Lumen Technologies Inc (LUMN) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to CenturyLink's fourth quarter 2009 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 be given at that time.

(Operator Instructions).

As a reminder, this conference call is being recorded.

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

Tony Davis, Vice President of Investor Relations.

Mr.

Davis, you may begin.

Thank you Sayid, Good morning, everyone and welcome to our call today to discuss CenturyLink's fourth quarter 2009 earnings results, released earlier this morning.

Unless otherwise noted in the press release or in our remarks this morning, the fourth quarter 2009 results discussed in the press release and during our call today include the effect of the Embarq acquisition completed July 1, 2009.

Also 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.centurylink.com.

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

Joining Glen on are call today is Stewart Ewing, CenturyLink's Chief Financial Officer.

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

We will be making certain forward-looking statements today, particularly as they pertain to guidance for first quarter and full year 2010, selected information regarding 2010, 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 March 3, and accessible for webcast replay through March 17.

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 that date, or today, 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 today, Glen Post.

Glen?

Thank you, Tony, and thank you for joining us today as we discuss CenturyLink's fourth quarter 2009 operating results and our guidance for first quarter and full year of 2010.

Even with the continued challenging economic environment, we achieved solid financial and operating results for the quarter.

Diluted earnings per share excluding nonrecurring items was $0.95 for the for the quarter or $0.07 ahead of the $0.88 per share upper end of our previous guidance in the first call of consensus.

Operating revenues for the quarter were $1.839 billion or slightly above the midpoint of our previous revenue guidance of $1.81 billion to $1.85 billion.

We experienced strong demand for broadband services during the quarter and we added nearly 47,000 high speed Internet customers.

This represents an 8% improvement over third quarter of 2009, customer additions of approximately 43,500, and a significant improvement over pro forma second quarter of 2009 additions of about 29,000.

This strong HSI growth since the July 1, closing of the Embarq acquisition has been driven primarily by our aggressive broadband strategy and our launch of Pure broadband across the Embarq markets.

We ended the quarter with more than 2,236,000 high speed Internet customers or over 37.4% penetration of our broadband enabled access lines and approximately 33.3% of total addressable access lines.

We also experienced significant access line loss improvement as our fourth quarter line loss of approximately 146,000 access lines represents a 14% improvement over the 170,000 loss in the third quarter and a significant 24% improvement over the fourth quarter 2008 pro forma line loss of 193,000.

Our annualized access line loss for the fourth quarter was 8.1% which compares to 9.2% in the third quarter of 2009, and 9.8% in pro forma fourth quarter 2008.

We experienced a nice improvement in outs for disconnect orders in both the consumer and business segments which was the primary driver of our access line improvement.

Also, demand for our satellite video bundles remains strong as we added approximately 32,500 Dish customers during the fourth quarter and ended the quarter with more than 535,000 Dish video subscribers.

And at year-end 2009, total video subscribers represented an 11.7% penetration of primary residential lines.

We continue to develop our IPTV capabilities in Columbia and Jefferson City, Missouri and in Lacrosse, Wisconsin.

We are pleased with results in these markets thus far, and are planning the launch of IPTV service in additional markets in 2010 and 2011.

Now turning our attention to the Embarq transaction, integration process is on schedule and going very well with the financial and HR systems conversions and initial billing conversion in Ohio behind us.

Our next billing conversion is scheduled for North Carolina and will result in approximately 25% of the total legacy Embarq customers being converted to our integrated customer care, billing and provisioning systems.

The implementation of our regional operating model has gone very well and we are confident it is already making a difference in the legacy Embarq markets through an increased local market focus.

This local market approach along with our launch of enhanced product offerings such as Pure Broadband and our targeted marketing strategy, are proving to be successful and positively impacting operating results as we saw a significant impact in both line loss and high speed sales.

From a synergy perspective, we continue to anticipate achieving approximately $375 million of cost savings within the first three years after the transaction.

We exceeded our synergy estimate for the fourth quarter as we achieved approximately $40 million in operating expense synergies for the quarter.

