Lumen Technologies Inc (LUMN) 2016 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to CenturyLink's first quarter 2016 earnings conference call.

(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, Sayeed, and good afternoon, everyone, and welcome to our call today to discuss CenturyLink's first quarter 2016 results released earlier this afternoon.

The slide presentation we will be reviewing during the prepared remarks portion of today's call is available in the Investor Relations section of our corporate website at ir.centurylink.com.

At the conclusion of our prepared remarks today, we will open the call for Q&A.

As you move to slide 2, you will find our Safe Harbor language.

We will be making certain forward-looking statements today, particularly as they pertain to guidance for second quarter and full-year 2016, as well other outlooks on our business.

We ask that you review our disclosure found on this slide, as well as 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.

As you move to slide 3, we ask that you also note that our earnings release issued earlier this afternoon and the slide presentation and remarks made during this call contain certain non-GAAP financial measures.

A reconciliation between these non-GAAP financial measures and the most comparable GAAP financial measures are available in our earnings release, and on our website at ir.centurylink.com.

And now as you turn to slide 4, your host for today's call is Glen Post, Chief Executive Officer and President of CenturyLink.

Joining Glen today will be Stewart Ewing, CenturyLink's Chief Financial Officer, and also available during the question and answer portion of today's call will be Dean Douglas, CenturyLink's President of Sales and Marketing.

Our call today will be available for telephone replay through May 12, 2016, and the webcast replay of our call will be available through May 27, 2016.

Anyone listening to a taped or webcast replay or reading a written transcript of this call, should note that all information presented is current only as of May 4, 2016, and should be considered valid only as of this date, regardless of the date heard or viewed.

So now as we move to slide 5, I'll turn the call over to Glen Post.

Glen?

Thank you, Tony, and thank you for joining our call today, as we discuss our first-quarter results, and operational initiatives, as well as provide guidance for our next quarter.

Beginning on slide 6, our first-quarter 2016 results were solid.

Our core revenue, operating cash flow, and adjusted diluted earnings per share were all in line with our guidance for the quarter.

Our high-bandwidth data services revenue provided to business customers grew more than 7% year-over-year, and consumer strategic service revenues grew approximately 5% year-over-year.

Additionally, since the beginning of the year, we successfully placed over $1.2 billion in debt, which we will use primarily to refinance the 2016 debt maturities.

Continuing on slide 7, we entered 2016 with a renewed focus on our key objective, to improve the lives of our customers by connecting them to the power of the digital world.

Whether it's providing network connections or adjacent services on top of that connection, enabling the power of the digital world to improve our customers' lives and business is really what we are all about.

Obviously, we are operating in a challenging and quickly evolving industry.

Customer expectations are growing.

Technology is rapidly advancing, and we face strong competition on multiple fronts.

But change brings opportunity, and we believe we have the assets, the financial strength, and the people necessary to deliver critical broadband capabilities and related services our customers require.

Our delivery on this opportunity, and our efforts to drive long-term free cash flow growth is anchored in four operational objectives.

Continuing on to slide 8, first, we expect to maximize market penetration of enabled network and adjacent services.

The network is our key strategic advantage, and is the foundation of the value we deliver to our customers.

We will leverage our localized marketing initiatives to drive penetration of the investments we've made to date in GPON and other broadband technologies, and we will drive further penetration of our fiber-enabled multi-tenant commercial buildings and businesses.

As of quarter end, we have over 1.5 million fiber-enabled homes and businesses with internet speeds of up to 1 gigabit per second.

And we provide more than 30% of our addressable units with speeds of 40 megabits or higher, a speed that today in the market is sufficient to address most of our customers actual needs.

Additionally, we remain committed to enhancing our sales through partnerships with major software, computer and technology companies, and with our large alternative partner channel.

It is also important for us to be more aggressive in our customer revenue retention efforts, as the cost of acquiring new customers is typically much higher than retaining our current customers.

Our second operational initiative is to create exceptional customer experiences.

