Lumen Technologies Inc (LUMN) 2004 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to CenturyTel's fourth 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 your host for today's conference, Mr. Tony Davis, Vice President Investor Relations.

Mr. Davis, you may begin.

Thank you, Patty.

Good morning, everyone, and welcome to our call today to discuss CenturyTel's fourth quarter 2004 earnings results released earlier this morning.

During today's call we will refer to certain non-GAAP financial measures, and 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 the 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 our first quarter and full-year 2005, the fiber asset acquisition and $200 million share repurchase program announced earlier this morning, 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 February 3, 2005, and should be considered valid only as of February 3, 2005, regardless of the date listened to or reviewed.

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

Glen?

Thank you, Tony.

We appreciate your joining us today as we review CenturyTel's fourth quarter 2004 operating performance.

CenturyTel again achieved solid financial performance during the fourth quarter, as revenues were at the high end of our expectations for the quarter and diluted earnings per share exceeded the high end of the guidance we previously provided.

Earnings per share, excluding nonrecurring items was $0.62 for the quarter, or $0.02 ahead of the First Call consensus estimate of $0.60.

CenturyTel continued to achieve year-over-year revenue growth during the fourth quarter, even with the expected declines in intrastate toll and USF revenues, as well as the loss of access lines this year.

There was several primary drivers of this growth, which more than offset these anticipated declines.

First, we achieved further penetration of our customer base with our long-distance service offerings.

Also, continued penetration of enhanced calling features, driven by our bundled service offerings added to revenues.

We also experienced increased data revenues, primarily as a result of strong growth in DSL subscribers during 2004.

And finally, our LightCore division continued to expand its network and grow its customer base.

Customers continued to show strong demand for CenturyTel's bundled service offerings as we added nearly 13,500 bundles during the quarter.

Simple Choice customers now represent over 15 percent of our residential access lines, up from 9.6 percent at the end of 2003.

We also continued to see strong demand from our customers for CenturyTel's long-distance and DSL services, as we added more than 30,500 long-distance lines and 21,700 DSL customer connections during the quarter.

Over the last 12 months we increased our long-distance lines served by 14.6 percent and our DSL customers served by nearly 71 percent.

At the end of 2004 we served nearly 1,068,000 long-distance lines and more than 142,000 DSL connections.

Our cash flows remain strong as we generated nearly $83 million of free cash flow during the quarter.

For the full-year 2004, CenturyTel generated nearly $462 million of free cash flow and returned more than $430 million to shareholders through our cash dividends and share repurchase program representing a 93 percent payout of 2004 free cash flow.

Before turning the call over to Stewart for additional detail on the financial results for the quarter, I want to provide you a few operational updates.

First, a brief update on our CenturyTel DISH co-branded satellite television service offering.

We achieved our goal of soft launching satellite television service in 2 markets late in the fourth quarter.

We will continue to evaluate the operational processes and readiness of this product to ensure success as we expand our rollout of this service in the months ahead.

Next, a couple of comments regarding our CenturyTel branded wireless service initiative.

As we previously communicated, CenturyTel plans to offer wireless service as part of a bundled package offering this year.

We initiated limited employee and friendly trials of our wireless service in 2 markets during the fourth quarter.

We continue to evaluate these trials with plans to commercially launch in selected markets during the first half of 2005.

Also, regarding our switch digital video trial, we're continuing to develop our facilities-based trial in LaCrosse, Wisconsin.

We are working with vendors to improve the economics as well as address content and other service-related matters.

We are encouraged by the RBOC's involvement in the switch digital video area, as we believe they will ultimately help drive the scale necessary to improve the economics of this offering.

We do believe there is strong potential for switch digital video to become an entertainment solution for the more dense markets CenturyTel serves today.

We have not set a definite timetable for commercial launch of this service but we'll keep you updated as appropriate.

As previously announced in November, we completed our $400 million share repurchase program authorized in February 2004, acquiring approximately 13.4 million shares, approximately 9.3 percent of common stock outstanding at December 31st, 2003, at an average price of about $29.91 per share.

