Lumen Technologies Inc (LUMN) 2006 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to CenturyTel's second quarter 2006 earnings conference call.

[OPERATOR INSTRUCTIONS]

I would now like to turn the conference over to your host, Mr. Tony Davis, Vice-President of Investor Relations.

Sir, you may begin.

Thank you.

Good morning, everyone and welcome to our call today to discuss CenturyTel's second quarter 2006 earnings results released earlier this morning.

During today's call, we will refer to certain non-GAAP financial measures.

We have reconciled these measures to GAAP figures in our earnings release which is available on our website at www.CenturyTel.com.

Your host for today's call is Glen Post, Chairman and Chief Executive Officer of CenturyTel.

Joining Glen on our call today is Stewart Ewing, CenturyTel's Executive Vice-President and Chief Financial Officer.

Also available during the call today is Karen Puckett, CenturyTel's President and Chief Operating Officer.

We will be making certain forward-looking statements today, particularly as they pertain to guidance for third quarter and full-year 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 August 2, 2006 and accessible for webcast replay through August 16, 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 July 27, 2006, and should be considered valid only as of today, regardless of the date listened to or reviewed.

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

Glen?

Thank you, Tony.

Thank you all for joining our call today as we review CenturyTel's second quarter 2006 operating performance and discuss our outlook for 2006.

CenturyTel achieved solid financial results during the second quarter as revenues of approximately $609 million were within our range of expectations for the quarter and diluted earnings per share exceeded the high end of the guidance we previously provided.

Earnings per share excluding non-recurring items was $0.69 for the quarter, $0.03 ahead of estimates. $0.58 driven primarily by successful cost containment.

CenturyTel achieved modest year-over-year revenue growth, even with increasing competition and the anticipated revenue declines associated with access--U.S. south and access line losses.

There were a number of drivers of this revenue growth, which more than offset the anticipated declines.

First, the KMC Metro Fiber assets acquired in mid-2005 contributed to year-over-year revenue growth.

Second, we experienced increased data revenues, primarily driven by growth in high-speed internet subscribers.

Additionally, we continue to experience increased revenues from customer growth and expansion in our light port addition, and finally our wireless and video initiatives have also contributed to revenue growth during the quarter.

Our business continues to generate strong free cash flows as we delivered over $135 million of free cash flow during the second quarter versus $113.6 million in second quarter 2005 driven by lower capital expenditures that in the second quarter of last year.

Customers continue to see good value in our bundle offerings as we experienced strong demand during the quarter, adding nearly 41,700 bundles representing a 10.7% sequential growth in total bundles.

A couple of choice customers now represent 25.4% of our residential access lines as compared to only 19.6% at year-end 2005.

We also added more than 27,000 high speed internet customers during the quarter driven by strong demand for broadband services.

As you will recall, we launched unlimited long distance bundles in markets where we either currently face competition or expect to face voice competition within the next few months.

We believe our unlimited long distance bundles position us well against competitive pressures for voice services in our markets and we're the primary drivers of nearly 18,400 long distance net ads during the quarter.

We also believe our competitive service offerings such as unlimited long distance can improve customer retention, excluding the sale of our Arizona properties, we experienced access line declines of approximately 21,500 in the second quarter.

This represents a 14.6% improvement over second quarter 2005 results and we believe this improvement was primarily driven by CenturyTel's competitive service offerings.

Before turning the call over to Stewart, I want to briefly mention our AWS auction participation and the completion of our $500 million accelerated share repurchase program.

Last week, we announced the completion of the $500 million accelerated share repurchase program with a settle-up payment of $28.4 million to the investment banks.

We currently expect to move forward with the remaining $500 million under the $1 billion share repurchase program that we announced in February through open market purchases, subject of course, to trading window periods and the program's June 30, 2007 expiration date.

Additionally, we announced that CenturyTel made a deposit of approximately $59 million with the Federal Communications Commission to participate in the upcoming AWS auction of licenses for areas in and around our current service areas.

We believe the acquisition of attractively priced spectrum could enhance CenturyTel's ability to pursue our broadband services strategies.