We have always operated with a customer-centric focus, but we know there are ways we can improve our customer experience.

We're simplifying our product offerings, and within our existing capital programs, we are investing to drive higher levels of automation and self-service into our service delivery platforms.

We expect the outcome of these improvements to enhance the products and services that we deliver to our customers.

We expect them to reduce our overall delivery time frames, as well as improve our managed services delivery and service model.

Continuing on to slide 9, our third operational initiative is to invest with discipline, and with a focus on network first.

We believe the greatest potential returns on our capital investments are in building and delivering broadband service, and capacity in our markets.

We will focus our investment on enabling fast, reliable broadband connectivity to our customers, and we will further enhance our core network access capabilities for consumers, with a variety of network enablement techniques including bonding, vectoring and further deploying fiber-to-the-home.

Second, we will complement our strong access position by deploying less capital intense, higher growth solutions to deliver our customers a full range of technology-focused services such as managed network, and hosting cloud, IT services and video, along with over-the-top applications and content.

We believe this approach will allow us to deliver the full range of services our customers want, while also allowing us to prioritize capital to improve the network service offerings at the heart of our customer relationships.

Finally, our fourth operational initiative is to optimize operating and capital efficiencies.

And we know that our long-term success will require ongoing realignment of our legacy cost structure, realizing those efficiencies, and ensuring our capital is aligned to those investments that will drive the highest returns that is crucial to driving CenturyLink's future cash flows -- our cash flow growth.

Through aggressive simplification and automation of our product portfolio and customer experience, not only will we enhance service to our customers, we'll also drive cost out of our business, and operate more efficiently.

Also we're focused on increasing the discipline and rigor of our capital allocation process, to generate the best returns on our capital and operating investments.

An example is the strategic review process currently underway for the data center and colocation business.

While we expect colocation services to continue to be a service our customers will look to us for, we believe there is potentially a more efficient way to enable these service for our customers.

We have a clear strategic direction, and we believe by focusing on our key objectives, and these key operational initiatives, we will successfully build CenturyLink's strong foundation, and deliver value for both our customers and our shareholders.

Now moving to slide 10.

There remains tremendous demand for colocation services in both the US market, as well as the international markets we operate in.

While we like the colocation business, we believe our priority for capital investment is in the network to protect and grow our consumer and business network market positions.

Therefore, we've launched the strategic review process for our data center and colocation business last year.

Our strategic review is ongoing, but we have received a strong level of interest from numerous strategic and financial parties.

We expect to start narrowing this down to a shorter list over the next few weeks, and we expect to finalize the process in late third, early fourth quarter of this year.

This strategic review could result in a sale of all or a portion of the data centers.

It could result in a partnership or joint venture, as well as possibly keeping these assets as part of CenturyLink's portfolio.

In all cases, we look for the best way to create accretive value for CenturyLink and our shareholders, and continue to provide a strong colocation competitor in the market for our customers.

Now I would like to turn the call over to Stewart to discuss our financial results and guidance and liquidity position.

Stewart?

Thank you, Glen.

Over the next few minutes, I'll review the financial results for the quarter, provide an overview of second quarter 2016 guidance we included in our earnings release issued earlier this afternoon, and conclude my remarks with a discussion of CenturyLink's liquidity position.

Now moving to slide 12, I will review a few highlights from our first-quarter results.

Please note that I will be reviewing the results excluding special items, as outlined in our earnings release and associated financial schedules.

As Glen mentioned earlier, we achieved solid results for the first quarter, and operating revenues were $4.4 billion on a consolidated basis, a 1.1% decrease from first quarter 2015 operating revenues.

The decrease was primarily driven by lower legacy and low bandwidth data services revenue, offsetting an approximate $50 million increase in high-cost support revenues due to CAF Phase II higher consumer strategic services and increased high-bandwidth data services revenues.

Core revenue, defined as strategic revenue plus legacy revenue was $3.98 billion for the first quarter, a decrease of 1.9% from a year ago period.