Earlier today, CenturyTel announced a new $200 million stock repurchase program.

We are pleased to be able to continue to return cash to shareholders through this new share repurchase program.

We also announced today a definitive agreement to acquire metro fiber assets from KMC in 16 markets in the central United States.

These fiber assets will add more than 1,000 lit route miles of metro fiber and more than 100 points of presence, or POPs to LightCore's network.

We believe this acquisition further advances our goal of becoming a leading provider of fiber transport services to rural areas in smaller cities and the states in which CenturyTel operates, and it enhances our efforts to grow and diversify our revenue streams.

At this time, I'll ask Stewart to come over and take over the call and to provide additional detail on our results for the fourth quarter and to update you on our financial guidance for the first quarter and full-year 2005.

Stewart?

Thank you, Glen.

During the next few minutes I will review the highlights of our operating results for the fourth quarter of 2004.

Then, I will provide a few comments regarding our capital structure and liquidity.

And finally, I will conclude my comments today with a brief discussion of the guidance provided in our earnings release.

For fourth quarter 2004, operating revenues, excluding non-recurring items, increased to $606.2 million, up from $601.1 million in the fourth quarter of 2003.

Local services revenues for fourth quarter 2004 were $178 million, in line with fourth quarter 2003, as revenue growth from the increased penetration of enhanced calling features offset revenue declines associated with access line losses.

Access lines declined 22,900 during the quarter and 2.6 percent for the year to 2,314,000 access lines.

Network access revenues, excluding non-recurring items were 242 million versus 252.7 million in fourth quarter of 2003.

This $10.7 million decline primarily resulted from the anticipated lower Universal Service Fund and intrastate revenues.

Long-distance revenues were 46.9 million, versus 42.9 million in fourth quarter of last year, a 9.4 percent increase due to the growth in minutes of use driven by subscriber additions, which was partially offset by lower average rates.

Our data revenues increased 12.8 percent from $64.2 million in fourth quarter of '03 to $72.4 million in the fourth quarter of this year.

Primarily driven by strong DSL subscriber growth.

Fiber transport and CLEC revenues increased 34 percent to $19.5 million in fourth quarter 2004, versus $14.6 million in fourth quarter 2003, primarily due to revenues associated with an acquisition in late 2003, as well as continued growth in the business.

Operating expenses increased $8 million, of which approximately 5.8 million was due to the growth in our Internet business, primarily due to DSL subscriber growth and the 2003 acquisitions in our fiber transport business.

Operating cash flow for the fourth quarter of 2004 was 318.9 million compared with 314 million in fourth quarter of 2003.

For the fourth quarter we generated an operating cash flow margin of 52.6 percent.

Operating income for the fourth quarter 2004 was 189.6 million and net income was 85.1 million.

We added approximately 30,500 long-distance lines during the fourth quarter, bringing total long-distance lines to nearly 1,067,800 as of the end the year.

Long-distance line penetration in our local exchanges as a percentage of total access lines reached 46.2 percent at the end of the year, versus 39.2 percent at the end of the fourth quarter of '03.

We continued to experience excellent customer response to our integrated bundles, including DSL with the addition of 21,700 DSL subscribers during the quarter.

We ended the fourth quarter of 2004 with nearly 142,600 DSL subscribers, resulting in an 8.7 percent penetration rate of total DSL-enabled lines.

Turning to our capital structure, CenturyTel continues to be positioned well from a capital structure and financial strength perspective, and we're in excellent shape from a liquidity standpoint.

As Glen mentioned earlier, CenturyTel generated nearly $82.7 million in free cash flow during the fourth quarter, resulting in full-year 2004 free cash flow of nearly $462 million.

We also invested nearly $132 million in capital expenditures during fourth quarter, and ended the year with more than $176 million in cash and cash equivalents.

During the fourth quarter, we invested a little more than $82 million to repurchase common stock, which completed our $400 million share repurchase program.

And again this morning we announced a $200 million share repurchase program.

This program is in addition to the measures that we expect to take to mitigate the impact of the forward purchase contract element of the $500 million of equity units.

