Lumen Technologies Inc (LUMN) 2006 Q1 法說會逐字稿

Good day, ladies and gentlemen. Welcome to CenturyTel's first quarter earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will be given at that time. [OPERATOR INSTRUCTIONS] 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 of Investor Relations. Mr. Davis, you may begin your conference.

Thank you. Good morning, everyone, and welcome to our call today to discuss CenturyTel's first quarter 2006 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 second quarter and full year 2006 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.

Our call today will be accessible for telephone replay through May 3, 2006 and accessible for webcast replay through May 17, 2006. 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 today, April 27, 2006 and should be considered valid only as of this date 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. Thank you for joining our call today as we review CenturyTel's first quarter 2006 operating performance and discuss our outlook for 2006. CenturyTel achieved solid financial results during the first quarter as revenues were within our range of expectations for the quarter and diluted earnings per share exceeded the high end of the guidance we have previously provided. Earnings per share, excluding non-recurring items, was $0.58 for the quarter, or $0.02 ahead of the First Call consensus estimate of $0.56 per share, driven primarily by lower average fully diluted shares and anticipated at the time we provided the guidance.

You will recall that in February we announced a $1 billion share repurchase program with a simultaneous execution of $500 million of that program to accelerated share repurchase agreements with investment banks. The 14.36 million shares retired under the ASRs in February drove the lower average fully diluted shares.

CenturyTel continued to achieve year-over-year revenue growth in the first quarter even with the expected declines in access in USF revenues as well as revenue declines associated with the loss of access lines. There were a number of primary drivers of this revenue growth which more than offset the anticipated declines. First, we experienced increased data revenues, primarily driven by growth in high-speed Internet subscribers. Additionally, we continued to experience increased revenues from customer growth and expansion of our light corps division. Wireless and video initiatives also contributed to revenue growth during the quarter. Finally, the KMC metro fiber access acquired in mid-2005 contributed to year-over-year revenue growth.

Our business continues to produce strong free cash flow as we generated nearly $147 million of free cash flow in the first quarter versus approximately 137 million in the first quarter 2005.

From an operations standpoint, our customers continue to show strong interest in CenturyTel's bundled offerings, as we added more than 47,000 bundles during the quarter which represented 14% sequential growth in total bundles.

Simple charge customers now represent almost 23% of our residential access lines, up 300 basis points from nearly 20% at year end 2005. Additionally, customers continue to exhibit strong demand for CenturyTel's broadband service offerings as we've added more than 37,000 high speed Internet customers during the quarter.

We previously communicated we expected long distance line growth to slow through 2006 and beyond our penetration level having reached over 52% at year end 2005. During the first quarter, we proactively expanded our competitive offering of an unlimited long distance bundle to better position CenturyTel for increasing competition for voice service in our markets. This expansion of our unlimited LD offering was a key driver of our approximately 28,500 long distance adds during the quarter. We believe these unlimited offerings improved customer retention and that they will further penetrate high speed Internet connections and enhanced calling features over time.

I want to now update you on a couple of operational items. First, a brief update on progress on our video strategy and progress to date. We continue to work with our switched digital television service offerings in Wisconsin and Missouri and believe there is strong potential for IP video to become an entertainment solution for the more dense markets that we serve. These opportunities we believe will increase as larger telecoms intensify their focus on IP-based offerings in the months ahead.

During the first quarter, we expanded our wireless product offerings from markets representing 70% of residential access lines at year end, 2005 to nearly 30% of residential lines at the end of the first quarter. 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'll turn the call over to Stewart to provide additional details on our results for the first quarter and to update you on our financial guidance for the second quarter and full year 2006.

Thank you, Glen. I'll begin my comments today discussing the highlights of our operating results for the first quarter of 2006, then briefly discuss our capital structure and liquidity, and conclude my comments with a brief discussion of the guidance provided in our earnings release issued this morning. All comments regarding actual results exclude those non-recurring items detailed on the financial statements accompanying the press release.