This does not represent a change in our business strategy, but rather recognition of an opportunity to potentially differentiate our broadband service from that of our competitors by providing broadband mobility options for our customers.

We expect to participate in the auction only to the extent spectrum prices are at levels that offer excellent return on investment opportunities.

This deposit affords us the flexibility to participate without committing us to bid if they are not attractive.

It's important to remember that our deposit is refundable to the extent CenturyTel's final bids, if any, are less than the amount deposited.

With that, I'll turn the call over to Stewart to provide additional detail on our results for the second quarter and to update you on our financial guidance for the third quarter and full year 2006.

Thank you, Glen.

During the next few minutes, I will discuss the highlights of our operating results for the second quarter 2006, then briefly review our capital structure and liquidity and conclude my comments with a brief discussion of the guidance provided in our earnings release issued earlier this morning.

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

For second quarter 2006, operating revenues increased to $609.1 million, up 4/10 of a percent from $606.4 in the second quarter of last year.

Voice revenues for the second quarter of 2006 were $216.8 million versus $221.7 million in the second quarter of 2005.

This decrease in voice revenues is primarily driven by revenue declines associated with access line losses and lower rates, which were partially offset by growth in average minutes of use.

Access lines, excluding the sale of our Arizona properties declined 21,500 during the second quarter as we ended the quarter with approximately 2.168 million access lines.

Network access revenues were $221.6 million versus $239.4 million in the second quarter of last year.

This $17.8 million decline resulted primarily from the anticipated lower universal service fund revenues, intrastate revenues and lower prior year revenue settlements.

Data revenues increased 11% from $76 million in the second quarter of 2005 to $84.4 million in the second quarter of 2006.

This was primarily driven by strong, high-speed internet subscriber growth.

Fiber transport and CLEC revenues increased $14.5 million to $36.1 million in second quarter 2006 from $21.6 million in the second quarter of last year, primarily due to the acquisition of the metro fiber assets from KMC in mid-2005.

Our operating expenses for the quarter were $443.9 million compared to $420.5 million in second quarter of last year.

This increase of approximately $23 million was driven primarily by expenses associated with the metro fiber assets acquired in mid-2005, cost associated with our new video and wireless service offerings, and increased costs related to growth in high-speed internet connections.

Operating cash flow for second quarter, 2006, was $297.1 million compared to $316.3 million in second quarter of 2005.

For the second quarter of 2006, we generated at an operating cash flow margin of 48.8% compared to 52.2% for second quarter of 2005.

This margin compression, which was anticipated was primarily driven by access line losses and lower universal service fund and access revenues along with the growth in lower margin services such as high-speed internet, fiber transport, and CLEC.

Operating income for the second quarter of 2006 was $165.2 million and net income was $73.6 million.

We added approximately 18,400 long distance lines during the second quarter, bringing total long distance lines to more than 1.2 million as of the end of the quarter.

Long distance line penetration in our local exchanges as a percentage of total access lines reached 56% at the end of the second quarter of 2006 versus approximately 49% at the end of the second quarter of last year.

As Glen mentioned, we continue to experience excellent customer response to our high-speed internet offerings and bundles with the addition of more than 27,000 high-speed internet subscribers during the quarter.

We ended the second quarter with nearly 313,000 high-speed internet subscribers or greater than 19% penetration of total DSL enabled lines.

CenturyTel continues to be well positioned from a capital structure and financial strength perspective.

We are also in excellent shape from a liquidity standpoint.

We generated over $135 million of free cash flow during the second quarter while investing approximately $70.4 million in capital expenditures.

We utilized the cash proceeds of nearly $123 million from the redemption of our rural telephone bank stock and cash flows generated during the second quarter to reduce our short-term borrowings.

From a leverage standpoint as of the end of the quarter, CenturyTel's debt to equity ratio was 0.8 to 1 and net debt to annualized operating cash flow for the quarter was 2.2 times.

So we believe CenturyTel's financial strength and solid cash flow position us well to execute our growth and investment strategies in the future.

Finally, I'd like to briefly discuss the third quarter and full-year 2006 guidance provided in our press release.

