Lumen Technologies Inc (LUMN) 2005 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the CenturyTel fourth quarter earnings conference call. [OPERATOR INSTRUCTIONS] I would now like to introduce the Vice President of Investor Relations, Mr. Tony Davis.

Sir, you may begin.

Thank you.

Good morning everyone and welcome to our call today to discuss CenturyTel's fourth quarter, 2005, 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 press 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 Stuart Ewing, CenturyTel's Executive Vice President and Chief Financial Officer.

And 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 first quarter and full year 2006 and other outlooks in our business.

So, we ask that you 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.

Our call today will be accessible for telephone replay through February 8, 2006 and accessible for Webcast replay through February 22, 2006.

For anyone listening to a taped or Webcast replay of this call or for anyone reviewing a written transcript of today's cal; l please note that all information presented is current only as of February 2, 2006 and should be considered valid only as of that date 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 fourth quarter 2005 operating performance and discuss our current outlook for 2006.

CenturyTel achieved solid financial results during the fourth quarter as revenues were at the high-end of our expectations for the quarter and diluted EPS exceeded the high-end of the guidance we previously provided.

Earnings per share, excluding nonrecurring items, was $0.61 for the quarter or $0.04 ahead of First Call's consensus estimate of $0.57.

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

The primary drivers of this revenue growth, which more than offset these anticipated declines were;

First, we continued to increase the penetration of enhanced calling features driven by our bundled services offerings this year and during the quarter.

We also experienced increased data revenues primarily as a result of strong growth in DSL subscribers during 2005.

Additionally, customer growth and expansion in our [light core] division led to continued revenue growth.

And finally, the KMC metro fiber assets required at the end of the second quarter contributed to the fourth quarter 2005 revenue growth as well.

From an operational standpoint, our customers continue to show strong interest in CenturyTel's bundle offerings as we added more 14,000 bundles during the quarter.

Simple Choice customers now represent almost 20% of our residential access lines, up from 15% at the end of the year of 2004.

Additionally, customers continue to exhibit strong demand for CenturyTel's broadband service offerings, as we added nearly 29,000 DSL customer connections during the quarter.

For the full year 2005, we achieved record net DSL additions of more than 106,000 and ended the year with nearly 249,000 high-speed Internet connections, which is a 74% increase over year end 2004.

At year end 2005, our broadband penetration of enabled lines was 15.1%, up from 8.7% at the end of the year 2004.

We also added approximately 9,300 long distance lines through end teller growth during the quarter.

We also converted approximately close to 17,000 long distance lines from a carrier that is exiting some of their markets during the fourth quarter.

At the end of 2005, we served more than 1,168 -- 1,168,000 long distance lines, a 9.4% increase over the year end 2004.

While CenturyTel has experienced grow in long distance lines during the past several years, we do expect this growth to slow in 2006 and beyond due to our penetration level having reached more than 52% at year end 2005.

Our cash flows remain strong as we generated $85 million of free cash flow during the fourth quarter.

And for the full year of 2005 CenturyTel has generated more than $460 million of free cash flow.

Returned more than $145 million to shareholders through our share repurchase program and cash dividends, representing a 31% pay out of 2005 free cash flow.

We also invested approximately $438 million to repurchase 12.9 million shares of common stock under an accelerated share repurchase program to mitigate the impact on the shares outstanding due to the settlement of equity units.

So in total, CenturyTel returned more than $580 million to shareholders through 2005 through share repurchases and cash dividends.

Also while we did not repurchase any stock under our 200 million repurchase program during the fourth quarter, we did repurchase nearly 1.5 million shares for approximately $50 million in January.

And we expect to complete the buybacks under our $200 million program by the end of this month.

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

First, a brief update on our satellite television service offering.

As anticipated, we launched satellite television service to virtually all households in our service areas during the fourth quarter.

Except for Lacrosse Wisconsin market, in which we offer switch digital television service in a few markets where we have the cable operator.

Additionally, we've incorporated a CenturyTel additional offering into our bundles, offering customers increased value and alternatives.

With regard to switch digital television service, we continue to monitor the results of our commercial allowance and portions of the Lacrosse, Wisconsin market.

We are continuing to work with vendors to improve the product's economics and further evaluate the technology as it evolves.

We also continue to monitor involvement in switch digital video arena by the larger telecom companies, as we believe they will ultimately help drive scale, resulting in improved economics for this product.

We currently plan to initiate a second switch digital television service trial in 2006 and will provide future updates on progress in that area as appropriate.

We continue to believe that there is strong potential for IP video to become an entertainment solution for more the dense markets that we serve.

Regarding our wireless service offering, as previously announced, we completed agreement with one wireless carrier around mid-year 2005.

And as planned, we launched CenturyTel's wireless service in markets serving about 17% of our residential access lines during the fourth quarter.