Effective this quarter, we made a slight change in the format of the revenue section of our consolidated income statements. We believe competition is driving the marketplace toward bundled service offerings that include all distance, voice packages. Therefore, effective this quarter, we've combined local service revenues and long distance revenues into a single revenue line item entitled "Voice Revenues." We continue to provide network access, data, fiber transport and CLEC and other revenues as separate line items.

For first quarter 2006, operating revenues increased to $610.3 million, up 2.5% from $595.3 million in the first quarter 2005. Our voice revenues for the first quarter, 2006, were $217.4 million versus $224.5 million in first quarter of last year. This decrease in voice revenues is primarily driven by revenue declines associated with access line losses and lower average minute per minute rates which were partially offset by growth in average minutes of use. Our access lines declined 22,400 during the first quarter as we ended the quarter with approximately 2.19 million access lines.

Network access revenues were 224.1 million versus 230.3 million in first quarter 2005. This $6.2 million decline resulted primarily from the anticipated lower universal service fund and intrastate revenues.

Data revenues increased almost 14% from 72.9 million in the first quarter of last year to 83.1 million in the first quarter of 2006, primarily driven by continued strong high-speed Internet subscriber growth.

Fiber transport and CLEC revenues increased 76.8% to 35.8 million in first quarter 2006 from 20.2 million in first quarter 2005, primarily due to the acquisition of the metro fiber assets in mid-2005 and continued fiber transport demand from new and existing customers, which were partially offset by fiber transport service rate changes associated with contract renegotiations and renewals.

Operating expenses for the quarter were 447.3 million compared to 418.4 million in first quarter 2005. This increase of approximately $29 million was driven primarily by increased costs related to growth in high-speed Internet connections, long distance lines, fiber transport demand, along with expenses associated with the metro fiber assets acquired in mid-2005 and costs associated with our new video and wireless service offerings.

Operating cash flow for the first quarter 2006 was 297.6 million compared to 309 million in the first quarter 2005. And for the first quarter this year, we generated an operating cash flow margin of 48.8% compared to 51.9% for first quarter 2005.

Operating income for first quarter 2006 was 163.1 million and net income was 72.4 million.

As Glen indicated, we added approximately 28,500 long distance lines during the first quarter bringing our total long distance lines to nearly 1.2 million as of the end of March. Long distance line penetration of our local exchanges as a percentage of total access lines reached 54.4% at the end of the first quarter versus 47.5% at the end of the first quarter 2005.

As Glen mentioned, we continue to experience excellent customer response to our high-speed Internet offerings and bundles with the addition of a record 37,000 high-speed Internet subscribers during the quarter. We ended the first quarter of 2006 with nearly 286,000 high-speed Internet subscribers or a 17.4% penetration of total DSL-enabled lines.

From a capital structure and financial strike perspective, CenturyTel continues to be positioned well and we're also in excellent shape from a liquidity standpoint. CenturyTel began 2006 with approximately $158 million in cash and cash equivalents and generated nearly $147 million of free cash flow during the first quarter. As expected, our capital expenditures for the first quarter were approximately $60 million. We made an estimated tax payment of about $75 million, which was deferred from 2005 into early 2006 under Hurricane Katrina tax relief.

We utilized about $73 million to repurchase approximately 2.1 million shares under our old $200 million share repurchase program and we also utilized approximately $150 million of cash on hand and borrowed approximately $350 million to fund the $500 million accelerated share repurchase program or ASRs as part of the new $1 billion share repurchase program announced in February.

We ended the first quarter with about $15 million in cash and cash equivalents. Also, as anticipated, in mid-April, we received approximately $123 million of cash from the redemption of our rural telephone bank stock. As briefly mentioned earlier by Glen, CenturyTel purchased and immediately retired 14.36 million shares under the ASRs in February which represented about 11% of outstanding shares at that time. The investment banks began repurchasing shares in the open market shortly thereafter to replace the 14.36 million shares they borrowed under the agreements. To facilitate these repurchases, we set up 10b51 plans with the investment banks which allowed them to repurchase shares at all times, not just during open trading windows. At the close of trading yesterday, April 26th, the investment banks had repurchased nearly 5.9 million shares, which represents completion of approximately 41% of the 14.36 million ASR at an average price of $38.16. When the investment banks complete their required repurchases, we expect to evaluate and make a decision regarding how best to accomplish the remaining $500 million of the $1 billion share repurchase program.

