Lumen Technologies Inc (LUMN) 2004 Q1 法說會逐字稿

Good morning ladies and gentlemen, and welcome to the CenturyTel first quarter 2004 earnings results 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.

At that time you may ask a question by pressing one four on your touch-tone phone.

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

Sir the floor is yours.

Thank you

.

Good morning everyone and welcome to our call today to discuss CenturyTel's first quarter 2004 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 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 today, particularly as they pertain to guidance for second 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 any one listening to a taped or web cast replay of this call or for any one reviewing a written transcript of today's call, please note that all information presented is current only as of April 29, 2004 and should be considered valid only as of April 29, 2004, regardless of the date listened to or review.

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

Glen?

Thank you Tony.

We appreciate you joining our conference call today as we review CenturyTel's first quarter 2004 operating performance.

CenturyTel achieved solid operating results for the first quarter.

Our revenues for the quarter are within the range of guidance provided during our fourth quarter earnings call and earnings per share of $0.58 exceeded both our guidance and the first call consensus estimate at $0.53 per share.

During our fourth quarter call, we communicated that we anticipated intrastate total revenue to continue to decline, we expected lower universal service revenue, continued access line losses in the 1% to 2% range, and higher state income taxes.

While these items did affect our operating results as expected during the first quarter, I'm pleased to report that we were still successful in driving revenue and earnings growth year-over-year.

Revenue growth is primarily driven by several factors, first of all the continued penetration of enhanced common features that contributed to our revenue growth on access line and related revenue declines were in line with our expectation.

Second, we achieved increased data revenues as a result of data circuit editions along with strong growth in DSL subscribers.

Also growth in fiber transport revenues from the fiber assets recovered in 2003 contributed to both revenue and net income during the quarter.

Additionally, our employees did a good job of containing calls resulting in lower overall expenses than originally anticipated for the quarter.

And we made excellent progress on the share repurchase program announced in February.

In less than two months, CenturyTel has acquired more than $4.9b shares of common stock for an investment over $139m, which represents completion of approximately 35% of the total authorized program.

Also into the first quarter approximately 15% of our residential access lines have served in one of our Simple Choice plans.

Simple Choice is our basic bundle, which combines local service and it shows a 19 enhanced services such as caller ID, caller waiting, as such for one price.

CenturyTel also delivered additional choice in data customers during the first quarter as we completed the roll out of tier DSL service and introduced our enhanced bundle, which combines our basic bundle Simple Choice and our key products such as long distance and DSL for one price.

One of the few early to tell the long-term success of the enhanced bundle offerings, earliest response following our first quarter roll out is encouraging as approximately 82% of our enhanced bundle customers were mute bundle customers.

So 82% were higher revenues, essentially higher revenue customer source.

We experienced excellent customer response to the tier DSL offering with addition of more than 13,600 DSL subscribers during the quarter, 90% increase over the prior quarter and by far the strongest quarterly and net additions we have achieved.

At the end of the first quarter we served more than 97,000 DSL customers.

We believe customers will continue to migrate to these one-price solutions in the month ahead.

excluding our fiber transport CLEC businesses increased a little under 1% from $79.10 or $79.60 in the first quarter compared with the first quarter last year.

If you exclude access revenue, our operating increased by about 3%.

Additionally, we added more than 30,000 on business customers during the quarter, I know this

during the quarter as of March 31, CenturyTel provided long distance service of nearly 972,000 lines or 41% penetration of total access lines.

Effective with the first quarter, we've changed our reporting on business units from our customer basis to LAN basis.

This of course is then more reflective of the method being used by other

in the industry.

We continue to achieve strong cash flows generating $148.5m free cash flow during the first quarter, excluding nonrecurring items.

So, overall we experienced a solid first quarter financially with strong performance in subscriber growth and cash flow generation.

We're continuing to negotiate with several wireless companies where the goal of delivering our customers wireless services through our enhanced bundles.

We're targeting initial roll out of our wireless offering in the fourth quarter of this year.

We are also continuing discussions with satellite

providers as a potential avenue for us to deliver video service to our customers in the month that has - as well.

As you know there has been some rumors in recent weeks regarding access lines currently on the market for sale on the market, though one of our growth strategy has always been and continues to be, to pursue strategic acquisition opportunities.