We expect to nearly double the availability of our CenturyTel wireless service during the first quarter to cover approximately 30% of our residential lines by the end of the quarter.

Also, we continue to have discussions with other carriers in an effort to complete agreements to ensure good wireless coverage in our markets across the country.

At this time, I will turn the call over to Stewart to provide additional detail on our results for the fourth quarter and to update you and our financial guidance for the first quarter and full year 2006.

Stewart?

Thank you, Glen.

I will take the next few minutes to review the highlights of our operating results for fourth quarter, 2005, provide a few comments regarding our capital structure and liquidity, and then conclude the comments with a discussion of the 2006 guidance provided in our earnings release issued earlier this morning.

All comments regarding actual results exclude those nonrecurring items detailed on the financial statements accompanying the press release.

For fourth quarter 2005, operating revenues increased to $620.5 million, a 2.3% increase over the $606.2 million reported in fourth quarter 2004.

Our local service revenues for the fourth quarter 2005 were 172.1 million, compared to 178 million in fourth quarter of 2004.

Access lines declined approximately 36,200 lines, or about 4.3% for the year.

And we ended the quarter with approximately 2,214,000 access lines.

Our network access revenues were 232.6 million versus 242 million in fourth quarter of 2004.

The declines in local service and network access revenues were from the anticipated declines Glen mentioned in his opening remarks.

Our long distance revenues were 48.1 million versus 46.9 million in fourth quarter 2004, as increases due to customer growth more than offset the decrease in average rate per minute of use.

Data revenues increased 11.7% from 72.4 million in fourth quarter of '04 to $80.9 million in the fourth quarter of 2005.

Primarily driven by continued strong high-speed Internet customer growth.

Our fiber transport and CLEC revenues increased 90% to $37.2 million in fourth quarter of 2005 versus $19.5 million in fourth quarter of 2004.

Primarily due to the June 30, 2005 acquisition of the KMC metro fiber networks and continued growth in our fiber transport and other CLEC business.

Operating expenses increased $31.4 million, driven primarily by increased costs related to growth in our high-speed Internet subscriber base, by the KMC metro fiber asset acquisition and expenses associated with our new video and wireless reseller initiatives.

Our operating cash flow for the fourth quarter of 2005 was $308.2 million, compared to $318.9 million in the fourth quarter of 2004.

For the fourth quarter of 2005 we generated an operating cash flow margin of 49.7%, compared to 52.6% reported in the fourth of 2004.

The lower cash flow margin was in line with our expectations, due to the growth in lower margin revenues versus the anticipated decline in higher margin revenues.

Net income for fourth quarter of 2005 was 82.2 million, compared to 85.1 million in fourth quarter of 2004.

Our diluted earnings per share was $0.61 in the fourth quarter of 2005 and $0.62 in the fourth quarter of 2004.

As the decline was driven primarily by lower operating income, which was offset by lower interest expense, higher interest income.

And the effect of share repurchases during the last 12 months, which resulted in a little less than a 2% decline in our average diluted shares outstanding.

From a capital structure and financial strength perspective, CenturyTel continues to be positioned well and we remain in excellent shape from a liquidity standpoint.

CenturyTel generated approximately $85 million in free cash flow during the fourth quarter and we invested approximately $133 million in capital expenditures during the quarter.

For the full year 200,5 we invested a little less than $415 million in capital expenditures, which is about $10 million lower than our previously anticipated full-year expenditures of $425 million.

We ended the quarter with nearly $160 million in cash and cash equivalents.

Due to Hurricane Katrina, CenturyTel was able to defer payment of cash taxes for the second half of 2005 to the first quarter of 2006.

Therefore, we expect to make a tax payment during the first quarter of approximately $75 million.

Additionally as many of you know, the Rural Telephone Bank is being dissolved during 2006.

And based upon having recently received formal notification from the Rural Telephone Bank, CenturyTel expects to receive pretax proceeds of approximately $120 million in the first half of 2006 from the redemption of its RTB stock.

As of December 31, 2005, CenturyTel's debt to equity ratio was 0.73 to 1 and net debt to analyzed operating cash flow for the year was 2.0 times.

Currently our objective is to maintain our investment grade credit ratings.

Therefore, we believe we remain well positioned from liquidity and flexibility standpoint to execute our growth and investment strategies in the future.

Finally, I would like to review the 2006 guidance provided in our release issued this morning.

As always our guidance excludes nonrecurring items.

And additionally, our guidance does not include the potential impact of any new share repurchase initiatives during 2006.

For first quarter of 2006, we anticipate total revenues to be in the range of $605 million to $615 million, and diluted earnings per share to be in the range of $0.52 to $0.56.

A couple of items to note regarding our expectations for first quarter of 2006.