From a leverage standpoint as of the end of the quarter, CenturyTel's debt to equity ratio was 0.93 to 1 and net debt to annualized operating cash flow for the quarter was 2.4 times. So we believe CenturyTel's financial strength and solid cash flow position positions us well to execute our growth and investment strategies in the future.

Finally, I 'd like to briefly discuss the second quarter and full-year 2006 guidance provided in our press release this morning. Let me begin by reminding you that our guidance excludes non-recurring items. Additionally, our guidance does not include the impact of any share repurchases that may be made under the remaining $500 million balance of our $1 billion share repurchase program.

For the second quarter of 2006, we anticipate total revenues in the range of $605 million to $615 million and diluted earnings per share in the range of $0.54 to $0.58. Regarding our expectations for second quarter, we expect increased operating costs related to growth in our Internet and fiber businesses. Our annual wage adjustments went into effect in April of this year. Increased outside maintenance activities due to normal seasonality and expenses related to our video and wireless service initiatives. We increased our 2006 full-year diluted earnings per share guidance from $2.20 to $2.35 to $2.30 to $2.40. The primary reasons behind this increase are the lower fully diluted shares as a result of the repurchase and retirement of the shares under the ASR in February as discussed earlier, the benefit of which is partially offset by interested -- increased interest expense and lower interest income driven primarily by the repurchases.

Secondly, the proactive rollout of unlimited long distance, voice bundles in our markets where we have cable, VoIP competition or expect competition soon. Costs associated with the continued transition of the metro fiber assets acquired in mid 2005. Lower universal service fund revenues expected now due to higher than anticipated national average costs per local loop, and higher fuel and energy costs. This concludes my prepared remarks. So we'll now open the call to a few questions.

Thank you, sir. [OPERATOR INSTRUCTIONS] One moment while our participants queue up. Our first question comes from Simon Flannery from Morgan Stanley.

Thank you very much. Good morning. Two quick questions. Could you just talk about the M&A environment? There's been a lot of talk about, in the past, about Bell access line divestitures and others. Is there any change in the past three months on that front? And can you talk about, we're hearing again a lot about universal's service fund changes to the way that that's assessed and some movement on the inter-carrier combat. Anything from your perspective on those fronts as well? Thank you.

Yes, Simon. On the, our policy is not to talk about any major issues so we couldn't if there were something we couldn't really discuss it, but I don't see a lot of changes in the last several months. We still hear a lot of talk and know that at least we believe that over time, the Bell operating companies will need -- will want to divest of more rural properties. We'll see what happens in the months ahead. We don't see any major changes there. We just still believe they are considering and will consider this, those types of sales in the months ahead. Karen, you want to talk about USF?

Question around USF. There is an industry-wide effort that continues with the goal of negotiating the consensus plan and NARICK has been one of the groups. We've been involved with that. In fact, three of the commissioners that really are behind that, we operate in their areas. They really have encouraged us to keep involved, which we have. The plan's still evolving due to the confidentiality, we're really not at liberty to talk about the plan but what we can say to you, I think we've talked about before is that the rates and transitions is not a one-size approach. There is a rural kind of carve out with the current program. The plan does have a forward-looking capability in terms of the IP data world. Our objective is to really minimize any customer impact that we would -- that the plan would have revenue stability and the transition time needs to be reasonable for companies like ours.