CenturyTel will be very disciplined in it's value ways of opportunities as we have been in the past.

At this time, I'll turn the call over to Stewart Ewing to provide additional detail on our results of the first quarter and to update you on financial guidance for the second quarter and full year 2004.

Stewart?

Thank you Glen.

During the next few minutes, I'll provide highlights of our results of operations for the third quarter, make a few comments regarding our capital structure and liquidity and then conclude my remarks with a brief discussion of the guidance provided in our earnings release.

As you know beginning this quarter, we are reporting our financial results as a single segment.

We've changed our presentation because of our increased focus on the integrated bundle offerings that bring in one company view to our customers and the discount structures associated with such offerings.

Under this new reporting format, I'll discuss revenue components that align with our major products and services.

However, I'll discuss operating income and operating cash flow on a consolidated basis only.

In connection with this free statement, the company has among other things eliminated certain expense related to, certain 2003 revenues arising out of previously reported inner segment transactions, which reduced operating expenses by a lakh amount and therefore had no impact on operating income.

And secondly we classify depreciation expense related to certain service subsidiaries of the company through depreciation expense from operating expenses.

Previously with multiple segment presentation, such costs were allocated to the company's regulated telephone operation as an operating expense.

Our operating revenues grew 2.7% to $593.7m, which is up from $578m reported in first quarter 2003.

Local service revenues increased from a $177m in first quarter of last year to $178.1m in first quarter 2004, this was driven primarily by increased penetration of enhanced calling features that more than offset the revenue decrease associated with access line declines.

Network access revenues were $241m versus $246.3m at first quarter 2003 due to the anticipated lower intra state toll and lower USF revenues.

revenues were $44.6m up $2m over the first quarter of 2003 due to increased minutes of use resulting from customers added, which was partially offset by decline in average rates.

Our data revenues increased 12.9% from $58.1m in first quarter of 2003 to $65.6m in first quarter of this year.

This increase was primarily driven by the DSL subscriber growth and data circuit additions during the past year.

Our fiber transport and CLEC revenues were $17.4m in the first quarter versus $5.9m in first quarter of last year.

This was driven primarily by the fiber asset acquisitions made during 2003, as well as additional customer growth since closing of acquisitions.

Our internal revenue growth rate for the first quarter was approximately 1%.

We related the lack of job growth due to the economic environment along with product substitution and competition in selected markets continue to adversely impact our revenue growth.

Our operating cash flow for the first quarter of 2004 was $310.5.

Our operating cash flow margin excluding nonrecurring items was 52.3%, compared with 53% in the first quarter of 2003.

CenturyTel's operating income excluding nonrecurring items was $183.6m in the first quarter of this year versus $179.8m in the first quarter of 2003.

Our first quarter 2004 operating income margin was 30.9%.

CenturyTel ended the quarter with a little bit more than 2,366,000 total access lines as we experienced a loss of approximately 9700 access lines during the quarter.

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

Now just a few comments regarding CenturyTel's capital structure.

From the liquidity standpoint, CenturyTel is in very good shape.

As Glen mentioned earlier, CenturyTel generated a strong $148.5m of free cash flow during the quarter, while CenturyTel invested more than a $139m during the first quarter under our share repurchase program announced in early February, we still saw an increase in our cash position as we ended the first quarter with $273m in cash and cash equivalents, which is a $70m increase since year-end 2003.

We expect to continue to use our free cash flow to execute on the share repurchase program.

CenturyTel's debt-to-equity ratio was 0.93 to 1 as of March 31 of this year and net-debt-to-annualized operating cash flow was 2.35

.

So, our continued strong cash flows provide excellent liquidity and financial flexibility that support our business strategy.

Finally, I would like to briefly discuss the 2004 guidance provided in our first quarter 2004 earnings release.

As always, our guidance excludes nonrecurring items.

For second quarter 2004, we anticipate total revenues to be in the range of $590m to $605m.

We also expect diluted earnings per share to be in the range of $0.52 to $0.56 for second quarter of 2004.

This is down from first quarter because of cost associated with the May prepayment of $100m of senior notes, seasonality in our offsite plant maintenance, and increased cost in our fiber business, all of which are partially offset by the impact of the share repurchases and an increase in revenue.

For the full year 2004, we expect diluted earnings per share to be in the range of $2.20 to $2.35.