We expect to achieve an additional $10 million in incremental operating synergies during the first quarter 2010, and approximately $200 million in incremental synergies for the full year 2010.

So overall, we are off to a great start with the Embarq integration.

We generated strong second half financial and operational results and I am very pleased with the accomplishments of our entire CenturyLink team.

Due to the significant billing and customer care conversions scheduled for 2010, we do not anticipate significant reductions in business as usual operating expenses during the year.

We do expect to be far enough along with conversions by year-end 2010 to resume addressing the business as usual type expenses in 2011 and beyond.

Finally, as outlined in our press release issued earlier this morning, for 2010 we anticipate operating revenues, excluding one-time and unusual items, will be approximately 5.5% to 6.5% lower than 2009 pro forma operating revenues, assuming the Embarq acquisition had closed effective January 1, 2009.

This anticipated revenue decline is driven by access line declines, lower access revenues, and reduced universal service funding that more than offset revenue growth associated with the anticipated high speed Internet customer growth during 2010.

Additionally, there is approximately $135 million to $145 million of extraordinary items.

They're expected to negatively impact 2010 operating revenues, of which $75 million to $80 million has direct, offsetting expense reductions and therefore is not expected to impact 2010 operating cash flow.

We expect additional revenue decline in 2011 associated with these unusual items to be approximately $30 million.

We currently expect to generate 2010 free cash flow of $1.475 billion to $1.525 billion.

So even with the topline revenue decline, our expected synergies from the Embarq acquisition, anticipated $825 million to $875 million 2010 capital expenditure plan, position us to continue to generate strong free cash flow during the year.

With that, I will turn the call over to Stewart to provide additional detail on our results for the fourth quarter.

Thank you, Glen.

During the next few minutes I will review some highlights of our fourth quarter 2009 operating results and briefly discuss additional financial matters.

I will conclude my comments this morning with a discussion of first quarter and full year 2010 guidance provided in our earnings release issued earlier today.

Since we reported significant nonrecurring or one-time items during the fourth quarter, I want to make a few remarks regarding those items before I discuss the fourth quarter normalized results with you.

First, we recognized approximately $37.8 million in after tax costs, or about $0.13 per share associated with the debt extinguishments completed in October of 2009, which allowed us to successfully lower our 2013 debt maturity tower.

Second, we incurred approximately $19.8 million in after tax costs, or about $0.07 per share related to integration expenses and other costs associated with our acquisition of Embarq.

Next, we incurred approximately $9.8 million after tax or about $0.03 per share related to litigation reserve adjustments, severance-related costs and the accelerated recognition of share-based compensation and pension expense.

These items more than offset a $10.7 million net tax benefit or about $0.04 per share r related to the recognition of previously unrecognized tax benefits, and an adjustment to deferred tax liabilities related to the Embarq acquisition.

In the aggregate, these items negatively impacted GAAP earnings per share for the fourth quarter by about $0.19.

Additionally, due to the size of the Embarq acquisition in relation to legacy CenturyTel, I will not discuss percentage increases between fourth quarter 2009 and fourth quarter 2008.

However, if you will focus on the table in our press release, you will note that we were able to translate the increased revenues from Embarq into larger percentage increases in operating cash flow and net income.

In addition, we have provided an updated schedule reflecting pro forma results for fourth quarter 2008 and full-year 2009.

Now, turning our attention to the results for fourth quarter 2009 compared to fourth quarter 2008 results, excluding nonrecurring items for both periods as outlined in our financial schedules.

For fourth quarter 2009, operating revenues increased $1.197 billion to $1.839 billion from $642.6 million at fourth quarter a year ago.

The Embarq acquisition contributed operating revenues of $1.266 billion during the quarter.

Additionally, it is important to remember that effective July 1, 2009, CenturyLink began eliminating revenues and corresponding expenses each quarter associated with the discontinuance of regulatory accounting for certain regulated operating entities, as we got off of FAS 71.

The amount of revenues and corresponding expenses eliminated in fourth quarter 2009 was $54.5 million.

