Lumen Technologies Inc (LUMN) 2008 Q1 法說會逐字稿

Good day, ladies and gentlemen.

And welcome to the CenturyTel's first quarter 2008 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 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 first quarter 2008 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 and joining Glen on the call is Stewart Ewing, CenturyTel's Executive Vice President sliver.

Also available 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 2008, selected information regarding 2007 and 2008 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 7, 2008 and accessible for webcast replay through May 21, 2008.

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 May 1st, 2008 and should be considered valid only as of that date, 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.

Appreciate you joining us today as we discuss CenturyTel's first quarter 2008 operating results and our guidance for second quarter and full year 2008.

Diluted earnings per share excluding non recurring items was $0.81 for the quarter, or $0.08 ahead of the upper end of our previous guidance and First Call consensus of $0.73.

The $0.81 diluted earnings per share represents an increase of more than 19% compared to the first quarter of 2007.

This increase was driven by the contribution of a Madison River Properties to our overall business, to continued success in controlling costs, a moderately lower effective income tax rate, and an 8% decline in average diluted shares outstanding.

Operating revenues for the quarter were $648.6 million, which was within our previous revenue guidance of $646 million to $656 million.

We continue to see strong demand for broadband services during the first quarter as we achieved 32.2% growth in data revenues over the first quarter of 2007.

That percentage would be 18.3% growth excluding the Madison River properties.

This increase was primarily driven by the addition of nearly 115,000 high speed Internet subscribers or nearly 28% growth over the last 12 months, excluding Madison River.

Including Madison River acquisition, that would be nearly 42% growth in Internet sales.

The growth in data revenues and the revenue contribution of the Madison River properties during the quarter more than offset anticipated revenue reductions attributable to access line declines and lower access revenues.

We also generated strong free cash flow of more than $167 million during the quarter, while investing approximately 12% more in capital improvements than in the first quarter of 2007.

We added more than 30,000 high speed Internet customers during the first quarter, attributed to 5.5% sequential growth in broadband customers.

We entered the first quarter with more than 586,000 high speed Internet customers, 32.6% penetration of DSL enabled lines and nearly 28% penetration of total access lines.

We experienced access line losses of approximately 27,400 during the quarter which equates to an annualized loss of 5.1%.

From an overall bundle standpoint, 35.1% of resident digital customers are now legacies, CenturyTel properties are served from one of our bundled offerings compared to 29.5% a year ago.

We continued to experience good growth in our triple play bundles, including voice, high speed Internet and our digital satellite product.

We also added a record 18,400 satellite television customers during the first quarter, representing sequential growth of nearly 34% and ended the quarter with nearly 73,000 satellite TV customers.

This represents nearly a 5% penetration of primary residential lines and we expect penetration of this service to continue to grow in the months ahead.

We believe the penetration of satellite video increases customer loyalty, which should assist in customer retention of course over time.

Before turning the call over to Stewart, I want to briefly comment on a few other items.

First, the integration of Madison River properties continues to be on track, we expect to have all of the properties and systems fully converted to CenturyTel systems by mid-year or so.

Also, as of March 3rd, we achieved a run rate of nearly $14 million in annualized synergies from these properties.

And we believe we're on target to achieve approximately $24 million in gross synergies and after taking into account the regulated revenue impact, we continue to expect more than $17 million in annual net synergies along with additional incremental cost savings over time.

We're also pleased with the progress we made with our distribution retention and local presence initiatives.

We're in the process of upgrading approximately [60] bill payment locations to full Customer Service centers where customers can come in and experience our full array of products and services.

We're staffing these centers with fully trained local service and sales employees who offer our customers a full range of services in our local markets.

We're also establishing a dedicated multi dwelling unit and developer sales team to further penetrate this segment.

The expansion of our door-to-door sales effort continues to be successful for customer acquisition and winbacks.

We follow the 700 megahertz auction you know that CenturyTel was a successful bidder for 69 licenses in blocks A and B, covering approximately 53% of our wire line service areas, about 4500 miles of our fiber transport network.

We believe these licenses provide CenturyTel valuable wireless spectrum, at $0.70 per megahertz tops, which is significantly lower than the average auction prices paid for this spectrum.

And provide us a significant strategic advantage in bringing wireless broadband services to our markets in the years ahead.

