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CenturyTel, Inc. (NYSE:CTL)

Q1 2009 Earnings Call

April 30, 2009 11:30 am ET

Executives

Glen Post - Chairman and CEO

Stewart Ewing - EVP and CFO

Karen Puckett - President and COO

Analysts

Batya Levi - UBS

Jason Armstrong - Goldman Sachs

Simon Flannery - Morgan Stanley

Chris King - Stifel Nicolaus

Chris Larsen - Piper Jaffray

Todd Rethemeier - Hudson Square

Donna Jaegers - D.A. Davidson

Frank Louthan - Raymond James

Tom Seitz - Barclays

Operator

Good day, ladies and gentlemen, and welcome to CenturyTel's first quarter 2009 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. If anyone should require assistance during the conference call press star then zero on your touchtone telephone. 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 Relation. Mr. Davis, you may begin.

Tony Davis

Good morning, everyone, and welcome to our call today to discuss CenturyTel's first quarter 2009 earnings results released earlier this morning. During today's call, we will refer to certain non-GAAP financial measures; we’ve reconciled these measures to GAAP figures in our earnings release, which is available on our website at www.centurytel.com. Your host for today's call is Glen Post, Chairman and Chief Executive Officer of CenturyTel. Joining Glen on our tall is Stewart Ewing, CenturyTel's Executive Vice President and Chief Financial Officer. Also available during the call today is Karen Puckett, CenturyTel's President and Chief Operating Officer.

We will be making certain forward-looking statements today particularly as they pertain to selected information regarding 2009 and the pending EMBARQ transaction and other outlooks in our business. So we ask that you 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 6, 2009 and accessible for webcast replay through May 20, 2009.

For anyone listening to a taped 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 April 30, 2009, and should be considered valid as of this date regardless of the date listened to or reviewed. And at this time, I will turn the call over to your host today, Glen Post. Glen?

Glen Post

Thank you, Tony, and we appreciate you joining us today as we discuss CenturyTel's first quarter 2009 operating results and our guidance for second quarter, 2009. Diluted earnings per share excluding non-recurring items of $0.82 for quarter are a penny ahead of the upper-end of our previous guidance, and $0.02 higher than the first call consensus of $0.80 per share.

Operating revenues excluding non-recurring items for the quarter were $635.4 million, which was toward the upper-end of our previous revenue guidance of $628 million, to $638 million. Our revenue increases during the quarter approximately $11 million resulted primarily from growth associated with our 13.5% increase in high-speed internet customers. These increases were more than offset by revenue declines of approximately $24 million primarily attributable to previously anticipated access line losses and lower access revenues.

We continue to see strong demand for broadband services during the fourth quarter, as we achieved growth and data revenues of 10.4% over the first quarter of 2008. This increase is primarily driven by the addition of approximately 79,000 high-speed internet subscribers during the last 12 months. We also generated strong free cash flow of $170 million during the first quarter. We continue to see steady demand for high-speed internet product as we added over 24,000 net subscribers during the first quarter, representing a 3.8%; sequential growth in broadband customers and an 81% improvement over net additions in the fourth quarter of last year.

Additionally, our high-speed internet charges are at an all-time low, which is encouraging. We also ended the quarter with more than 665,000 high-speed internet subscribers or over 38% penetration of DSL enabled lines and almost 34% penetration of total lines. We experienced access line losses of 31,700 during the quarter, resulting at 6.7% line loss over the last 12 months.

Access line losses continue to be a concern. However, we are seeing an increased network activity, which up over 1% due to the success of recent marketing initiatives. We also continue to experience solid demand for our satellite video product, as we added over 17,800 customers during the first quarter, and ended the quarter with more than 130,000 satellite video subscribers. We ended the first quarter with 9.5% satellite video penetration of primary residential lines up from 4.9% just a year ago.

Our IPTV offering in Columbia and La Crosse also continued to drive solid customer growth and have a very positive impact on customer loyalty. Before turning the call over to Stewart, I want to make a few comments regarding the pending transaction with EMBARQ. First, I want to clarify our expectations regarding dividends. As we stated at the time of the EMBARQ announcement, we expect both companies to continue to pay their respective quarterly cash dividends on common stock through the merger close.