As of December 31, 2004, CenturyTel's debt-to-equity ratio was 0.9 to 1 and net debt to operating cash flow for the year was 2.3 times.

We expect to maintain our ratios in a range that should enable CenturyTel to maintain its investment grade credit ratings.

So we believe the Company's strong balance sheet and stable cash flows continue to provide us with liquidity and the flexibility to execute our growth and investment strategies in the future.

Finally, I would like to briefly discuss the 2005 guidance provided in our fourth quarter 2004 earnings release.

As always, our guidance excludes non-recurring items.

Additionally, our guidance does not include the impact of any share repurchases that may be made during the year under our new share repurchase program or any impact related to the metro fiber asset acquisition Glen discussed with you earlier in the call.

For first quarter 2005, we anticipate total revenues to be in the range of $585 million to $595 million.

And diluted earnings per share to be in the range of $0.53 to $0.57.

A couple of items to note regarding our expectations for first quarter of 2005.

We anticipate lower network access revenues in first quarter 2005 as compared to the fourth quarter of 2004.

We also expect Universal Service Fund revenues -- lower Universal Service Fund revenues due to the increase in the national average cost per loop, which we previously discussed with you.

And we expect increased cash expenses related to our satellite television and wireless services initiatives and continued growth in our broadband and long-distance services.

I'd like to conclude my remarks today with a few comments related to our 2005 fully diluted earnings per share guidance of $2.20 to $2.35.

As we discussed with you during our third quarter call, the increased national average loop costs are expected to negatively impact CenturyTel's Universal Service Fund receipts and diluted earnings per share by $0.05 to $0.07 during 2005.

We also currently anticipate the rollout of video and wireless services to negatively impact diluted earnings per share by approximately $0.04 to $0.07.

Also, the change in accounting for contingent convertible securities, which was implemented in the fourth quarter of 2004, impacts 2004 as well as 2005 approximately $.03.5 cents per share.

And we expect to change our accounting for stock options effective in the third quarter, which will have about a $0.03 impact on 2005 earnings per share.

However, we do believe that we can continue to drive revenue growth through increased penetration of services through our enhanced communication service bundles, growth in our DSL product, and expansion in our LightCore operations.

Finally, as previously communicated to you, we do anticipate undertaking transactions that will mitigate the dilutive effect of the $500 million in equity units that are currently scheduled to settle in May of 2005.

However, our 2005 guidance does not currently include any costs associated with such actions.

This concludes our prepared remarks.

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

Thank you. (Operator Instructions).

Our first question comes from Daniel Henriques of Goldman Sachs.

My first question is, could you talk a little bit about the revenue and potentially cost-cutting opportunities in the acquisition you announced today?

And also if you could talk a little bit more specifically about the potential dilution in 2005 of this acquisition.

If I may, I'd like to ask a follow-up question later on.

Daniel, first of all, as far as revenue is concerned, we expect first 12 months to generate over $50 million of revenue as a result of this transaction.

We have not -- we're not far enough along to anticipate what kind of synergies in total we have.

We think there will be synergies there that we'll achieve, that we have some -- our own numbers, but we're not ready to discuss those.

As far as the dilution is concerned, we believe with the first year dilution, we'll be slight, maybe as much as a penny, probably on the high side.

That includes the transaction costs, the integration costs, and then it will be accretive thereafter.

Okay.

The second question, you just announced this acquisition.

You mentioned your focus on growth, your commitment to your credit rating.

Should we continue to assume that basically you continue to apparently have no intention, at least at the moment, to go after a more leveraged capital structure with a higher dividend and like some other companies are doing?

Is that a fair assumption to make?

Yes, we don't plan to leverage up like some of the companies have done recently in order to pay a higher dividend.

We think it's important at this point in time to maintain our flexibility and to maintain our investment grade credit ratings.

Okay.

When you look at what some of those other companies are doing, and I'm sorry to take so much of your time, but from Altel, Sprint, Verizon, some IPOs, and you look what they're doing, which is somewhat similar in nature, how do you think your view of the market is different from their's?