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 third quarter 2006, we anticipate total revenues in the range of $605 million to $615 million and diluted earnings per share in the range of $0.57 to $0.61.

We do anticipate increased outside plant maintenance expenses for the quarter, which is in line with historical seasonality.

For full-year 2006, we increased diluted earnings per share guidance from $2.30 to $2.40 to $2.35 to $2.45, so $0.05 increase in both the bottom and the top end of our range for the full year.

The primary reasons for this increase are second quarter diluted earnings per share that exceeded our expectations and lower operating costs for the remainder of 2006 than was originally anticipated due to successful cost containment.

This concludes our prepared remarks.

So we'll now open the call for a few questions.

Thank you, sir.

[OPERATOR INSTRUCTIONS]

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

Hey, guys, good morning, good afternoon.

I wanted to ask a couple questions.

Number one, just on the USF, if you could kind of outline the USF revenue number in the quarter.

And also, in past 2Q's there's always been puts and takes in terms of access settlements and USF settlements.

I was wondering if you could talk to any seasonal or one-time events that were occurring in the quarter at all?

Second, you mentioned in your prepared marks, Glen, that wireless and video were revenue growth contributors in the period.

I wonder if you could elaborate to how much they were beneficial in the quarter.

And then last, on the issue of the remaining buy backs, I want to clear up, are you in the market now, are you prepared to be in the market now, or is there a time at which you'd like to begin this at some point later, like in the fourth quarter or next year?

Thanks a lot.

Dave, first to discuss USF a bit.

Our total universal service fund revenues for the quarter were $49.1 million, of that, about $40.1 million related to interstate universal service fund revenues and about $9 million related to intrastate universal service fund revenues.

David, regarding the contribution of video and wireless, wireless is really still small.

Less than $0.5 million for the quarter.

DBS and our switch digital about $2.6 million, so about $3 million total of growth there.

And in terms of the second part, of the puts and takes of the revenue settlements, basically, there was really not a material difference in the second quarter of this year versus the second quarter of last year.

And regarding the buy back, share buy back, we are prepared to be in the market.

Of course, we have a blackout period we can't buy in when we're doing over market purchases, but we're prepared to be back in the market and begin buying.

That's great, and if I could just clarify on the puts and takes, meaning that the net--actually, I apologize, I don't have the number with me here from last year, but the net was zero or year-over-year there was the same amount of benefit or decline impact from last year's settlements?

Dave, I misspoke.

Having the number basically.

There's a little bit over a $6 million decline between second quarter of last year and second quarter of this year.

So basically, we had no real adjustments in the second quarter of this year.

We had a little over $6 million in the second quarter of 2005.

Got you..

Perfect.

Thanks, guys.

Our next question comes from Michael McCormack from Bear Stearns.

Thanks.

Hi, guys, how you doing?

Just a couple of quick ones, I think, on cost savings for the back half.

You talked about third quarter outside plant expense being a bit higher.

So just walk us through, if you would, what are the cost savings we should look for in the back half of the year?

And secondly on the repurchase, call you walk us through your thoughts on the decision making between doing an ASR versus a straight repurchase and maybe an update on your thoughts with respect to M&A opportunity?

Thanks.

In conjunction with the cost savings second half, really pretty much just a continuation of the level of vacancies and the cost savings that we saw in the second quarter, which is really below the amounts that we had budgeted for third and fourth quarter.

We expect third quarter to possibly be a little higher due to the seasonality on the maintenance, but again, less than what we had anticipated and less than what we had budgeted earlier.

Regarding the repurchase purchase, those market repurchase versus ASR, basically, just gives us more flexibility, the over market purchase does tend to buy at prices we like versus just going out and committing blindly buying.

We decided to do the second half of it over market purchases.

I will point out, this is the third repurchase we've had.

And we've personally completed every one we've had before, our intention is to complete this one as well.

We decided to go with the open market purchase this time around.

Your thoughts on M&A, Glen?

M&A?

Well, we're certainly open to--we continue to look at opportunities.