We will continue to develop our business model for the 700 megahertz spectrum over the next several months, and look forward to discussing our plans with you later this year, early 2009.

We continue to return significant cash to shareholders during the first quarter, as we repurchased 2.5 million shares of common stock for approximately $94 million under our $750 million repurchase program.

There was approximately $500 million remaining under the $750 million authorization at March 31st, 2008.

And we remain committed to fully completing this repurchase program.

We ended the first quarter with one of the strongest balance sheets in our industry sector, providing us the financial flexibility to take advantage of growth opportunities as they arise.

With that I'll turn the call over to Stewart to provide additional details on the results for our first quarter and update you on our financial guidance for 2008.

Thank you, Glen.

During the next few minutes I will cover some highlights from our first quarter 2008 operating results and briefly discuss CenturyTel's capital structure and liquidity.

I'll then spend a few minutes discussing our second quarter and full year 2008 guidance provided in our earnings release, issued earlier today.

All comments regarding actual results for first quarter 2008 exclude the non recurring items detailed on the financial schedules accompanying the press release.

To give you a little more color on why our results exceeded the guidance we gave earlier for the first quarter, there were three primary items.

The first is lower than expected or anticipated marketing expenses and other expense reductions due to the Madison River integration, vacant positions and cost containment efforts contributed about $0.06.

Below the line items related to our investment in the sale or partnership in certain life insurance policies contributed about $0.02.

And the impact of revising our long-term incentive compensation from a mix of restricted stock and options to 100% restricted stock and related favorable accounting treatment for expense recognition of that also contributed about $0.02 to the amount that we exceeded the guidance that we gave you earlier with respect to the first quarter.

For first quarter 2008, operating revenues increased 7.9% to $648.6 million from $600.9 million in first quarter 2007.

This increase was primarily due to the $48 million revenues contributed by the Madison River properties.

Excluding the revenue contribution by the Madison River properties, operating revenues were in line with the same quarter a year ago.

Voice revenues for first quarter 2008 were $220.5 million, versus $211.9 million in first quarter 2007.

This 4.1% increase in voice revenues was primarily driven by voice revenues from Madison River properties and growth in long distance voice revenues which more than offset revenue declines associated with the lower access lines.

Network access revenues were $208.7 million, versus $211.4 million in first quarter 2007.

This decrease of approximately $3 million was driven by revenue declines associated with lower universal service fund revenues, lower intrastate minutes of use and lower interstate revenue requirements as a result of lower operating expenses and decline in our net planned investment which more than offset the network access revenues contributed by the Madison River properties.

Our revenues increased 32.2% from $95.9 million in first quarter a year ago, to $126.8 million in first quarter 2008.

This was primarily driven by strong high speed Internet customer growth during the last 12 months and the data revenues contributed by the Madison River properties.

Our fiber transport and CLEC revenues increased 3.4% to 39.6 million in first quarter 2008, from 38.3 million in first quarter 2007, primarily due to revenues from the Madison River properties.

Other revenues were $53 million compared to $43.4 million in first quarter 2007.

This 22.3% increase was primarily driven by revenues contributed by the Madison River properties, direct revenue settlements and other initiatives.

Our operating expenses increased 7.5% from $432.8 million in first quarter 2007, to $465.1 million in first quarter 2008.

This increase in operating expenses was primarily driven by the acquisition of the Madison River properties, growth in high speed Internet customers and higher marketing expenses, which were partially offset by lower bad debt expense due primarily to the favorable settlement of a carrier receivable, lower personnel related costs due to the issuance of restricted stock in lieu of options and lower depreciation expense associated with fully depreciated assets.

For first quarter 2008, we generated an operating cash flow margin of 49.2%, the same as a year ago.

Our operating income for the first quarter of 2008 was $183.5 million, a 9.2% improvement over the first quarter 2007 operating income of approximately $168.1 million.

This increase was primarily due to the incremental operating income contribution from the Madison River properties, and successful cost containment.

Net income for the quarter rose nearly 10.7%, to $86.2 million, compared to $77.9 million in first quarter 2007.

Overall the first quarter was very solid quarter for CenturyTel.

As Glen mentioned earlier, we generated $167 million in free cash flow during the quarter.

