Lumen Technologies Inc (LUMN) 2006 Q4 法說會逐字稿

Good day ladies and gentlemen, and welcome to CenturyTel's fourth quarter 2006 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.

If anyone should require assistance during the conference, please press star then zero on your touch tone phone.

As a reminder, this conference call is being recorded.

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

Mr. Davis, you may begin.

Thank you.

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

During today's call we will refer to certain nonGAAP 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 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 first quarter and full year 2007, selected information regarding 2007, and other outlooks on 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 February 21, 2007, and accessible for webcast replay through March 8, 2007.

For anyone listening to a taped or webcast replay of this call, or for any reviewing a written transcript of today's call, please note that all information presented is there currently only as of today, February 15, 2007, and should be considered only as of today, regardless of the date listened to or reviewed.

With that, I will turn the call over to your host today, Glen Post.

Thank you, Tony.

We appreciate you joining us today as we discuss CenturyTel's fourth quarter 2006 operating results and our guidance for 2007.

CenturyTel achieved solid financial and operational results during the fourth quarter 2006, and operating revenues of nearly $608 million, which was then the expected revenue range we previously provided.

Diluted EPS excluding non-recurring items of $0.68 for the quarter was $0.03 ahead of the upper end of our previous guidance, as well as $0.04 above First Call Consensus of $0.64 per share.

We continue to experience solid growth in data and fiber transport revenues, driven by 120,000 new high-speed Internet subscribers added during the last 12 months, and continued growth in our fiber transport business.

As anticipated, we experienced revenue pressures associated with lower universal service funding, lower access revenues, and access line declines.

However, our employees did an excellent job once again of containing costs in our business, which obvious is very important given competitive dynamics of our industry.

Operating expenses for the quarter came in below our expectation, which was a tribute to our stronger than anticipated EPS performance.

We continue to be very focused on cash flow generation, and this quarter was no exception, as we generated nearly $105 million of free cash flow during the quarter.

For full year 2006, we generated more than $512 million of free cash flow, a record level for CenturyTel.

During the fourth quarter, we experienced taxes line declines of approximately 29,500.

This was better than anticipated for fourth quarter, and represented nearly a 19% improvement over fourth quarter of 2005.

We believe this improvement was primarily generated by the success of our competitive bundled offerings in the market.

Excluding one time adjustments during 2006 our year-over-year line loss was 4.8%, which is at the lower end of our previous full year line loss guidance of 4.5 to 5.5%.

Customer demand for broadband services remained stronger in the quarter, as we added 29,000 high-speed Internet customers.

This brought our full year 2006 high-speed internet customer additions to more than 120,000, representing 48.2% subscriber growth since year end 2005.

Broadband services is a key component in our bundled service offerings, and we believe it helps reduce access line churn over time. during the fourth quarter we experienced an 11% sequential increase in broadband bundles, and for the full year 2006 we more than doubled our broadband bundles.

From an overall bundle standpoint, more than 28% of our customers are now served one of our bundled offerings, up from about 19% at year end 2005.

Before turning the call over to Stewart, let me give you a brief update on a few other items.

First of all, CenturyTel expanded its broadband reach during the fourth quarter, as we completed the construction of the Company's first mesh-Wi-Fi network, and launched wireless broadband service in Vail, Colorado.

This opportunity to partner with the town of Vail to bring Wireless broadband services to the Vail Valley was a good strategic edge opportunity for CenturyTel, in view of especially to Vail's close proximity to our Eagle, Colorado market.

Additionally it provides us the opportunity to gain valuable knowledge about the building and operating of a wireless broadband network.

Also we continue to view video services as an important part of our overall products and service portfolio, as we continue to be pleased with our co-branded CenturyTel dish satellite service.

Our switch digital television offering in portions of the Lacrosse, Wisconsin market continues to perform well, and we continue to learn more about the service offering from quarter to quarter.

Additionally we are on-track to begin offering video service on a trial basis to a limited portion of the Columbia, Missouri market this year, and we look forward to learning more from this new trial as 2007 progresses.

As you are probably aware, we announced late last year the acquisition of Madison River Communications, and we remain on-track to close the Madison River acquisition in the second quarter of this year.