This increase in full year 2004 diluted earnings per share guidance is primarily due to the following.

About $0.05 of it is due to stronger than expected earnings in the first quarter, about $0.08 is due to the impact of our share repurchases that were made during the first quarter, an additional $0.02 on lower expenses for 2004 than we previously anticipated.

This concludes our prepared remarks.

We will 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 one, followed by four on your touch-tone phone at this time.

Pressing one for a second time, will remove you from the queue, should your question already be 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 Richard Klugman.

Please state your affiliation.

Then post your question.

It is with Jefferies.

Nice quarter.

I'm glad, we assumed you guys would do better than the previous guidance and you did.

I still think, you are probably going to do better than the numbers you just gave but that is besides -- I wanted to ask if I could you gave a little bit in the beginning Glen, on being disciplined on acquisitions.

I wondered if you could given where your multiples are on EBITDA and per line and given that you are doing a substantial amount of share buybacks, would we -- can we assume that buyback statement about being disciplined that you would not look to purchase any assets that are substantially multiples ahead of where your stock is right now since effectively -- you can buyback yourself so much cheaper?

Rick, first of all pleased to make you confident.

Secondly, regarding our acquisition strategy, we expect as I said remain very disciplined.

Obviously the multiples of cash flow compared to our multiple is very important to us.

There are a lot of issues involved in acquisition including the quality, the cash flows, the demographics, investments required to upgrade the properties to the level of quality service that we expect.

So, lot of factors there.

But, absolutely the multiples that we were paying compared

anything we look at.

So, it is part of that disciplined approach that we take.

Right, great.

Thanks.

And if I could Stewart, you mentioned there was lower

support in the quarter.

Can you quantify that and perhaps what the expectations are in the year?

Well, we had indicated I think in our last call that we expected USF to be about $8.5m lower than in '04 than was in '03 due to the increase in the

average calls per local loop and we are pretty much on track for that $8.5m.

And what was it in the quarter?

I guess a little over $2m.

Okay, and then also with the restatements you just gave, can we expect that you are going to kind of give us a quarterly breakout so we can see the trends on the new reporting method?

Yes.

In fact as part of this, we restated all of the quarters and that would be -- it's in the release, as provided as part of the release.

Oh, I saw the annual, I didn't see the historical quarterly.

There is a restatement for each quarter in 2003.

Okay, terrific.

Thank you very much.

Nice quarter.

Thank you.

Our next question is coming from Michael Balhoff.

Please state your affiliation and pose your question.

I'm from Legg Mason.

It's following up on Rick's question though.

First of all, congratulations.

As far as the access line goes, let me clarify Stewart.

You were saying that the step down in the quarter was about $2m consistent with what you had indicated for high-cost loop.

Is that correct?

That's correct Mike.

And you are indicating pressure on the intrastate side as far as access rates go.

Is there any way you can give us some sort of detail or some sort of sense of what's happening with the intrastate, interstate and universal service?

I don't believe there is any other pressure as far as universal service except for that step down on high-cost loop.

That's right.

That's the only pressure on the universal service.

On the intrastate long distance, it's really the same pressure that we talked about in our last quarter conference call where we said that we expected about a $16m decline in intrastate revenue during 2004 and during the first quarter, we were on track basically for that $16m decline compared with last year.

Okay.

Yes, that's basically just declines we think associated with customers transitioning those minutes basically to wireless probably.

And can you give us what was your federal and state universal service in the quarter, please?

Yes.

The federal universal service was $47.8m and the intrastate universal service was just over $9m.

Okay.

Looking at your fiber operations, obviously that's a real growth even if we look at it sequentially.

Can you give us a sense of what was actually the comparison that came from DTI or LightCore year over year and is the real growth primarily coming from the Licore operations?

This is Karen.

We have it integrated from a financial perspective and really from a business perspective too, Mike.

We've realigned our distribution around wholesale IXC and enterprise and in terms of organic growth, when we look at our comparison we've got about 27% increase in just the organic growth, set aside the acquisition.

So, we feel good about where that's trending.

And then on the enterprise side, which is really our old CLEC operations, we had about a 19% increase in organic growth.

So, in both sides we feel good about that and leveraging those two groups and focusing more from a customer segment, wholesale IXC and enterprise is helping us get through or get traction off new growth in the LightCore side is through the wholesale, the wireless aggregation that we've had success with.