Strategic revenues grew 1.5% year-over-year, primarily driven by strength in high-speed data revenues, high-speed internet, and Prism TV.

In the first quarter, we added approximately 16,900 Prism TV customers, while high-speed internet customers increased nearly 7,800 during the quarter.

We generated operating cash flow of approximately $1.69 billion for the first quarter, and achieved an operating cash flow margin of 38.4%.

Cash expenses for the first quarter declined $5 million year-over-year, primarily due to lower employee-related costs.

Starting in the first quarter of 2016, we have revised our free cash flow calculation to include the cash impact of pension and OPEB costs, as well as stock-based compensation.

We believe this calculation provides additional detail and insight into the Company's ongoing cash requirements.

For first quarter of 2016, free cash flow was $824 million.

Adjusted diluted earnings per share for the first quarter of 2016 was $0.71, an increase from $0.67 in the first quarter of 2015.

Although operating cash flow declined in the first quarter of 2016 compared to the first quarter of 2015, lower depreciation and the impact of our share buybacks in 2015 resulted in a net increase in adjusted diluted earnings per share.

Moving to slide 13, and our business segments, in the first quarter the business segment generated $2.6 billion in operating revenues, which decreased $93 million or 3.4% from the same period a year ago.

First quarter strategic revenue for the segment was flat at $1.58 billion compared to first quarter 2015, driven primarily by the continued growth in high-bandwidth data services, being offset by the declines in low bandwidth data services and hosting revenues.

Legacy revenues for the segment declined 6.9% from first quarter a year ago, due to primarily a continuing decline in voice and switched access revenues.

Total business segment expenses decreased $36 million or 2.5% from the year ago period, driven primarily by lower employee-related costs.

Now turning to slide 14.

The consumer segment generated $1.49 billion in total operating revenues, a slight decrease of $8 million or a 0.5% from first quarter 2015.

Strategic revenues in this segment grew 4.9% year-over-year to $774 million, driven by year-over-year growth in high-speed internet and Prism TV revenues.

Legacy revenues for the consumer segment declined 5.8% from first quarter 2015, as voice revenue declines were partially offset by select price increases.

Operating expenses increased $16 million or 2.6% compared to the same period a year ago, due primarily to higher Prism TV content costs and marketing expenses.

Now turning to our guidance on slide 15.

For the second-quarter 2016, we expect operating revenues of $4.38 billion to $4.43 billion, core revenues of $3.94 billion to $3.99 billion, and operating cash flow between $1.59 billion to $1.64 billion.

Adjusted diluted EPS is expected to range from $0.57 to $0.62.

Second-quarter 2016 operating revenues are expected to be in line with first quarter 2016 operating revenues, primarily due to anticipated growth in data integration, high-bandwidth data services, high-speed Internet, and Prism TV revenues being offset by the expected declines in legacy and low bandwidth data services revenues.

Our anticipated sequential decrease in second quarter operating cash flow compared to first quarter 2016 is primarily due to expected higher seasonal cash expenses.

For full-year 2016, we remain comfortable with our previous guidance, although continued pressure on business strategic revenues, and our decision to defer certain price increases will likely result in our core and total revenue coming in toward the lower half of our range for the year that we've previously provided.

Now turning to slide 16.

And as we discussed last quarter, our liquidity position remains very strong.

Since the beginning of the year, we've completed debt issuances for a total of over $1.2 billion, which will be used to refinance substantially all of our 2016 maturities.

Our 2017 maturities are comparable to the amount in 2016.

And as you can see, the following three years' maturities are materially lower.

As indicated by our 2016 guidance, we expect $1.8 billion to $2 billion of free cash flow, which should result in our dividend payout ratio for full-year 2016 to be in the low to mid 60% range.

So our solid cash flows continue to provide us with the financial strength and flexibility to meet our business objectives, and drive long-term shareholder value.

That concludes the prepared remarks for today.

So at this time, I'll ask the operator to provide instructions for the Q&A portion of the call.