We anticipate lower local service revenues as compared to fourth quarter of 2005 due to access line declines.

We also expect lower universal service fund revenues, due to the increase in the nationwide average cost per local loop, which we have previously discussed with you.

And we expect increased cash expenses related to our satellite television, wireless and switch digital television service initiatives and continued growth in our broadband customers.

And we also expect our long distance cost of service to increase approximately $2.5 million due to a fourth quarter benefit from the true-up of certain long distance cost estimates.

Now, a few comments related to 2006 that will hopefully help you update your models for the full year, since according to First Call analysts; 2006 diluted EPS estimates currently range from a low of $2.15 to a high of $2.54.

We expect full year 2006 to be negatively impacted by lower universal service revenues and access line declines, our new initiatives and expensing of stock options.

Partially offset by anticipated improvement in our high-speed Internet wholesale fiber and competitive local business and lower interest expense.

Additionally, we will have lower access revenue due to the one-time settlement that we have received in the third quarter of 2005.

The per share amounts for most of these items are included in our news release.

Guidance for 2006 is based upon access line losses of 4.5% to 5.5%.

Additionally, we believe our effective tax rate would be approximately 38.4% in 2006.

Finally, we expect to reduce our capital expenditures this year to approximately $325 million, a $90 million decline from the $415 million we invested in 2005.

The decline is primarily driven by lower wireline capital expenditures, as we have invested significant amounts in our wireline network over the last several years and believe we are now in a position to move closer to maintenance capital levels of spending.

This concludes our prepared remarks.

We will now open the call for a few questions.

[OPERATOR INSTRUCTIONS] First question, David Janazzo from Merrill Lynch.

Glen, can you update us on your thought process on use of cash, share repurchases, dividend, M&A possibilities?

Yes, Dave.

We have not made any decisions yet for this year as far as thought repurchase or dividends.

Our Board meets later this month and we will be making some decisions there at that point in time.

We do expect to complete our $200 million stock repurchase program by the end of February.

And obviously, with the increased free cash flow we have this year, we have a lot of options available to us.

We think the -- acquisitions you never know but we believe that the Bell operating companies will continue to divest of rural properties over time.

We think the opportunities will be there.

Whether they be at levels and at the kind of properties we believe we can derive value from, we don't know.

But certainly we believe those are options for us to look at.

We can also of course initiate another buyback, we can increase our dividends, we have all the options open to us, levering up and increasing dividends like many of the companies have done.

We can add, expand, look to expand our fiber transport business or our other closely related businesses.

So, we have a lot of options to us.

We have not made any final decisions but are very cognizant of the need to wisely use the free cash flow that we are generating at such as a strong level.

Our next question come from Todd Rethemeier from Sur Terre Research .

Could you give us a little bit of color on where the access line losses are coming from?

And is it secondary line, wireless substitution, cable, just a little bit of color on that would be helpful.

Thanks.

Good morning, it's Karen Puckett.

The access line loss, 36,000 [at 67].

Of that 75% of those were a residential primary, 15% were second line, and 10% were our business lines.

If you compare that to last year, we were incrementally up about 58% from the fourth quarter year over year.

Last fourth quarter we lost 22,891.

So in terms of what's different there, the incremental difference year over year on primary really was on residential primary.

The increase there was 10,278 in terms of the loss.

That's a 77% increase.

And the situation continues to be our inwards.

Our inwards were down about 15% from last year.

Our actual outs have improved to flat.

They were down about 4%, even with some incremental voice cable competition.

Our second lines were pretty flat year over year and our business lines were up in terms of -- we had increased in terms -- about 3,000 year over year driven really by our inwards being down.

Our next question comes from Kevin Moore from Wachovia Securities.

Good morning.

Just wanted to follow up on the 2006 guidance.

In the press release you suggested you could have some revenue growth for next year.

I want to make sure that -- and sort of calculate in that we take out the one-time revenue item from the third quarter or is it based on normalized or just based on reported revenues for '05?

Thank you.

Hello?

Yes.

Basically, we expect revenue growth related to the KMC acquisition that we completed midyear this year.

And then we will also have continued revenue growth in our bundle sales, which will include primarily our DSL revenues.

So yes, we will see revenue growth in some of those categories.

And then we will have the offset with the decline related to our basic revenue associated with access line losses, as well as the access true-ups that we had primarily in the third quarter.

Just following that.

I guess my question was sort of what's the base revenue for '05 we should use?

Is that to include the third quarter, I think there was some one time true-ups in revenue in the third quarter.

Should we take those out of our base line calculation?

Yes, that should come out of your base line calculation.

We are not giving guidance for full year revenues but those one-time adjustments do need to come out of your -- the base.

Thank you.

Our next question comes from Edward Yang from CIBC World Markets.

Thank you.