All necessary federal and state regulatory filings have been made, and we are now awaiting receipt of all appropriate approvals.

We believe this acquisition is an excellent addition for CenturyTel for the transaction adds over 176,000 high quality active lines in attractive markets to CenturyTel's portfolio, representing an 8% increase in total access lines.

Madison River also owned a 25-mile long fiber network, which complements CenturyTel's existing local exchange operations, and our own regional fiber operations.

Also Madison River is almost completely DSL enabled.

In addition this transaction will be immediately accretive on a free cash flow basis, even before taking into account the approximately $17 million of annual synergies we expect to realize, once the markets are fully integrated.

Additionally CenturyTel returned nearly $140 million of cash during the fourth quarter to shareholders, through a combination of share repurchases and cash dividends.

As of the close of business yesterday, we had a little less than $210 million remaining under our $1 billion share repurchase program, which we currently expect to complete by June 30th of this year.

With that, I will turn the call over to Stewart, to provide additional detail on our results for the fourth quarter, and update you on our financial guidance for 2007.

Stewart?

Thank you, Glen.

During the next few minutes, I will discuss some highlights of our operating results for the fourth quarter of 2006.

I will then make a few comments regarding our capital structure and liquidity, and conclude my comments this morning with a discussion of first quarter and full year 2007 guidance, provided in our earnings release issued earlier today.

As a reminder, all comments regarding actual results for fourth quarter 2006, exclude those non-recurring items detailed on the financial statements accompanying the press release.

For fourth quarter 2006 operating revenues decreased to $607.7 million, down about 2.1% from $620.5 million in the fourth quarter of 2005.

Voice revenues for fourth quarter of 2006 were $211.4 million, versus $220.2 million in the fourth quarter of last year.

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

Network access revenues were $211.8 million, versus $232.6 million in fourth quarter of 2005.

This $21 million decline resulted primarily from lower interstate revenue requirements, as a result of decreased expenses and a decline in the achieved right rate of return, lower intrastate minutes of use, and the anticipated decline in universal service fund revenues related to high cost dilutive support.

Data revenues increased more than 14% from $80.9 million in fourth quarter of 2005, to $92.3 million in fourth quarter of 2006.

Primarily driven by strong high-speed Internet customer growth during the last 12 months, that more than offset revenue declines associated with lower special access revenues.

Our fiber transports and CLEC revenues increased nearly 7%, to $39.8 million in fourth quarter 2006, from $37.2 million in fourth quarter 2005, primarily due to growth in our fiber transport business.

Operating expenses declined 3.1% from 448.1 million in fourth quarter 2005, to $434 million in fourth quarter 2006.

This decline in operating expenses was primarily driven by lower marketing, personnel and contract labor costs, along with lower depreciation expense associated with fully depreciated assets, which more than offset increased expenses associated with new initiatives, and high-speed Internet customer growth.

Our operating cash flow for the fourth quarter of 2006 was $300 million, compared to approximately $308 million in the fourth quarter of 2005.

For fourth quarter of 2006, we generated an operating cash flow margin of 49.4%, compared to 49.7% for fourth quarter of 2005.

This slight margin compression was anticipated due to growth in lower margin revenues such as high-speed Internet, fiber transport, and the expected decline in higher margin revenues associated with access line losses, and lower universal service fund revenues, as well as access revenues.

Our operating income for fourth quarter of 2006 was 173.7 million, slightly higher than fourth quarter of 2005 operating income of 172.4 million.

Net income for the quarter was 79.4 million, compared to 82.2 million in fourth quarter of 2005.

We added more than 29,000 high-speed Internet customers during the quarter, reaching over 369,000 total high-speed Internet subscribers as of December 31, 2006, or a penetration rate of about 22.4% of total DSL enabled lines.

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

As Glen mentioned earlier, CenturyTel generated nearly $105 million of free cash flow during the fourth quarter.

From a leverage standpoint, as of the end of 2006 CenturyTel's debt to equity ratio was 0.81:1, and net debt to full year 2006 operating cash flow was 2.16 times.