During the first quarter, we invested nearly $55 million in capital expenditures, returned approximately $100 million to shareholders through share repurchases and dividends, deposited $25 million with the FCC for the 700 megahertz auction and ended the quarter with net debt to first quarter 2008 annualized operating cash flow at a solid 2.3 times and debt to equity ratio of 0.87 to one.

So CenturyTel continues to remain in great shape financially with a solid balance sheet and investment grade credit ratings.

We believe our strong cash flows and excellent liquidity will position us well to take advantage of opportunities and meet challenges as they arise.

Finally, I would like to discuss the second quarter and full year 2008 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 the second quarter and full year 2008.

Also, second quarter and full year 2008 guidance are based on shares outstanding as of April 30, which reflects all shares repurchased through that date under our $750 million share repurchase program.

For second quarter 2008, we anticipate total revenues in the range of $647 million to $657 million.

We expect diluted earnings per share for second quarter 2008 to be in the range of $0.78 to $0.82.

There are several items impacting second quarter results as compared to first quarter results.

First, we expect modestly higher revenue in the second quarter, primarily related to network access disputes anticipated to be settled in the second quarter of approximately $4 million, along with continued growth in broadband customers.

We believe this revenue increase will be more than offset by annual wage adjustments that take effect in the second quarter, higher marketing expenses as we continue our focus on broadband growth and access line retention, and higher maintenance expenses due to the seasonality of outside plant maintenance activities.

For full year 2008, we expect operating revenues excluding non-recurring items to be flat to modestly lower than 2007 operating revenues.

This is slightly lower than our initial 2008 revenue guidance which was flat to modestly higher than 2007 operating revenues excluding non-recurring items.

This adjusted revenue forecast is primarily attributable to the revised revenue expectations related to intrastate access and usage related revenue.

For full year 2008, CenturyTel anticipates diluted earnings per share to be in the range of $3.05 to $3.20, an increase over our previous guidance, which was $2.90 to $3 per share.

This increase is primarily attributable to first quarter results exceeding expectations, share repurchases completed through April 30, and the expectation that operating expenses for the remainder of 2008 will be lower than our original 2008 guidance provided in February.

This concludes the prepared remarks for today.

At this time, I will ask that the operator provide further instructions for the question and answer portion of our call.

Thank you, sir.

(OPERATOR INSTRUCTIONS).

First question comes from Mike McCormack.

Hey, guys.

Thanks for taking the call.

Just a comment on SG&A, if you would, for the quarter.

Obviously a good step down sequentially, the drivers there and also your expectation for the balance of the year to have some downward pressure on expense would be great.

Secondly, the access line guidance, current quarters you guys the absolute number of lines lost is up a bit year-over-year.

Next three quarters are going to be down on an absolute basis.

Give us your comfort level on that guidance would be great.

Thanks.

Mike, first on the SG&A, a little less than $3 million of it, the decline, was related to the settlement that I mentioned with one of our carrier customers of their receivable accounts.

So that was about $3 million of it.

Another $2 million or so related to our marketing expenses being a little lower this year than they were in first quarter a year ago.

What was the cause for the stepdown in marketing?

Basically just a little lower expenses.

I mean, they really focused on broadband this quarter and we didn't focus on some of the items that we focused on first quarter last year related to some of the other products.

Just the balance of the year, are you expecting expenses to come down a bit?

What's the driver for that?

We actually expect marketing expenses to come back up some in the second quarter, and be higher in the second quarter than they were the first quarter.

And of course the settlement that we had, a little less than $3 million again, which was positive to the first quarter bad debt expense will not reoccur in the second quarter.

I guess I was looking to commentary about expectation for expenses for the remainder of the year to be lower than we anticipated originally.

What was the thought there?

It's basically -- it's more employee expense related than it is anything else.

Our folks are doing a very good job of controlling expenses, not filling vacancies when they have vacancies.

That's really what most of it relates to.

Okay.

Also relates to a certain extent to little bit better performance from the standpoint of -- and lower costs associated with our Internet drain expense going forward and a little bit of lower long distance expense or cost for that product than we anticipated three months ago.

Okay.

Karen, do you have any comments on the access lines?

Mike, I'll start and let Karen wrap this up.

As far as the guidance is concerned, we've stated 4.5 to 6% line losses for the year.

But in our guidance, we have in the upper end towards the 6% level as far as the guidance we're giving and the impact of access line losses.