Asking the dividend question a different way, with the expected cut in CapEx your free cash flow for 2006 should exceed about $500 million or about 11% more than before the CapEx cut.

Your current annual dividend is less than $33 million a year and that's about a 7% pay out.

Given the added flexibility in free cash flow that you were speaking tol what's a comfortable dividends pay out as a percentage of free cash flow longer term?

Is it 7%, 10%, 50%, any granularity would be helpful.

And I have a quick follow up afterwards.

Obviously, we could increase the dividend comfortably.

We don't have a benchmark or a percent or a target of what it should be.

We could increase.

The question is what will drive value for shareholders?

That's the real issue.

And we are concerned that with just a moderate increase in the dividend it may not drive any value for shareholders.

Whereas, we realize at least in the near term could you drive value by levering up and having a huge increase in the dividend, which we have decided that's not the strategy we are going to pursue at this point, or at least at this point in time.

So, we have not set any specific goals or lines.

Our whole view is what can drive shareholder value?

We will be talking with our Board about our free cash flow at the meeting this month.

We will make some decisions about this year and hopefully make the right choices here as far as what's best for long-term shareholder value.

Thank you.

My second question is on revenue mix and margins.

Less than 20% of your revenue currently comes from data, fiber and satellite.

This should increase a lot more going forward.

As these products scale, what do you think the long-term margin for these products should be on a free cash flow and EBITDA basis?

I understand that the EBITDA margins are a lot lower but CapEx should be lower as well.

How do you manage that transition as you move from pots and access lines to these more data and fiber intensive businesses?

Some of these services still developing.

And it's difficult to say for sure but our target in most of our performance in the 30% to 35% range for these businesses as far as margins are concerned.

And just the final question on the wireless NB&O., it does look like at least overseas any way with Virgin Mobile U.K. they're -- you could actually grow some value reselling cellular and wireless.

I know in the past you have spoken about that business more of a defensive measure but longer term do you think there is the possibility to actually grow your valuation by pursuing an NB&O wireless resale strategy?

Thank you.

We certainly hope there is potential for driving value.

But we don't want to create any false hopes because the margins are low at least initially.

And as we -- if we drive scale there, it drive part of the bundles in our markets and I think there will be ways to drive our cost per customer down, which in essence will help drive margins.

And that's really the key.

So yes, we think the potential is there but it's a ways down the road.

Thank you.

Our next question comes from Andrew Herling from XI Asset Management.

Good job.

Honestly, ,y question was asked by Ed.

And I really hope to God we see some good use of that free cash flow and again we are looking forward to '06.

Our next question come from Jonathan Chaplin from J.P. Morgan.

Hi, thanks a lot for take the question.

Just two quick questions.

First, in terms of the access line guidance, it seems like you are looking for a fairly sharp increase in line loss in '06 over '05.

I'm just wondering what you are speaking on the competitive front that's driving that expectation?

And then very quickly, if you could just let us know what you think the tax implications from the cash return from the RTB might be?

Thanks.

First of all, regarding the access lines, the key issue we've had is inwards, customers are coming in and not really calling us for service.

We are going to be doing some work on the distribution side there and doing some things we think with our bundles making it more valuable to customers.

But that's really the key issue there.

As far as competition is concerned, we have cable modem competition out in about 54% of our lines.

We have competition from cable subscribers -- from companies in about 12%, so it's not really growing rapidly there.

But there are a lot of folks who are, I think, using the wireless phone quite a bit and we just want to find ways to make our bundles more valuable.

One thing we are doing is going to unlimited long distance offerings in a number of markets, most of our markets as a matter of fact.

And bundles that involve that along with our broadband services, we think we can help alleviate that.

But right now the trends throughout the industry are pretty tough as you well know.

And we are just reacting to those trends and anticipating line losses in the ranges we've given.

If I'm not mistaken, I think on the last call you hadn't seen any VOIP competition from cable yet.

So, the 12% is an increase in competitive intensity in your markets.

I think last call we were just seeing it rolling out in a couple of markets.

I think it was just beginning when we had our last call.

And I guess then the taxes on the RTB front?

Jonathan, on the RTB stock, our basis in that's about $10 million.

So, we expect after tax cash of about -- a little less than $80 million.

Excellent.

Thank you very much.

Our next question comes from Michael Rollins from Citigroup.

Hi.

I was wondering if you could talk a little bit more about wireless in two perspectives.

The first, is how closely have you looked at the WiMax, WiFi strategy to go after the residential market?

And within that context, what are the risks from a competitive perspective for your local footprint?

And what are the opportunities to edge out from your current footprint and use these technologies to try to grow the business?

Thanks.

Michael, we've looked closely at WiMax and WiFi.

We continue to evaluate these technologies.

We do think especially WiMax will be a very viable technology to utilize.

We believe it can help enhance our ability to bring customers great alternatives and help customer loyalty and improve customer loyalty in our markets.

