Welcome to the Verizon third quarter 2007 earningsconference call. (Operator Instructions). It is now my pleasure to turn thecall over to your host, Mr. Ron Lataille, Senior Vice President of InvestorRelations of Verizon.
Good morning andwelcome to our third quarter 2007 earnings conference call. Thanks for joiningus this morning. I am Ron Lataille. With me this morning are Denny Strigl, ourPresident and Chief Operating Officer; and Doreen Toben, our Chief FinancialOfficer.
Before we get started, let me remind you that our earningsrelease, financial statements, the investor quarterly publication and thepresentation slides are on the Investor Relations website. This call is beingwebcast. If you would like to listen to a replay, you can do so from ourwebsite.
I would also like to draw your attention to our Safe Harbor statement. Information inthis presentation contains statements about expected future events andfinancial results that are forward-looking and subject to risks and uncertainties.A discussion of factors that may affect future results is contained inVerizon's filings with the SEC which are available on our website.
This presentation also contains certain non-GAAP financialmeasures. Reconciliations of these non-GAAP measures to the most directlycomparable GAAP measures are also on our website.
Before turning the call over to Doreen for a review of ourresults, I would like to cover the differences between reported and adjustedearnings for the third quarter. Reported earnings per diluted share were $0.44.Adjusted earnings, or EPS before the effects of special items, were $0.63.
There are three special items which we are excluding fromadjusted results:
The first is a $471 million or $0.16 per share charge forinternational taxes and related expenses that would be payable as a result ofpossible distributions from our Vodafone Omnitel investment. We're estimatingthat our portion of their distributable earnings may amount to as much as $2.5billion pre-tax over the next 12 months.
The second item is a $44 million after-tax charge, or $0.02per share, for costs incurred in connection with the spin-off of access linesin Maine, New Hampshire and Vermont.These costs, which we are excluding as non-operational, are mostly related tonetwork, software and other activities which will enable the impactedfacilities and systems to function on a standalone basis. We will continue toincur these types of costs between now and closing, so you can expect a similarspecial item to be excluded from our results next quarter.
The last item is the $28 million, or $0.01 per share, chargefor MCI merger integration costs.
With that I will now turn the call over to Doreen.
Thanks, Ron and good morning, everyone. Before we get intothe numbers, I would like to make a few observations. The third quarter wasanother very solid quarter for us. All key growth areas of the businessperformed well. Wireless and FiOS customer growth was particularly strong.Verizon business revenues increased once again, and we continue to makeimprovements in wireline revenues and margins. Our results once againdemonstrate the focus we have on accelerating customer and revenue growth,controlling costs and expanding margins.
Consolidated revenues increased to $23.8 billion thisquarter, up 6% year over year and more than 2% sequentially. Our operatingincome margins expanded to 18.1% as operating income increased 18.5% year over yearand more than 3% sequentially.
As for earnings, this is our third consecutive quarter ofdouble-digit growth in adjusted EPS from continuing operations. Our $0.63compared with $0.55 a year ago, up 14.5%. Year-to-date, EPS from continuingoperations have increased 13.6%.
Let's take a closer look at consolidated revenues andmargins. Our accelerating revenue growth has resulted in a $500 millionsequential increase and a $1.3 billion year-over-year improvement. During thethird quarter, we saw strong top line performance in our key growth areas.Verizon wireless revenues were up 14.4%, legacy consumer revenues grew 3.1% andVerizon business revenues increased 2.2% compared to a year ago. This revenuegrowth has resulted in higher ARPU and margin expansion.
In addition, productivity initiatives are helping to reshapeour cost structure. On slide 4 you can see the operating income marginimprovement. Of note, both wireless and wireline are contributing to positiveoperating income growth. Our third quarter operating margin of 18.1% represents190 basis point improvement over the same quarter a year ago. ConsolidatedEBITDA was 33.3% or 100 basis points better than a year ago; so very profitablegrowth as we drive the business to accelerate revenues, increase ARPU andexpand margins.
Our cash flows from continuing operations remain strong. Ouryear-to-date totaled $18 billion, representing 5% growth over last year. Wehave continued to repurchase shares. During the quarter we repurchased nearly $800million of our common stock. Through nine months, we have bought back more than$1.7 billion. Our capital spending remains on target at $12.8 billion for thefirst nine months with both wireline and wireless right where we expected themto be.
Now let's look at our segment results beginning with Verizonwireless on slide 6. Inwireless, our key focus is on the retail market, and we have sustained ourindustry leadership. As we have said before, more customers use Verizon wirelessthan any other wireless brand. We had another strong quarter of customer growthwith 1.8 million retail net adds. We are up to 61.8 million retail customers,which is more than 97% of our total customer base. Almost all the retail netadds were postpaid. Retail postpaid customers grew 1.7 million to 59.4 millionthis quarter.