What do you think is the key difference in terms of your different strategies?

I don't see most companies really leveraging up, the Altel's and Sprint's of the world.

I see them making acquisitions and there will be some leverage there, but as far as leveraging up to a great degree, we don't see that.

We do see a number of companies in the rural sector leveraging up and paying a higher dividend, and our view is a little different.

There are certainly positives to be gained.

There's quick share price increase, you get cash to shareholders quickly, but there's some negatives, too.

It reduces your flexibility to invest in network infrastructure, for competitive reasons, new technology that's there.

It reduces your flexibility to take advantage of opportunities to drive shareholder value over time, and it's potentially difficult, we believe to maintain a payout ratio at the level that some of those have announced.

It may be possible.

We think it's difficult with the environment we face with competition and the technology requirements.

And finally, my personal view is, once you make that -- get that short-term hit in stock price, it's difficult to really achieve share price appreciation, once you make that, because you're paying out, in some cases 70 percent and above of your free cash flow.

So we have some concerns.

It's not necessarily it's the wrong strategy.

We just think it's not the right one for us today.

Thank you.

Our next question comes from Frank Louthan of Raymond James.

Okay.

Good morning.

Looking forward on DSL, couple of questions.

You had very good adds on that this quarter.

Was there any pricing promotions or things that you've done?

Then in your forward-looking guidance is that including some impact of you continuing to invest in possibly a late-year launch on DSL 2-plus?

Frank, the guidance we gave is -- it has some of that dilution in there for the DSL 2-plus, plus switched digital video, so we do have some dollars in there for last half of the year for some switched digital video cost.

Okay.

Great.

And can you talk a little bit about the access settlement in the fourth quarter.

Is that just a normal true-up sort of an entry?

And where do you see access trends going in '05?

Do you see -- can you comment a little about what the mix of access is?

Is it becoming more from inbound from wireless, and do you expect any material change in the trends in access in '05 versus the last couple of years?

Yes, Frank, we had about an $8 million adjustment, or positive adjustment in the fourth quarter related to a settlement with one of the carriers, and so that did positively affect fourth quarter.

Not so much different than fourth quarter of 2003.

We would expect access revenues to be down somewhat in 2005 compared with 2004.

In terms of the trends of the shift, this is Karen Puckett, I would say that minutes of use continue to go up, driven by terminating traffic, and so it gets down to the rate difference, in terms of the Recip Comp.

We've done an excellent job as a company for the last year being very focused and getting wireless providers to the table to negotiate either Recip Comp or some kind of interconnect agreement.

We're hoping for some positive traction continuing in that supported by, hopefully the SEC over the next 6 months.

Originating traffic is down but pretty much flattening out, but it's all around the rate.

So the increase in termination and I think the originate will stay about where it's at.

And in terms of your earlier DSL question, Frank, we have tiered the pricing of our DSL, so we have 3 tiers for different speeds and different prices, and our customers get a break if they purchase DSL through a bundle, and we also started making modems available to our customers as well, which we expect to do in 2005 too.

We did see our churn rate decline somewhat in 2004 as well -- or in the fourth quarter rather.

Great.

Thank you.

That's very helpful.

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

Thanks for taking my call.

Wondering whether you could give us a little more clarity on the effort you expect to undertake to mitigate the dilution of the equity units.

And also a little more clarity around the ratings front.

You said, Stewart, I believe, that you expect to maintain investment grade ratings, or you think that the share repurchase and the moves you'll take with respect to the equity units will be consistent with maintaining investment grade ratings.

Are you committed to your current ratings, or just investment grade ratings in general?

Yeah.

First of all, in terms of mitigating the dilution on the equity units, I want to make it clear again that the $200 million share repurchase that we announced this morning is in addition to the measures that we'll take or expect to take to mitigate the dilution from the equity units.

With respect to the equity units, we have filed preliminary consent solicitation materials with the SEC which would provide, to the extent approved by the equity unit holders, the Company with the option to settle the forward purchase contracts in cash or shares.

