now enabled or what [inaudible] lines will be able to be enabled?

And is there any development in terms of technology in that area to allow more rather rollout?

[Saul] the 12m you are talking about on the reduction for '04?

Right.

Yeah, we’re just -- [Saul], the cost -- we had an exceptionally higher year in '03 for our cost study true ups, and just based on returns we book at and investments and the cost for the -- they have gone through the phones to the [inaudible].

We don't expect those to be as high next year because we're having -- Stewart do you want to -- they are just going down because we have -- we expect this to be a more normal year, this coming year, we had an exceptionally high year, we had a couple of studies -- special studies that came through we [could] this year and as we said in the previous quarters, they were higher during the year than we had expected.

Yeah and some of -- a couple of the entities that file with NECA what we call [inaudible] basically had filed settlements in 2003 and they won't settle on a final basis again until 2005.

So that increased revenue a little bit this year over what we expect next year.

Okay.

Thank you our next question is coming from Tom Sykes (ph.) with Lehman Brothers, sir your line is live.

Yeah.

There is a bit of noise here in Washington about the intercarrier compensation discussions.

I believe you guys have acceded that table, I'm wondering if you could give us any insight into how those discussions are going and what the Company's position is in terms of moving to some sort of feel and keep regime?

And then a second question is DSL growth was a bit wider than I had built into my model, will you look at price lowerings to drive that growth again going forward?

Thanks.

This is Karen Puckett, I'll take the first question on the activity that is happening in Washington, there are two main groups, the intercarrier comp forum with which we have acceded the table and then USTA has a group looking at intercarrier compensation, which we already have acceded the table.

Our objective is to continue to have a leadership role in both of those forums.

Our objective as an industry is to hopefully work through some solution in the next 6-9-10 months here.

We do believe that the FCC will come out with proposed rulemaking and we don't want to leave out [seats] in the hand of the [commissionary].

I really can't show why or what's happening there, some cases we've have signed confidentiality agreements.

I would say that from a world perspective, you know, we certainly are carrying that voice.

We want to ensure that rural infrastructure investment is continued to be made that our customers -- rates are reasonable and don't have huge impacts.

But I think the key thing is the transition period that is important from a transition standpoint -- 3-5 years, hopefully on the 5-year side, get visibility in your business model and then go from there once this thing is decided, but it is probably the most significant thing that is happening right now.

We are probably 12-24 months out and I would think like 24 months out of this thing, even getting results and then from there you would have a transition period.

So, you are really talking about 2010-2011 timeframe.

On DSL, the gross adds were the second highest gross adds for fourth quarter of the year.

We did have extreme activity in the third quarter; we had some things that drove a lot of campaign activity early on that we didn't have in fourth quarter.

We are -- we have tier pricing in six states as of the end of December, and we are about 61% out there in terms of tier pricing right now.

We are just now starting to campaign, so the exposure to the market is getting out there.

We are rolling the rest of our markets here in the first of February.

One quick follow-up if I may.

What you are doing in terms of bundling?

We also [inaudible] DSL offer in a bundle.

It's typically depending on what size of pipe you had you get $5 off that.

But those are well in and are lowering entry points for both tier DSL in the bundle at 34.95.

So there is no difference in the bundle.

You just get a larger pipe and you integrate a bundle.

Thanks.

Tom let me add to that we have -- as we have kept at prices at higher than what industry has been because we did not have a competition in most of our areas.

We've been at 49.95.

And almost [inaudible] company, we have a few exceptions in a couple of markets and so with the tier price, we'll stop bringing that pricing down and hope to see enhanced, increased customer gains.

Great.

Thanks.

Thanks.

Your question is coming from Michael Balhoff with Legg Mason.

Sir, your line is live.

A couple of questions.

First of all, could you give us a better sense what's going on with the excess line losses, it appears that they have been stabilized in recent quarters, and the 18,000 was quite a bit higher than I expected, so, if there is any color there?

And secondly, if you could talk a bit more about, what's happening with the long distance volumes, I assume that they have been contracting to some extent, so has that begun to accelerate, and what's happening on the network side please?