Earlier this year, CenturyTel and EMBARQ agreed to set the same record date for our respective first and second quarter 2009 common stock dividends. We also anticipate continuing CenturyTel's current quarterly cash dividend of $0.70 or $2.80 on an annualized basis after the merger closes. Concerning our integration efforts, as know we received a Hart-Scott-Rodino approval in late November and shareholders of both companies overwhelmingly approved the merger on January 27.

We continue to work to obtain the five state approvals of the remaining process. And we're in regular communications with the FCC as we work to obtain approval of our transfer of control application, at the Federal level. And we believe we're on track to receive all these remaining approvals and close the transaction during the second quarter. Our system integration and IT transition planning efforts have resulted in significant accomplishments over the past quarter.

Our transition teams proposed us selected CenturyTel and EMBARQ personnel are diligently at work planning integration of the two companies so we can begin the process immediately after closing. As announced previously, we expect to realize substantial operational and revenue synergies in the months ahead and the transaction is expected to be free cash flow per share accretive in the first full year after closing, excluding one-time integration cost.

Also the combined company will be financially strong with pro forma leverage of 2.1 times operating cash flow, including synergies on a full run rate basis. We're excited about this combination as it creates a larger, stronger company, which we believe will be well-positioned to significantly increase shareholder value in the months and years ahead.

And with that, I will turn the call over to Stewart to provide additional detail on our results for the first quarter. Stewart?

Stewart Ewing

Thank you, Glen. During the next few minutes, I will cover some of the highlights of our first quarter 2009 operating results, and briefly discuss additional financial matters. I will conclude my comments this morning with a discussion of second quarter 2009 guidance provided in our earnings release issued earlier today. Since we reported a number of non-recurring or one-time items during the first quarter, I want to make a few remarks regarding those items before I discuss the first quarter normalized results with you.

First in 2008, CenturyTel's Board voted to discontinue the company's Supplemental Executive Retirement Plan. The termination resulted in the recognition of a one-time aggregate after-tax charge of $10.9 million, in the first quarter of this year.

Second, upon the successful completion of an amendment to EMBARQ's credit facility, announced in late January, that becomes effective upon the closing of our pending transaction, CenturyTel terminated the committed bridge credit facility we entered into with selected investment banks at the time of the EMBARQ acquisition was announced.

CenturyTel recognized a one-time $5 million after-tax charge in the first quarter associated with this facility. The good news is that the amendment to EMBARQ's credit facility will have a lower interest rate than other financing alternatives, therefore, effectively lowering the combined companies’ ongoing interest expense.

Third, we recognized $4.7 million of after-tax costs, related to integration expenses, associated with our pending acquisition of EMBARQ. And finally, these three items were partially offset, by a $5.8 million tax benefit, associated with the reduction of a deferred tax asset valuation allowance.

In the aggregate, these four items negatively impacted GAAP earnings for the quarter, by $0.15; however, these items benefit CenturyTel prospectively through lowering future retirement and interest expenses and preparing us for the integration of the EMBARQ following the close of the transaction. So with that overview of the one-time items, which were also discussed in our press release, and related financial schedules released earlier this morning, let's turn our attention to normalized results for the first quarter 2009, excluding these one-time items, compared to normalized first quarter 2008 results.

For first quarter 2009, operating revenues decreased 2% to $635.4 million near the upper-end of our prior guidance from $648.6 million in the first quarter, a year ago. Voice revenues for the first quarter 2009 were $209.9 million versus $220.5 million in the first quarter, 2008. This 4.8 decrease in voice revenues was primarily driven by revenue declines associated with anticipated lower access lines. Network access revenues were $191.8 million versus $208.7 million in first quarter 2008. This $16.9 million decline was driven by revenue declines associated with lower intra-state minutes of use and lower interstate revenue requirements, a trend we have seen for some time now.

Our data revenues increased 10.4% from $126.8 million in first quarter 2008 to $139.9 million in the first quarter of 2009, primarily driven by strong high-speed internet customer growth and demand for high bandwidth services during the last 12 months. Fiber transport and CLEC revenues increased 4.7% to $41.5 million in first quarter 2009, from $39.6 million in the first quarter, 2008. Our other revenues were $52.2 million compared to $53 million in first quarter, a year ago.