So that would -- assuming that gets approved, it would -- that would be a part of our plan to mitigate the dilution associated with the equity units.

In terms of the -- in terms of our credit ratings, we think what we're doing with respect to the share repurchase this year as well as the equity units, is consistent with trying to keep our credit ratings where they currently are.

We haven't -- we've talked with the rating agencies about our plans, and expect to visit with them in the future, but we're trying to take measures that are consistent with our ratings, staying where they are today.

Thanks.

If I could just follow-up very briefly, I mean, I assume that if you were to settle the forward purchase agreement with stock, that that wouldn't result in reducing the dilution.

So the only way that would you really offset the dilution would be settling a significant amount of those forward purchase contracts in cash.

Is that a fair assumption?

That's correct.

Basically, in order to mitigate the dilution the equity units would need to be settled in cash, or assuming equity did get issued, shares did get issued, finding a way to repurchase those shares.

But, remember, we would wind up with $500 million of new cash in the event the shares get issued, so we'd have the cash to be able to do the repurchase.

But you would also, if I'm not mistaken, remarket the fixed income portion of the equity units, so you would end up also with a 2-year note, $500 million 2-year note; is that correct?

That's correct.

You would wind up with -- assuming, yes, assuming you don't do another transaction to extend the maturity out, you would wind up with $500 million of debt, which is on our balance sheet today really, that, in effect, would get refinanced out for another 2.25 years or some longer period in the event that we elected to do an exchange or do an issuance to take the place of some of the 2.25 year.

Right.

But the agencies give you 80 percent equity credit for those units.

Okay.

I don't want to take up any more time.

Thanks very much.

Our next question comes from Phillip Olson of UBS.

Actually 2 quick questions.

First one, with respect to M&A opportunities.

There does seem to be a little bit more activity with respect to local access lines.

I know historically you guys have looked to add selectively.

The question is, do you think you will have the ability over the course of 2005 to add a meaningful cluster in the local access line business.

Secondly, assuming that there were not attractive acquisition opportunities, at what point in time would you look to revisit your commitment to the existing capital structure or what would have to change, I guess, for you to relook at your capital structure policy and potentially pursue the type of transactions being followed by citizens?

Well, first of all, as far as the activity, we have not seen anything happen today.

We hear a lot of rumors out there about what's going on, but we have not seen anything -- any access lines really come out other than those that have been talked about for sometime and they've been basically pulled off the market last year.

As far as what would have to change, I'm not sure we're ready to talk about what would have to change to leverage up.

Right now that's not our goal.

We're continually looking at our strategies.

Our Board is talking about using free cash flow.

We're very cognizant of the responsibility to utilize our free cash flow in a matter that maximizes shareholder value, but I don't feel there's any pending event that causes us to immediately change our decision and go leverage up our balance sheet.

Okay.

Thank you.

Our next question comes from Nigel Coe of Deutsche Bank.

Thanks.

Good morning.

I've got 3 quick questions here.

The first is on your -- the test launch of the satellites in the 2 markets.

Can you give us a bit more color on what the economics are between yourself and DISH in terms of equipment subsidies, marketing costs, et cetera?

Secondly, on the share capital, there's a big jump this quarter.

I just wanted to confirm that that was a change in the accounting for the continuing convertibles.

Thirdly, could you just confirm what you expect revenues from the fiber acquisition are?

I think you said $50 million.

I just want to confirm that.

And if you could just talk about what you see as potential future opportunities to bulk up in this fiber business.

Thank you.

First of all, Nigel, regarding the DBS situation with DISH, we're not at liberty to discuss all the terms of our agreement.

I can tell you that the margins of this business are narrow.

We only offer this service as part of a bundle.

However, we think it can be profitable.

We think we're looking at margins probably in the 15 to 20 percent range, and if you take into account the saved access lines, of course, it goes up more to the 25 to 30 percent range when you save the access line with offering the video product.

So that's as much as really I think I could say about that.

Okay.

Yes, the increase in the share count, the fully diluted share count in the fourth quarter and for the year was really related to the contingent convertibles.