This is Karen.

We're feeling pretty encouraged by what we're seeing as Glen said, we spent a lot of time and effort on expanding our distribution focus there.

From a residential standpoint, if you look year-over-year, we actually see improvement in the trends which is incredibly encouraging for us and we look at the business losses, basically we have some customers that are still customers that migrate from Centrix to IP, CPE, so still a customer, they just don't have the Centrix, we don't count them on the access line but they do have a product -- still a product set of the ours and then we reconfigured some of of our network on admin and our actual pay phones.

When you look year-over-year, when you net out the company lines, the pay phones and we had a paging system that we shut down up in the Midwest, we're basically flat, so very encouraged.

Thanks a lot, guys.

Our next question comes from David Barden.

Hey, guys.

Thanks.

Just a little bit more cleaning up on some of the numbers, Stewart, I think I heard you say that there was some directory settlements in the revenue line in the other category.

If you could just quick touch on that.

And then you were talking about guidance not included non-recurring items but it sounds like the 647 to 657 does include a non-recurring $4 million item, which would then imply a fairly sizable sequential step down in revenue, on a recurring basis, just like to get some color on that.

The guidance includes buybacks as of April.

I guess we have the number as of March.

So could you give us the month of April buybacks, that would be helpful as well.

Thank you very much.

David, first of all, yes, the guidance does include the $4 million of settlements that we expect to book in the second quarter.

So it does reflect a revenue stepdown for the remainder of the year and that's basically due to the expectation of lower intrastate access revenues and continue access line losses, so that's really what that relates to.

The $4 million is in the guidance and we don't count that or we don't include that as a non recurring item because we have -- we typically have settlements like this from time to time.

Our directory settlements in the revenue line in the other category in 2007, first quarter 2007, we actually had a settlement of about $2.5 million.

So that's what that relates to.

As far as April buybacks, we bought back 1.1 million shares for about $35 million in the month of April.

All right.

Thanks a bunch.

If I could follow up real quick.

Karen, you've talked in the past about the issue of churn versus gross adds and obviously a lot of other carriers with the housing market the way it is have kind of also talked about pressures in the gross adds side with respect to line losses.

If you're seeing net improvement in there are you saying you're seeing the net improvement on the churn reduction side from a line perspective.

Our inwards are still down on residential but they're improving.

It's not as -- the trends are improving.

And of course we are improving on the outs.

We spent a lot of time on refining our save disc process and retention efforts on the program.

So again, very encouraged in what we're seeing on the residential side.

Great, guys.

Thanks much.

Our next question comes from Jason Armstrong.

Thanks.

Good morning.

Couple questions.

Maybe just first on just tying together the numbers to follow up on David's question.

Just beating the quarter by about $0.07 share repurchases that you've done so far this year, that's another $0.05 or $0.06.

Then sounds like the revenue settlement somewhere in the order of $0.30 for the 2Q guidance.

Kind of adds up to $0.15 right there, which is what you took the low end of guidance up by.

Number one, is that correct?

Number two, if you look forward, doesn't sound like you're implying that much of the improvement from 1Q carries on through the rest of the year, no real core guidance hike.

Step through the logic there.

Second question, more strategic, I realize you said in the next few months would you come back to us on wireless.

Maybe some initial comments on -- I think you mentioned in the context of data.

Is this sort of thought of as an extension of the DSL footprint, take 1X to the 10, 15% you can't get to or is this something you would really consider overlaying across most of the territory?

Thanks.

David, I'll talk about the last question, ask Stewart to answer your question on the numbers.

Basically, we believe as far as our future will be driven by broadband, both fixed line and wireless.

And our participation in 700 megahertz auction is primarily about enhancing our existing broadband, voice -- broadband and voice.

We believe the deployment of broadband and voice services over this spectrum will significantly enhance the competitiveness of our products.

It's not just to reach those we haven't reached already.

It's really to enhance -- bringing the wireless broadband products to our customers.

That's essentially our strategy with 700 megahertz.

It's not separate and apart from our existing business and we do not envision it as a me too wireless type service.

We believe coupling our fixed broadband and voice service was mobility of the wireless offering will give us a significant strategic advantage over most of our competitors.

And we also have -- we also believe we will have opportunity to deploy services in select contiguous markets that we do not have service in today.