We think that the RBOX will eventually want to sell lines and there will be opportunities, we're open, we're going to continue on our very disciplined approach, looking at our discounted cash flow analysis, taking into account market risks, we'll continue to be very disciplined and then approach it conservatively, but we will be looking for opportunities that can drive value for shareholders.

I guess with some of your peers that might be somewhat restricted over the next year to year and a half, do you really see anything near term that might even come up?

Well, of course, I couldn't talk about anything we're really looking at, but there's a lot of talk out there that things are going on.

There's nothing--we're not about to sign a deal and I don't think there's--I think there will be competition for whatever's out there.

There will be folks out there looking at every deal that comes about.

Thanks, guys.

Our next question comes from John Hodulik from UBS.

Thanks, good morning.

A quick question for Stewart.

I think you said in your prepared remarks that you had used $123 million to pay down the credit facility.

Where are we in that process?

Is the credit facility completely paid up or do we still have some to go for the end of the year?

And then a follow-up to the last question, would you be prepared to borrow more cash through the end of the year to accelerate the buy back or get a lot of that done by the end of the year?

And then lastly, could you talk more about your spectrum strategy?

It seems as if the down payment was large enough that a lot of the spectrum you're looking at might be out of region.

Can you give us a little bit more color on what you might be thinking in some of these areas that don't overlap with your existing service territory?

Yes, John, in terms of the credit facility, actually at the end of the quarter, we had repaid all of the borrowings that we had made to implement the ASR in February.

Subsequent to the end of the second quarter in July, though, we did borrow the amount of the settlement that we made with investment banks, which was about $28 million and we also borrowed the deposit that we made on the AWS auction.

So sometime during July, we borrowed those amounts on the facility.

Would you continue that trend in terms of following up with the buy back, the additional $500 million?

Is that that something you may borrow additionally to pursue?

At this point we anticipate being able to use our free cash flow that we generate in the second half of the year to buy back shares, but that doesn't preclude us from borrowing a little bit more to repurchase shares should the stock price decline.

We'll talk advantage of opportunities and use a little leverage to do that if we think that's in the best interest of the shareholders.

And on the wireless strategy?

Yeah, on the wireless strategy our plan was us to bid on the Salem market areas, or CMAs, which have a high degree of overlap with our [dialect] blue print, as long as the pricing remains attractive.

That would constitute about $4 million a pop, I think that's 734 CMAs in the U.S.

In addition, bidding on the CMAs which overlap our footprint, we also wanted to have the flexibility to bid on the EAs, economic areas which overlap our footprint if they were available at exceptionally low prices.

These EAs would of course afford us hedge out opportunities with wireless data and a VoIP type offering.

However, that would only be at really bargain prices and where the returns on investment would be very obvious.

So we left ourselves flexibility with the down payment or with the deposit rather, but our intent is not to change our business strategy here, but take advantage of our opportunities to drive value if the bidding was not real intense and the values were really at levels that we could really drive value for shareholders.

Okay, makes sense, thanks.

Our next question comes from Simon Flannery from Morgan Stanley.

Thanks a lot, good afternoon.

I wonder if we can come back to the line loss number.

The number was pretty good considering some of the increased competitive pressures.

Can you talk about what's going on in the marketplace, how much impact has there been from cable, sequentially, and year-over-year and what have been their sources of line loss and your ability to keep the line loss in the mid-4s.

Can you talk a little bit more about switch digital video, what's going on in LaCrosse and how you're thinking about that product over the next couple of years?

Thanks.

Good morning, Simon, Karen Puckett, on the access line loss, we were at 4.5% excluding the Arizona sale.

That was a 14%--over 14% improvement year-over-year.

In terms of the competition, I'll talk about that first and then give you the breakdown on the access line loss.

In terms of the competition, right now cable VoIP, we're experiencing about 18.9%.

I think last quarter reported around 17.5%, so we've had an increase of about 18,000 access lines that have a cable VoIP choice.

In terms of the what's happening on access line loss, it's still residential primarily, 80% were the primary lines of the loss, 20% residential and business continues to be consistently flat to very positively up.

The inwards are still the issue on the residential primary front.

We saw about an 8.4 decline in inwards year-over-year.

That was last year as you remember running 15% to 20%, so an 8.4% decline in inward.