So we believe CenturyTel is financially well-positioned with a solid balance sheet, continued strong cash flows and excellent liquidity to meet competitive pressures in our markets, and execute our growth and investment strategies in the future.

Finally, I would like to briefly discuss the first quarter and full year 2007 guidance provided in our press release this morning.

Let me begin by reminding you that our guidance excludes any non-recurring items that may occur in 2007.

Our first quarter and full year 2007 guidance does include all shares repurchased through January 31, 2007, but does not include the impact of any share repurchases made after that date.

Additionally, our guidance excludes the previously announced Madison River acquisition and related financing costs, which as Glen mentioned, we expect to close during the second quarter.

For first quarter 2007, we anticipate total revenues in the range of 600 to $610 million.

We expect diluted EPS for first quarter 2007 to be in the range of $0.60 to $0.65, with the decline from fourth quarter due primarily to increased expenses, access line losses, and lower access revenues.

For full year 2007, we expect diluted EPS to be in the range of $2.60 to $2.70.

This increase in full year 2007 diluted EPS guidance versus full year 2006 diluted EPS is primarily due to the following.

First, we anticipate that revenue settlements related to prior periods will positively impact diluted EPS by $0.17 to $0.22.

We also expect shares repurchased through January 31, 2007, along with modestly lower interest expense to say positively impact 2007 diluted EPS by $0.10 to $0.15.

Additionally, we believe we can continue to drive growth from the further penetration of our broadband service offerings, and continued expansion in our fiber business that will positively impact 2007 diluted EPS by $0.08 to $0.12 excluding depreciation expense.

Also we expect depreciation expense to decline in 2007, which will positively impact diluted EPS in the range of $0.03 to $0.05.

This primarily results from certain telephone assets becoming fully depreciated, that more than offsets the higher depreciation related to broadband investments and new initiatives.

These projected increases more than offset the $0.30 to $0.35 negative impact on 2007 diluted EPS, related to anticipated access line losses in the 4.5 to 6% range, and continued pressure on access revenues.

That concludes our prepared remarks for today.

So at this time I will turn the call back to the operator, to provide further instructions for the question and answer portion of our call.

Thank you, sir. [OPERATOR INSTRUCTIONS] Our first question comes from David Barden from Banc of America Securities.

This is [Marcus Shaw] for David Barden.

Congratulations on the solid quarter.

I did have a couple of questions.

Number one, SG&A seemed to be pretty light in the quarter compared to historical quarters.

Just wondering there if there's anything other than some lower marketing costs that were associated with that?

Number two question, in terms of cash allocation post-Madison River merger, standing at about 2.6 times, 2.7 times leverage, and looking to get back to 2.2, 2.1 times in the next two years, it doesn't seem like there is a lot of room for a significant dividend increase, or a lot of incremental buy backs.

Is there anything that we should be expecting, in terms of you guys focusing on for cash allocation going forward?

Marcus, in terms of SG&A expenses being lighter in the quarter, basically you're correct, marketing expenses were down somewhat.

Additionally operating taxes as well as some salaries and wages, related to some of the cutbacks that we had earlier in the year.

Regarding the cash position and stock buybacks first of all as you know we announced the Madison River acquisition, we decided to continue our buyback, the $1 billion buyback we announced last year.

We will complete that in, sometime in June is our expectation, and then the Board will meet in August, and we will make another decision.

I don't think there's any, any reason we would not or could not continue a stock buyback.

At the same time while, at the same time reducing our debt but that's a decision we will make, basically any decision we make around use of free cash flow will be the best way we believe to drive long-term shareholder value.

So certainly we are not prohibited in increasing, or continuing stock buy back but at the same time it's not in our view the in the best interest of shareholders.

We will make that decision probably in August.

I do have one question on the access line guide guidance.

On 4.5 to 6% on expected line loss in 2007 is kind of a widespread, basically the business is either going to get better than it is now, or it's going to get significantly worse.

Is that any indication on some of the competitive threats you guys are seeing in specific regions?

No, not really.

We said from early last year we expected 2007 access line losses to be a little higher than '06, and primarily that's based just on expected increases in moreso competition with the cable companies.