Territory focus our work is not a primary focus, we do believe there will be opportunities to leverage our existing assets to deploy services in new markets on a selected basis.

Jason, in terms of the reconciliation, you've got it down pretty much.

The pieces that you're missing are basically expense reductions and then as I mentioned in the comments, that the positives were really offset by our expectation of a lower intrastate access revenues.

So you pretty much have it, I think.

Okay.

Great, thanks, guys.

Our next question comes from Guarav Jaitly.

Great.

Thanks.

Good morning, guys.

Just wanted to follow up on that last question.

Glen, so it sounds like you're saying the spectrum purchase is primarily a broadband extension strategy.

You obviously bought a lot of spectrum out of region.

Just wondering what your thoughts were.

If you're making broadband, strategy.

Secondly, Karen, wanted to follow up on that access line from a housekeeping perspective.

You typically give out the primary, second and business line breakdown and your thoughts on economy, any impact that might be having on the business.

Thanks.

Yeah, the focus is the broadband extension primarily and overlaying the broadband, the wireless broadband, although we thing to the extent we can bring wireless voice to our customers, integrate it with fixed base product, it will be a positive for us over time.

As far as our territory, the territory we would be looking at would be contiguous markets, markets where we have the fiber transport facilities, fiber rings, we could utilize or we could utilize to leverage whatever we are able to -- any service we bring with the 700 megahertz in these other markets.

Also, we think there will be opportunities to swap spectrum or partner with other companies to enable us to get more coverage in our wire line areas while swapping some of the non-strategic areas that we have as far as the spectrum coverage is concerned.

On the -- let me start with the economy first.

You know, I would say in general there are obviously pockets within the states we do business with and within the communities that have been impacted.

But on a broad sense, it is -- we don't see the impact.

Our disconnect non-pays are not up.

So we're feeling pretty good what we see.

We may see some slowness and just small businesses starting up.

In terms of the access lines, when you look at the kind of year-over-year acceleration or deacceleration, residential in general had improved, the trends improved about 13 -- over 1300.

Really made up of large improvement in the residential primary, improved over 2000.

We did see some slowdown in second lines.

But again, netted together, we had a positive trend comparison on residential.

On the business side we did see an increase of about 2500, 65% of that was made up of what I went through before, the customer migrating product set to an IP, CPE where they would purchase PRIs, and then the remaining we had a bit of an increase in Soho ports to competition cables.

They seem to be focused more on Soho businesses as well as a softness in the on Soho.

Thanks.

Our next question comes from Simon Flannery.

Okay.

Thanks.

Good morning.

Question on use of free cash flow.

I think, Glen, you had sort of reiterated your commitment to fully complete the buyback program.

Can you talk about the M&A environment, seems like Madison River is going pretty well.

Are there other things out there that are looking interesting?

And Stewart, have you had a chance to sort of work through the impact of the accelerated depreciation under the tax stimulus package and to what extent that sores of enhances this year's cash flow.

Thanks.

Yes, Simon, first of all, we are committed to completing the buyback program that we have in place and we're continuing to seek attractive acquisition opportunities we believe we can drive long-term shareholder value.

There's a lot of talk, as usual.

Nothing major on our plate today but we're continuing to look for those opportunities.

We think there are these types of acquisitions, can drive long-term shareholder value.

And Simon, we've not had an opportunity to work through any cash flow impact that we get associated with the accelerated depreciation from the stimulus package.

Okay.

Thank you.

Our next question comes from Frank Louthan.

Great.

Thank you.

Couple questions.

On the 700 megahertz, just go back on that strategy a bit, are you -- I hear you talking about data.

Would you consider or are you considering at all using that spectrum for wireless local loops, trying to decrease the cost of your local plant for some of the farther out loops?

And on the regulatory side, some chat out of Washington regarding USF cap.

Would that have any impact on you?

I know it's primarily aimed at the wireless ETCs but would capping the fund have any impact to you other -- or are you still expecting sort of the normal trends we've seen in the last couple year is that USF contribution has trended downward.

Frank, the answer to your first question, 700 megahertz, yes, we will consider this spectrum to reach customers who we can't get to today.