Thank you, sir.

(Operator instructions)

Simon Flannery, Morgan Stanley.

Okay, great.

Thanks very much.

Good evening.

Stewart, I wonder if we could come back to that last comment on the revenue guidance for 2016?

You cited pressure on business service revenues, and deferral of price increases.

Can you just go through that, in a little bit more detail, and how that relates to your path to revenue stability?

Thanks.

Yes.

So Simon, if you take our first-quarter actual results and the midpoint of second-quarter guidance, you'll see that if you -- leaving the annual guidance where it is, you'll see that we would require to have revenue growth in the last half of the year to be able to get to the midpoint of guidance.

So we think we'll be in the bottom half of guidance, based on the things I mentioned.

In terms of the business strategic revenues, we've seen some weakness in MPLS revenues on our -- as well as our hosting revenues.

We expect to be able to turn that around, and grow these revenue streams later in the year.

But at this point, based on where we are, we think that we need to give you guidance, or indicate that we'll be towards the lower half of the guidance.

The other part I guess, is that the price increases, some of the increases that we were going to put in place, probably in the $40 million range, we have decided, at least to defer at this point.

We're still talking about them.

But we feel it's fair to call that out as a possibility, that we'll not implement those increases.

Some of our --

What products were those on?

They were really across the board, but mostly directed towards high-speed internet, or facility charges and things like -- of that nature.

Okay.

The pressure in business, is that competition or macro or?

I think it's -- I think we're winning.

I think -- let me let Dean talk about that a little bit.

Sure.

Some of the pressures that we're facing in the business have to do with a slight adjustment in strategy.

For example, in the high-speed internet realm, what we did was we pivoted from a approach that was pure broadband, to one that's more traditional bundled broadband.

We did that in the latter part of FY15.

And so, we're starting to work through what that means in the first part of FY16, and we expect that, that will continue to work through the middle part of the year of FY16.

But that pivot to the more traditional approach to high-speed bandwidth in the consumer segment especially, should allow us to have customers that have -- less precluded to churn and a higher ARPU.

So we think that is going to be something that we will benefit from in the second half of the year and into 2017.

On the high-speed, or I'm sorry, the MPLS circuits and ethernet circuits for the business marketplace, we actually are doing pretty well with that.

In first quarter, it's generally slower than we see in second quarter and in other parts -- or other quarters throughout the year, and we saw that once again in the first quarter of this year.

Having said that, we did focus on driving our business and market approach from an enterprise standpoint, to really take advantage of opportunities that we think are much nearer term.

And so, we're focused on those nearer term opportunities.

And you should start to see those nearer term opportunities manifest themselves in the second half.

I'd point out too, Simon, on the business services, MPLS and ethernet, we had good -- we still had 7% growth.

We just expected more.

We wanted it to be higher than 7%.

So it's growing, it's just we expected to see that level pick up in the latter half of the year.

Absolutely the case.

Great.

Okay.

Thank you.

Thank you.

Amir Rozwadowski, Barclays.

Thank you very much.

Just following up on Simon's question on the 2016 outlook.

Does that change the trajectory, in terms of your expectation for stabilization in the top line?

And then, I've got a bit of a follow-up question if I may.

Yes.

I think we can still get close, if not get there.

And the other thing that we're going to do, is work on the expense side, as well to try to make sure that we keep our operating cash flow more towards the midpoint of the guidance that we provided.

Thank you.

And then on the initiatives around the data center assets, you'd mentioned we should think about a wrap up around Q3 or Q4 time frame, if I'm not mistaken.

How should we think about the primary use of cash, once those -- that comes in.

And at this point, you mentioned there is some -- that you've seen a lot of interest.

You mentioned in the past, that you'd be open to a sale, or potential JV or other opportunities.

Is there been an area, that a lot of this interest is focused on?

Is it a sale, or how should we think about that?

I'll take the last part, Amir.

There's been more focus on a sale, from interested parties.