Operating expenses decreased 1.7% from $465.1 million in first quarter 2008 to $457.4 million in first quarter 2009, primarily due to a reduction in depreciation expense. The increase in bad debt expense referenced in our press release was primarily due to a $3 million positive settlement with a carrier recorded in the first quarter of 2008. As we discussed with you during our fourth quarter earnings call, on February 19, non-cash pension expense will be higher in 2009 than in 2008 due to performance of the financial markets over the last couple of years, which is the case for most, if not all companies with defined benefit plans.

In the first quarter, we recorded approximately $3.4 million in incremental non-cash pension expense compared to first quarter, a year ago. In the first quarter of 2009, our operating cash flow margin was 48.1%. Operating income for the first quarter 2009 was $177.9 million compared to $183.5 million in first quarter 2008. Other income was approximately $1.7 million higher in first quarter 2009 than in the same quarter a year-ago, due primarily to income from a wireless partnership in which CenturyTel owns an interest.

Net income attributable to CenturyTel for the quarter was $81.9 million, compared to $86.2 million in first quarter 2008. As Glen mentioned earlier, first quarter diluted earnings per share was $0.82 compared to $0.80 in first quarter, a year ago, as a result of 7.1% fewer average diluted shares outstanding versus the same period a year ago. Turning to capital structure, overall our first quarter results were solid and inline with or a little better than our initial expectations.

As of March 31, 2009, CenturyTel's debt to equity ratio was 0.95 to 1.00. And net debt annualized first quarter 2009, operating cash flow was 2.5 times, So CenturyTel continues to generate strong cash flows, maintains a solid balance sheet, and is in great shape financially. I want to make sure that everyone understands that all financing related to the EMBARQ transaction is in place. You will recall that on January 23, CenturyTel and EMBARQ jointly announced that EMBARQ had entered into an amendment to its current revolving credit facility with its current bank group that is effective upon the close of the transaction.

This amendment to EMBARQ's credit facility eliminated the need for the $800 million financing commitment letter, CenturyTel had secured at the time of transaction announcement, last October. Additionally, we believe our strong cash flow is an excellent liquidity position us to continue to take advantage of opportunities and meet challenges as they arise.

Finally I’d like to discuss the second quarter guidance provided in our press release this morning. First, the outlook information in the release we issued this morning, and my prepared remarks are for CenturyTel only, and do not include the impact of the pending acquisition of EMBARQ. Additionally, cost incurred by CenturyTel in 2009, related to the pending EMBARQ acquisition will be treated as non-recurring items. And therefore, are also not included in the outlook or my comments.

For second quarter 2009, we anticipate total revenues in the range of $628 million, to $638 million. We expect diluted earnings per share for the second quarter of 2009, to be in the range of $0.77, to $0.81. This decrease from first quarter 2009 is primarily due to seasonal increased outside maintenance activities, and the impact of annual wage adjustments, which were effective April 1. And this is really consistent with last year as well where our expenses were up somewhat in second quarter versus first quarter, due to seasonality.

That concludes my 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

Question-and-Answer Session

Operator

Thank you, sir. Ladies and gentlemen. (Operator Instructions.). And our first question comes from Batya Levi UBS.

Batya Levi - UBS

Thanks a lot. I just wanted to ask you a question on line losses. Can you talk about the drivers of the improvements? Are you saying less competition from the cable providers, or maybe fewer disconnects through wireless-only plan? And my second question is M&A opportunity, Verizon and its earnings call suggested that it would continue to rationalize its residential wire line business. Assuming that means that they will mainly focus on the FiOS footprint and maybe look for opportunities to sell to non-FiOS lines, which could be a couple million lines, would be interested in acquiring that footprint? Thanks so much.

Karen Puckett

Batya, this is Karen Puckett. In terms of access line loss, I would say from a cable competition standpoint, we really haven't seen much change, it’s been pretty consistent. I think our improvement really is around it, as Glen said, we had some improvements inwards. The acceleration that we saw on the residential side really is a non-competitive, non-cable voice active market. And then on the business side, I would say that, cable is making an impact on the smaller markets and some businesses are downsizing, with what’s in, but there is, I think there are bundling and this really strong tactical focus with teams and the call center channels that we're doing a very good job in this environment.