On the USF front, there's kind of two tracks of work going on. We've got the work at the SBC. The issue there is they really need to have the fifth commissioners. There's been a lot of work around contribution, methodology. In fact, Glen Post testified a couple of months ago about USF. I think Martin's made it clear that he prefers telephone base, which we pretty much as an industry can all get around. There's also some legislation that's floating around in Congress. We're hearing that Stevens is moving forward with telecom reform. Many of us have been reached out to in terms of the type of reform specifically around USF. So there seems to be movement again in Congress. The point there is that they need to be focused on really is the size of the sun, ensuring continuing investment in rural America and furthering a broadband buildout where there is not broadband and fixing contribution. Really, the fifth part of that is probably the accountability for the receipt of USF, especially around the ETCs. Just a corollary there, the dollars that are flowing to the current wireless ETCs. They're going to top $1 billion this year so this really needs to be dealt with.

Thank you.

Our next question comes from Frank Louthan from Raymond James.

Good morning. Just a couple questions. Just one on a couple things around the guidance. You said that some of the increased costs are reasons for the guidance which I would expect to be a little bit higher. When can we expect to see some of the increased costs for DSL and fiber start to hit some scale or start to turn the other direction and then you said that part of it is due to continued decreased expectations on USF. Is that different from-- has there been a change in your expectation in USF for the year from when we talked about the guidance in February or is that still the same amount of down tick from USF? Thanks.

Frank, I'll address the last part of your question first. On USF, yes, our expectations are somewhat lower than they were when we issued the initial guidance for the year. I think our initial guidance had USF decline of $0.04 to $0.06 or so to 2006 and I think we would probably increase that by a $0.015 or so for the full year. Again, related to the national average cost per local loop being somewhat higher than we used in the original outlook that we gave you earlier this year.

And Frank, regarding the increased costs with respect to the DSL scale question you raised, we're beginning to see income from DSL. We are getting scale. Really what it boils down to we added 37,000 DSL subscribers, a record quarter for us, about an 18% increase over the first quarter year ago and just the acquisition costs and then the investment required in those new customers are going to drive some additional costs. As we continue to increase that base, of course, we'll see more scale and see less impact, at least percentagewise, on the overall operations this quarter than we had this time.

And just one last question. Current expectations for the use of the cash with the, for RTB or are you going to keep that on the books or use that to pay down some of the debt that you took on in the quarter?

Frank, basically the debt that we took down during the quarter is on our commercial paper facility and we'll use the cash from the RTB to repay part of that.

Great. Thank you very much.

Our next question comes from Mike McCormack from Bear Stearns.

Hi, guys. Just question on the pressures for the quarter. I think you addressed a few things here. I think I understand the interest expense, which was, I guess, potentially going to be for the benefit of now pressure. Your commentary around unlimited LD voice pressure. Are we seeing increased activity from the cable providers there? Is there a change in your outlook on how competitive that marketplace is? And secondly, with respect to your wireless NBNO strategy, can you give us an update on that as well? Thanks.

Mike, regarding the unlimited LD offering and the increased competition, we had about 12% voice over IP competition from cable companies at the end of the year. I think it's up to about, a little over $0.17 a day. We do expect that to increase over the next coming months. We factor some of that into our outlook. So we are seeing real competition within limited offering. We think we're going to have it good along with our satellite TV bundle. We're going to be able to do a good job in competing for the cable companies. We think the unlimited is necessary. Of course, that unlimited will help drive other services, data services, DSL, and we believe other services, enhanced services in the months ahead. The -- Karen, you want to add to that, anything you want to add to that?

Yes. In terms of just the competitive nature, we had the same basically our outport when you look at year-over-year, we're flat. So even with the increased competition that Glen spoke about, we had more customers porting to cable but net/net, our outport flat so we feel good about the traction we're making there. In terms of the wireless, we have about 30% of our access lines that we're offering, just now offering wireless till we have two other carriers. Hopefully one that we're going to finalize negotiations in the next two weeks and follow up with a third one. So probably in the next six months, we'll have more traction to report to you on the wireless effectiveness of that.

Thanks, Karen. Stewart, would you be willing to sort of identify the magnitude of some of these pressures you discussed? The interest expense impact and higher fuel energy and the unlimited LD? Can we get some numbers around that?

No, not really, Mike. It's really just pretty much across the board on the items that we mentioned there.

