Lumen Technologies Inc (LUMN) 2004 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the CenturyTel second quarter 2004 earnings call.

At this time, all participants are in a listen-only mode.

Later, we will conduct a question-and-answer session, and instructions will follow at that time.

If anyone should require assistance during the conference, please press star, then 0 on your touch-tone telephone.

As a reminder, this conference call is being recorded.

I would now like to introduce Mr. Tony Davis, Vice President of Investor Relations.

Mr. Davis, you may begin.

Thank you, Patty.

Good morning, everyone, and welcome to our call today to discuss CenturyTel's second 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 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 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 third 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 July 29, 2004, and should be considered valid only as of July 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.

Thank you, Tony.

Thank you for joining our call today as we review CenturyTel's second quarter 2004 operating performance.

I am pleased to report that CenturyTel continued to achieve solid operating results during the quarter.

Revenues for the quarter were in the range of guidance provided during our first quarter 2004 earnings call, and earnings per share of 60 cents exceeded both our guidance and the first call consensus estimates of 56 cents per share.

As anticipated, we continued to experience revenue pressure from the continued decline in intrastate toll revenues, lower U.S., universal service, revenue and continued access line losses.

However, we still generated revenue growth in the quarter that more than offset those anticipated revenue declines.

The primary drivers of this growth were, first of all, the continued penetration of enhanced calling features, driven by our bundling efforts.

Also, we saw increased data revenues as a result of data circuit additions and continued solid growth in DSL subscribers, and finally, growth in our fiber transport revenues from the fiber assets acquired in 2003.

Additionally, our employees continued to do a good job of containing costs, resulting in lower overall expenses than originally anticipated for the quarter.

We also continued to make excellent progress during the second quarter in the $400 million share repurchase program that we announced in February.

During the quarter, CenturyTel acquired more than 4.9 million shares of common stock for investment of nearly $145 million.

Through June 30th of 2004, CenturyTel has repurchased nearly 9.9 million shares of outstanding stock at a total value of approximately $284 million, representing completion of more than 70% of the total authorized program.

At the end of the quarter, we had 134,993,000 shares outstanding, down from 144,364,000 shares at the end 2003.

From a customer demand perspective, customers continued to show strong interest in CenturyTel's bundle offerings, as we added more than 17,000 bundles during the quarter.

Simple Choice customers now represent 14% of our residential access lines.

In April, CenturyTel achieved a significant DSL subscriber milestone, we connected our 100,000th DSL customer.

At the end of the second quarter, we'd served nearly 109,000 DSL customers.

Additionally, we continued to experience excellent demand for long-distance services during the second quarter, and also reached a significant milestone in our long-distance service during May when we crossed the 1 million line mark in long-distance lines served.

Average revenue per customer, excluding our fiber transport and CLEC businesses, increased by 1.3% to $81.11 in the second quarter compared with $80.06 in the second quarter of 2003.

If you also exclude access revenue, average revenue per customer increased by 3.1% for the quarter.

We also continue to achieve strong cash flows generating nearly $120 million in free cash flow during the second quarter.

So, overall, another solid quarter financially with solid performance in subscriber growth and cash flow generation, as well.

Before I turn the call over to Stewart for additional detail on the financial results for the quarter, I want to give you a progress report on implementation of our new billing and customer care system, as well as provide you a brief update on our wireless and satellite video initiatives that we discussed with you last quarter.

We continue to make solid progress in the implementation of our new billing and customer care system.

In early July, CenturyTel converted approximately 650,000 access lines in 11 states to the new system, and we have not incurred any significant customer care problems related to this conversion.

We now bill and serve more than 1 million access lines from the new system and believe that we complete the conversion by year-end 2004, which is a little earlier than originally anticipated.

So, good news and excellent progress on this important project.

Regarding wireless, we're nearing the completion of contract negotiations and finalization and believe we're still on target to begin initial rollout of wireless offering by the end of this year.

With regard to satellite video, we continued discussions with DVS providers with a goal of rolling this service out to selected markets by year-end, as well.

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

Stewart.

Thank you, Glen.