Yeah.

Michael, the actual side loss is you know, typically the fourth quarter seems to be sort of seasonal for us, since we started losing excess volumes.

It is the highest quarter that we have experienced during a year.

Of course this fourth quarter was down somewhat from last fourth quarter.

We believe just based on the information we get from the customer service centers that most of the access line losses during the quarter were due to seasonality, a lot of vacation homes and folks who disconnect during the winter, and hopefully will reconnect in the spring.

But our wireless and cable modem substitution, we think we lost maybe a 1000 access lines or so to that.

Other competitive losses in the form of UNI's reported numbers was a little less than a 1,000, just in total substitution due to DSL growth, which probably was about a 1,000 as well, and then just non-pay disconnects and other economy-related reasons probably made to 4,500 or so.

Mike, on our long distance volumes, we had good customer growth in the year, we have seen -- had [inaudible] low pricing, which has impacted our ARPU somewhat.

Also with the low price offerings at [Domain C] and others, we think we've had some of our high usage customers their usage has been down somewhat totaling down, little -- the customer feels good, but the usage is not [high] as we would expect, but we have plans in place, we think we can be very competitive [inaudible] expect to begin expanding our integrated bundle as we’ll be offering more of the fixed price long distance in the months ahead.

If you turn back to what Karen was talking about as far as the high cost loop front, my calculations are that slightly more than 50% of your Federal or universal service volumes received in the high cost loop fund and that discounts for slippage that was about 5% of the total.

Can we expect that kind of thing going forward or is it simply the value that [inaudible] vexing some adjustments that have created something as unusual at this point.

You know what, we think it's unique in terms of the two events that caused that adjustment.

And I guess my final question is that investors that I've talked to this morning, they are concerned up to this point in time that there would be regulatory issues that might move against you but for the most part they felt that the fundamentals would be relatively stable and the adjustment are obviously from expectations down to the 205-220 range make people wonder if may be their fundamentals are soft or -- could you comment on that?

We feel there are some quite a lot of changes as far as the total, I guess, the total amount of revenue from the -- that were received from USF, we were seeing the loss of minutes of use on our total revenue on the [business] side, but certainly it's no different than any other carrier in our industry had experienced.

So I think what we're seeing is pretty normal, what we are seeing across with other companies are just, I think, it's -- we have a couple of items we are hitting, especially us with the long distance, so the total networks in our Telco operations, where we are seeing move over to wireless and to new wire -- new long distance plans that are cheaper and that's the unique thing about the total revenue piece is that not all companies have a intrastate total networks like we have in several states.

So that's the unique item here.

I don't see a major change in the fundamentals as they have been -- there are some issues on the regulatory side in the industry that are being resolved overtime.

But we feel good than we can -- we don't see any positive movement, more visibility on the regulatory side and we feel good about the minutes subscribed, revenues strength from enhanced services, from our fiber networks as we move -- as we see minutes of use move off the telephone network.

We think we are well positioned in our regional fiber networks to take up a lot of those minutes and drive revenue streams as those minutes move over to other networks we will be capturing a lot of those we believe.

So, we think there is some upside there and the fundamentals have changed some, but they are not major changes.

Thank you.

The other things is that the long distance network revenue is going to stabilize at some point to note, because it is about $12m a quarter now.

So, as it continues to decline and we are projecting $1m decline per quarter like we've experienced this year, that it will be $7m, of course, by the end of year of '04.

So at some point we would hope that would stabilize and some of those minutes would -- the minutes that would migrate to wireless will have already migrated and would stabilize at some point in time.

Thank you very much.

Thank you, our next question is coming from Cannon Carr with CIBC World Markets.

Please pose your question.

Hi everyone, most of my questions have been answered now, but just picking up just sort of couple on this last point.

Stewart, how far in that migration process is there any way to tell in that migration of minutes to wireless and when can fiber really start having an impact to help offset that, and what's kind of the implied minutes of usage change in '04?