The jury is still out as far as how effective this will be in and edge out strategy.

We don't think we're -- in our markets at least, there is great risk there from a WiMax standpoint because we are going to be on top of that offering these same services ourselves.

In more dense market, there may be more risk at times because of just the population density and the ability to cover certain areas in a city with broadband wireless that could possibly cause some heated competition.

But for right now we think that's a ways off, too.

Our policy right now, is we use it right now to enhance our services in our own markets and help increase customer loyalty.

And if I could just follow up for a moment on something that you mentioned earlier.

You talked about trying to look at ways of creating shareholder value when you were talking about the dividend.

I was just curious.

As you prepare to make some decisions, could you share with us sort of case studies or sectors or periods of time that you are looking over so that we can sort of understand how you are approaching the decision?

Thanks.

The only thing specifically I can point to, I can tell you we've had studies December done buy at least two, maybe three investment banks on this issue about the impact on shareholder; of different levels of increasing the dividend, different levels of leverage.

And in two of the cases -- really the two cases that were specifically targeted, they both came up with the same answer.

That there was a lot of risk in whether or not you drive, mainly for shareholder value, with just a moderate increase in the dividend.

So that's been -- that's one of the issues we are continuing to look at.

But that is the study that was made.

Now, as far as individual case studies to point to that companies have done this, I don't have anything to offer you there.

Great.

Thank you.

Our next question comes from Chris King from Stifel Nicolaus.

Just two quick regulatory related questions for you.

First of all, I was wondering if you could provide us with any kind of an update on phantom traffic issues and where the FCC is on that front?

And secondly, we continue to hear that the [MaRoute] Group is close to reaching some type of an agreement, at least for some type of preliminary agreement perhaps would be a better way to put it, on some intercarrier compensation performance.

I just want to get your quick comments and thoughts about that.

Thanks.

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

With the MaRoute group, we've been at the table there from the beginning and we are encouraged by some of the developments there.

We don't know where that will end up but.

But is -- there have been positive steps they are working through this with a group of companies from the -- various types of companies there in the room.

So, there's been a positive process to this point.

I can't say really any more about that.

These are confidential discussions at this point but it's moving positively and we are pretty encouraged at this point in time with those discussions.

On phantom traffic, we've been working, as you know, with other mid-sized companies and we filed a petition at the end of the year with them.

Right now it's getting a lot of attention at the FCC.

And we are working with now a larger consensus, working with the RBOC's and seeing if we can forward with an industry solution and get it pulled out of the intercarrier docket.

So the question is will it stay in the intercarrier docket or will be pulled out in and advanced forward.

And my thinking on that is it's a good shot that we will get the advance forward probably by midyear, is the hope.

Next question comes from Robert Schiffman from Credit Suisse.

Hi, I don't want to beat this capital structure dividend question to a complete death, but I think it deserves a couple of more shots.

It certainly seems like there's a change in your tone about the value of investment grade ratings.

And in the past it seemed as if you wanted dry powder to take advantage of acquisition opportunities.

One is, are you clear there is going still to be those acquisition opportunities?

Two is, do you believe that you still have enough dry powder even if you increased your pay out ratio, increased leverage, perhaps went below investment grade to take advantage of those opportunities?

And maybe, three, just to sort of sum that up, is the value of having this investment grade balance sheet the same as what it used to be whether that was last month or last year or two years ago?

Thanks.

Well first of all, I don't think there's really a change in our position.

It was a change in tone.

We've always maintained that we were flexible as to what's best for long-term shareholder value.

We maintained a position that we believe it was best to maintain our investment grade credit ratings and that's still our objective.

We think there will be acquisition opportunities, we don't know that but we believe there will be.

We think it's important to be flexible, to -- plus acquisitions or other opportunities in the industry.

At this point in time we believe it's still the right strategy now.

Over time, time will tell about those opportunities and our Board will make final decisions on dividend policy.

But right now we have not made a significant change in our position or beliefs about our strategy here.

And if you can just clarify for me exactly what the benefit of that stronger balance sheet is.

Is it because you don't believe you could take advantage of those acquisitions without that balance sheet or you are just getting a sense that from an evaluation standpoint you are better off having a balance sheet like that?

Thanks so much.

Well, I think it does give us more flexibility in the acquisition arena first of all.

Because if you have -- the lower leverage gives you more flexibility.

The question is; if your pay out ratio is lower can you -- is your currency competitive out there?

And since we have the options of doing those we don't think we are at a disadvantage.

We are always lever up and pay a higher dividend if we choose to.

We believe it's a better strategy to remain a more financially stronger and maintain our flexibility, not just for acquisitions, but for other opportunities that may come in this industry.

And in our industry it's very dynamic now.