Okay. Thanks very much, guys.

Our next question comes from Jason Armstrong from Goldman Sachs.

Great, thanks, good morning. Couple questions, I guess first on IPTV. You've got a couple trials going. You mentioned potentially sort of pushing this out to some of the more dense markets. I'm just wondering if you could give us the sense as to what percentage of your access lines you would consider to be in sort of dense markets and then what the capital spending might be in terms of requirements to build this out? And then second question on leverage, you talked about 2.4 times leverage right now. It's probably going to come down a little bit with the RTB settlement coming in. Where are you comfortable with leverage sort of as it relates to the potential share buyback program after the ASR is completed, if you think about buying back the other 500 million in shares? What sort of the threshold for leverage should we think about? Thanks.

Regarding IPTV, first of all, we're really in just the trial stage in Wisconsin, about 8,000 households we have there. We're beginning a trial in, we're building out in Missouri for a trial there. It will be a very small in nature. We don't -- the numbers really aren't in yet as far as the overall costs. The count there could involve shortening loops in some areas as well as the equipment involved. I think, we believe that with AT&T, especially AT&T, and then Verizon having more focus on this area, it's going to drive the costs down and we should see greater feasibility of IPTV in the months ahead. We do not have the Cap Ex today. As far as the percentage of our access line we built, it really depends on the cost and the spectrum required or bandwidth required to reach those customers. Right now, we believe we need to -- for two channels of HDTV, three television streams and the high speeds of three meg data offering, we need 20 to 25 megabits of spectrum. Without the HDTV, 12 to 13 megabits should be a comfortable area for us. That's what we're working with in terms of bandwidth.

Okay. Then the leverage question?

In terms of leverage, I guess, you know, we've said that we want to keep our investment grade credit rating. We're very comfortable where we are. Actually, I mean, we think we can about by the time the investment banks complete the purchase of the shares under this program, we think we can pretty much have the debt paid down that we borrowed associated with this program and then we'll just go from there. We're real comfortable where we are today.

Okay, thanks.

Back to Mike's question on quantifying the items that affected -- that will affect 2006 negatively, the total of those items, the laundry list that we gave is probably about $0.05 a share.

Our next question comes from Jonathan Chaplin from JP Morgan.

Thanks for taking the question. I'm wondering if you could give us an idea where margins are in the fiber transport business at the moment and where those ultimately could go? I just want to get a sense of whether the margin pressure that we're seeing at the moment as our business grows is going to be an ongoing thing or whether at some point that pressure will dissipate? And then I'm wondering if you could give us an idea of the organic growth in the fiber transport business this quarter as well? Then finally just a small housekeeping matter, if you could give us the number of shares at the end of the period, that would be very useful. Thanks.

Jonathan, margins today are in the, around 30% range. We think that can grow to the 35% range, maybe higher, but we aren't willing to project going any higher than the 35% range. The -- as far as organic growth, we did have some affiliate contracts come due in our fiber transport area during the first quarter. We reduced price to our own affiliates, which also reduced our costs on the other side of the ledger for those companies, but excluding the affiliated repricing on the mature contracts, we believe we'll be growing revenue in the fiber transport business in approximately 20% this year.

And that's organic growth? That's not from the acquisition?.

That's organic growth. That's correct.

And if you look at the impact of the affiliate revenue, the affiliate renegotiations, what was the organic growth or decline this quarter?

With it all in?

Yes.

I think we had about 7% for the quarter including the affiliate.

7% growth?

With affiliate offset, yes.

Jonathan, the shares outstanding at the end of the quarter were 115 million,984,000. Then you have to add about 6.3 million shares to that to get to the fully diluted calculation because of the $165 million we have outstanding.

Thank you very much.

Our next question comes from David Janazzo from Merrill Lynch.

Good afternoon, and good morning, as the case may be. Stewart, you had mentioned 41% of the ASR completed. I know it took a little longer last year to get to the completion but what's your best guess for completion? And then in terms of deciding for the remaining 500 million, will that be a timely process or might you take some time to evaluate the next steps?