We hope to keep it in the lower range as we did this last year, but we just have anticipated that it could be higher.

So we are hoping it's not, but we just want to make everyone aware it is a possibility.

Sounds fair.

Thanks a lot, guys.

Our next question comes from Chris Larsen from Credit Suisse.

Good morning.

A few questions.

I apologize for the U.S. you said it was down, can you give us a little more color on that with regard to '07, and the wireless dilution earlier suggested $0.08, I want to make sure you are still thinking about similar dilution for '07 on that?

Chris, in terms of universal service, it was down quarter to quarter.

Basically the Federal universal service fund revenues were down about 1.5 million or so, and also state and USF revenues were down about $0.5 million.

We have looked at the national amount average cost per loop projection for 2007, and we believe our Federal universal service fund revenues will be relatively flat in 2007 with 2006.

Chris, the question regarding wireless dilution, our expected wireless dilution is minimal this year.

I'm not sure whether that answers your question properly.

I'm sorry the '06 dilution was supposed to be $0.06 to $0.08?

I was thinking where it would be at the end of '07.

Okay, Chris, that was the total of all of our net new initiatives.

That was DBS, our switch digital video, wireless, it was everything in our new initiatives, that was what we anticipated there.

And then for '07?

About the same overall in total about the same maybe a little less for '07, but that's in our numbers.

Thank you.

Our next question comes from Jonathan Chaplin with JPMorgan.

I was wondering if you could tell me of the $0.10 to $0.15 that is what you actually expect from share repurchases and lower interest expense, how much of that is coming from lower interest expense specifically, and where is the reduction coming from the 80 to $100 million in debt coming due, and I was wondering if that's just the impact that you're expecting there, or whether there is a big debt paydown that you factored in, and then I noticed there was about a, it looks like a $50 million contribution from deferred taxes this year to cash.

I'm wondering where that comes from, whether it reverses next year, what it might be for deferred taxes next year?

And just a follow up on the first question, I guess, Glen, your comment was there was no reason that you can't repurchase shares, but at the time when you raised debt to do the current repurchase program, I think that the commentary around that time was that you would be looking to repay that debt over time.

I am wondering if that is still an objective, or if you're quite comfortable with the leverage where it is at the moment.

Thanks.

Concerning how much of the $0.10 to $0.15 is because of interest expense, it's about somewhere probably in the $0.03 to $0.05 range.

And the $100 million coming due is part of the refinancing there that we are anticipating.

The $50 million contribution to cash from deferred taxes, we do, that is about what it was in 2007.

That is down about $20 million from 2005.

It was about $50 million in 2006.

We expect it to be somewhere close to $50 million though again in 2007.

In terms of future share repurchases versus debt repayment I think again Glen mentioned earlier that that's something that the Board will talk about at our August Board meeting.

I will say that we do expect to pay down debt as we said, I think we will be at a run rate of debt to EBITDA of about 2.5:1 at year end.

And expectations to stay, we will continue to pay down some debt.

We have leveraged up in the past and come back down.

We will probably continue to do that, take that same approach, but we are not uncomfortable with where we are right now.

Great.

Thanks very much.

Our next question comes from John Hodulik from UBS.

It's actually [Boris Javey] for John.

Just a couple of questions.

I was wondering if I could ask on the M&A environment looking beyond Madison River, what you see out there, what you are potentially interested in, there is some talk about the [GTE north] properties coming on the market, what your thoughts were there, and then secondly, just going back to the margins, obviously the SG&A decline was a big driver of the sequential margin improvement, I was wondering if you think that's a good run rate for us to use going into 2007?

Thanks.

We would still be interested in looking at any access lines that come available.

It depends on what's the situation, a lot of factors whether we would be or want to be successful in completing the transaction.

We would sort of look at any lines that were still on the market.

However we will continue our very disciplined approach, whether it's a small or large acquisition.

We will look at the long-term return to shareholders as our main guide, based on our expected future cash flows, and transactions that would be our mode of looking at the next deal.

In terms of SG&A declines in the fourth quarter, we would expect SG&A expenses to go back up in first quarter.