Okay.

One final question then, I'll go back into the queue, and that's access line loss.

Obviously, you are indicating 1% to 2% contraction.

Can you give us any sort of sense on substitution or signs of improvement you are seeing out there or do we continue to have pressure throughout the year that is consistent with what we've seen?

I think the way I would frame that, Mike, would be the

are down in terms of this as a total business.

The issue is demand and then specifically on primary lines.

I mean for a primary line from a demand perspective and sequentially quarter-over-quarter we're down about 19%, and year-over-year more in the 30% range.

And outs, we have improved our outs, we've improved the outs,

the quarter-over-quarter is about 20% and 23% year-over-year improvement.

So, it really is a demand issue and the demand issue is on the residential side.

Business for most part is flat, it really is a primary, and the second line side we've been pretty successful with campaigns and driving that and integrating that with a Dow package.

Thank you.

That is very helpful.

Thank you.

Our next question is coming from David Barden.

Please state your affiliation and pose your question sir.

Banc of America.

Thanks guys.

Just, maybe, two questions.

One was just going back to the guidance, I guess Glen on the EPS side, or maybe Stewart actually, was that guidance -- it basically did not factor in any further buybacks under the existing plan.

I think it's what I heard, so obviously I don't think it's your intention to guide to no more buybacks for the rest of the year, so maybe you can kind of just talk to us a little about whether we could anticipate that you are looking to get the entire buyback done through the balance of the year or, you know, you guys said you are being disciplined, but is there any timeframe for executing this, so we can kind of match up the guidance with what really was -- is likely to happen on the share counts.

And then, the second thing is just maybe a bigger picture, I think a lot of us saw this quarter Alaska Telecom and the stock price reaction, that company had -- the recapitalization that they are undergoing using these new securities, which are very high-yield in orientation.

Can I get your comments both theoretical, what you think about these securities and we -- how they may or may not be relevant to CenturyTel as a way to create shareholder value.

Thanks a lot.

In terms of the -- David, in terms of the EPS guidance you are correct and that we did not anticipate that we would repurchase any additional shares in the guidance that we just gave.

In terms of executing on the repurchase program for the remainder of the year, I think we'll be disciplined on that, but if the stock price stays in the range that it is in, I mean we would expect to continue to repurchase shares, but not knowing how many we would repurchase, we didn't field anything into the guidance other than what we had already done.

Now we've completed about 35% other than the target, and we

difficult to do.

With your second question, regarding IDS Securities.

There are several interesting transactions, and we are seeing some of that take place, a lot of risk we believe out there for this.

And we are concerned about maintaining our credit ratings, our investment grade credit ratings and must add more.

So,

but we are really concerned about, -- we think it is important to maintain financial flexibility in today's environment.

So, these are certainly interesting securities, but do not expect us to be going that route.

Okay great.

Thanks

Your next question is coming from Sabra

, please announce your affiliation and then pose your question.

Thank you.

You just answered my question.

Our next question is coming from Frank Louthan, please announce your affiliation and then pose your question.

Good morning.

Raymond James.

On your fiber assets at some point I understand this can begin to help margins, you can put some more, take some traffic out as you run off some contracts, I presume if you are on traffic on that, when do you expect to see that, has that changed any and will we see any of that this year?

And then a question for Karen, if you can comment a little bit on the profitability on DSL obviously seeing some strong adds, is that being driven -- is that one, what is the profitability?

And two, what are you seeing the trends in cost per add and the churn dynamics in the DSL business?

Thanks.

Frank, regarding the internal savings with the DPI or LightCore, fiber assets, I think we have about $2m of savings this year in our outlook -- depends on -- as these contracts come up are ended that we'll be able to realize those savings, and we'll continue to realize those over the next couple of years.

Yes, we continue to make good progress on grooming our circuits and

what we can put on our LightCore in terms of just our business plan, we are ahead of schedule there and were are feeling good about ourselves as apposed to third party.

So, that is in progress and that is an aggressive schedule that we have and we are hitting it.

In terms of DSL, your question was around profitability, I don't think we really ever talked about profitability.

I can tell you that as you know, we are in the process of rolling of tier pricing.