I'll spend the next few minutes reviewing highlights of our operating results for the second quarter and then provide 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.

Operating revenues grew 2.9% to $603.6 million, up from $586.7 million reported in second quarter of 2003.

Local service revenues increased from $178.4 million in second quarter of '03 to $180.1 million in the second quarter of this year.

That was driven primarily by increased penetration of enhanced calling features that more than offset the revenue decline associated with access line losses.

Network access revenues were $245.5 million versus $248.2 million in second quarter of 2003 due to the anticipated lower universal service fund and intrastate toll revenues that were partially offset by higher interstate access revenues.

Long-distance revenues were $45.7 million versus $43.2 million in the second quarter of 2003 due to increased minutes of use driven by subscriber growth, which was partially offset by a decrease in our average rate per subscriber.

Data revenues increased 12.4% from $60.7 million in the second quarter of last year to $68.2 million in the second quarter of 2004.

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

Fiber transport and CLEC revenues were $18.3 million in second quarter of '04 versus $9 million in second quarter of 2003.

This was driven primarily by the fiber asset acquisition that we made during 2003 and additional customer growth since closing those acquisitions.

Our internal revenue growth rate for the second quarter on a consolidated basis was 1.56%.

We believe revenue growth continues to be impacted by the lack of job growth in our service areas due to the economic environment, along with product substitution and competition for wire line customers in selected markets.

Operating cash flow for the second quarter of 2004 was $320.7 million, a 2.4% increase over the $313 million for the second quarter of 2003.

We generated a solid 53.1% operating cash flow margin, in line with the 53.4% operating cash flow margin in second quarter of 2003.

CenturyTel's operating income was $189.9 million in second quarter of '04 versus $188.4 million in the second quarter of last year.

Our second quarter 2004 operating income margin was 31.5%.

Net income for the second quarter of 2004 was $83.3 million, which includes pretax expenses of $4.6 million related to the prepayment of $100 million Series B senior notes in early May of this year.

CenturyTel ended the quarter with 2,350,500 total access lines, as we experienced a loss of approximately 15,900 access lines during the quarter.

However, we added nearly 41,500 long-distance lines during the second quarter, bringing total long-distance lines to more than 1,013,000 as of June 30 of 2004.

That brings our penetration rate of long-distance lines to 42.9% at the end of the second quarter of this year versus 36.7% at the end of the second quarter of '03.

We also continued to experience good customer response to our tiered DSL offerings, with the addition of more than 11,700 DSL customers during the quarter.

Solid quarterly net adds considering a normal second quarter seasonality.

We ended the second quarter of this year with nearly 109,000 DSL customers, or more than a 7.1% penetration rate of our total DSL enabled lines.

Turning to our capital structure, CenturyTel is in very good shape from a liquidity standpoint.

As Glen mentioned earlier, we generated a little less than $120 million in free cash flow during the second quarter, resulting in free cash flow for the first 6 months of this year of nearly $270 million.

During the second quarter, CenturyTel invested $144.6 million repurchasing its common stock under the share repurchase program.

Additionally, we prepaid the $100 million of Series B notes which we discussed with you during our first quarter earnings call in April.

Even with these significant -- 2 significant cash outlays, we still ended the second quarter with more than $96 million in cash and cash equivalents.

As of June 30 of 2004, CenturyTel's debt-to-equity ratio was 0.9 to 1, and net debt to annualized operating cash flow was 2.3 times.

So our strong balance sheet and continued solid cash flows provide CenturyTel excellent liquidity and financial flexibility.

Finally, I will briefly discuss the 2004 guidance provided in our second quarter 2004 earnings release.

As always, our guidance excludes nonrecurring items.

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

We also expect diluted earnings per share to be in the range of 56 cents to 60 cents for third quarter of 2004.

When comparing third quarter earnings per share guidance to second quarter actual earnings per share, it is important to note several items.

We expect lower access revenues in third quarter versus second quarter due to net prior period revenues of approximately 2.5 cents a share recognized in the second quarter which are not anticipated to recur in the third quarter.

Additionally, we expect increases in expenses related to our Sarbanes-Oxley compliance, the billing system conversion, and an increase in our bad debt expense back to more normal levels.