There are some here, that are proposing possible joint ventures.

We expect in the next two weeks to have that -- those structures available to us.

Those are really due next week.

And we have that, we'll know more about not only the structures and the partnership opportunities versus a sale but also just the level of interest in terms of valuation.

In terms of the use of proceeds, we're going to wait until we get closer to understanding what that might be.

But basically one option is to, if we do dispose of the properties and the business, we will be -- our EBITDA will be reducing; and we want to try to keep our debt to EBITDA ratio at about three times.

So we may repay a certain amount of the debt, that we have outstanding over a period of time.

The other opportunity that we'll look at, is to look at to the extent that business is generating free cash flow, to potentially look at a share buyback to mitigate the negative impact of any free cash flow per share, that would be associated with the disposal of that business.

And then, we'll look at investing in our business as well, potentially the network to try to drive our speeds faster, and drive more customers to the network.

Thank you very much for the additional color.

Thank you.

David Barden, Bank of America.

Hi, guys.

Thanks for taking the questions.

I guess, first, just a short-term picture, Stewart.

If I go line by line through the strategic services, legacy services, data integration, quarter over quarter, the businesses that are declining went down $88 million, and that businesses that grew, grew $14 million for a negative $74 million sequential.

And the guidance range suggests that, that goes from minus $74 million to a range of minus $20 million to plus $30 million.

So that, like a plus $100 million swing is in the realm of possibility.

If you could walk us through this -- these line items and tell us where all these big changes are conceivably coming from?

I think it would give people a little bit more conviction about what's supposed to happen next quarter?

And then longer-term, obviously, one of the big questions a lot of people have is, a couple years ago you guys were looking into the future, saw mid-80% types of payout ratios in your future as a full cash taxpayer, and you decided to cut the dividend.

And people are doing the math now.

They're looking into the future.

They're seeing a bonus tax depreciation reverse, and payouts going at least into the mid-70[%]s.

And there's fears that you guys are going to go back and cut the dividend again, because that's what you did last time.

Could you kind of talk about that issue as well?

Thanks.

David, let me just pull the line item information, and let us talk about the dividend issue.

The dividend is a key part of the value proposition that we have for shareholders.

And there's no guarantee, but I know our Board and management team feels like we're very much committed to the dividend.

And we think with the additional approval of bonus depreciation -- you look at our -- even the payout ratios are going up.

We believe we're certainly going to have adequate free cash flow to continue the dividend.

So I can tell you, our Board has not discussed reducing the dividend.

Not that it could never happen but we're committed to our dividend, again a primary factor in our value proposition for shareholders.

So we're committed to that dividend.

Yes, and the other thing that we've said as well, David, on the dividend is that versus where we were a few years ago, when we reduced the dividend, as long as we can see a path to EBITDA stability and EBITDA growth down the road, it's okay for our dividend payout ratio to float up higher than we talked about before.

In terms of the increase in the strategic services, and what that implies -- basically a fair amount of that is due to rate increases that we've put in and expect to put in, in the second quarter.

So that's driving quite a bit of it.

The rest of it is due to unit increases that we expect to put (technical difficulties) IPTV products as well as our (technical difficulties)

Did we lose you Stewart?

No, in general, that's pretty much it.

It's really, I can't really go line by line, but just in general, it's basically price increases on those products predominantly high-speed Internet.

So your comments earlier, about not putting through some price increases, there are in fact, some other price increases that are going in?

Yes.

There are other price increases.

Of the total amount of that we expected to do, and that we put baked into our guidance, that we gave for the full-year at the end of the fourth quarter, we chose to not do about $40 million of the total amount.

But there are other price increases that are going in, and have gone in some time during the first quarter, as well as we expect to put in, throughout really the second quarter, third quarter that will drive some of the revenue in the back half of the year.

And just a little more color on the revenue.

We've got the rapidly expanding GPON markets.

We've gone up again, and we're up at 1.5 million homes and businesses we're passing the grid out.