Glen Post

Batya, as far as the acquisition in the Verizon lines, our focus right now is obviously on the integration of the EMBARQ operations and CenturyTel and the combination of our companies and that will be our laser focus in the months ahead. I would say in 18 months, from now we should in a position to consider other lines. We’d certainly be interested in Verizon lines in certain areas, certain markets where we have synergies especially available to us, but right now we're focused on the EMBARQ transaction.

Batya Levi - UBS

Okay. Thanks a lot.

Operator

Our next question comes from Jason Armstrong from Goldman Sachs.

Jason Armstrong - Goldman Sachs

Thanks. Good morning. A couple of questions; first on just on the economic trend. I’m wondering if you guys can sort of take us through the months of the first quarter. Reason being a couple of the big cable companies in the last couple of days have talked about, changing activity through the quarter where January and February was okay. And then March and April trend rates really dropped off in terms of subscriber metrics. So any color there in terms of whether you're seeing that in business or not.

And then maybe just a follow-up on the M&A question. You guys had the balance sheet positioning out of that is really unrivaled in the space and allows you to do these type of deals. What in your mind creates this sort of 18 months target until we can do something else, are there certain milestones attached to that, whether it’s getting billing systems integrated with EMBARQ or getting unified branding out there, just wondering say to what contributes to that. Thanks.

Stewart Ewing

Yes, Jason, first of all, the economic impact, we are seeing some impact due to the economy. We will continue to see that at virtually every company in our industry and every other industry will see in the months ahead until things turnaround. Primarily, we're seeing reduced business starts, business downsizing, cost cutting and grooming of networks by enterprise customers. However, on the process side our customer churn actually base customers in the enterprise segment have been relatively flat from year, even two years ago. So that has had a big impact on just customer losses there.

On the consumer side, we're seeing consumers looking for value. Looking at reduced cost where they can. Some I think, we now going through the wireless only, communications in the home, we expect the economy to continue to put pressure on voice lines and on revenue, but we also expect and continue to see good demand for broadband services and for video services in the months ahead in spite of the economic issues our nation is facing. As far as any uptick in issues in March and April, April is always, a little bit of a difficult month, but it’s not, really it’s pretty much in line of our expectations. We have not seen any major economic impact in the last two months.

Jason Armstrong - Goldman Sachs

Okay, great. And on the M&A question?

Stewart Ewing

On M&A, as far as 18 months, it’s not financially driven, of course. We have a strongest balance sheet in our sector. It’s more about just getting it done. The EMBARQ has done right and it’s getting the billing systems converted, timely, getting the branding done properly, all those things that are just inherent in making this a successful transaction and driving the synergies. We have hit our synergy numbers.

Jason Armstrong - Goldman Sachs

And so is the message, you would want to be on the other side of both unified branding and billing system integration to really consider further M&A and that’s sort of what creates the 18 month timeframe?

Stewart Ewing

Yes, at least on the far-end of it anyway or the down side of getting it done.

Jason Armstrong - Goldman Sachs

Okay, great. Thanks.

Operator

Our next question comes from Simon Flannery from Morgan Stanley.

Simon Flannery - Morgan Stanley

Thanks a lot. Good morning. Now that you’ve had a little bit more time to get into the broadband stimulus, what are your thoughts in terms of the opportunities there for CenturyTel and I guess for EMBARQ as well. And could you just update us on your wireless plans and with LTE seemingly starting to come together and some carriers talking about deployment in '10, what are your latest thoughts there? Thanks.

Glen Post

Well, first of all, on broadband stimulus, we continue to look at those opportunities. We think they could have pretty significant impact in our ability to bring broadband services to a lot of the rural areas where we cannot afford to bring services today. I think a lot of it depends on the decisions that are made as towards distribution of funds. What all the funding eligibility requirements will the Feds require in open network obligations or reporting requirements or certain broadband speeds that are not possible in some of these rural areas, any kind of affordable rate.

These are some of concerns we have. But also we think there is a lot of opportunity here and we're going to be looking closely at opportunities to drive broadband deeper in our network with the use of these incentives funds. And as far as wireless and LTE timing, we think it’s going to be probably mid-2010 before there is equipment that is really available for us to do what we believe will be some good, a couple of good trials. So, LTE is progressing. We get good reports; of course, AT&T and Verizon are both committed to the LTE at least long term in their networks.