If you look back fourth to first, fourth of '05 to first of '06, our total expenses were up about, cash expenses were up about $6 million.

So we would expect an increase again from fourth of '06 to first of '07, primarily due to increased marketing expenses, continued growth in our unlimited long-distance service, and the minutes of use associated with that, and some increased costs associated with the fiber and the CLEC operations, just from an expense standpoint.

Great.

If I can ask just one more, on the access lines could you give us the breakout of the access line losses in the quarter, that would be great.

Thanks.

Good morning.

This is Karen Puckett.

We had a decrease from the quarter.

Basically the access line broke out pretty consistently in terms of a loss.

We had 29,500, approximately 75% were the residential primary, at 12% with the second line, and 13% the remaining was within about 10%.

What drove the improvement that we did improve in our out, although we continue to see the incremental competition from cable, basically last quarter third quarter at 24.2, we increased cable voice by 29.1%, our declines did improve about 10.5%, and our ported numbers, which are our outs and proved, it was about 5% of our total out versus in aggregate was running at about 8%.

We believe that improvement was really driven from our competitive offers, as well as some of the tactics that we have been putting in place over the year.

Thanks.

Our next question comes from Mike McCormack from Bear Stearns.

This is David [Fang] for Mike McCormack.

Can you make some comments on where you see the cable/voice overlap going to in 2007?

Second question, you've had pretty strong broadband growth again this quarter, and we've seen some slow down in the overall industry over the past couple of quarters.

Do you think you can maintain this level of growth going forward, and would you guys consider any aggressive promotional activity, like offering free dish to simulate growth if there is a slowdown?

Thanks.

Well, the cable portal overlap, David, we are at 29% now.

I can see that going to the 40 to 45% range over the coming year, and that's just a guess basically, but look at the way it's increased recently, I think we would see something close to 40 to 45% this year.

In terms of the broadband and the special promos, we feel pretty good about the promos we have in place right now.

We are discounting the service for, to start at the end of the year for 12 months, to sell some improvement.

We are giving most of our discount into our bundles, and again good improvement from that.

In terms of the cable guys, we see them kind of all over the board.

They are probably average promo is anywhere from 150 to an average of $300, so we are dealing with that in the marketplace, but we are having good response to our current campaign.

Thank you.

Our next question comes from Jessica Yau from Morgan Stanley.

Hi, guys, this is Jessica from [inaudible].

I want to have two quick questions, one depreciation you mentioned that it was going to come down.

Is the fourth quarter number a good run rate, or should we forecast lower depreciation than that?

And then another housekeeping matter, what was the actual numbers for USF State and Federal for this quarter?

Thanks.

Jessica, it may go back up a little bit in the first quarter because we had an adjustment, a small adjustment in fourth quarter.

But overall we would expect depreciation expense for 2007 to be lower than in 2006, to the extent that it contributes somewhere between $0.03 and $0.05 per share of increased earnings to 2007 over 2006.

The total USF $50 million for the fourth quarter.

Is there a state versus Federal breakdown for that?

Yes.

State is about, for the fourth quarter, about $9 million, and about $41.5 million or so for Federal.

Great.

Thanks, guys.

Our next question comes from Michael Rollins from Citigroup.

Just a quick question.

As you think about the bundle, and how you can improve retention from different elements, how important is wireless versus video?

There's been some mixed decisions out there for different companies to include wireless in the bundle, and based on your experience I'm curious how you look at that?

Well first of all the wireless side, it's too early for us to tell.

We rolled out wireless in 30% of our base, and looking to roll-out more extensively.

Right now we are seeing it to be effective in the bundle as best we can tell.

It's really too early to tell.

With the video bundle, it's been more impressive, at least the numbers are strong, and we are seeing close to 5 times, about 5 times less likely to churn with the video piece of the bundle, same as it is with DSL basically.

Still our sample size is pretty small in video, but that's what we are seeing right now.

We do feel comfortable with the DSL stickiness.

Thanks.

Our next question comes from Frank Louthan from Raymond James.

Within the guidance, looking at the $0.30 to $0.35 of decline in earnings, eq access line losses and access revenue can you give a break out of what a split is between the line loss impact versus the access revenue, and I would assume within that access revenue it's mostly USF declines, and can you give us an idea of where the actual average cost per loop went at the end of the year, and how much that's impacting the numbers?