Operating expenses increased $792.7 million from $459.5 million in fourth quarter 2008 to $1.252 billion in fourth quarter 2009, primarily due to operating expenses associated with the Embarq properties which more than offset lower operating costs of $54.5 million due to the discontinuance of regulatory accounting for certain regulatory operating entities I mentioned earlier.

For fourth quarter 2009, we generated an operating cash flow margin of 51.3%.

Depreciation and amortization expense increased $356.4 million in fourth quarter 2009 from $128.8 million in fourth quarter 2008, primarily due to increased depreciation and amortization associated with the Embarq acquisition, which more than offset depreciation expense declines associated with assets becoming fully depreciated and the discontinuance of regulatory accounting for certain regulated operating entities and adjustments to reflect the assignment of fair value and depreciable life to Embarq's property and intangible assets.

Operating income for the fourth quarter was $587.2 million, compared to $183.1 million in fourth quarter 2008.

Net income attributable to CenturyLink for the quarter was $286.7 million compared to $87 million in the fourth quarter a year ago.

We also generated solid free cash flow of $305.7 million during the fourth quarter.

If you exclude the $28.1 million of integration related capital expenditures, our free cash flow was nearly $334 million.

From a capital structure standpoint, Century is very well positioned.

As of the end of the year, CenturyLink's debt-to-equity ratio was 0.82 to 1 and net debt for full year -- to full year 2009 pro forma operating cash flow was 2.1 times.

Our debt maturities are very manageable with maturities of approximately $500 million, $20 million and $330 million in 2010, 2011 and 2012 respectively.

Our next significant debt maturity tower, approximately $2 billion, occurs in 2016.

So CenturyLink continues to generate strong cash flows, maintains a solid balance sheet, and is in great shape financially to take advantage of opportunities and meet challenges as they arise.

Finally, I would like to discuss the first quarter and full year 2010 guidance provided in our press release this morning.

First, costs incurred by CenturyLink during 2010 related to the Embarq integration will be treated as nonrecurring items.

These costs, along with any other nonrecurring items that may occur during 2010, are excluded from the diluted earnings per share guidance provided in our press release and in my comments regarding first quarter and full year 2010 diluted earnings per share guidance.

With those points in mind, for first quarter 2010, we anticipate total revenues to be in the range of $1.77 billion to $1.8 billion, and we expect diluted earnings per share for first quarter 2010, to be in the range of $0.84 to $0.88.

As Glen mentioned in his opening remarks, based on current economic and business conditions we expect full-year 2010 operating revenues to be 5.5% to 6.5% lower than 2009 pro forma operating revenues, excluding the unusual items that Glen discussed.

Additionally, for full year 2010, we expect diluted earnings per share to be in the range of $3.10 to $3.20.

The following items are expected to negatively impact 2010 diluted earnings per share -- voice related revenues declined driven primarily by anticipated 7.5% to 8.5% access line losses, $0.54 to $0.58; lower access revenues driven primarily by access line losses and continued pressure on access minutes of use, $0.37 to $0.41; reduced universal service funding, $0.08 to $0.10 per share; and expected migration of network traffic from a wireless carrier, $0.06 to $0.08 per share.

These items more than offset the following items that are expected to positively impact 2010 diluted earnings per share -- First, expected synergies associated with the Embarq acquisition of $0.39 to $0.43; increased revenues associated with expected growth in high speed Internet customers, $0.09 to $0.11; and anticipated lower depreciation and interest expense, $0.10 to $0.12 per share.

We expect capital expenditures for full year 2010 to be in the range of $825 million to $875 million or approximately 15% lower than 2009 pro forma capital expenditures of $1 billion.

We expect free cash flow for 2010 to be in the range of $1.475 billion to $1.525 billion.

Finally, we elected to make a $300 million contribution to one of our pension plans during first quarter 2010.

The contribution is tax-deductible and therefore will utilize approximately $185 million of cash.

We expect to fund this as well as repayment of our 2010 debt maturities from cash flow, cash on hand, and a minimal amount from our credit facility.

That concludes our prepared remarks for today.

At this time, I'll ask 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 Dave Coleman.

Great, thanks a lot.