Oh Jesus, I don't really have the implied minutes of use change for that $1m a quarter, Cannon, we can probably get that, but --

That's fine, but any -- I mean, you were talking about trying to define their level of stability there and obviously it's a point -- fiber, I guess is the key point of that, you know, any just sense of the dynamics of when -- how far through that process you are in?

I mean that that particular line of item was declined significantly over the last 4-5 years or so.

It really has.

So, you really [inaudible], I thought you were talking about that stabilizing towards the end of hopefully this year?

And we would hope.

You know, we don't know as it gets to a lower level, it should stabilize.

Okay.

And then just on the USF side, any comments or thoughts on the [ECC] proceedings and what you might be able to expect there, I think as far when there might be the decision?

Cannon, [inaudible] that will be another year before we have any -- we think we'll have any firm math about that.

We are seeing movement.

There is certainly concern being [inaudible] FCC with the Congress, I think that we will see some stabilization there and decision by year-end, it is my view.

Yeah I think the joint board probably will make their recommendation by the end of first quarter and than obviously the FCC guys -- 12 months to roll, but like Glen said, we're hoping year-end kind of finality to do that thing.

One of the [inaudible] I think that saw the other day stepped up and basically put more stringent requirements on a wireless company, deem to be an ETC based on service quality, although Louisiana denied a petition here in Louisiana for the wireless carrier.

Right Stewart, but I think, that’s Virginia ruling is definitely a first step of signal that the commissioner is standing at least from a service quality standpoint.

If you got to be an ETC that you need certain qualifications and we do, and we have same carriers one state that's stepped up to that pull out.

Okay great.

Thanks.

Thank you.

Our next question is coming from Wayne Kline (ph.) with AIG.

Please pose your question.

Thank you, just a couple of quick things.

I believe that when you are going through the expense adjustments for 2004, you mentioned there will be about $10-15m of amortization expense in 2004, I assume that's non-cash?

Actually it's a combination of amortization expense as well as cash expenses associated with conversion.

The amortization piece -- that will probably be around $4m or so -- $3-4m.

Okay.

And the rest will be cash.

Rest will be cash.

And then just -- and in terms of CAPEX, it looks like CAPEX was down about 2% year-over-year, I am sorry if I missed any guidance you gave in terms of CAPEX.

But in terms -- directionally, do you see CAPEX kind of continuing to trend down or kind of stabilize more or less at current levels?

We would actually expect it to be pretty stable, it might actually be up slightly in 2004, our budget for 2004 is about $400m, which is about where our budget was in 2003.

So that’s where we should be in 2004.

Great.

And then just, final question, just in terms of taxes, the increase in the reported tax rate, how do you anticipate that will affect cash taxes going forward?

They will actually probably have a fairly small effect on cash taxes, I think, most of that are probably deferred.

Great.

Thanks very much.

Thank you our next question is coming from Jim Moorman with Prudential.

Good evening.

Sir, please pose your question.

Thanks Jim Moorman.

Two quick questions, one is a follow-up on long distance prices.

By my math there was about a $1-1.50 decline in the ARPU for this past quarter, was that just because what you have said before, long distance prices as part of the bundle are starting to decline?

And the second question any progress on bundling wireless services and potentially bundling out satellite?

Thanks.

will take the second question first and ask Karen to take the first one.

Jim, just a minute, we are looking at bundling of wireless.

We probably have a trial in the late second quarter and roll out in the second half of the year as our expectation, so we do expect the majority of our customers are wireless alternative is part of the bundle.

We're also talking to the big [gas] carriers and [inaudible] rolling that out mid-year also on a trial basis.

This is Karen.

In terms of the LD minutes of use, the ARPU, it is about $1.34.

Obviously, we've had customers move over to our bundle, that's had a small impact.

We've had different accounting accrual adjustments impact that about 500,000.

We also had one less billing day in the quarter that was used -- one billing day correctly equals about 0.5m and then the remaining is making our prices more competitive relative to what's out there in the marketplace to help drive more inwards to meet national carrier competition.

Okay, so we could expect most of that kind of be steady state going forward as it’s because of the bundle and everything, except for the one-time items that are [counting] accrual?