In terms of completion of this ASR, it really depends on how our volume holds up. It depends on how quickly the investment banks decide to repurchase but my best guess now would probably be sometime in August they'll complete the repurchase of all the shares. I wouldn't think it would take us too long to make a decision. We have a board meeting in August, and I would imagine we'll talk with the board about it then and decide what we want to do.

Thank you.

Our next question comes from David Barden from Banc of America.

Hey, guys, good morning. Just a couple, maybe housekeeping items. First just, maybe you addressed this, but on the CapEx number, a little on the low side in the first quarter just relative to the fool your expectations if you kind of revisit that topic. The other one was the other income number lower down on the income statement. Then the last question was just making sure I'm doing the math right. If we multiply that kind of midpoint of your new guidance, strip out first quarter from the midpoint of your new guidance and multiply by the new shares and then compare that to the midpoint of the old guidance times the old shares, it looks like the delta for the back nine months of the year is going to be about a 17 to $20 million reduction in net income guidance for the year, which does seem to be a pretty meaningful number if that's really being driven in large part by the USF item which you did call out in the report rather than some of the interest expense stuff. I wondered if you could put again a little more color around that issue of the guidance change? Thanks a lot.

I'll start with your first question. The CapEx, a little low. But that's pretty normal for the first quarter of the year. Usually pick up in the summer quarters. The last three quarters offset the lower first quarter. Stewart, you want to talk about the P&L?

The other income items on the P&L, Dave, are the $2.5 million as composed of the interest income, some capitalized interest, but over half of it is interest income. Then we have some life insurance proceeds and just $200,000 of miscellaneous items.

In terms of the -- David, you want to answer?

Yes. I think I recall again. As far as some of the factors affecting the full year outlook, one is that our initial outlook did have -- we did that at the beginning of February, we did have some of the previous stock buyback in that number so our number of shares were a little bit lower than year end due to those factors. So our number of shares in the original outlook were probably lower than just taking a year end number and factoring those in. There were some items we are impacting that are not near the size number you have. Also the interest expense is a pretty sizable factor as far as interest expense associated with the $350 million or so that we initially borrowed. So I think probably the bigger issues that are offsetting some of where we're at and where you're at are probably the fact that we did have some of the initial shares related to the 200 million buyback factored into our outlook at the beginning. The interest expense and lower interest income. That's part of the other income item that you talked about in the first quarter factors in there along with the expense component that Stewart talked about within his discussions of the guidance. All of those are factoring into the outlook that we have out there today.

So it does sound like it's mostly the borrowings and the lock in cash utilization for the ASR?

Yes, David. I think that's the biggest part of it.

Okay, thank a lot.

Our next question comes from Billy Warrick from Stifel Nicolaus.

Hi, this is actually Chris King. I just wanted to run two quick regulatory questions by if I could. One concerning phantom traffic and where the SEC stands on that issue and whether or not that ultimately gets separated from the intercarrier compensation discussions. And secondly, if you can comment on it at all, and I know there is a confidentiality issue behind it, but just comment on your broad thoughts on the Missoula Group and the consensus that they seem to have reached on intercarrier compensation. Thanks.

On the traffic, we continue to work industry consensus. We basically have most of the ILEC type of organizations bought into the phantom traffic. As you know, we filed, the mid sized coalition filed some rules earlier this year. We now are working with some of the RBOX. And really that's kind of parallel with some of the work that's going on in NARIC so NARIC does, they call it the Missoula Plan I guess now. They do have phantom traffic as a part of the proposal. Actually, we spoke to the FCC yesterday. They still see an opportunity to kind of see it as overall intercarrier compensation but break it out so that we can really understand the movement and all of the piece parts. In terms of the Missoula Plan, I think the structure is fine, okay. It's really around whether the price points in each direction which is why we're trying to move the phantom traffic out and really understand the minutes of use that each company should be extracted in terms of revenue from their network. So that's the key there. We are making traction with the RBOX there.