We believe that it will bring really a lot of opportunity to bring wireless broadband to rural areas and reach areas that possibly we could not reach previously; also we're considering opportunities with the incentive funds, to possibly utilize those funds to help build some of the 700 megahertz for us in those rural management. We're still very positive on what we think it can do for customers in rural areas and also really a good opportunity for us to expand our broadband offering, provide a mobile broadband and mobile voice offering overtime to customers in rural areas.

Simon Flannery - Morgan Stanley

Great, thank you.

Operator

Our next question comes from Chris King from Stifel Nicolaus.

Chris King - Stifel Nicolaus

Good morning. Two quick questions for you. First of all, I just wanted to get an update on the branding process for the new company, whether you guys are planning to really hit the ground running on kind of day one upon closing of that kind of rolling out a new brand name across the footprint or how that timing will work upon closing?

And secondly, there is obviously a lot of data that you guys have seen I guess and have not seen related to EMBARQ, but I just was wondering in some of their larger clusters specifically, Las Vegas, and some of their Florida markets, whether you’ve seen any change in trend in recent months that you would either respond to more negatively or more positively than they have been, over the last couple of quarters? Thanks.

Glen Post

OK. First of all, Chris on the branding process, for the company, we would like to hit the ground and running with the branding, the name on day one. That is a Board decision. But our preference and I think the Board's preference; both Board’s preference will be to do that. That is our target. We can't guarantee anything because that’s a function of two Boards making a decision or coming together and making a quick decision. So that would be our preference. And we're certainly from a management standpoint in a position to move in that direction. As far as some of the larger markets, the trend obviously, Las Vegas and Florida are getting hit hard with the real estate issues and economy. We knew that going in. So we have no surprises there.

We’re in the middle of this economic downturn, when we made the decision to consummate this transaction. What we are finding is, I believe, even more opportunities and more I visit these markets opportunities to drive revenues and to create synergies in the EMBARQ areas that are really significant. We bring, especially we bring our operating model, which is more local focus model, with more accountability to local market level. And we bring our, leverage our (inaudible) network to bring the broadband constant and broadband transport to areas from a reduced cost even to a greater extent than we expected.

We also with our IT systems, billing systems, we think we're going to create a better customer experience. And reduce costs, significantly from a customer service standpoint. So, we feel really positive about what we're seeing. I’m very confident we're going to hit our synergy numbers.

Chris King - Stifel Nicolaus

Thank you.

Operator

Our next question comes from Chris Larsen from Piper Jaffray.

Chris Larsen - Piper Jaffray

Hi, thanks. First question wanted to ask a little about the five states that remain. If you could give us a sense for what the sort of long pole in the tent maybe with whether they are discussing any concessions or is this just a function of going through the motions, and then I have another one after that.

Glen Post

Yes, it’s really just from the standpoint of going through the motions. Each state has their own process, and we just had to work through that process. The five states remaining are California, which we actually received, there is an order that will be on their consent agenda, I think next week that has no conditions.

We're waiting on Washington, Oregon, and Pennsylvania. And I guess maybe Virginia is the last state that we have on the list. So again, each state is getting close to the final process, and you know we hope to wrap this up, so we can get closer to the second quarter.

Stewart Ewing

Chris, I will just add to that. We have such positive leverage here. Little leverage best in our sector. That is very positive from a state regulatory standpoint. And this transaction is really good for customers and the communities we serve in all these states. It has really been a pretty painless process, because I think the regulators see this as a very positive transaction for our customer communities.

Chris Larsen - Piper Jaffray

Excellent. And that leads into my next question which was, you are in one of the best leverage positions of your group today. Can you give us a sense for, where your comfort level is in terms of going how high up would you feel comfortable levering up to? And are any of the states imposing restrictions on the leverage, given what is going on with Fairpoint?

Glen Post

No, we have had no state impose any restrictions on leverage. We have maybe one state or two states, where there are restrictions on dividends if the market equity of the parent company goes below a certain level. But it is not anything that is significant, not anything we're real close to. These were smaller states as well.