These items are -- more than offset the impact of the second quarter share repurchases and lower below-the-line cost related to our second quarter prepayment of $100 million in senior notes.

For the full year of 2004 we expect diluted earnings per share to be in the range of $2.25 to $2.35 a share.

This represents a narrowing of the full year $2.04 earnings per share guidance we previously provided due to the additional share repurchases made during the second quarter.

So we moved the bottom of our guidance up from $2.20 to $2.25 and left the top as it was at the end of the last quarter.

This concludes our prepared remarks.

We will now open the call for a few questions.

Thank you.

If you have a question at this time, please press the 1 key on your touch-tone telephone.

If your question has been answered, or you wish to remove yourself from the queue, please press the pound key.

And if you're using a speakerphone, we recommend that you please lift the handset.

One moment, please.

Our first question comes from David Barden of Banc of America Securities.

Hey, guys.

Thanks a lot.

Just wanted to maybe ask, maybe the big question, I think, out there, with respect to overall strategy.

You know, we've seen some really interesting things happen in the space, specifically with respect to Citizens and their announcement that after, you know, 9 months of looking at strategic options, they felt like the most value creating thing they could do with their business was pay out 75 -- not all, but 75% of their cash, and as a result of that their stock was up 40-some odd percent over that period, and they're going to be yielding 8%, trading at a 7 times EBITDA multiple.

And, you know, the question comes up, when you guys look at that market response, and you start thinking about, you know, what potential ramifications are for M&A, the valuations of line, and what the market's rewarding people for in terms of cash deployment, what are you guys doing at the margin to think about this topic and its process and how to create value for stockholders in this M&A environment?

Thanks.

Yeah, David, first of all, we -- we're certainly monitoring what's happening with Citizens, and we're looking at all of our options.

First of all, because we look at internal growth opportunities, what value they can drive, acquisition opportunities with a focus on shareholder value, we take a very disciplined approach, of course, to acquisitions.

We're -- look at stock buyback opportunities, increasing the dividend, the IBS opportunities, all those issues are options that we have.

Regarding the Citizens strategy specifically, short term, certainly, it's going to drive value.

Long term, the jury is still out.

We hope it does -- they do well.

We are somewhat concerned about the capital requirements over time in this business, and can you afford to really pay out such a high percentage of your revenues of your earnings to free cash flow and dividends?

Can you really main -- sustain that type of payout in this industry?

So there's some issues there that we question, but we'll continue to monitor Citizens success there.

We're looking at all the options we have.

Again, we'll take a very disciplined approach.

We don't want to be hoarding cash.

We want to -- as a matter of fact, this first half of the year, our free cash flow was, I think, $268 million, and if you look at our share repurchase of $284 million and our dividend payments of $16 million, we paid out $300 million, exceeding our free cash flow during the first half of the year.

So we're very cognizant of the need to provide value to shareholders, and we'll -- and we also are cognizant of the very good options that are out there for us right now.

If I could just follow up real quick -- thanks for that response -- it was just, in the context of the valuation for some of these stocks rising.

And, obviously, there's, obviously, a strategic plan out there among some investors to try to buy, you know, rural telephone operations and then try to make a profit by following the Citizens path.

Are you seeing this having an impact on the M&A environment?

You guys are obviously very active participants in that environment from a strategic standpoint.

Are you seeing that valuations are starting to drift upwards as the bidding gets more active for those assets?

Well, David, it's pretty difficult to tell.

If you look at the Citizens process, and they ended up doing something internally, it's hard to say that it drove up the price of acquisitions.

It certainly has the potential of doing that, but we have not seen any major acquisitions take place since all this activity -- recent activity, anyway.

So it very well could, but at this point we just don't know for sure yet.

We're going to maintain our disciplined approach, and we'll see what the market does.

If the financial buyers come in and drive up prices, we may not be in the game then, but we'll see what happens.

We're hopeful we'll still be competitive over time.

Thanks, guys.

Appreciate it.

Our next question comes from Simon Flannery of Morgan Stanley.

Okay.

Thank you.