And we think there are potential opportunities out there that could come about that we could drive more shareholder value long-term than just levering up and paying out a high dividend.

I really appreciate it.

Thank you.

Our next question comes from Brian Lathar from Aetna.

Fortuitous timing.

Glen, we've been working together for a long time and have been supporters of your Company for a long time as well.

And I agree with Rob that it does definitely sound like there's a shift in the tone, when you say currently our objective is to maintain our investment grade ratings; that is a far cry from what I've heard from you in the past.

So, I do get some comfort from the comments that you just gave to Rob and to this call about the fact that you do, at this point, believe that shareholder value is best served long term by maintaining those investment grade ratings.

And there are a lot of bondholders out here who hope that that's the strategy you continue to pursue.

Brian, that is our view today.

And as I mentioned, our Board can change their view but that's been our view and it continues -- as far as I'm concerned, it continues to be our view as of today.

Silly question to add to the call is; did you report long distance lines this quarter or did I miss something?

Well, I did in my talking part, I think we added 9,300 lines internally and we bought another about 70,000 -- or converted 70,000 lines from another carrier who really just exited our markets.

Okay.

Great.

Thank you.

Our next question comes David Barden from Bank of America Securities.

Good morning.

Or good afternoon.

Just maybe three questions if I could.

Number one, Stewart, on the true up in the quarter, fourth quarter, could you run us through how that went through the income statement?

Was it just a cost reversal or did it show up in the revenue line as well?

And then second on the EPS guidance, does that include the impact of the buyback being completed by February or does it exclude that?

And then the last question, I guess it's obviously kind of related to a lot of the questions we've had so far; but I think Glen, you've actually answered a lot of these questions at the analyst day we had last year.

One of the things that you had said was having made the decision about the relationship between chasing acquisitions and choosing leverage and dividends that you were probably going to let this strategy sees for 18 months before you kind of revised it.

I was wondering if you could address that; given your kind of body language here that the Board could change your mind?

And the Board is meeting at the end of the month and this is your view but the Board could change it.

I wonder if you could just talk about the time frame for reassessing the big picture strategy?

Thanks a lot.

David on the true-up in the fourth quarter is a little over $2 million, I think about $2.5 million.

It did flow through the cost side of our long distance business, so it was an expense true-up.

Our EPS guidance does include the assumption that we will repurchase the remainder of the shares that we can repurchase under the $200 million program that was approved by the Board last year.

And as Glen indicated earlier, we anticipate completing that by the end of February.

But most of those shares have been repurchased at this point.

David, on the question on the time frame of acquisitions versus dividend, that has not changed.

I believe that -- at least my view is that -- and my recommendation at this point would be that we not change our approach.

That we do believe there still could be acquisition opportunities or expansion opportunities and that we still need the flexibility to take the route we think is best for the Company to create long-term shareholder value.

And I think the 18 months then, it was back in September and I think that put us back this time next year so, which we will take another look.

It's still my view that those opportunities could still be there and when those are gone we can always look and see what we want to change.

The good thing about our strategy is we continue to buy back stock, which is good.

We have not limited ourselves by committing to a dividend that you all would expect to be somewhat permanent anyway.

And we have maintained the -- we have not put ourselves in a position where we can't lever up and we can't let -- increase our dividend when we choose to.

So, we still have those options available to us and in the meantime we are looking at the other alternatives and opportunities that arise in the next 12 months.

And you feel that you are pretty much on the same page with the Board?

Is there any reason to believe that the Board isn't on the same page?

As far as I know I am on the same page of the Board.

At the last meeting I was, anyway.

Thanks a lot, Glen.

Our next question comes from Frank Louthan from Raymond James.

Great.

Maybe give us more color on a couple of other things in the quarter?

On the wireless you said you started that.

Can you give us some idea of how that tracked relative to expectations, particularly on the cost side of that?

And can you give us any indication of what possibly the sub growth of the bundled take rate was?

And if you can comment a little bit on, you continue to have very strong success on DSL, any particular marketing programs in the quarter?

Any comments on how successful you are on converting your dial-up base to DSL and what your expectations are for next year for that?

Frank, on the wireless side I think we need to give that -- I think next quarter we will have a lot more color for you given that we are really just getting it out.

We've gotten through the trial.

We are very pleased though with the traction that we've got on a short-term basis.

On the DSL what was your question on the DSL?

Well, did you have any particular marketing?

You continued very strong success with that.

Any particular marketing programs this quarter?

And what do you expect next year?

And then how are you tracking as far as converting your dial-up base over to DSL?

You've been pretty aggressive with that in the past.

Is it still a major focus?

On the dial-up base we had -- about 23% of our DSL growth adds were from dial migrations.

And in terms of the rate plans that were out there, we did have a vertical rate plan at $24.95, which is the entry point.

It's 256.