We've got -- with the exclusion of the last couple hundred thousand, I know we were at 21% penetration at the end of March.

And that's -- we just started [over] the last year with that GPON work.

So we believe there is significant upside going forward with those GPON markets, as well as the new Prism markets we entered this late last year, a number of those markets.

So that, and along with MDU and MTU focus we have now, we have fiber to a number of MDUs MTUs that are going to help drive revenue.

So we think there's really upside here in the last half of the year to drive greater penetration, as Stewart said, with additional revenue there.

Yes, and we think our MPLS revenues will grow in the back half of the year, based on installations that we can do of customers that we have sold and expect to sell.

As well as our IT services business is small, but it's growing and contributing to the expected revenue growth in the back half of the year as well.

All right.

Great.

Thanks for the color guys.

Thank you.

Matthew Niknam, Deutsche Bank.

Hi, guys.

Thank you for taking the questions.

Just two if I could.

First on consumer broadband.

So revenues were effectively flat sequentially.

If you just give us some more color, on what's driving that slower growth?

And then just bigger picture, on your asset mix.

As you think about the business over the long-term, are there areas you think you may need greater scale to begin competing more effectively?

And then conversely, are there other opportunities like the [colo] business, where may you might not necessarily need ownership, or where you'd look to maybe move away from over time?

Thanks

Well, let me take the first part of the question, which is with regard to the consumer broadband business.

As I mentioned earlier, in the second half of last year, we actually pivoted from a model where we focused on pure broadband, to move to a more traditional broadband mix.

And so as we do that, we've moved the marketing front from a focus on pure broadband, to taking on the more traditional broadband, or bundled broadband kind of services.

And so, we expect that to -- that business to recover, as I mentioned in the second half of the year, because we'll still see some marketing spend and investment in marketing that we need to do, to drive that broadband business.

So we're seeing it flat sequentially, but we don't think that the business is going to be flat sequentially, based upon where we're focused and the drive we have.

And as I mentioned, and I'll reiterate, it does drive a churn model that's significantly lower, than the churn model that we would see in the pure broadband.

So not only would we get new customers going forward with the marketing efforts we have in place, to drive the traditional broadband business.

But we'll also retain more of those customers that we drive to that business model as well.

I'll just talk about the asset mix for a moment.

As I've pointed early on the sale of the colo, it's really a matter of really prioritizing where we're going to invest our capital, where we think it can drive the best returns.

We think there are ways to increase our revenue and drive revenue using partners and different technologies, such as over-the-top technologies for our -- what we call our asset-light businesses; the hosting, the IT services, those types of businesses that we believe we can drive growth in.

We think there's -- so there's some functionality we would like to have.

I don't think the scale is necessarily the issue here, as you asked, but I think it is -- there's some functionality that we would like to gain, that we think there's some opportunities out there to do that.

On the network side, we think we have great scale there, and we just continue to invest in GPON and in higher-speed vectoring and bonding, and we think we can drive a lot of opportunity throughout our markets for the broadband growth, and the Prism growth as well.

So that's really our focus there, and we think we have a really great opportunity to drive both returns, as well as the revenue growth over time with these -- with the asset base we have.

Thank you.

Thank you.

Frank Louthan, Raymond James.

Great.

Thank you.

Can you comment on special access, what's sort of your net exposure there, and thoughts on some of the action that the FCC is taking?

And then you mentioned, in the prepared remarks about better investments in your network versus where the data center opportunities are.

Where you see the highest returns in investing your network, and where are you going to be placing your CapEx for the next 12 months?

Yes, Frank, this week the FCC concluded its special access tariff investigation on -- and really that will have a minimal financial aspect, and in fact, tariff impacts to us as well.

And of course, they opened a special access notice to proposed rule making that could potentially impose more regulations, special access pricing, terms and conditions.

It appears that the FCC is seeking to impose additional price regulation on the industry, as well as redefining what constitutes a competitive market between the market participants.