As far as the local loop's concerned, as you are probably aware, this spectrum is an extremely efficient in less densely populated areas so we'll be using it for to reach customers that perhaps we can't reach today as well as providing enhancements to those we have who want a wireless broadband capability of this spectrum brings.

It's a very efficient spectrum for us.

And regarding the USF, there's no direct impact on us.

I think indirectly it takes pressure off the fund, long-term, make it's more viable, so we're pleased to see the cap.

But this has no direct impact on us really.

Okay.

Great.

And then going forward, just looking at trends with access line declines, so forth, you've done a good job of maintaining revenue and EBITDA.

Can you give us an idea maybe of what sort of your -- how much have you changed on your cost structure as you continue to cut costs.

What percent of your costs are variable versus fixed and how that trend might proceed going forward.

As you continue to lose line you can continue with the offsetting cost cutting you've been able to do in the last few years.

Frank, it's difficult to say just how much is fixed, semi-fixed, what's true variable costs.

Bottom line, we do believe there's more room to cut costs in certain areas as access lines go down and we continue to look at those.

We hope that attrition will take care of most of those issues for us over time.

So we're -- our folks are doing a great job of controlling costs and continue to maintain good margins right now.

So we're hopeful we can continue in that direction.

There are certainly ways to reduce costs if there are significant declines in access lines or related revenues over time.

Okay.

Great.

Thank you.

Our next question comes from Jonathan Chaplin.

Good morning.

If I could follow up on one of the earlier questions, on the access line trends.

Sounds like you guys are doing better about on inwards and outwards.

I'm wondering if you can characterize what the impact is from an improving macro environment or if indeed there is a -- you're seeing anything in terms of an improving macro environment versus your own efforts to improve through marketing and out wards through channel reduction initiatives.

And then we've heard from a couple of carriers, been a fairly common theme that they saw pressures on access lines and other metrics peak in February and then improve sequentially in both March and April.

I'm wondering if you've seen a similar trend there.

Thanks.

I would say, Jonathan, we -- it's directly linked to our effort on distribution expansion, our marketing initiative, our local presence, all the work that we've done here in the last eight months are paying off and we have more planned.

And in terms of just trends in the last couple of months, I would say that they're consistent with what we've been seeing in this category.

Thanks, Karen.

Our next question comes from Chris Larsen.

Hi, thanks, most of my questions have been answered.

Just the tax rate was a little light in the first quarter, wondered if the expectation for 2008 is for it to trend back up to the regular rate?

And then secondly, wonder if you could give us an update on where the cable voice overlap is across your markets, what percent you're seeing in terms of competition there?

Thanks.

Yes, the tax rate was a little lower than last year because of a little bit lower state effective tax rate.

But it is in line with what we expect the effective tax rate to be for the year.

Chris, our cable VoIP overlap is somewhere in the 40 to 45% range today.

Thank you.

Our next question comes from Michael Rollins.

Hi, good morning.

Just was curious if you could detail in a little bit more where you are in terms of dollars with the merger synergies from Madison River and what's left to complete and how much savings that could bring to the table.

Thanks.

Yeah, Mike, we're in a run rate at the end of -- as of the end of March, our run rate's about $14 million.

If I recall from the end of the year, I think that's up from about $11 million run rate that we were experiencing the end of the year.

We still expect to be able to get to a run rate on net basis of $17 million.

Our gross synergies, before we -- before you deduct the revenue that we lose because of the regulatory process will be closer to $25 million.

We do expect to get the $17 million of synergies that we initially thought we would be able to get and we should see that continue to roll in as we convert the last properties to our billing systems which we expect to have done sometime during the second quarter.

Is there any potential to bring that number up over time?

Are there things that you're looking at or exploring to try and get more savings out of the combined company?

Just over time we will be able just because of the volume that we have in terms of high speed Internet customers, we will be able to get and have been able to negotiate lower Internet drain costs, because most of these -- most all of these properties are on our fiber networks.

We're able to contain our back haul costs going forward so I definitely believe that there are additional synergies that we'll see down the road.

If nothing more than from the standpoint of being able to hold the line on the costs associated with transport.

Thank you very much.

While providing our customers with more bandwidth.

Thank you.

Our next question comes from Tom Seitz.

Yeah, thanks for taking the question.

Do you expect any impact at all to the pace of the share buyback with respect to paying for the spectrum?