Last quarter, you identified several factor factors that would negatively impact 2010 revenues, and you alluded to them or mentioned them on the call today -- the decline in USF receipts and network [grooming] by a wireless carrier.

So I guess my question is, does the 2010 guidance reflect those factors fully, or are there additional items in the 2010 that weren't previously anticipated?

My second question is that the gross margins for the fourth quarter were a bit higher than we had modeled.

And just trying to figure out how much of the quarter-to-quarter improvement was attributable to the synergies from the Embarq merger.

And then how much of the $200 million of expected cost synergies in 2010 would be allocated between cost of service and SG&A?

Thanks.

First of all, in terms of our margin for the fourth quarter, I think our margin was a little higher in the fourth quarter because our synergies exceeded the expectations when we gave guidance.

We would expect margins to trend somewhat down, and slightly down in the first quarter, due to some of the revenue declines that we mentioned earlier.

The last quarter, the items that we identified impacting 2010 revenues, specifically, universal service and network grooming by the wireless carrier.

That does fully bake into 2010, the declines associated with those items.

The declines that we would expect from those items in 2011 would be approximately another $30 million or so.

There was about $80 million of items baked into the 2010 guidance now that do not affect cash flow.

Because basically, one of them relates to a purchase accounting adjustment and the other relates to the way that we are going to book revenues and expenses associated with promotional costs.

If I can just add another question.

Just as far as the billing conversion, you mentioned Ohio is complete, North Carolina would be next.

When would you anticipate having the North Carolina billing conversion completed?

In North Carolina, we expect in the second quarter having that complete.

We are on target to achieve that right now.

Great.

Thanks a lot.

Our next question comes from Simon Flannery.

Thank you very much.

Good morning.

It was nice to see the dividend increase.

Can you talk a little bit about your thoughts on [pair] ratios, appropriate leverage targets and use of free cash flow this year?

You highlighted the pension and the debt maturity.

Is the -- are buybacks something that could be on the table later this year if you get more clarity on the synergies and the economy and so forth?

Yes.

Simon this is Glen.

Good morning.

Stewart may follow with some more on this.

But we looked at the stock buyback versus the dividend and we decided the dividend was the bast way to balance returning cash to shareholders and managing the balance sheet this year.

As you know, we do value our investment grade credit rating.

And this year we have about $500 million of debt maturities coming up.

We believe we should pay off that debt in order to secure our ratings.

And as you know, returning cash to shareholders is also important to us, as you -- as the five years before -- four to five years before the Embarq transaction, we returned 90% of our free cash flow to shareholders.

So it is important to us.

So we did increase our dividend to reflect that commitment as well.

And we have increased our dividend continually over the years, historically.

Next year we do not have any significant debt maturities and we will will address the best use of free cash flow at that time.

Thank you.

Our next question comes from Frank Louthan.

Great.

Thank you.

Just wanted to address the guidance.

Your run rate for the low end of the guidance for Q4 implies something a little bit higher than what you are giving for the full year.

Is there anything that you are anticipating, any cost pressures coming in the second quarter or the second half that we should be cognizant of?

And then give us an idea in some of your larger markets that you acquired, some of the more urban markets, and what the economic outlook in those properties has been since you have taken over, maybe contrast the fourth quarter to the third versus last year.

Are you seeing any stabilization, any difference in line losses, any of your, marketing programs having an impact?

Thanks.

Frank, basically the wireless customer, they're are re-homing some of their 800 traffic that we are routing for them today.

That will ramp up somewhat during the year., Additionally, we plan on investing in IPTV and other markets this year, and that will ramp up some through the year, too.

So those are probably the more significant items.

USF, we had some decline in the first quarter.

That is gong to be a continued decline for the year as well.

Regarding the results in the urban markets, we've been very pleased with results in urban markets.

We've seen a significant decline in the rate of line loss in our larger markets.

We've all seen a turnaround in the vast majority of larger markets in HSI.

And so we believe our local market focus and our marketing efforts are paying off.

And they are working in the urban markets, which is what we were hoping for, but you don't know if you really get there.

So we are pleased right now.