So in terms of how much leverage, we would be willing to take on. We have had a visit with the rating agencies and they expect to go to committee and come out sometime close to the acquisition closing day. We do expect to remain investment grade on the combined basis.

Our leverage, target, or max level with the S&P was about 2.7 times. EMBARQ's was about 2.5 times. So I would expect that when we get targets from them they will be around the neighborhood of the 2.5 times because nothing much has changed since those targets were set.

Chris Larsen - Piper Jaffray

And that’s a level you feel comfortable that if you saw an acquisition 18 months out and you had delevered to then, you would feel comfortable moving back up to that 2.5 level?

Glen Post

Yes, we would feel comfortable. We should be, when we close about 2.1 times levered on an annual basis.

Chris Larsen - Piper Jaffray

Great. Thank you very much.

Glen Post

A little cushion there.

Operator

Our next question comes from Todd Rethemeier from Hudson Square.

Todd Rethemeier - Hudson Square

Hi, thanks. We saw a nice increase sequentially in the data revenue line this quarter. I’m just wondering what was driving that, if there was anything one time in there, because we were certainly not seeing that at other telecos this quarter.

Stewart Ewing

Primarily Todd, it was just the increase in our DSL penetration. And ARPU, our average revenue per unit, has increased; the customer is losing our lower ARPUs, and the customers that we're gaining, so that has been a positive.

Actually, if you take a look at our consumer ARPU was up over 8% year-over-year and business APRU was almost at 5.5% year-over-year. So that’s really what is driving it. It is the data piece that is driving ARPU and it is primarily a DSL and going to, selling up to higher speeds to great extent as well.

Todd Rethemeier - Hudson Square

Okay. And so it is safe to say that both business and consumer are driving it then.

Stewart Ewing

Yes, that's right.

Todd Rethemeier - Hudson Square

Okay, thanks.

Operator

Our next question comes from Donna Jaegers from D.A. Davidson.

Donna Jaegers - D.A. Davidson

Hi, guys, thank you for taking my questions. I’m just curious. Congratulations on the good DSL. I was wondering if you were running any special promotions that drove that.

Glen Post

No Donna, we didn't do anything special this quarter. Actually, we increased prices a little in some areas, so nothing special. Just a little different approach to the market than we have had in the past, but no special promotions this quarter versus the last quarter.

Donna Jaegers - D.A. Davidson

And then I know you guys have put in I think ADSL2 plus to drives your speeds up to 3 megabits. Can you talk about your plans for, obviously the cable guys are competing on higher speeds and you seem to be keeping up with that. What are your plans going forward as far as putting in higher speeds for DSL?

Glen Post

Right now, we have 63% of our enabled lines have up to 10 megabits service, but we say up to because most of those customers get 10 Megs, but we don't guarantee it. We say it’s six to ten really, so we’ve really made a lot of progress there. We’ll continue to focus on that area with the EMBARQ acquisition where we’re focusing and doing the same thing there and bringing those speeds up.

We think it is really an opportunity to continue to drive revenue and ARPU. One of the items is just the bonding capabilities. If we can, when bonding is really working now, and it is being perfected we have very little of it in our network and really you can double your broadband speeds with bonding and so that’s a real opportunity for us in the months ahead.

Donna Jaegers - D.A. Davidson

Great. And then just one clarification on an earlier comment you made about the regulatory process. You said that some of the smaller states were putting restrictions on dividends; you mean dividending money up from those states to the parent company?

Stewart Ewing

Yes, that's correct, Donna.

Donna Jaegers - D.A. Davidson

Okay, okay and then I know in Washington State you guys have entered into an agreement with the interveners there and it sounds like part of it was over interconnection. Is that a big change for you, since you're not a bill you obviously won't required to interconnect with the CLECs, not with the CLECs, but with some of the other telecom providers. Can you talk a little about if you're giving up in this interconnection agreements? What does that really do for you guys?

Glen Post

Yeah, it’s a change for us. We don't think it will have a significant impact on our operation in Washington. We don't expect it to be a significant issue for us.