The most concerning financial issue in the preceding is, we appreciated at this point is, the potential imposition of our productivity factor or an X factor that could require CenturyLink to lower its special access rates on an annual basis.

We believe the market for higher bandwidth data services is highly competitive, as evidenced by the fact that we're not getting all the special access that's going away, converting to ethernet.

The cable companies get some, the fiber companies get some, CLECs gets some.

So there's plenty of competition.

We don't believe that heavy-handed regulation included in an arbitrary market and bandwidth definitions, as well as unwarranted price regulation, we think that, that will only serve to hinder further investment in broadband, especially in rural areas, where it's tough to make the investment work anyway.

So we don't know what the outcome will be at this point, and really haven't quantified, been able to quantify the financial impacts, because again, we really don't know where they will end up from the standpoint of having a productivity factor or X factor or not.

Can you tell us what your net exposure is between special access revenue, versus any costs you have for network -- for access?

I mean, it's the wholesale revenue basically, and its high margin, Frank.

So there aren't a lot of continued incremental expenses associated with providing that service.

It's mostly in the investment that was required to build the service out.

There's some maintenance cost, but it's probably pretty minimal.

But there's also cost you have say, in outside of your region, where you're buying special access, is where I was getting to?

That's true.

You would benefit on the cost side as well.

There would be a benefit on the cost side as well, Frank.

And we haven't really been able to quantify that either.

And frankly, I'm not sure exactly the relationship now between what we spend with our third-parties, versus our revenue.

I think when we looked at this in years past, it basically -- there was some benefit, but the benefit wasn't enough to offset the potential reduction.

And especially this time, when they may bifurcate the special access between urban areas and rural areas.

So you really just don't know what they'll end up doing there, and what the implications would be to us, until we really get a better understanding and get more detail, and have the notice, the proposed rulemaking, and reply comments made and all.

I think then, we'll have a better feel, maybe towards the end of the third quarter or so.

Got it.

Okay.

And on the network investment focus?

Yes, in terms of our network, I mean, we believe our best returns come from where we're increasing the speed availability in the network, that allows us to be more competitive with the cable companies, and others that provide high-bandwidth data services, and internet services.

So that's where our best opportunity is I believe, and we'll continue to really do the things that we need to do to improve our network, and improve the speeds that our customers are able to take advantage of our the network.

And we have quite a bit of work going on, really starting a year or so ago, really spearheaded by Amir Hussain, our CTO, and in terms of the increasing -- and really utilizing, and get more life out of the old copper networks.

So it's not -- we realize fiber is the way to go, and it's a good way to go, when you can afford it from a density standpoint.

But we believe there's a lot of life left in the copper network, and a lot of things we can do with bonding and vectoring and other technologies that are coming down the pipe, that will help us be able to stay competitive, and enhance the experience that our customers receive.

Just to give you an example of that, Frank.

If you look at just where we had a GPON investment in the last year or so, and we got 20% penetration already in those GPON markets, that had been there for several months.

So it's really encouraging.

Also where we've got the vectoring, we're seeing great take rates there.

So we really have, especially -- well, it's really both.

But especially on the business side, we have very little market share, from a data revenue standpoint in our legacy markets.

And as we roll out the GPON capabilities, as well as the vectoring type capabilities in these large and midsize markets, we're seeing really good success.

And that's why we believe, in the second half of the year, we're going to see better growth than we've seen in a while in MPLS, ethernet type services.

Great.

Thanks very much.

Thank you.

Tim Horan, Oppenheimer.

Thanks, guys.

Just three quick ones.

Can you give some examples of what you mean by, more advanced broadband services, or more bundled broadband services?

Also how does your ARPU -- maybe can talk about your broadband average ARPU, and maybe how does that compare to your competitors?

And then third, can you just give us a sense of how deep the fiber is, in the network at this point?

It seems like vectoring and a bunch of these other technologies, you got to get down to a couple thousand feet.

And I know you talked about 1.5 million homes passed with GPON.