Yeah, you know, we definitely have to be competitive to keep our inward growth.

We are hoping that the marketplace is pretty much bottomed out.

We always going to have those one season, two season -- we don't always respond, but when we -- we have trouble driving our inwards first part of the quarter, we virtually had a very weak quarter.

So we lifted our campaigns and rolled out a new rate plan as well as we’re in a process of rolling out a new integrated bundle with the one price point, which we think will help tremendously in 2004.

Okay, thank you.

Thank you.

Our next question is coming from William Cook with Jefferies & Company.

Please pose your question.

Thanks.

Just a quick question on your fiber asset acquisitions that you made last year, is your guidance include any cost savings from moving traffic onto your network and also if you could quantify that possibly?

Finally, what kind of margin are you going to have in the fiber transport revenue?

Yeah, there is probably a couple of million dollars of cost savings built into our guidance associated with moving some of our traffic to the fiber networks.

And the margins in the fiber transport business are good, will [depend sometimes] the 43% margins in that business.

Thanks, just a quick follow-up, would you mind providing a little more detail on the nonrecurring items in the quarter, you did that pretty decently?

Nonrecurring items.

[Year’s] operating tax and audits?

Yeah, basically we have one state in particular where we had like 10 years that are open and I think we are getting close to a settlement with that particular state and just as the states look everywhere for revenues, you know, they tend to send more and more folks in to take a look at your sales taxes and your use taxes and that's basically what this relates to.

Okay, thanks a lot.

Thank you.

Our next question is coming from Karen Young with All State (ph.).

Please pose your question.

Hi, good morning.

Let’s see -- on the neck of the increase in the average cost per loop, I think that’s about 4%.

What it has been historically, what's the trend been historically?

I am referring to the numbers that you gave?

: Yeah, Karen, you know, I don’t know what it's been historically, but this change was driven by a couple of specific items -- I think, a couple of specific companies and Karen has really more details on that and I am now going to give her.

Yeah, I don't -- we can get back to you on what it has -- I mean, I don't think it's varied that extensively before these two essentially made that occur.

And we can get back to you, Karen, just looking at an average of change over the last couple of years.

Okay, thanks, and have you talked about CAPEX for next year?

Yes, Karen, about $400m.

Okay.

: Is our budget, which is slightly -- it’s the same that our budget was in 2003, just coincidently, but we actually spent a little less than that in 2003.

Okay, and is the reason you spent less because of the acquisition of fiber assets, is that part of it?

Not really.

I mean, we just sort of -- I mean, we really hold back some on the wireline side where we could in terms of the capital there and I guess the $400m too included some business case items that we ultimately didn't do.

Yeah, we have been benefiting from, you know, the contractors in terms of the competitive price -- the pricing has been very competitive.

Some of our routine and maintenance [inaudible] high as high given our service sort of activity because the fundamentals were down, but we still are -- our major investments are going into transport built in our fiber inter and intra exchange as well as on the access side to continue to prepare for broadband.

Okay.

The deferred income tax benefit on the cash flow of $129m for the year, could you talk about what -- how you see that over the next couple of years, should it continue at that level or increase or drop-off?

Yes, Karen, I don't know of any change.

The biggest deferred item that we have is really the amortization of the franchise cost associated with the acquisitions of Verizon and the GTE Properties and, you know, that won't turnaround unless we sell some of those properties.

So, that’s what's creating a big part of the deferred tax liability that’s, you know, that’s continuing to increase somewhat.

In terms of the investments we make in our plant, I have to take a look at that, but I think it’s pretty flat in terms of what's going on there with respect to the deferred taxes.

Okay.

And then lastly, for the year, you had a $161m benefit in cash to changes in current assets and current liabilities, should that kind of swing -- is that something that should swing negative next year via use of cash just because of timing?

I'm just looking at the cash flow statement for the year.

Karen, I think, well -- let me take a look at that and I'll get back with you.

Okay.

Thank you.

Thank you.

Our next question is coming from the line of Mario Gabelli (ph.) with Gabelli and Company.