I would also highlight our continued leadership in customerloyalty. Retail churn was 1.21%, and retail postpaid churn was 0.96%, bothseasonally higher on a sequential basis. Postpaid churn was essentially flatyear over year. Retail gross add performance was very strong, up 12.3% sequentiallyand 3.8% year over year with more than two-thirds of these retail sales comingfrom direct channels. Total net adds for the quarter, including wholesale, were1.6 million.
Turning to slide 7, total service revenues were up 15.1% inthe third quarter, sustaining our strong growth trend. Retail service revenues,which comprised nearly 98% of total service, grew 15.9%. Retail service ARPU of$52.17 was up nearly $1 year over year and $0.33 sequentially. Data revenuesgrew 63% year over year and now represent more than 20% of total servicerevenue, up from 14.1% one year ago.
Retail data ARPU grew to $10.59, up 43% from a year ago.About 68% of our retail customers are data users. More than 35% of retail datarevenues come from business applications driven by laptop AIR cards and email.Quarterly revenues from these applications are showing strong sequential growthand were up nearly 74% compared with a year ago.
Messaging revenues, which make up just less than half of allof our retail data, continue to grow steadily, up 58% versus last year. Duringthe quarter, customers sent or received more than 36 billion text messages, upfrom 28 billion in the second quarter. Data applications such as Get It Now, VCast,mobile web and ringback tones are also generating significant growth.
Verizon wireless continues to lead the industry in retailcustomers, total revenue, customer loyalty and profitability. On slide 8 youcan see steady increase in quarterly revenues, now well in excess of $11billion. In terms of the data opportunity, while we are seeing strong demand,we certainly see more upside. For example, only a little more than half of ourretail customers have a broadband capable device.
We have recently previewed some great new devices -- the LGVoyager and Venus, the Samsung Juke and the world's first high-speed BlackBerryPearl. These and other devices will be part of our strongest lineup ever forthe fourth quarter. In August we announced an innovative partnership with MTVand RealNetworks which will further differentiate our mobile music service.
Our EBITDA was $4.4 billion this quarter, up 14.3% sincelast year and our EBITDA margin was a very strong 44.7%. All in all, anotherexcellent quarter for Verizon wireless.
Let's move to wireline. Within wireline we had a strongquarter of residential customer growth, particularly with our FiOS services. InFiOS TV we added 202,000 net new customers this quarter, about 21% more thanour second quarter net adds. That is an average of about 3,200 net adds perbusiness day for the quarter.
As of September 30, we were marketing FiOS TV service toabout 4.7 million homes, up from 3.9 million at the end of the second quarter.We now have 717,000 TV customers representing a penetration of more than 15%.In virtually all of our regional markets we have achieved double-digitpenetration and in one region, our TV penetration exceeds 30%.
With respect to revenues, our FiOS TV ARPU has increasedconsistently each quarter and compares well to industry norms. We are alsoseeing great customer acceptance of FiOS Internet service. During the thirdquarter, we added 229,000 net new FiOS Internet customers, representing about a13% increase over last quarter and an average of about 3,600 net adds perbusiness day. We now have 1.3 million FiOS Internet customers, representing apenetration of 20% of the 6.5 million homes open for sale. In all of ourregions, we have reached penetration rates of 13% or better with two-thirds ofour regions exceeding 20% penetration.
Last week we announced the new symmetrical FiOS Internetservice featuring upload and download speeds of up to 20 Mbps. This uploadspeed is unmatched with nothing else even close.
Total broadband subscribers increased to 8 million in thethird quarter, up 1.4 million or about 21% from a year ago. During the quarter,there were 285,000 net broadband adds. As I noted, 229,000 of these net addswere FiOS Internet customers. Our DSL net adds this quarter were 56,000.Overall, FiOS TV and broadband, as well as our bundling initiatives, areresulting in net customer growth.
The total number of primary consumer units grew 1.8% year overyear, and we ended the quarter with 32.3 million total RGUs which were modestlyhigher than a year ago. On an absolute basis, our total line losses thisquarter increased sequentially, but were fewer than the amount we lost in thethird quarter last year.
Retail residential line losses of 664,000 were more than welost last quarter but are 4.5% less than we lost a year ago. Today, about 72%of the 6.5 million FiOS homes open for sale can get the triple play from us. Aswe continue to increase the availability of FiOS TV, we are seeing anincreasing correlation to improve line retention.
We are encouraged by the fact that in highly penetratedvideo markets, access line retention is significantly better. Take Rhode Island, for example. We began offering FiOS TV inparts of the state earlier this year. In those markets where we offer FiOS TV,we are actually seeing access line gains; where only six months ago we werelosing lines in excess of 10% annually.