We have about 10 weeks of the quarter in our tier-pricing launch for the company and we've had great success if you look at our net

almost a 90% plus increase on quarter-to-quarter. 26% of our DSL customers are on this tier pricing and of that 42% took a bundle, which was even better from a churn perspective, which was your next question.

Our churn this quarter was 2.5%, that's an improvement, we've been in mainly in like about 2.8%, it's down a little bit, we think that that'll payoff as customers continue to get a better price point

and integrated bundles.

The other key thing I would say 78% of our take rate has been on the top two-sized pipe which is 768 or 1.5 Mhz.

So, we've had actually a better take rate on those higher pipe sizes than we anticipated in our business.

Okay, great.

And you talked a little bit about network access, can you comment on the minutes of use trends and are those generally following your expectations or are minutes of use going off of -- greater or slower rate then you'd expected?

The way I want talk about minutes of use from an originating standpoint and terminating standpoint.

Originating continues to decline

traffic as all carriers are experiencing, and our decline this quarter relative to the average of 2003, we had about 2.4% decline.

But our terminating traffic has increased by about 8%.

The total traffic minutes of use is about 3% improvement.

So the point here is that we are terminating more traffic, I think two things are driving that.

We went aggressively after wireless termination ensuring that we got contracts in place and that we can bill every minute of use, and

started that project the last 12 months and that's paid of well.

And secondly if you just look at the bundles that are out there from an RBOC or IXC perspective, you know, lots of minutes of use floating around, and they got to terminate somewhere and they are terminating on our networks, so now we are feeling pretty good about where we are at there.

How much of that increase in terminating traffic is coming from wireless?

I don't have specific numbers for you.

Okay, great.

Thank you very much.

Thank you.

Our next question is coming from Jim Momen, please announce your affiliation and pose your question.

Hello.

Hello Ivis.

Hello, Ivis, can you hear?

Hello Ivis, can you hear?

Sir, can you hear me?

.

I apologize to everyone in the conference call, we're experiencing technical difficulties.

The call will be continued momentarily.

We are all back up and I apologize sincerely.

The next question is coming from Mr. Jim

.

Please state your affiliation sir, then pose your question.

Yes.

It's Prudential Equity Group.

Two quick questions.

First, you said the wireless rollout in 4Q.

Did you say kind of a timeline for the satellite - end of the year, and also with all the different groups coming out with the proposals for

compensation if you had a particular view on one plan or where do you think things should go?

Thank you.

Regarding the video

agreement, yes, Jim, we expect probably towards the year-end to have our initial rollout.

In terms of interior comp, the multiple group, people

was the ICS group, we are still in the ICS group.

We will be making a decision here in the next couple of weeks, as all companies require whether

they are inhouse.

What will happen is all those currently brought together I think from an SEC perspective, and an order will be out in terms of inventory comps.

We feel good about our perspective and the role we've been bringing into the table.

I think the key good points for us is that there is no significant, adverse consumer impact on our world customers in terms of pricing, that there's a reasonable transition time, which we felt pretty good about there.

But the key thing is that there needs to be a continuing

to invest in world markets, and last but not the least, that the system that achieves the overall objectives and principal of the nation's universal services objectives.

So, those are the guiding principles that we're working with, and the target is kind of

, when this thing would be filed at least from an ICS perspective.

We will keep you posted on what happens at our end.

Thank you.

Thank you.

Our next question is coming from Tavis McCourt, please state your affiliation, and pose your question, sir.

Morgan Keegan.

Thanks and a good quarter.

I guess first, is it

second quarter results.

That's our objective.

I guess on the numbers, sequentially from Q4 to Q1 as the OPEX came down, I think about $10m, is that just a seasonal factor or is there something else going on there?

I'm sorry, will you repeat that, we didn't catch it.

Operating cost, I think most of it was in cost of sales and SG&A, it looked like it was down about $10m sequentially, that was up a little bit year-over-year.

Is there any seasonal pattern there in the first quarter?

Most of that -- most of that is, about $6m to $7m of that was really the operating taxes that we incurred in the fourth quarter, which was more than one time

.

Okay.

There was $7.5m actually.

And in your prepared remarks, Glen, you said something about 82%, but I kind of missed what exactly, the point you were driving out there.

Yes.

What we were saying was that new integrated bundle offering, we are offering the Internet and DSL services as part of the bundle. 82% of the customers who took that enhanced bundle were new bundle customers.

It was a higher impact off of their slope.