So will that kick up again in the first quarter?

Yes, that will be the same in the first quarter of 2005.

So if we put in 15 million diluted shares for the first quarter, would that be about the right number?

It's about 4 million shares.

For the fourth quarter.

But will that kick up to the full dilution impact for the --.

It's 4 million total shares.

4 million.

Okay.

Right.

We actually went back and restated 2004 earlier quarters for implementing that.

Okay.

Finally, Nigel, regarding the potential bulk up in fiber, the LightCore operations, there aren't just a whole lot of opportunities out there.

We look primarily at the stressed assets, opportunities where there's real value in fiber that's available, and we buy selectively, invest selectively, so we don't know of a lot of opportunity out there right now, in our areas, in these more rural small cities, market areas.

And the revenues?

From this acquisition? $50 million, is that right?

We expect first year -- first 12 months to be in excess of $50 million.

Thank you very much.

Our next question comes from Christopher King of Legg Mason.

Good afternoon. 2 quick questions.

One just wanted your broad-based look at inter-carrier compensation, where we stand on that, whether or not you believe the SEC will issue an NPRM next week and what if anything your thoughts would be on that whole process.

Secondly, just wanted your quick take on the potential SBC/AT&T merger and whether or not you see that impacting your business in any material sense once that merger gets closed.

Good morning, Chris.

Karen Puckett.

On the inter-carrier comp, further rule making, in general I think we all believe from just coming out of the industry forum there, February open meeting, perhaps, we've heard in the last couple of days that that could be moved to March.

I think the good news in all of this is that there's been many plans filed from the ICF, the Portland group, some CLEC plans, and there seems to be a commitment to look at the best of class approach.

I believe that NARUC will be filing one sooner than later.

So February or March I do believe something like that will happen.

I think one of the key triggers out here is this level 3 petition.

A decision is due on that by March 22nd.

The industry has lobbied hard within the last couple of days, actually, for the FCC to deny that and push it into the inter-carrier comp, more of a comprehensive review, so that you're not only -- if they go ahead with the level 3 petition, that could separate that whole treatment of VoIP traffic out from the inter-carrier comp, and we really need to look at it comprehensively, so the industry has really encouraged the FCC to do it that way.

Depends on really what Powell [ph] wants to do with it.

We're not sure that even if he tried to move it forward that he would have 3 votes there.

Regarding your last question, SBC/AT&T merger, we don't see that having a major impact on CenturyTel.

We think there will be some repositioning in the regulatory arena as a result of this, but as far as major impacts on us, we don't think there will be any.

Thank you.

Your next question comes from Tavis McCourt of Morgan Keegan.

Couple of questions.

First, follow-up on the KMC acquisition, are these fiber assets, are any of them overlapping existing LEC or LightCore assets or is this all geographic expansion?

And then secondly, on the facilities-based video strategy you had mentioned in the LaCrosse test you would like to see some lower cost structure there.

Are you speaking more in terms of the equipment or in just what you need to do to the plant to get it ready, or is it a little of both?

Tavis, regarding the KMC asset, the overlap there, actually, these networks, KMC networks, are in 6 cities in which the LightCore network passes.

So for a couple million dollars or so we can probably follow those POPs connected to our network which is very positive for us.

We'll do that as quickly as possible.

We have another 6 of these markets that will be connected probably for $10 million or less.

So 12 out of the 16 markets will have connected fairly quickly, we believe, and at very low incremental cost to the Company, and the other 4 we'll decide when we want, when and how we want to connect those markets to the network.

But there are a lot of synergies here we believe that will help us drive both the wholesale transport business and enterprise business on LightCore network.

Tavis, what was your second question?

The digital switch video trial in LaCrosse, you had mentioned in your prepared remarks that you're pleased but looking at ways to get the costs down.

Are the costs that you're looking to get down or think you can get down over time more on the equipment side, or are you more concerned about what you need to do to the plant to get it ready for the equipment?

It's the equipment, especially the CPE calls.

Like to see that come down.

That's the key issue here.