Okay.

Great.

Thank you.

Our next question comes from Chris King.

Good morning.

Most of my questions have been gotten to already actually: but just wanted to get a general sense on the regulatory environment in Washington.

Obviously, with the broadband plan being due here within the next month or so, hearing about a number of potential issues coming forward for the industry over the course of the next several year.

Just was wondering what you guys are going be looking for in the broadband plan in particular, and how you see that plan moving forward at the commission and throughout Washington over the course of the next 12 to 18 months or so.

Yes, Chris, as you see us considering [inter-carrier comp] reform and USF reform in the context of a national broadband plan, we will have more clarity on these issues when they release the plan.

And I think it is -- the target date is March 17.

We believe that ICC and US reform is needed.

We support the efforts that are currently underway.

There is much discussion, as you well know, of what will be in the broadband plan.

We're not going to speculate at this time.

We do believe the commission will take a measured approach to change in inter-carrier compensation in [USL] support.

But we will wait until the plan gets released and we'll carefully evaluate it then.

But we do believe that the FCC has a unique opportunity to provide much needed reform to the vast broadband [deployment] in unserved areas as well as improve USLs and inter-carrier compensation.

Do you expect to see anything coming out of the plan in particular that would dramatically change your outlook toward broadband?

Obviously across your footprint, broadband availability is at a fairly high level already.

But certainly outside of that, do you hope to see realistically kind of anything coming forward that would incent you to dramatically increase speeds or go perhaps to a different network architecture over time, or anything along those lines?

We do believe that USF -- the focus of USF is going to change from voice to data.

I don't think there's any question about that.

To what extent that is gong to enable us to expand or improve service, we don't know yet.

But it is certainly a step in the right direction in our view, and we will just have to see the details.

But it could actually enable us to bring more services and higher band widths to some of these more rural areas we serve.

Thank you.

Our next question comes from Chris Larsen.

Hi.

Thanks.

Two questions for you.

I wonder if you could just give us a little more detail on the IPTV comments and what types of markets you are thinking about expanding to, and just how aggressive you might be there.

And then, on last quarter you talked a little bit about how you are coming on -- starting to think about other transactions that you might do.

Where do you feel you are in terms of considering additional transactions on the consolidation front?

Thanks.

Chris, we expect to begin IPTV expansion this year.

As a matter of fact, as you know, we are in three markets today.

We expect to roll out in five additional markets.

These will obviously be our more urban areas.

We -- Our 2010 capital budget reflects those investments which are not really that significant once you -- as we've already invested in our higher speed Internet in a lot of these areas, the incremental cost for IPTV is not that great actually.

So it is all baked into our capital budget plans.

We expect really a total incremental expense cost of about $30 million this year, operating expense as we roll out IPTV.

So we are looking forward to that and we are finding that there is a very strong pull-through effect in terms of high speed Internet and about 85% of our IPTV customers also are taking our high speed internet product.

It significantly impacts churn.

So we think it is going be a really good product in these more urban markets.

Is that to say that 2010 is sort of a gather information year and that maybe in 2011, and also depending on what I guess on what the broadband plan says, that you might get a bit more aggressive in 2011 with IPTV?

That's a possibility.

We just don't measure it.

We know the other markets are conducive to this IPTV investment and rollout, but we are not sure about -- it's the more midsize markets that we serve are more questionable.

And it certainly would be nice if this plan would enable rollout of higher speeds especially in some of these markets.

Your second question regarding the additional M&A considerations, we need to get past this North Carolina conversion we did in the second quarter.

As I pointed out earlier, it will represent 25% of the conversion of the Embarq markets.

Once that is done, I feel that we will be in a position to consider other opportunities for consolidation or acquisition.

But our primary focus right now is getting this Embarq conversion done right.

Great.

Well, thank you very much.

Our next question comes from Tim Horan.

Thanks.

Two questions.

One, can you talk a little bit more on the urban markets, what really is causing the turnaround there just a touch more detail?

And then secondly, I'm just trying to understand the earnings guidance a little bit because your run rate on this quarter, you are up around [380] and your guidance kind of down around [315].