We had some customers, they had 18%, we definitely already had a smaller bundle. 82% of those customers had no bundle at all.

Okay.

It sounds like the simple short bundle, what have you got

I guess.

That's on the residential side.

On the residential.

What have you guys found in terms of revenue impact of that.

I guess there is probably some revenue decline when you take a customer buying local, healthy, separately you are the only one who

, is it all positive from revenue perspective or is there some negative aspect to it?

Well.

Right now, just from where we are on, migrating customers that have zero features, it is still a positive time out.

I don't think we are in

disclosing that at this point, but it is like an upside for us, because we are growing wallet share in the

bundle that we rolled out this first quarter that we probably had about 10 weeks of (Indiscernible, includes every bundle, includes the DLD and then, this you too need a Dial or DSL for the other enhanced bundle with the Internet piece.

But everyone at the bundle, you get the LB package with the LB component.

That's going to continue help to drive

on the LD side too.

And my last question is to you Karen as well.

I think you said that new primary mine orders were down 30% year-over-year?

Yes.

From a demand perspective and the invoice are out, continued to improve, I mean

.

It's clearly a demand issue.

How do you explain that in terms of, I mean is it just less population growth into some of these markets or do you think some of the new population growth is more likely to just stay with the wireless phone.

I mean, as I think, that's a pretty sharp number,

.

I think it's all of the above.

I think substitutions from a wireless perspective is having an impact.

Okay.

And I guess, you have the point in your wireless strategy, whether you know this will be how integrated it will be or you will be, kind of, holding inventories of France and so forth and running retail outlets

or it will be more of a, kind of an agent relationship.

Okay.

What I will tell you that our objective is not to support wireless models, you know, the business we used to be and it is an integrated model.

We are going out and dealing with a bunch of retail stores.

We have some retail in Greenwood station, which are small stores, in essence to leverage.

But the model is not to do that.

The model is to put it into the bundle, and the critical element in the model is to have an integrated kind of wireline wireless package so that the phone transitions on the wireline side and your call forwarded to your wireline phone, especially on our market to our customers, wireless coverage in home in a lot of the rural areas isn't very good.

So, that's not the critical component for us.

Great.

Thanks very much and good quarter.

Thank you.

Our next question is coming from Irwin Artiegaa.

Please state your affiliation, and then pose your question.

Yes.

Hi, it is

here.

I think you answered my question related to the income deposits securities by saying that -- you have looked at them; there are some risks there and that maintaining your credit rating is pretty important.

I am wondering if there is a shift in your thinking towards your willingness to lever up to the right opportunity either buy back or an acquisition and also I am wondering what other risk you are looking at with respect to those securities?

First of all, we have always been willing to leverage up to some degree in order to make that position and we've done it over the years, really tripling in size and issuing $500m in transaction related securities.

So, we still are willing to do that, but we won't do it within the bounds of investor grade ratings to the extent possible, and we think that is very important.

Regarding the other risk on the IVS, one is just the cash flow required to run the business, the enhancement of the new services to be competitive and what these risk -- the impact that has on you when you are cash flow is tied up in returning virtually all your free cash flow to shareholders.

That risk can also just be income tax piece, it is still unknown there.

So, there are couple of risks.

Thank you.

Thank you.

Our next question is from Tom Size.

Please state your affiliation and post your question.

Lehman Brothers.

The -- I guess I am going to try and phrase this, this way.

You said you are going to be very disciplined in demographics and geography of any potential acquisition would have to be attractive.

Can you comment on for example New York access lines and California access line?

Are those attractive to you?.

Are you willing to make any sort of comment like that?.

We really can't make any comments regarding any specific opportunities out there.

We will -- goes back to cash flow, return of cash flows and what we evaluate, really we can drive our shareholders for any opportunity.

We look at all the opportunities that come by and take a hard look at them, that was a very disciplined approach.

We've to, you know, to drive the kind of cash flow return we believe are necessary again to drive value for shareholders.

So that involves a lot and we also look at every aspect of each opportunity including the demographics, geography, and specially in the price.

Okay.

Just another quick question.

Can you talk a little bit about the way you are thinking about dividends, I think you said in the past that you know if an acquisition opportunity didn't make itself available you may look at the dividend in a more closely may be by fourth quarter of this year.