We are--even though we're having increased competition from it, the cable VoIP, our outs declined 11%.

We're showing improvement still in our out number.

Our ported numbers which would categorize as not only cable, CLEC and wireless as a percent of our total outs remains still consistently at 5% to 6% of our outs, which is consistent with the prior two quarters.

I think the other thing that's going on on second lines is as we continue to penetrate DSL, there's less demand for inward on the second line, so we're seeing a big hidden inward demand for second line.

And really we believe the primary driver still loss to wireless.

I would tell you that when you look at access line--a primary access line churn generally runs about 1.7%.

We do know that access line churn is impacted positively if the customer has a broadband DSL.

It's usually about 0.47% if the customer has DSL and if they have it in a bundle, that falls to 0.33% compared to a 1.7% normal churn rate for a primary line.

In addition, we've been talking about continued distribution growth that we're trying to expand on the channels.

We're seeing some movement on the online agents that we do.

Door to door has been very good for us especially as we get ready for a cable VoIP and position a competitive the product.

And we believe the unlimited is just strengthen our value profit in our markets.

Okay, so it sounds like is really you're starting to see some of the bundling and some of the pricing initiative distribution starting to really have an effect in terms of changing the direction of the curve.

Right.

Great, thank you.

That's very helpful detail.

And on switch digital video?

It's going well.

We've taken about 9% of the (inaudible) markets from the competitors in the LaCrosse area.

The equipment is working well, we're getting very good reviews from the customers, so it's working well.

We're optimistic there.

We're also beginning a trial later this year in Columbia, Missouri.

In LaCrosse, we use an ADSL 2 plus, we'll be using BDSL-2 technology in Columbia, and we're looking forward to that trial later this year.

Now the prices still aren't where they need to be for a broad rollout, but we want to be ready to do that, we want to understand the technology, especially the back office work there and right now it's in-line what we expected.

Is it the prices of the set top boxes, or what's the install cost?

It's a combination, that top box is probably number one, but there are also the other, the access equipment and the install is still a little higher than we need it to be.

Great, thank you very much.

Our next question comes from Frank Louthan, from Raymond.

Good morning.

Just quickly, can you remind us of some of the details on the sale in Arizona, the number of lines and the price, that would be helpful.

And just was curious, looking at the Missoula Plan that was recently filed, noticed you--you were not named as supporters, just was curious what your thoughts are on that plan and then your thoughts on potential impact on you from any of the legislation that's currently pending in congress, that would be very helpful?

Thank you.

Frank, on the sale of the lines in Arizona, basically that was about 2,000 access lines and I think that the price was around $6 million.

Frank, Karen Puckett, on the Missoula Plan, we have been very involved.

We didn't sign on, although we think there are very positive things about that, in particular phantom trapping and just getting resolution to a intercare comp, as well as simplification because it does move to unify rate, which we think is all a good thing.

There's just some improvement that we believe that we need and we're working with the team and it's really--in terms of the transition timing and the actual rate structure.

Concerned about the swift increase to customers just because it's a competitive market and the customers have a tough time with that.

And just the price points on the actual access.

We continue to work with the team and again we think it was some positive movement there.

Okay.

Great.

I know it's still somewhat speculative as to what you might do with specs you get from the auction, but have you thought through what sort of CapEx you would need to build out for the various technologies that you're using?

Any ideas on what those numbers look like to make that a more profitable endeavor for you?

Frank, at this point we've--we've looked at business cases, but at this point, we're not willing to say what we would spend from a CapEx stand point, but I think it would be--as Glen mentioned, we're not going to buy any spectrum and build it out unless we can get an excellent return on it for our shareholders.

But at this point, really--we wouldn't do anything in 2006 and we would just take a kind of wait and see approach in 2007 and let some of the equipment become available and go from there.

Okay, great, thanks.

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

Great, thanks for taking the question.

I would like to follow-up on two questions from earlier.

First, in terms of the--following up on John's question, I think you said that you didn't expect to increase leverage in the back half after you complete the second half of the share repurchase program, you'd be able to use cash from operations.