The reasons you are giving, some of them we knew before, but you talk here about lower access, lower USF and line losses, and that these are kind of unusual items.

But it is a fairly big -- it's only a 20% step down versus this fourth quarter run rate.

And those items to me just seem to be kind of normal course of business, frankly, over the last five, six years or more.

And so I'm just a little confused on the earnings guidance and -- is this kind of the new starting point for earnings going forward for 20110, 2012.

Do you think -- or will these kind of trends continue into 2011, 2012?

Thanks.

Tim, I'm Karen Puckett.

I am going to take your first question around the urban turnaround.

I think Glen did a great job of answering that.

But let me give you a little bit more specifics.

I would first start with the operating models.

We put -- we have five regions now.

We put general managers out into the market.

So we have about 20 general managers and they're held accountable on a day-to-day basis for serving the customer, and adding new ones.

And so I think that just that focus day-to-day on where they're at in their units makes a significant difference.

Secondly, I would say from a marketing standpoint, we are pleased with go-to-market changes we have made.

One, we started doing more direct mail, targeted direct mail and we started going after non-customers.

So that has been a great uplift.

In fact our [inwards] have improved in these markets pretty significantly.

And the third thing I would say is it is not just on the consumer side, it is also on the enterprise side.

We are are seeing the same focus there, and the same results in terms of new customers.

Our core network has been a significant facilitator in adding some of these customer that have facilities in market and out of market.

Because with our core network, we nearly have a national IP network that we can carry traffic in that end for that customer.

Thank you.

And then on the earnings guidance and kind of the run rate 2011, 2012 and beyond.

As I mentioned, it just seemed to be kind of the normal course of things we have seen over the last couple of years.

I am not sure why you are calling it unusual items.

Well, the first of all I guess the universal service fund declined.

It's $45 million this year, which higher than normal.

We would expect it to be somewhere in the $25 million or so range next year.

Additionally, part of the step down in the quarters is the wireless carrier that's re-homing their [800] traffic that ramps up during the year.

That's about $33 million this year, and then next year, in 2011, that's part of the $30 million decline we expect in 2011.

$11 million is that, and then about $18 million on the -- where we are moving our long distance traffic off of someone else's network over to our own network.

Additionally I guess, IPTV ramps up during the year as well.

So that would be a reason that the first quarter EPS guidance would be higher potentially than -- especially when you get maybe to third, fourth quarter.

But basically this is a good run rate, starting point for 2011, 2012 and beyond.

Yes, really, if you look at revenue, there is $140 million of revenue items that are in 2010 guidance -- declines that are in 2010 guidance, and those same items we wouldn't expect to decline but about $30 million again in 2011.

Great.

Thank you.

And our last question for today comes from David Barden.

Hi guys, thanks for taking the question here.

So I guess just two questions.

I apologize to keep beating this horse, Glen and Stewart, just on the guidance.

So we have got this kind of encyclopedia of things that we are doing.

We're changing some accounting and other non-cash items, and then there's some cash items which are the USF, the Alltell, or the wireless migration and some other things.

I guess frankly, it would just be really helpful for you to tell us okay, what's in that 6% midpoint decline.

Specifically, what's in that incremental 2% of revenue pressure that you are guiding to?

And then, because the wording here says that these $3.10 of earnings does not include kind of these non-recurring items, I can't really tell whether those incremental unusual items are in that guidance or not.

And the last thing I had a question about was Glen, I think you said that because you are going focus on integration this year, you are not going be doing business as usual cost cutting.

And I guess that seems to have been maybe one of the bigger disconnects between what people were expecting and what you are guiding to is that you are not going to get, cost cuts and synergy, you are just going get synergy and no cost cuts.

Why is that?

Why can't you do both, and are you just being conservative or is there a real reason why that's going on?

Thanks.

David, let me tackle the first one.

Your first question first.

Basically, the unusual items that we are calling out in 2010, the unusual revenue items, they are included in the guidance, that we gave for EPS.

So that is not in addition or outside of the guidance that we gave.

Okay.