Stewart Ewing

The biggest thing is we, CenturyTel, basically have not been large enough to have an electronic interface for the wholesale customers to let them come in and provision the customers off of our network and we're going to basically integrate the e-system that we're picking up from EMBARQ and that will allow the integration of our network with that system to allow wholesale customers to provision off of our network.

Donna Jaegers - D.A. Davidson

Okay. And was Washington state the only state where you signed such an interconnection agreement or was that sort of, it’s done in other states as well.

Stewart Ewing

No, I think it was done in other states as well.

Donna Jaegers - D.A. Davidson

Okay. Thanks guys.

Operator

Our next question comes from Frank Louthan from Raymond James.

Frank Louthan - Raymond James

Great, thank you. Looking at some of the results from other carriers clearly the cable companies, and certainly some of the RBOCs had a little success ahead of the first date for DTV transition getting some video subscribers but I think that’s going to happen again in June. Any plans for making any sort of special marketing push for satellite ahead of the June DTV transition? And do you think that you're ever going to see a need to expand your IPTV offering outside of La Crosse maybe into some of your other markets? And then, lastly, what systems are you going to target to switch over first from EMBARQ? Thanks.

Glen Post

Yes. First of all, we're looking at those opportunities with as far as the marketing opportunities on video side, Frank, we’d rather not talk about what we're going to do there, because of competitive reasons. We do think there is opportunity to push video in the EMBARQ markets to provide IPTV service in a number of those markets, much more dense in the markets we serve in several areas. We have made not any decisions there, but we believe there is real opportunity there and we’ll continue to, when we get the transaction closed we’ll be looking really closely at those opportunities, in the weeks and months ahead.

Stewart Ewing

Yes, in terms of the systems conversion, we are going to convert their customers in the state of Ohio, first, to CenturyTel's customer care and service system and expect to have that done hopefully sometime in the third quarter. And expect to convert the ERP systems over to our ERP systems sometime hopefully early fourth quarter.

Frank Louthan - Raymond James

Okay, great. Thank you.

Operator

Our next question comes from Tom Seitz from Barclays.

Tom Seitz - Barclays

Thanks for taking the question. Interesting comments on the potential for IPTV in EMBARQ areas; I was wondering without naming names or naming markets, do you think since it will take you a while to get billing and provisioning done in some of those EMBARQ markets that there will be an expansion of IPTV on CenturyTel legacy properties in some areas within the 18 months that it may take you to complete the cutover of the systems.

Glen Post

Yes, Tom, we are considering a couple of what we call happy IPTV light trials in the coming months. Basically we're using 10 mega-bits. We have had a lot of success in La Crosse, and IPTV market in La Crosse, Wisconsin without HDTV and without DVR capabilities. And so we're going to trial in a couple other markets where we don't have, they are not very dense, we don't have the broadband speed capabilities to get the 25 to 30 megabits we expect to get in more dense markets. So we have some trials planned there. So yes, we will be doing some work into some smaller, in very selective cases of our markets in this year.

Tom Seitz - Barclays

Just a quick follow-up, are you taking pair bonding out of the lab right now, or were your comments related to that a little bit futuristic?

Glen Post

Yeah, we're actually trialing it. Now, it is working in the lab and we expect it to be, we were actual using bonding today in La Crosse and some areas and have had success with it, so it is just matter of perfecting it. It’s working.

Tom Seitz - Barclays

Okay, great. Thank you very much.

Operator

Thank you, ladies and gentlemen. And this concludes our question-and-answer session for today's conference. I would now like to turn the call back over to Mr. Glen Post for any closing remarks.

Glen Post

Yes. In closing, CenturyTel did achieve solid results for the first quarter. We're encouraged by the improvement in access line and broadband subscriber performance in the first quarter compared to the fourth quarter of 2008. We also continue to work diligently towards completing the EMBARQ merger that we believe represents a great strategic combination that will diversify our market and expand our addressable market for IPTV and fiber transport connectivity.

In addition, our combined high quality broadband networks and IP systems along with our enhanced financial and operational scale should provide significant advantages for our customer in the months ahead. We appreciate you participating in our call today and we look forward to speaking with you in the weeks and months ahead. Thank you.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This concludes our program for today. You may all disconnect, and have a wonderful day. Thank you

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Source: CenturyTel, Inc. Q1 2009 Earnings Call Transcript
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