Thanks.

Frank, in terms of the $0.30 to $0.35 we really don't break out the amount there by line item, in terms of how much is related to local, and access, and USF.

We did however say that we expect USF to be flat in 2007 with 2006, and basically the national average cost per loop in the fourth quarter was basically $324.

And for '07 first quarter of '07, we are using something in the neighborhood of a little over $342.

Great.

Just back on more of an M&A, front considering some of the limits on reverse Morris trust deals with the RBOCs, and clearly Verizon, have shown the last couple of things they've done a desire to minimize the taxes on that front, could we expect you to shift the focus for M&A strategy more towards smaller companies, entire companies such as the Madison River deal, a few others out there that we could potentially look at, do you think you are going to see more of those opportunities that will fit your criteria, versus just buying access line sales over the years, should that be how we are thinking about it?

Frank, we are open either way.

Whatever makes sense for long-term value for shareholders, or increasing long-term value for shareholders.

We are certainly open to discussing reverse Morris trust type transactions, and we understand those well, and are willing to consider that, it's just does not mean that it's going to be available, but we will be more than open to talking about those if those opportunities arise.

Wrote you be open to doing a deal the size deal that it would take for you to guys to do a reverse Morris trust, effectively kind of doubling the company?

Yes, we would consider it, we sure would.

Great.

Thank you very much.

Our next question comes from Christopher King from Stifel Nicolaus.

I want to draw down a little bit into your Vail mesh-Wi-Fi product offering, in terms of realizing it is always going to be a relatively small piece of your consolidated puzzle, what exactly you hope to learn from that, or you are ultimately hoping to deploy that in other markets, and broadly speaking what the financial market looks like with respect to that project?

Thanks.

Well, Chris we want a lot of back office piece, the engineering piece to how to make it fit, the whole operation support piece is a great learning experience for us.

I also had the opportunity to work with the city, in this case the Town of Vail, where we utilized their light poles, and those types of things, infrastructure to help build the network.

We believe broadband wireless has a very good future, we want to be a part of that, and this is just a step, to move forward of making a bigger part of our overall strategy in the months and years to come.

Are you looking specifically at other markets where you might look to deploy that over the next several years?

Yes, we are certainly going to look at all of our wireline markets as a possibility, and we are looking at [adjunct] markets such as Vail as well.

Thank you.

Our next question comes from Tom Seitz from Lehman Brothers.

Thanks for taking the question.

Can you talk a little bit more in detail about the IP TV test to date in Lacrosse, and the pending roll-out in Missouri?

Yes, I would be interested to know if you are using the same platform in Missouri as you did in Lacrosse, and just expanding the test that you already done?

Second, are you seeing any improvements in equipment pricing as the RBOCs pick up their spending in this area?

And finally, if pricing were to come down significantly on the equipment, would you anticipate rolling out more quickly to more of your footprint, or are you still working out the kinks in your product offering?

Last question, is the increase in CapEx, that you said CapEx would be up modestly this year over last, is that related to IP TV spending?

Okay, Tom, the roll-out on Lacrosse continues to go well.

We have worked out a lot of bugs our of the equipment, our penetration levels are good there, and our coverage we expect to expand coverage up there.

The technology will be different in Columbia than in Lacrosse, and in Lacrosse we used ADSL 2 plus, and have begun with MPEG-2 technology, and we will be transitioning to MPEG-4 technology this year in Lacrosse, we will begin with basically, primarily DSL-2 in Columbia, and also in Columbia we will be using the same technology as AT&T has been rolling out, which is with Motorola and the Microsoft middleware initially, in Columbia so it will be a little different test of the equipment there.

We are seeing prices come down.

We have seen some substantial declines in prices in the past year and we hope to see those continue in the months ahead.

Isn't pricing came down rapidly, if AT&T brought this to scale, could we anticipate you to roll this out to get it into the bundle more quickly, or you still sort of feel like you have to be in the test mode to lock it down right?