Good morning.

Could you -- Stewart, could you just talk us through the billing impact in the third and fourth quarters and for next year?

Where does it hit and sort of quantify how much that is so we can make sure we get it right in our models?

And also, on video, you talked satellite, but you didn't really talk about ADSL-2 plus and potentially looking at a network-based solution.

What are your thoughts there?

Thank you.

Okay, Simon, the --

Simon, just, first of all, for next year, we really haven't given any guidance, although other than you can look in our 10-Q and we -- that we filed for first quarter, and we'll be filing second quarter's in the next week or so.

But, you know, we expect to have somewhere between 200 and $215 million of cost capitalized associated with project in aggregate and will be amortizing that over 20 years.

So we'll have about $10 million of amortization next year, assuming that we, you know, get all the access lines converted this year.

In terms of the effect on the third quarter, compared with second quarter, we expect probably about a $1.5 million dollar increase, about a $1 million of that increase is related to customer service costs, more related to the conversion as we staff up, basically, our customer service areas to be able to make sure that we're in a position to handle the calls in the event we have additional calls and also get our customer -- other customer service reps trained.

Additionally, we'll have about a half a million dollar increase in the amortization over and above the second quarter.

Looking out to fourth quarter, roughly, probably another half a million dollars or so, so maybe $2 million in incremental expense over what we had in the second quarter.

And, Simon, regarding the ADSL-2 plus, of course, the real value there is it provides 3 video streams, or enables us to provide 3 video streams to the home over copper, which is a very significant development.

We are trialing that technology and -- in the Wisconsin operations today, in La Crosse.

It is just a trial at this point.

We believe that it holds a lot of promise, but we're not sure yet.

We're not ready to declare victory here.

Certainly as the costs come down for electronics for DSL -- high-speed DSL technology,it does provide a real, we believe, viable avenue to bring video to the home.

So we're very interested in this.

We're on the lead here, we believe, in the trials of this technology, but it is too early to declare that it's really at a point where we can -- that it justifies widespread deployment.

Is this something that the trial runs through year-end, and you'll sort of be making a decision at that point, or are you just going to take it as it comes?

Well, the trial, we should be able to have enough information by year-end to make some decisions for us, just how it works and then where the cost points -- price points are to see how viable it for us to roll out on a broader scale.

Thank you.

Our next question comes from Frank Louthan of Raymond James.

Good morning.

Can you talk a little bit about, maybe, the profitability on your fiber network?

Is that improving, and can you characterize some of the growth, what sort of traffic you're putting on there?

And are you able to -- have you been able to begin lowering some of your operating costs on your ILEC?

And then as far as your video rollout, can you give us a little more color on that, what markets you might be expected to roll that out in and how widespread that will be through your network?

Thanks.

Frank, Karen Puckett.

On the video front, we still are experiencing good progress in aggregating wireless traffic for wireless provider.

So we're getting good growth there from an organic perspective.

We've got about a 33% increase in that segment.

We do, in terms of what we've provided on net, it's about 4 million that we've moved from paying others to ourself, from an internal perspective.

So, we've met those objectives that we said we would have by year-end in moving traffic onto our own, and we're accelerating on the wholesale side, selling to the wireless carriers.

Regarding the video rollout, we don't have a timeline yet, Frank.

We're continuing to look at our trials, see how it goes, and then as far as -- if you're talking DVS rollout, we're hoping to hit a few markets by year end.

And we have -- we've really tiered our markets, going to the most competitive markets first, and we hope by midyear of next year, we'll have a pretty wide scale rollout of DVS.

Okay, great.

And one follow-up.

As far as universal service, obviously, there continue to be pressures on that system.

Any sort of anticipation of what the impact might be to next year?

Any changes to what you may collect relative to this year, that you can just let us know again, so we can kind of be looking for it in our models to have that -- any sort of -- any potential down-tick in availability?

Thanks.

No, Frank, we couldn't give you any visibility right now on 2005 for USF.

We don't expect any major changes at this point, but there's nothing -- there's still some -- a lot of moving parts there.

Okay.

Great.

Thanks.