That's why with SBC especially, announcing they plan to really move this -- forward in this business.

We think that's going to be a big plus for us in driving those costs down.

Finally, it looks like the FCC may rule here pretty soon on this AT&T prepaid calling card issue, in terms of underpaying access for the last few years.

Have you guys done any announcements on what this may mean for you in terms of potentially get some true-up of access charges?

We really don't know what those numbers are.

We know there are some there, but we've been unable to really capture what they should be.

Great.

Thanks, Glen.

Our next question comes from Edward Yang of CIBC.

Thanks very much.

Good afternoon.

Following up on the earlier question on inter-carrier compensation, do you think the consolidation activity in the industry that we're seeing right now shifts the calculus somewhat on your outlook on access charges, we could potentially see some more LDR block [ph] tie-ups.

And SBC spoke specifically yesterday about how their purchase of AT&T hedges their access exposure, and I'd like to get your thoughts on how you think about that if we see more and more companies essentially becoming net payers of access.

I'm not going to comment on SBC, but in terms -- I think, as Glen said earlier, it changes the dynamics on the regulatory front.

It certainly changes dynamics in terms of -- AT&T is very much a regulatory machine, and in some ways, from an inter-carrier comp perspective, probably more in line with an ILEC in terms of how you look at that.

There's a difference between an RBOC and an RLEC, but, in general, I think we can come to terms with the RBOCs under the inter-carrier comp regime.

If I could ask a quick follow-up just on KMC, how much do you think was invested in those assets?

Are you essentially picking them up for pennies on the dollar, or $0.10 on the dollar?

Just want to get a sense of the cost basis.

Yes, we can't really disclose that but it is, you know, they obviously did have quite a bit more invested than we paid.

Thank you.

Our next question comes from Saul Miyou of SM Investors.

Hello, everyone.

Just on the stock buyback, just wanted to ask about your thoughts of how you come up with $200 million, and I guess, a couple of questions to look at that from different angles.

Just a function of the whole -- the equity unit refinancing and the other things, is it the environment or you want more flexibility this year?

And being that it's half of last year's at this point, is this something where you think you'll complete -- in addition to the equity, will you complete the 200 million over the course of the year, or is this something where you think you'll do at the same pace as last year then kind of reevaluate sometime after June or July?

Saul, I think we'll be --.

And also, terrific strategy.

I love it.

Thank you.

Yes, I think what we'll do is we're going to be opportunistic in terms of repurchasing the stock, but, once we finish the program we will, I'm sure the Board will reevaluate, as Glen said, what to do with our free cash flow.

The way we came up with the $200 million is we have about $250 million of debt maturities this year, which we didn't really have very much in debt maturities last year, so we think that with the cash we have on our balance sheet we can basically handle the share repurchase, all of our current maturities, plus the KMC acquisition and still have some cash remaining on the balance sheet at the end of '05.

So that's -- and eliminate the equity units as well.

So that's sort of how we came up with the $200 million, but again, as the year moves on, we can reevaluate that.

Thank you.

I'm showing one more question in the queue.

Tom Thompson of Thompson Siegel.

Thank you.

My questions have been answered.

Thank you, Mr. Thompson.

One moment, please.

This concludes our question-and-answer session.

I would like to turn the program back over to Mr. Glen Post for any further remarks.

In closing, I am pleased that CenturyTel was able to achieve revenue growth and strong cash flows during 2004 in spite of a challenging industry environment.

I'm also pleased with the record DSL customer adds in the fourth quarter.

While 2005 continued to provide competitive regulatory and economic challenges, I believe CenturyTel is well positioned to address these challenges and continue to produce strong free cash flow.

We will remain focused on being the primary provider of broadband connectivity and advanced communication solutions to customers in the markets that we serve.

Also, we will be diligent in our efforts to determine the best ways to utilize our free cash flow and to deliver value for our shareholders in the months ahead.

Thank you again for participating in our call today and we look forward to speaking with you in the months and weeks ahead.

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

This concludes the program.

You may all disconnect.

Everyone have a great day.