Well, if the prices really came down substantially and especially if the impression technology improved, we could extend the loop lengths to get the required bandwidth out there, then we would certainly roll-out more quickly.

Really we are positioning ourselves to be able to do that with these trial markets.

So we would, we think it's a good service.

It could be very competitive and the technology actually works.

We have proven that.

So if the prices come down and technology continues to improve, yes, we could roll out more quickly.

Stewart, would you mind commenting on where the incremental spend in CapEx is?

Yes, of course we had estimated about 325 million for 2006, and it came in about 314 for 2007, we are estimating about 325 again.

So the $11 million is really pretty well spread to a number of different projects.

Potentially we will spend a little money on Wi-Fi in 2007 that we didn't spend in '06, and there's such additional spending for the Columbia market primarily in switch digital video.

I appreciate that.

Thank you very much.

Digital.

Our next question comes from [Sergey Dluzhevskiy from Gavelli Company].

Good morning, two quick questions, first, can you bring us up to date on your wireless present, and longer term, maybe talk about the transition from Wi-Fi and Wi-Max over the next several years, and both wireless growth service offerings that you see in your future?

And second question, what was the share count at December 31?

Okay.

First of all on the wireless strategy, on the voice side we have rolled out service to MVNO contracts in over 30% of our access lines.

We hope to expand that, increase that in 2007.

We at this point, have no plans to acquire the voice type [sealer] at least not to date.

We do expect to expand in our broadband wireless technology to become more viable, and as prices come down on the equipment, we think there is an opportunity, there will be an opportunity to expand broadband wireless, and that will eventually provide voice services as well, we believe at least over time.

That is our view there for right now, and we do have some projects we are working on for the Wi-Fi expansion this year in our markets.

In terms of the actual share count at December 31 was 113,254,000.

Thank you.

Our next question comes from Donna Jaegers from Janco Partners.

I have two quick questions for you.

Qwest recently got tagged for about 15 million of a hit because they had some unlimited calling card companies terminating minutes in Idaho.

I know you guys have been on the forefront of this whole phantom traffic business.

Do you have the safeguards in place so you don't get hit by a similar kind of termination problem?

Donna, Karen Puckett.

I believe we do, not to say that something like that couldn't happen to anyone's network, but as you know we've been leading the phantom traffic effort, not only from a policy standpoint, but from a technology and identification standpoint, so I feel good about where we are at, and our assurance process.

Great.

Maybe a question for Glen.

I know this is relying on your crystal ball which probably isn't any better than mine, but it seems on the USF debate, the reverse auction process is getting some some hearing from Chairman Martin.

What's your stance on reverse auctions to set USF prices?

We are not really for the reverse auction process today, but there's some scenarios that Chairman Martin has thrown out that make some sense, so we will be looking at those.

We are still working on really our position, on what the proposal will end up looking like.

We haven't seen his final proposal, and certainly no one else has, but we have seen some things that may work for us.

Initial reaction was negative, but we've seen some positives in recent discussions with the staff.

A quick follow up on the wireless question have you guys announced who you are using, that you are MVNOing from on wireless?

No, we haven't, Donna.

Thanks.

Our last question for today comes from Philip Olesen from UBS.

On the Madison River transaction, can you maybe give us your current thought as to the permanent financing plans for that deal?

I guess specifically what type of debt to short term, and when we might expect to see you in the market to finance that?

Philip, we have not really finalized that yet, but in all likelihood we will use a combination of some short term debt that we can off of our facility, that we can pay off as the cash flows, and we will do some portion of it long-term, and possibly take the $100 million that we have maturing in June or so, and roll that into the financing as well.

So we don't have really concrete plans yet, but we would expect to do something around the time of the close.

Great.

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, as we begin 2007, we remain focused on being a communications provider of choice in our markets.

We will continue to pursue broadband growth and we will also continue to enhance our product and services offerings to each customer segment with our business.

We will also continue to invest in IP-based technologies to deliver next-generation service solutions in the months ahead.

We believe CenturyTel is well-positioned to succeed in the coming months and years, and we remain focused on utilizing our strong cash flows to drive shareholder value.

We appreciate you taking the time to participate on 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.