Thanks, Karen.

Again, ladies and gentlemen, if you have a question at this time, please press the one key on your touch-tone telephone. Our next question comes from Michael Rollins from Citigroup.

Hi. Couple quick questions. First, I was wondering if you could give us a little bit more color on the change in lines, how that mix relates to primary residential, secondary residential and some of the business lines? And just building on that point, I'm wondering if you can give us a sense of what the residential RPU is per primary line or per household, to just get a feel for what the average bill in a home is for your suite of telephone services? Thanks.

Access line for the quarter of the loss that we had of the 22,000 lost, 22,402, 65% were residential primary, 25% were residential second line and 10% were businesses. This breakdown is really very consistent with what we've experienced in the past year with our residential primary really carrying the majority of the loss. Although we had a seasonal sequential decline in our net loss fourth quarter, our net loss for first quarter was 48% of '05. The majority of the increase continues to be the residential primary segment driven this quarter by 9% decline in our inwards. In terms of your second question around RPU, we really haven't reported it by household. What we have with that is what we call markable revenue on our access line and our markable revenue is running just over, actually 28 -- a little over $28, $28.11. Markable revenue would be basically all of the products and services that we would market to an access line. If you add basic in there, which most people would consider markable revenue, meaning the access line, that takes us up to about 45.39 per access line. So right now we're really looking at it on an access line basis.

Follow up to that. As you look at the bundle, does that start to change the arithmetic whether or not, I guess you reported externally, but as you look at the bundle and how to gauge success internally, are you looking at it as maybe a household basis or still on a per line basis?

We're looking at an access line basis but will continue to migrate more to a kind of RPU segment which would include households. Our markable revenue as we get more customers in a bundle right now, we have such an expansion opportunity. We are seeing growth in our markable revenue per access line. Access lines are being lost. That helps the equation. We are seeing higher penetration in our products and services, growing penetration in products and services to our existing customers.

Thank you very much.

You're welcome.

Our next question comes from Tony Ferrugia from A.G. Edwards.

Thank you, and good morning. I was wondering if you could break out local and long distance revenue from the voice revenues this quarter. Do you have those numbers?

Tony, we really, because of just the bundle plan that we offer, we have decided not to continue to break out the LD revenue piece and the local piece going forward.

Okay. Thank you.

And our next question comes from Tom Seitz from Lehman Brothers.

Thanks for taking the question. As the world wireless providers start to close the gap or I should say start to catch up on wireless data, are you seeing any impact on the back haul demand? Is that part of what's showing up in fiber transport and CLEC? So I guess just first of all, if you could answer that? Are you seeing any pickup in demand from wireless back haul?

Tom, there is some increase there. It's not a big driver. However, we believe that is that potential source of increased revenue in our CLEC operations especially as the wireless carriers need a way to get that traffic from their towers, their switches, and then from the switches even across the country, especially from any more rural market or smaller cities that we're serving with our fiber transport operations. We believe that has a real potential in the month ahead.

And it's not that material right now?

Not really. We have a lot of wireless business today.

Yes.

We're taking traffic wireless carriers, definitely, that's one of the largest segments that we're serving. But the data is just really beginning to I think move the needle for us.

Okay, great. Thank you very much.

This concludes our question and answer session for today. I would now like to turn the conference back over to our Chairman and CEO, Mr. Glen Post, for any closing remarks.

Thank you. In closing, we achieved strong operational metrics during the first quarter. We produced solid financial results. We continue to expand our product to service bundles to ensure that we are delivering our customer solutions to meet their needs and further strengthen their relationship with CenturyTel. We remain committed to driving shareholder value as we return more than $570 million to shareholders in the first quarter through repurchases under our $200 million and $1 billion share repurchase programs. We will continue to closely evaluate all of our alternatives for utilizing our strong cash flows and to drive shareholder value. I believe CenturyTel is well positioned to address the challenges in the marketplace and take advantage of the opportunities as they arise in the months ahead. 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 our program for today. You may all disconnect and have a nice day. Thank you.