Those items total about $140 million.

If you exclude them you get to about a 6% revenue decline from 2009 to 2010.

Those $140 million of items or -- we are moving our long distance traffic.

In the past, Embarq received originating access from a carrier that carried their long distance traffic.

That amounts to about $47 million.

That revenue goes away, but that revenue was also an expense, that Embarq had on their financial statements too, as they paid that carrier transport, terminating access, and an administrative fee.

So, basically, that is about $47 million, and we will save money when we transfer that long distance traffic over to our internal network.

So that's $47 million that basically comes out of revenue, it is going to come out of expense as well.

The other, another $33 million basically, is a wireless carrier that -- where we have been taking their 800 number traffic and basically routing it to where it needs to go.

So that's $33 million.

We would expect $11 million of that to carry over and be an incremental decline again in 2011.

We also -- Embarq was basically reselling or an [MVNO] from a wireless carrier, from a wireless standpoint, so they were selling cellular service.

Basically, they terminated that arrangement.

That represents a $20 million decline in revenue between 2009 and 2010, and basically doesn't carry forward into 2011 -- or no incremental decline in 2011.

CenturyLink had about $10 million -- or legacy CenturyTel had about $10 million of legacy access revenue true-ups that occurred in 2009 actually, that will not reoccur in 2010.

So that is a decliner we wouldn't expect to go -- decline again in 2011.

And then the revenue recognition impacts, we had about $15 million of revenue, historically, CenturyTel.

Our promotions for services that we produce our customers, we book the revenue and the expense associated with those promotions on a gross basis, so we book revenue gross and then we book the promotion expense as an expense item.

Embarq reflected their promotion expense as a [contra] revenue.

So we're reflecting -- we've changed our accounting practices and are following what Embarq did, and are now accounting for promotion as a contra revenue.

So that impact as about $15 million decline in revenue in 2010, again would be no incremental decline in 2011.

The other $15 million of the revenue recognition impacts relates to purchase price accounting -- or purchase accounting rather.

Embarq had about, in this period, had about $15 million of revenue that they had -- that previously was deferred that really relates to installation revenue associated with initially connecting customers.

That revenue basically, they didn't recognize it at the time.

They collected the cash.

They deferred it and they recognized it over the life of the customer.

Purchase accounting [SAV 104] is what they were following basically.

Purchase accounting requires us to eliminate that deferred revenue as of the acquisition date.

So again, that's about a $15 million decline in 2010 versus 2009.

And again, that would not reoccur in 2011.

Got it.

Thanks.

Sorry about that.

I didn't really -- That's more than you wanted probably.

Feel free to -- Feel free to put that information in the releases, Stewart.

And the Glen, just on cost-cutting?

It is not going to -- As you know, as we've stated, we are ahead of schedule in achieving our synergy targets.

We will take over $200 million out of -- incremental dollars out of the business in 2010.

Also this year, we expect to complete 80% of the conversions of the Embarq markets to our billing customer care provisioning and plant record systems.

And this level of work and this amount of cost -- taking this amount of cost out of the business puts a lot of stress on our organization.

It puts stress on our ability to maintain high-quality customer service.

And we are focused on the long-term success of the conversion and of our business.

So we don't want to take out the cost too quickly.

And we think that could be a mistake.

We will take the necessary steps over time to keep our expense levels in line with the revenues.

And as we get these conversions done, we will address that issue as we need to.

And as you know, we have been -- we have done well at that over the years.

Right.

Okay.

Thanks, guys.

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

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

Glen Post for any closing remarks.

In closing, CenturyLink once again delivered very solid financial and operating results for the fourth quarter.

I'm especially pleased with the second half 2009 results, given the significant amount of time and focus we have committed to the Embarq integration process.

Our employees have done an outstanding job of maintaining a strong focus on taking care of our customers and doing what is necessary to ensure a smooth, and successful integration.

The Embarq integration process continues to proceed well, and we are on track to achieve our synergy targets associated with the acquisition.

And I am confident we are going to see a lot of benefits from this -- the merger of our Companies.

Thank you for participating in our call today.

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.