If I'm understanding you correctly, you're going to generate $500 million in cash flow in the back half of the year, and that just seems high.

So I just wanted to confirm that.

On the comments around churn, the detail that we got was really helpful, but the 0.33% churn that you have for a customer in a bundle is just well below what we generally think of as move churn.

We think of move churn nationwide being about 1.2%.

So I'm wondering if you can give us some color there?

Maybe move churn is just a lot lower in your region.

And then on the auctions, I'm wondering if you can give us an idea.

It's probably difficult for you to comment on what you think of as a reasonable--a price you'd be willing to pay on a per pop basis, given how competitive the auction is going to be.

But, if you could give us an idea of the upward limit you'd be willing to invests in spectrum, that would be really helpful.

Thanks.

Jonathan, in terms of the back half of this year and the share repurchase, we will not generate $500 million of free cash in the last half of the year so I guess the only way we would complete the program would be if we do increase our leverage a little bit.

But we have until June 30 of 2007 to complete the program so I think we'll take our time and we'll see--we'll use leverage if it looks like it's appropriate to use leverage to complete the program earlier.

That really helps, thanks.

I don't have move churn, Jonathan, we'd have to follow up with you on that.

In terms of the number of customers, I know about the numbers, but in terms of the churn rate, I don't have that.

In terms of the 0.33, what it says is that DSL is a very sticky product for the access line, so it does have a positive impact, which is why we continue to believe it's important to own the broadband market share in our market.

We've heard that sort of feedback consistently from all of the carriers.

It would surprise me if it was such a sticky product that it stopped people from moving though.

Yeah.

Jonathan, regarding AVS and the upper limits, of course we have our own ideas and our business model, but for competitive reasons, we do not want to disclose the ranges we're looking at there as far as what we'd be willing or not willing to pay.

Okay.

Thank you very much.

Our next question comes from Joanie Jenson from [McMahon] Security.

I just had a couple of questions for you on your capital structure.

Given that you're doing the buybacks, that will obviously--to the extent there's some leverage or whatever, that could increase your leverage ratios.

And then you also have quite a few maturities coming up in '07, '08.

Is your thought to just refinance them and then also, with respect to your 4.75% convert, which becomes callable next week, is that something you're considering to avoid the dilution you're currently experiencing with that or is that viewed as an attractive source of financing that you want to keep outstanding?

Joanie, the buy backs--our net debt to EBITDA was still on an annualized basis 2.2 times for the quarter, so that's well within where we need to be from a rating agency perspective to maintain the ratings we have and actually even have some flexibility there.

In terms of maturities, basically, we would expect to probably refinance maturities.

We're under levered at this point from our view, somewhat.

So in terms of the 4.75% convert, at this point, holders have, on Monday basically, this coming Monday, July 31, holders can ask us to repurchase that at par if they do that, we'll use our credit facility to repurchase it on August the 1st.

It will pull out--there are about 4 million shares included in our diluted share count related to that that would come out and our interest expense will be slightly higher.

So it will be slightly accretive to us if it does get put back to us.

We have the option to call it in August, but at this point, we do not plan on calling it.

We'll just leave it out there unless folks ask us to buy it back next week.

Okay, thank you very much.

[OPERATOR INSTRUCTIONS]

We have a question from Tom Seitz from Lehman Brothers.

Thanks for taking this.

Most of the questions have been asked but maybe if you can talk a little bit about, should you get the spectrum in the auction are you willing to share at all what sort of network you're contemplating building out?

And then, I would just like to hear your comments on that?

Tom, we believe that the spectrum can be used over time providing a mobile broadband opportunity or service for our customers utilizing a 4G technology such as Wymax.

We do not plan to roll out a 3G sale or offering other than through our MBNO relationships, so that would not be our goal.

Okay, perfect.

Thank you very much.

Our next question comes from Sal Muoio from SM Investors.

Hello, Glen, Steward, everyone.

Can you talk about the--specifically sort of the CapEx in the second quarter compared to last year, just the difference and if you could just provide kind of a big picture on CapEx trends, call it, and I guess you really don't talk about CapEx for next year, but just generally what's going on, what are you spending the money on?