Our next question comes from Mike Balhoff of Legg Mason.

Thank you.

On the subject of the access line trends, can you give us whatever data you're seeing out there, maybe, Karen, as far as the reasons for the cut-offs?

Obviously, it ticked up in the quarter.

And are there new competitive pressures?

I noticed, obviously, with your long-distance customer base rising, I guess there's the possibility that you are bundling more in order to deal with the competitive threat.

And so, if you could give us some sort of feel of whether long-distance is becoming more a part of the bundle in terms of competition.

Thank you.

The bundle that we rolled out does include LD, regardless of which bundle you take, be it the basic, the dial -- with the dial-up or the DSL.

So that has helped, but we had a very successful vertical campaign also.

When I say vertical, just LD only, driving the LD units for the second quarter.

In terms of just access lines, if you look at it, Mike, it's still a primary demand -- the primary access line demand issue.

You know, if you look at it year-over-year, outs are flat to down, and it's the inwards that are off 10 to -- anywhere, 20%.

Last year second quarter we had a successful second line campaign that helped drive us.

We don't have that this quarter, and we have -- the demand's down in the primary.

Business is flat.

Business has been very flat from that standpoint.

Not negative, up a bit, so it's all in the primary line category.

Karen, can you give us some sense of what you're hearing from your call centers as far as cut-offs and such?

Is wireless ticking up at this time?

You know, we see that pretty much -- that's on the outside.

We see that pretty much in the range.

I think what's happening, Mike, is that on the demand front, subscribers -- when they're moving in and/or going for other options, second lines, they're not looking at an access line as a primary choice, in some occasions.

Now, what I'll tell you, VoIP we can go ahead and talk about that, because I'm sure it's going to come up.

We don't have a cable VoIP service in our market yet.

Of course, you know, we all read the same press that you all do.

We have about, in terms of our -- where we have most cable modem overlap, which would provide VoIP, Charter is about 20% of that.

Time-Warner, who is the largest that's been out there in the press on their national rollout, is about 6% of our overlap.

So we do look for Time-Warner to launch sometime, which would impact the SAN market and/or all of branch market, whether it be the end of this year, first of next year, but we don't have an active provider yet.

As you know, there's [a vonnage] out there.

But when you look at the demographics, and you say that the younger generation that's either using wireless or going to VoIP, one thing I can tell you on the demographics side of the house is, on a national basis, the young represent below 30 -- represents about 22% of national average, were at 13%.

So you can see where we're slanted more towards the seniors.

It doesn't necessarily say we're protected, but it says that we may have a lower propensity to some of those services, demographically.

Thank you, Karen.

Our next question comes from Jim Moorman of Prudential Equity Group.

Hi, good morning.

First, just on the last topic, did you say that Charter has not rolled out yet?

Because I wasn't sure if they had rolled out somewhere outside of St. Louis with VoIP, or --

The one that we've been talking about, Charter competitive threats that we've been talking about since we bought the Verizon market, that's circuit switch, that's not VoIP.

Oh, okay.

And they continue to expand, but it's little by little, in terms of add this neighborhood, add that neighborhood.

We have not seen Charter, in our markets yet, roll out VoIP.

Okay.

In terms of the bundling, as you've had more success, do you see any -- have you kind of been keeping the pricing constant, say, on DSL as you've gotten so many net adds in DSL, or do you see any pressure to lower prices at all, or have you been keeping those relatively constant?

Well, you know we rolled out the tiered DSL program the first quarter.

It was actually about 3 or 4 weeks into the first quarter, so we didn't have a total first quarter.

If you look at our gross adds on DSL quarter 1 to quarter 2, sequentially, we're pretty much flat.

We were down in the 70 range.

Our churn ticked up a little bit in second quarter, which is the difference in the net.

However, when you look at our churn from year-over-year, it's about the same, meaning that we believe some of it is seasonality.

We do have some of the highest ARPU, even still with tiered DSL, but we haven't had tiered DSL out there.

The other players, some of our peers, Citizens and Alltel, had tiered DSL out there for well over a year.

We've only had it out there for, you know, let's just call it a quarter and a half plus.