And then in our bundle for, I think it was for $30 or $35 you can get the 1.5 meg, it's actually $39.95.

And then the other package that's in the bundle for three meg is a $50 plan.

So, we've tried to simplify it with three packages and we do have one vertical out there, which has been successful for us in terms of furthering the penetration.

We've had good success on the bundle.

Of the gross adds, 27% of our gross adds are driven by our bundle and I think that that will continue towards next year or this year. 65% of our integrated -- or customers on a bundle are new to DSL, so you can see that that bundle is really helping pull them through.

That is a key strategy for us.

Great.

Can you quantify your -- I think earlier this year you commented you were seeing some strong success and incremental demand for your CLEC in Louisiana following the hurricanes.

Has that continued?

Do you -- was any of that sort of a temporary considering the situation?

And how much of that business is going to carry over, do you think, to next year as sort of a permanent uptick in the CLEC business?

The success that that we were having, a lot of the businesses moved to Baton Rouge and we've had just expansion there, we've had good growth.

We were not in new Orleans, thank goodness.

So we've benefited incrementally in the businesses moving in and that continues to be a healthy market for us in a into '06.

Great.

Thank you.

Our next question comes from Simon Flannery, Morgan Stanley.

Glen, the drop in CapEx is pretty impressive for 2006 and really in contrast with what we are seeing in the rest of the industry.

I'm assuming that wasn't an easy budget to put together.

Can you or the team put a little bit of clarification on how you came around to the budget for '06?

And what were some of the puts and takes and be perhaps a little more granular on what is in next -- what is in the '05 budget that's not in '06 that helps us feel like we can see this sustain for a couple of years?

Thanks.

Yes Simon, I think primarily it's a result of the fact that we have spent money in the last several years in improving our networks and shortening our loops. 79% of our loops are less than 18,000 feet and linked 62% of our loops less than 12,000 feet and linked to date, which is for our sector we think is very, very positive, a very good ratio.

We have 74.5% of our customers have access to DSL today.

We've -- spending our capacity this last year in the markets we serve.

So, we believe -- we've spent money to really upgrade our networks that puts us in a position not to have to spend as much going forward.

And that's of course, if the new technology comes down, switch digital really becomes viable that could alter those plans but right now we believe we are it.

Our spending levels for 2006 will be sustainable for the foreseeable short of some real opportunity.

Thank you.

Our next question comes from Tom Seitz from Lehman Brothers.

Thanks for taking the question.

I would just like to follow up a little bit on what Simon was asking about.

With respect to the CapEx cuts, if they are sustained for a long period of time are they going to have an impact on interstate access revenues?

I think by and large those have held up better than the other subsidy revenues.

But if you sustain CapEx cuts like that will it have much of an impact on interstate revenues?

And then another sort of related question, do the CapEx cuts imply that all the loops that you would want to offer IP TV are groomed to be short enough to be able to offer that service?

Or if the equipment comes down in price such that you feel like you can make money, does that imply we are going to have to spend again on CapEx?

And then I just have one other questions on EPS guidance.

Tom, on the first first question on the impact of interstate access revenues.

Not a real big impact on 2006 but if we sustain the CapEx levels that we are moving to in 2006 over a longer period of time it would negatively impact our interstate revenues to a certainty degree.

But about 75% of our access lines are the interstate or rate based regulated or rate of return regulated in the interstate jurisdiction and we get about 30% or so allocating to interstate of those companies, of that 75%.

So, again a pretty minimal impact on 2006.

But again, if the rate base declines over a longer period of time there would be a larger impact.

The other thing that impacts our interstate revenues is just the fact of our controlling our expenses.

Because again you get an allocation of expenses on those companies that are not price cap over to the interstate jurisdiction as well that affects -- that to the extent you control those expenses, has the impact of declining or muting somewhat your interstate revenues.

And I think the opportunity there is that we are going through assessment of policy change at the Federal level.

That there will be some form of Federal incentive programs so that you have some flexibilities and there is some incentive to reduce cost without the impact on the bottom line.

How about with respect to the what the IP TV evolution does to the current CapEx plans?

First of all we are pleased with the structure of our network, with the quality of our network today.

If IP TV requires the same as they are today, which is more feasible -- economically feasible then we will certainly have to spend more money to shorten loops.

We think we have mitigated some of that with our recent last few years with the CapEx we've spent, we have been spending to shorten loops to increase capacity of our network.

However, if IP TV really becomes a viable option for us, a real opportunity for us then it will require more spending.

Okay.

Thanks.

Just last quick question, as you went through the things that are going to impact EPS either way this year, I did not notice a reduction in dividend or other income that will result from the RTB redemption.

Is that included in the full year guidance, just not broken out separately?

Yes, Tom, that's really very immaterial, the cash dividends that we are receiving there.