I think you guys tapped the revolver, is paying that down more of a priority than the share buyback?

And then secondly, and I may have missed this and I apologize if I did, but I heard you talk quite a built about the satellite net adds.

I didn't hear you say much about the switched digital video test that you've been doing and just sort of any update on your thoughts and what's going on with the test there.

Thanks.

First of all, Tom, we don't expect any significant impact on the buyback.

As far as the 700 megahertz spectrum acquisition, we expect to complete -- actually expect to complete ahead of time the buyback still.

Regarding the satellite TV work we've done, IPTV work we've done, with IP TV, we continue to be encouraged by our IP TV efforts, although they've not been without their technical challenges at times.

We're seeing strong demand for an alternative for cable TV in our markets, particularly among bundled customers and our bundled products or offerings.

We're seeing price improvements and equipment costs as other telecoms deploy this equipment and we assume those will continue to decline over the next couple of years.

Our focus this year will be primarily on growing our customer base in LaCrosse and Columbia, on improving our operational efficiencies and really stabilizing the service quality.

Overall, we remain optimistic about the future of IPTV services in these markets.

You don't have to tell me where, but are there any other launches that you might consider, comparatively speaking, which technology platform do you think shows the most promise for you guys?

Well, the answer is yes, we'll be looking at other markets, although we have to be careful because of density is such a big issue when you're talking IPTV roll-outs and we're still evaluating the technology.

We believe the VDSL technology, VDSL two is primarily what we'll be utilizing in the months ahead.

Okay.

Thank you very much.

Our next question comes from Michael Nelson.

Thanks a lot for taking the question.

I was wondering what kind of take rates you're seeing from your 10 megabit DSL product, what percent of your access lines does it cover currently and what are your plans to boost speeds across your footprint.

Thanks.

Our 10 Meg offering covers with the Madison River addition, it's about 54% of our access line footprint has a 10 Meg -- up to 10 Meg offering.

And really what we see as more of a migration than new there, we've been successful and we believe we'll continue to accelerate getting customers migrated from lower speed to higher speed.

Right now it's about 10% of our ending service for DSL.

So we're still growing there.

And any plans to expand that across additional part of your footprint?

We'll continue to expand as we have bonding capability and such.

You know, we have a -- we're blessed with a good network, fiber to our nodes.

As we have the copper we'll look at doing bonding here at the end of the year, first of next year.

Great.

Thank you.

Our final question comes from Chris King.

Hi, good afternoon.

Two quick questions for you.

First of all, just was wondering in any of your 69 license areas where the spectrum, whether there are any significant buildout requirements over the course of the next year or two that we need to be thinking about there.

Secondly, in terms of your high speed data product, you guys obviously continue to do very well with that.

We've heard from some of the cable companies that they have been focusing on increasing their marketing efforts over the course of the last quarter or so and they seem to be seeing some nice traction on the HSD side as well.

Just was wondering if you were seeing anything specifically out in your markets with respect to any new cable marketing efforts or promotional activity on the high speed data side.

Thanks.

Chris, as far as the 700 megahertz buildout requirements, we have no special buildout requirements in any of our markets today.

Nothing significant will happen in 2008 the spectrum of course will be cleared in 2009 and we'll be making our decisions over the next several months as far as where we build out first and how much and when, basically.

Chris, this is Karen.

On the high speed offer from cable, what we would say is that we haven't seen a lot of change fourth quarter and certainly still in first quarter.

The cable competitors seem to be more focused on a double play as opposed to a triple play.

So I do think that they're trying to increase their effectiveness there.

But we're very pleased with our inwards and our flow share on the high speed side and see us continue to be successful there in '08.

Thank you.

This concludes our question-and-answer session for today.

I would now like to turn the conference over to Mr.

Glen Post for any closing remarks.

Thank you.

In closing, our strong financial results and cash flows in the first quarter provide CenturyTel with solid start to 2008.

We believe our initiatives that are under way to drive inbound sales activity and improve our retention capabilities will continue to gain traction during the remainder of the year and help drive our performance.

We are also excited about the potential the 700 megahertz spectrum provides us to develop and offer our customers differentiated service bundles over time.

We believe our strong cash flow is conservative, our balanced cap structure, position CenturyTel well to drive shareholder value over the long-term.

We appreciate your participating in our call today and we will 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.