So we still have high ARPU.

The question is, should we be driving that ARPU down sooner to make sure we get the market share?

Right.

All right, thanks.

Our next question comes from Don Enriquez of Goldman Sachs.

Hi, it's Daniel Enriquez.

Question, about ten months ago in your conference, you basically said that you would give yourself about 12 months to look for acquisition opportunities.

Does that deadline still hold?

I know you already announced a buyback, but should we expect anything besides that or any decision over the next few months once this deadline expires?

This is the first question.

The second one, if you could give us a little bit more color on the enhanced services penetration that apparently continued to drive some of the growth this quarter?

Thank you.

Thank you.

Daniel, regarding the 12 months, I think it was about last August, September we stated that, and we actually moved that up, accelerated that with our stock buyback program.

Rather than waiting 12 months we decided to move forward with that in February of this year.

So that program we expect to be wrapped up around year-end.

We're at 70% of that -- our goal there.

We stated it was a little more than $1 million buy-back.

At that point, I think -- well, I'm sure our Board will be talking about this in the weeks ahead, and probably toward year-end we'll decide -- we'll continue to look at acquisition opportunities, expansion opportunities, and make a decision, then, about the next step, as far as how we do on free cash flow.

In terms of the enhanced revenue, I mean, yeah, we grew it 10% year-over-year.

If you look at that, clearly the bundle drove that, and new customers -- new customers to the bundle in the unit perspective grew about 80%.

So we've had good responses to our bundles.

And we believe that it continues to help drive churn down.

In terms of, if you look at our -- just LD end of service subscribers, 11% of them currently have a bundle.

And in our dial, 11% of our dial customers have a bundle.

In DSL, 28% of our DSL base is in a bundle.

So we'll see those numbers tick up.

Okay.

Thank you.

Our next question comes from David [Genaso] with Merrill Lynch.

Yes, hello.

Can you provide an update on the issue of access reform?

It seems as if the process has been derailed.

But where you think the process stands and what your position is?

Thank you.

Access reform, I wouldn't say it's been derailed.

I would say it's a continued evolution.

We are formally out of the ICS group.

We think that there was very good traction made there.

And we will continue to work with that organization.

We won't be part of the file formal -- formal filing, if there is one.

We are working in other forms within the organization -- or within the industry.

Probably be a change-out with some of the commissioners here at the end of the year, first of next year.

So we are at the table.

We continue to say there are 3 important things for us, that it's a minimal impact on the end user, and that there is an invest -- there is a reason to continue to invest in the last mile, and that we -- there is a transition time.

And all those things are directionally going that direction.

It's just now coming together with the final product.

We do believe, I think Glen and I both belief that, you know, you can't talk about this without talking about USF and wireless, etc., so I think that's all going to come together.

Whether it will require legislation, reform is the question.

Probably so.

Our next question comes from Tom [Sites] of Lehman Brothers.

Good morning.

Do you -- are you aware of -- do you have books on any other assets for sale besides the SBC lines in Texas and Michigan?

I mean, assuming for the moment that you're probably not interested in urban New York state assets, you know, if SBC announces that, you know, they've sold these access lines to somebody other than you, is there another, you know, potential deal out there that you might be looking at?

Tom, we can't really comment on that, because if we have seen anything else, we would have signed confidentiality arrangements.

There was a lot of talk, a lot of rumors out there, but you never know what's going to happen next.

I do believe we'll see continued -- RBOCs continue to consider sale of rural lines, over time, so I think we'll see that continue.

But I really can't comment on books we're seeing or not seeing.

Okay.

Last question, you mentioned that there -- one of the reasons why you, you know, you're hesitant to declare a dividend that, sort of, you know, ties your arms, with respect to free cash flow going forward, is potential capital demands.

I mean, should we interpret that to mean video deployment?

You know, what's out there and, you know, what could be the impact of that, I guess, is what I'm asking?

I mean, what -- if you were to do the DSL out to the, you know, most of the network that you're doing in Wisconsin, what sort of capital would that entail?

Tom, first of all, we -- part of the capital concerns could be broadband, video-based, other requirements, just to be competitive in a lot of these markets.