It's really immaterial.

Great.

Thank you very much.

Next question, Mike Mccormack from Bear Stearns.

Thanks, guys.

Just one follow up-on the capital expense question.

I think last quarter on October 27, Stewart, had you said had you expected the capital budget to be flat in '06.

So, I'm wondering giving some of the puts and take but it seems like the things you were mentioning maybe should have been identified much longer term.

So, it seems like a three-month period there, that there's something that's turned around.

I was just wondering what the catalyst was for that change in direction on CapEx?

And secondly, on the satellite relationship you haven't mentioned much of what's going on there.

And I know you've been talking about changing the structure of that relationship.

Maybe just an update there.

And maybe in the absence of selling that in a way this quarter, is some of the dilution for the new services directed maybe towards an alternative video, maybe a more aggressive roll-out on the wireline side?

And then lastly the other income line looked like it was up a bit maybe due to this one-time write off of a business.

Just wondering what the run rate should look like on the other income line going forward?

Thanks.

Okay, Mike, in conjunction with the capital budget, on the third quarter call, at that time we indicated that our capital budget in 2006 would be lower.

That we expected it to be lower but we we did not quantify that because we were in the process of reviewing that and completing the capital budget at that point in time in order to go over it with our Board at our November Board meeting.

So, we did indicate that there was going to be a decline as opposed to, as you said, it was going to be flat.

I will go back and look at the transcript but I'm sure that's what we said.

In terms of the other income let me answer that and then we can go back to the satellite question.

Basically in the fourth quarter, the other income line we had a couple million dollars of increase in cash surrendered value of insurance and life insurance proceeds.

We also had higher than normal interest income related to the cash balances that we had.

Partially, because we were able to defer the $75 million tax payment for 2005 into -- over into the first quarter of 2006.

And then also we had I think our wireless earnings were up a little from the Lafayette partnership that we participate in.

And also we received about -- we received a settlement of a couple million dollars from our insurance broker as part of a national settlement that they made.

So, it sounds like the run rate then in '06 might go back to a third quarter type of run rate?

Yes, it should go back to the third quarter run rate.

Okay.

Regarding the satellite relationship, Mike, we are looking at the agency arrangement versus our reseller arrangement that we had today.

As you know, most of the companies now in our industry have gone to the agency arrangement.

We are looking at that.

On the reseller arrangement we share the cost of -- the customer acquisition cost basically.

We can reduce the operational -- or the P&L impact to go to the agency arrangements.

So, we are considering that and looking at that with dish and we'll making those decisions in the coming weeks.

Our final question for the day comes from [Sal Voyo from S. Voyo and Company].

I may have missed the number but how much was spent on stock buyback last year excluding the buyback of the equity units?

Last year it was $114 million, the stock buyback, excluding the equity unit, the share repurchase of our equity units.

And then we spent about $50 million in January under that $200 million share repurchase program to essentially to complete the program in February.

I wanted to ask if had you any thoughts about the upcoming Spectrum auctions and whether you thought there was anything to do there relative to anything for CenturyTel?

Sal, we're looking at those.

We've not made any decisions.

We think there may be some opportunity there.

We just are not sure what kind of costs we are looking at -- anticipate.

But we are -- we will be looking at the possible participation in those options.

Thanks.

I think that makes sense.

All right.

Thank you.

Thanks.

I show no further questions at this time.

I would now like to turn the conference over to Mr. Glen Post for closing remarks.

Thank you.

Just to be clear, we had so many questions on the dividend issue and cash flow issue I just want to make clear that we review our dividend strategy every February.

This is not a special meeting.

It's nothing special.

We've reduced our CapEx because it is the right operational decision.

Our investment grade rating is important to us and we believe that flexibility afforded by our financial strength is a strategic advantage for us.

We will continue to review CapEx, our acquisition strategy, our dividend, our cap structure.

I will continue to look at share buyback issues in terms of really what's in the best long-term interest of shareholders, shareholder value.

Just want to clarify where we are there.

In closing, our industry continues to undergo a significant change through 2005.

It will continue this transformation, we believe, into 2006 and beyond.

I am pleased that CenturyTel has continued to deliver solid results during this period of increased competition and technological evolution.

We will continue to focus on delivering our customers a full array of communication services and driving revenue additional streams and growth in our business.

We also believe we can continue to leverage our networks to drive growth of our broadband and fiber business products and to provide transport cost savings.

And we will continue to closely evaluate all alternatives for utilizing our strong cash flows to drive shareholder value in the month ahead.

While 2006 will continue to provide competitive, regulatory and economic challenges, I am confident that we are positioning CenturyTel to face these challenges and succeed in years ahead.

I thank you again for participating in our call today.

We look forward to speaking with you in the coming weeks.

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

This concludes the program and you may all disconnect and have a wonderful day.