Please pose your question, sir.

Good morning this is Tom, from Mr. Gabelli's office.

Mr. Gabelli apologizes he had to step into another meeting.

I believe I have a question from him.

Mr. Gabelli has asked if you could walk us through your thinking regarding pluses and minuses of voice-over-internet protocol with regards to universal service funds?

Hi, Tom.

First of all, there’s no change in our network as far as providing regarding universal’s -- providing voice-over-IP than any other voice service, whether it is analog or frame relay, ATM, whatever the technology might be.

So, we think there is no reason at all -- no logical reasons for us provided you are using IP technology not to pay for access to the fiber network or to the customer base.

We believe -- also believe that that's where blend up -- from a regulatory standpoint, we are in result with the SEC and with the state. [inaudible] About these issues and we believe that also they will determine that the voice-over-IP providers should play access to the network and there is no logic we believe for them not to.

It is just a cost-driven business; it is not a question really of regulation as much as the cost for them doing business.

Thank you, sir.

Our next question is coming from Tim Horan with State Street Research, please pose your question.

I think I will take my question off-line, I will talk to Tony later.

Thank you.

Okay, one more question.

Thank you.

Our final question is coming from John Hodulik with UBS, please pose your question.

Hi, this is actually Robert Hopper for John.

A couple of quick questions.

First, if you could give us a little bit more on your access line issues, where is in the fourth quarter, are you seeing any difference in trends between business and consumer access line declines than you had before?

A couple of follow-ons, one, in your numbers for next year, is there any change to pension assumptions or any sort of drag in the EPS associated with the pension?

And finally, you said in long distance, the LD revenue was down because of the ARPU.

What percent of the base -- your LD base is taking the bundle so therefore if a larger share takes the bundle, we could consume a little bit more drag on ARPU?

Thanks.

On the access line question, first off, if you just take from quarter four last year and quarter four this year, we are actually down in our losses, but clearly in terms of quarter three to quarter four, we have -- it is more than inward issue, seasonality which we experienced last year and again less loss than last year.

I think last year we lost 28,000 access lines, this year it is 18,000 this quarter.

In terms of additional lines, we did do better, however, this quarter -- quarter four than quarter three.

We worked back on our campaign.

Last quarter three we had united [in-out] ratio, we had 0.78 for second lines residential, this quarter we had a 0.91.

It clearly was in the primary end business, which we, you know, going through all the analysis in recent [inaudible] again it is the activity, seasonality of the activity.

In terms of the pension plan, the expense will be basically pretty flat with 2003.

We did make a $50m contribution at the end of the year that helps benefit in '04 and keeps our expense flat.

Regarding [inaudible] revenue, the ARPU, and the question regarding the bundle today about 5% of our customers are taking the bundle.

We expect that to grow to 10-12% next year.

We have factored in, in our outlook some declines in the ARPU based on customers going to the bundle and go to lower plans during that period of time.

Okay, just on the pension, did you make any changes to any of your assumptions?

No.

Thanks.

Other than the discount rate we did reduce the discount rate to 6% -- I think it was 6.25 -- 6.75 I am sorry, so we decreased the discount rates from 6.75% to 6%.

Thank you.

That concludes our Q&A portion for today.

At this time I will turn the floor over to Glen Post for closing remarks.

Thank you.

We are pleased that CenturyTel was able to achieve solid financial results during 2003.

We continue to see challenging issues in our industry during the coming year impacting our revenues.

We expect to drive a good growth in data services and DSL service revenue growth and have calling features as well as revenue growth of regional fiber network operations.

We also expect to expand the integrated bundle service offering for our customers during the year and continue to position our Company for growth opportunities in the months ahead.

We also expect to be able to leverage our strong cash position and road free cash flow to take advantage of opportunities to help drive shareholder value in the months ahead.

We appreciate your participation in our call today and we look forward to speaking with you in the days ahead.

Thank you, ladies and gentlemen this does conclude CenturyTel fourth quarter 2003 earnings call.

You may disconnect your phone lines at this time, and have a wonderful day.