Shortening loops, bringing more service to customers.

So that is an issue.

As far as dollars, actual dollars, we haven't quantified.

We have some ranges, but it all depends on the quality of the service, the price points, and what we believe we can drive for returns for shareholders, will determine how much we're willing to spend, and how soon we're willing to spend it.

There are a lot of variables out there.

It's just too early to tell.

We're in the trial phase here of facilities-based broadband services.

The other issue, and not just -- not only the capital requirements, just the whole issue with credit ratings, you know, just a couple years ago, in our industry you couldn't -- the whole debt market, the whole availability of credit went away overnight.

It's back now, but if you didn't have a decent credit rating, there was no money available.

So there are a lot of issues that we think have to be considered here, and we believe that we're better -- at least at this point in time to maintain credit ratings that allow us to go out and obtain the funds necessary to grow the business and drive value for shareholders.

Fair enough.

Thank you very much.

Our next question comes from Mike McCormack of Bear Stearns.

My question's been answered.

Thank you.

Thank you.

Our next question comes from Wayne Klein of AIG Global Investment.

Thank you.

Just a quick question regarding ratings.

You touched on this a moment ago, but I was curious whether the whole Citizens process and the ramifications, in terms of ratings, has influenced your thinking about ratings.

Well, I guess the short answer, Wayne, is no, it hasn't.

Certainly the improvement in our stock price has gotten our attention, and everyone's attention in this industry, I think.

But the question is long term, is it the right strategy for them or for us?

And maybe it's right for them and not for us.

But there are a lot of issues there that we're considering, and we're going to watch how this process goes, how they're -- how they maintain value for shareholders if they maintain the value, and over the next couple of years.

Because there are a lot of issues that we believe that players in this industry have to deal with in the coming months.

Could you maybe touch on some of those issues to give us a little more context in how to think about your approach to ratings?

Well, it's just the competitive issues in this industry.

We're fortunate we're in rural areas.

We're not seeing as much competition as some.

But if you -- we think it will continue to increase, and especially with the wireless providers and the video providers and the voice over IP introduction into many markets, we think there are going to be a lot of pressures to really be competitive, to bring new services to be competitive.

So that's the real issue.

Thank you.

We have time for one more question, please.

Okay.

We do have a follow-up from Tom [Sites] of Lehman Brothers.

Sorry about that.

Quick question on the wireless offering.

You know, you talked about how your outs are virtually flat, but it's the inbound demand that is the issue.

Do you anticipate selling stand-alone wireless or as a resell product, or are you going to be just using it as more as a defensive mechanism in a bundle?

Tom, our initial strategy is that we will not sell it as stand-alone, it will be part of the bundle.

Now, later on, as it's relevancy, that's a possibility, but right now our goal and our business plan has this part of the bundle with our other services.

Appreciate it.

Thank you very much.

There are no further questions.

That concludes our Q and A session.

I'll turn the program over to Mr. Post for final remarks.

Thank you.

In closing, while our industry continues to face a number of challenges, including the lack of job growth in our markets and competitive challenges in several areas, CenturyTel remains focused on driving penetration of our bundle offerings and our high-speed data and long-distance services.

We also continue to focus on providing wireless and video service options to our customers late this year.

We believe our strong free cash flow provides us the flexibility to respond to challenges and consider various options to help drive shareholder value in the months and years ahead.

I would also like to remind you that CenturyTel will be hosting 2 analyst conferences in August and September.

West Coast Analyst Conference will be held in San Francisco on Tuesday, August the 10th.

And our East Coast Analyst Conference will be in New York on Wednesday, September the 15th.

Many of you have already registered for these conferences, and we look forward to seeing you.

If you have not registered and are interested in obtaining additional information regarding these conferences, please contact Tony Davis, our Vice President of Investor Relations.

Tony's e-mail address and telephone number can be found on our corporate website.

And again, thank you for participating in today's call, and we look forward to speaking with you in the future.

Thank you.

Ladies and gentlemen, thank you for participating in today's conference.

That concludes the program.

You may all disconnect.

Everyone, have a great day.