The fairly aggressive share buy back program that you have make you think that you are probably not going to look at dividends this year.

What are you thinking on that item please?.

The free cash flow that gives us a lot of alternatives.

We want to drive shareholder value with how we use that cash flow, we can look at internal expansion, acquisition, stock buy back, and increase dividends.

My view is that of course it's a board decision, but I believe I want to get through this stock buy back program first, which is target for through the rest of this year and then take a look at what the alternatives are, it's certainly a major factor, a major option, attractive option either to increase the dividend, but we'll look at all these options and decide what's the best way we believe will drive share value.

Okay great thanks.

Hello -- we have a technical difficulty.

Our next question is coming from Simon Flannery please announce your affiliation and pose your question.

Thank you.

Morgan Stanley.

How are you?

I wanted to just talk a little bit about the DSL strong penetration there.

Have you got any latest market data on what you think your share of the high-speed market might be in your end territory.

Are you seeing much impact from cable, I know it's historically been owning a portion of your market.

Any updated thoughts you have on that as well, and in terms of your guidance, do you have any dilution baked in for the video and wireless launches, is that more than 2005 factor?

Thank you.

Simon.

Just to address the last question first, there is nothing built into our guidance for this year related to any dilution that we might experience from wireless route or video rollout.

Okay and then do you think that you can do that with minimum dilution or do you think there might be some sort of start up expenses you might see later on?

There could be some -- I think it could be towards the end of the year.

Yes.

There should not be a major impact.

Okay.

The question on the market share cable versus DSL.

No, we don't have any specific research around that Simon.

I will tell you that we had a little of extension contacts in Washington they work with.

41% range.

So 41% of your customers who have access to cable market.

Correct.

Okay.

They keep expanding the footprints in some of these key markets.

No new news to report there from a competitive standpoint.

The only other news that I have seen is the strategy seems to be from the competitors that we compete with, a multitude of them is that we are trying to keep our

there.

So, they are still in the $45 range, but they are increasing our price style in that one particular cable company is offering us three new pipes for that particular number.

Remind us of your PSL availability percentage.

They are at 65%.

65%, and is that sort of as high as you can go, do you think you can take it higher?

We continue to expand throughout.

Great thank you.

Thank you.

Our next question is coming from Nigel Coe.

Please state your affiliation then pose your question.

Yes.

Thanks a lot.

I am from Deutsche Bank.

There are three questions - first of all you started to know Apex as the reason for the higher guidance.

Can you just tell us where the statements came from and whether or not we can maybe squeeze them more from these areas.

Secondly, you guys gave us some numbers in Q1.

Could you give us the prior year comparisons and finally am I correct in thinking that the tier pricing for DSL happened during Q1 2004.

If so, can you give us the timeframe when that actually came in so we can try and get some sense of what the

might be?

Thanks.

Nigel, the lower expenses that we mentioned in -- as part of the guidance that we gave for the rest of the year was really related to probably about half of it is lower interest expense and the other half is really just lower, general and employee expenses for the rest of the year that we had originally anticipated when we gave the guidance.

Okay.

And you wanted the first quarter US

.

Q1 2003.

That is 58.7.

Nigel, what was your last question?

The last question was.

When did you actually launch the tier pricing for DSL in the packages?

I just wanted to get some sense of whether the

DSL add number can actually be stretched further if it actually happened during Q1 2004?

It happened.

Yes, we -- about this February.

The February.

Okay thanks.

Thank you.

That concludes the Q&A portion of the call.

At this time, I'd like to turn the floor back over to Glen Post for some closing comments.

Thank you.

Our industry continues to face challenging issues but we are pleased that CenturyTel continues to achieve revenue and earnings growth along with strong cash flow during the first quarter, and we will continue to focus in delivering quality products and services to our customers and to drive revenue and earnings growth in our businesses.

We also continue to pursue new products and services such as wireless and video solutions to further meet the needs of our customers as well as to provide additional growth opportunities in the months ahead.

We believe our financial and operational strength position as well to pursue strategic opportunities to grow our company in the months ahead.

Our strong free cash flow provides us with attractive options in delivering value for our shareholders.

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

Thank you.

Thank you, ladies and gentleman.

This does conclude today's conference call.

Want to apologize from the conference call's behalf for the untimely interruption of CenturyTel's call.

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

Thank you for your participation.