Obviously video will be something you'll be looking at down the road a little bit.

And I also wanted to ask DSL, where do you think your market share is roughly?

Looks like you're doing a terrific job in DSL and that's it.

Sal, the CapEx decline in second quarter of '06 versus '05 was really all related to the local exchange business.

It was just all related to that, and again, it's just our plan for this year is to still come in in the $325 million range and that's basically what we expect for--

What are you spending less on and why?

We are--it's all in the telco and we're relooking at just our maintenance, all the things that we do.

We are not investing in TNA switching just to keep the switch going because we'll be moving and we are moving to IT, so it's really around the TDMA--TDM switching where we're seeing the biggest decline as well as just overall some maintenance, and then of course, when your service orders are down, as we've talked about inwards, you're going to have less constants and routines also.

Does that mean there's a lull period, or when you switch over--

Really, I wouldn't call it a flashcut, how we've approached it at CenturyTel, as at most companies, is it's a trigger event, so if you have a port capacity issue in a switch and you're looking at an upgrade, you look at an IP augmentation to that upgrade.

Sal, over the last year, we've really spent more than most companies on a per customer basis, per subscriber basis as a percentage of revenue.

We're really upgrading our network overall, and we have a very strong network today.

Basically, at a very high level, we don't see the need to spend at the levels we were spending.

We're more in-line with the history as far as our spending is concerned and we think we're at a place where we can continue that unless some other major opportunity arises.

The (inaudible), do you think CapEx could stay at this level of decline?

Over the next say three or four years?

I think we'll stay at this level for some time.

Okay, and then the DSL market share, I'm sure you may not have that number?

I don't have the number.

Approximately.

Our penetration has increased to 19.2% this quarter, which is a good growth from the 17.4% last quarter.

You have no idea how you're performing relative to cable modems, roughly?

Not really, Sal.

We think that we're pretty much equal in most of our markets it.

Depends on the market overall.

Some markets we were--the last market share study we did, we were low in some areas and we were higher in some areas, I'd say we have about 50%, maybe a little bit better now with our recent gains, I would think we were a little better than 50% market share overall, but it's market by market.

The Verizon markets we rolled out, we were late to the market there and our legacy markets, our older markets we were first to market, have higher market share in some of the Verizon markets they had not rolled out early then we were a little behind in some of those markets.

Can you just remind me where the pricing is and have you contemplated any pricing changes or recent changes or speed changes?

We do have 3 and 6 meg.

In terms of the pricing, we have a vertical price point, which is what we brought about a year ago, which has helped us I think on increasing the penetration.

We have a vertical price point at $24.95 and competitive varies and a non-competitive varies at about $30.00.

So we have two different price points, depending if there is cable modem, competition, and then the entry point into the bundle for 1.5 is $30.00.

And it goes up from there, depending on the speed.

And that's 1.5 is $30.00.

In the bundle, yes.

So what's 3 meg and 6 meg?

The 3 meg and 6, I think the 6--it's in the $70.00 range for 6 and about $50.00 for 3, and $60.00 in the bundle.

And last price changes were when?

We did price changes last year, I believe it was.

Okay.

All right.

Thank you.

This concludes our question and answer session for today.

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

In closing, I am pleased that CenturyTel was able to deliver a solid second quarter of financial and operational results in this increasingly competitive environment.

We're also pleased at the accelerated repurchase program was completed in less than five months.

We expect to purchase additional shares under the remaining $500 million of our $1 billion repurchase program through open market purchases that we--as we have discussed.

We remain focused on positioning CenturyTel to meet the current and future communications needs of our customers as we continue to evaluate and enhance our product and service offerings and we continue to focus on utilizing our strong cash flows to drive shareholder value.

Also, as most of you probably know, CenturyTel hosts a west coast and an east coast conference each year for buy side and sell side analysts.

Our west coast conference will be held in San Francisco on August the 8th.

Our east coast conference will be held in Boston again this year on September the 14th.

So please contact Tony Davis if you would be interested in joining us for the conferences.

His contact information is located on the Investor Relations section of our corporate website.

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

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.