Maybe where are you, in terms of dollar amounts of fiber deployment per year, or some other metric to give us a sense of where we can get to a point, where the broadband speeds are really more comparable to the cable companies?

Thanks.

Okay.

So let's talk about the examples of what we mean by bundled broadband services, so that the traditional high-speed internet services are really what you'd expect in a double play or triple play.

So it's not only a high speed, but it's also video, and some voice technology as well.

And so, that's pretty much a typical broadband suite of services.

When you look at the Prism adds that we did in the first quarter of this year, 53% of them were with new customers.

So you're now starting to see services like Prism attract new customers, that were not customers of Century Link, and they're dragging along broadband services with that video play.

So 98% of those customers that signed up for Prism in the first quarter, also signed up for our broadband services.

And so, we see in those markets that bundling the technologies, broadband, video and the like, really do provide a much more compelling offering for both our customer base, as well as our folks that were with either competitors or didn't have the service at all, but nonetheless were not customers of CenturyLink.

And so, as we think about how we go forward with -- to the marketplace, we obviously do a lot of competitive analysis.

So I would tell you that our ARPUs are consistent with what you'd see at an ARPU level in our competitors.

And we see competition adding a lot of fees.

And so, that's where there might be a little bit of a delta, but we're working through, and constantly monitoring what our competitors are doing in the marketplace, with regard to the average ARPUs in our business.

The fiber deployment, well, we talked about fiber deployment, 1.5 million homes passed from a fiber standpoint.

But vectoring and bonding does provide a compelling level of service for many of our customers, especially those that don't have access to fiber, or where they really don't need the speed of fiber.

And so, there's obviously an economic equation there for those customers, but also it's 40 megabytes, sufficient enough to get Prism services, and to do a lot of broadband activity that they're going to need in the consumer space especially.

And so, they should be very comfortable with what we have to offer, and I think they are comfortable with what we have to offer, when we do the vectoring and the bonding, in order to provide them high-speed broadband access.

And I'll just add on the vectoring.

Today we only have about 250,000 households passed.

We expect to be close to 600,000 by year end, and we're looking at a plan that could reach over 14 million households over the next few years.

That's costing about $160 per home passed with vectoring, but it's getting 100 megabits out here to, and it can be more than that.

But certainly,100 megabits is very possible with vectoring, that we believe could cover a lot of our customers needs over the next few years.

Are you basically saying, you can reach a vast majority of your homes passed with vectoring with 100 megabits in a few years?

We can reach the majority of addressable homes fast (technical difficulties) They are occupied, and they are addressable with broadband.

Yes, that would be a game-changer.

Good luck.

Thank you.

Thank you.

Phil Cusick, JPMorgan.

Hi, guys.

It's [Forest] in for Phil.

As you see more over-the-top video offers coming, does it make sense to stand up your own full video platform in new markets, rather than just bundling a DTV OTV product, for example with a great broadband speed offering?

How do you think about that?

So we think it's a very, very interesting proposition.

And so, we're piloting that capability in four markets, and we're going to evaluate how that plays out in those markets.

But we think it's a very, very intriguing opportunity, and we're definitely looking at that as an alternative to some of the other opportunities we have in the video space.

Thank you.

Thank you.

I'm showing no further questions at this time.

I'd like to hand the conference back over for closing remarks, Mr. Glen Post.

Thank you, Sayeed.

We're confident that CenturyLink is well-positioned to help our customers realize the promise of the digital economy as we've stated is our goal.

We have a strong set of assets.

We have dedicated and passionate employees.

We have the financial strength, to continue to invest in our future, and we have the strategic clarity of how we will grow our business, by connecting our customers to the digital world.

And we're really inspired by the opportunities we see for our customers, for our employees, and our shareholders in the months and years ahead.

So thank you for joining our call today, and we look forward to speaking with you in the weeks ahead.

Thank you.

Ladies and gentlemen, thank you for participating in today's event.

This concludes our program.

You may all disconnect, and have a wonderful day.