Our consumer retail business is increasingly centered onbroadband, video and bundles. As you can see on slide 10, our legacy consumerrevenue growth was positive again this quarter, increasing 3.1%. Year-to-date,legacy consumer revenues have increased by about $300 million. Increases inbroadband and video revenue and an increase in the number of bundled customershave all helped drive consumer retail ARPU up $5.73 or nearly 11% year over year.All of our regional markets had sequential ARPU accretion.
In total, broadband and video revenues were up 67% thisquarter compared with a year ago. Last quarter the year-over-year growth ratewas 55%. We continue to see growth and retention opportunities as we increasetriple play availability, and we have begun adding wireless to the mix. Inearly October we announced some great new home and wireless bundles.
Now let's take a lot at Verizon business on slide 11. Wecontinue to see strong growth in data demand and some stabilization in voicepricing. Our 2.2% revenue increase is the fourth consecutive quarter ofpositive year-over-year revenue growth. In enterprise -- which includes premiermultinational customers, domestic and government accounts -- revenues grew to$3.7 billion, up 2.4% year over year and 1.3% sequentially.
Wholesale domestic revenues grew 3.7% year over year,primarily due to increases in wireless traffic. International revenues, whichinclude both retail and wholesale, were $789 million. This is the same as lastquarter and down $4 million versus last year. Retail revenues increased, butwere offset by volume declines in wholesale.
Strategic services showed strong revenue growth again thisquarter, up 28.6% versus last year and 8% higher on a sequential basis. Growthwas driven by private IP, managed services and security. Strategic services arebecoming a much larger piece of the overall revenue stream. It is now more than25% of total Verizon business, up from 20% a year ago. With the majority of ourcustomers transitioning to IP, we continue to see significant opportunities toincrease our market share. We believe we are very well-positioned to takeadvantage of the global demand for IP, managed services, security and hosting.
Overall, we believe this quarter provides further evidencethat our strategies are paying off in the wireline business. On the residentialside, even though line losses continue, we have successfully increased revenueper customer, which has resulted in improved revenue growth. In Verizon business,we continue to win new business and increase market share.
And as you can see on slide 12, wireline revenues havecontinued to show steady improvement as the year-over-year rate of decline haslessened each quarter. Third quarter revenues declined 0.8%; excluding formerMCI mass-market, wireline revenues actually increased 0.9%. As in wireless, dataservices are a big driver of revenue growth. Data now represents 37% of total wirelinerevenue. This quarter, data revenues were up 13% year over year.
In terms of profitability, third quarter wireline operatingincome margins expanded 60 basis points year over year and 40 basis pointssequentially to 9.4%. Margin expansion is being driven by revenue growth, aswell as a number of productivity initiatives currently underway.
Wireline headcount is down more than 2,800 for the year.FiOS earnings solution declined sequentially to $0.09. We are pleased with ourprogress in improving installation productivity and expect to see betterefficiencies as we gain scale. So we're making good progress in improvingprofitability.
So let's wrap this up and get to your questions. If I take astep back and look at the big picture, I would say that our focus on revenuegrowth, productivity and margin expansion is clearly taking hold. Our growth inearnings from continuing operations is solidly in the double-digits. All keygrowth areas are performing well.
Wireless had another strong quarter in terms of profitablerevenue and customer growth, as well as strong cash generation. In wireline,revenues and margins continue to improve. In the consumer market, ourbroadband, video and bundling initiatives are driving ARPU expansion and demandfor our FiOS services has never been better. We are well positioned to increasemarket share and capitalize on growth opportunities in Verizon business.
Our strong balance sheet gives us the financial flexibilityto continue investing for growth and at the same time return capital toshareowners. In September we raised the dividend by 6.2% or $0.10 annually, aclear indication of the confidence we have in our cash outlook. We haveincreased our share repurchase program target to at least $2.5 billion for thefull year, up about $500 million from our original guidance.
In sum, good progress in key strategic areas and we arepleased with our third quarter and year-to-date results.
With that, I will turn it back to Ron.
Thanks, Doreen. Operator, Denny and Doreen are now availableto take questions.
Your first question comes from David Barden - Banc ofAmerica Securities.
David Barden - Banc of America Securities
First on the wireline margins, up it looks like 50 basispoints sequentially. Is it all just incremental FiOS revenues that are movingthe margin up there? What are the moving parts behind that margin? Asimportantly, where do you think that those wireline margins can go over thenext year?
If you could just talk to the FCC talking about getting ridof the exclusive contracts between cable companies and multi-tenant dwellingunit landlords. Is that a barrier to getting more aggressive in the MDUfootprint with the FiOS product, or are there still technological barriers tobe overcome? Thanks a lot.
I will handle both ofthose. First of all, on the margin question, obviously we have made progressthis quarter. We saw margins better than the last quarter. But to be candidwith you, I'm not satisfied with that. We are working to improve our marginsevery day and I am confident that we will see continued improvement. The teamis very focused on productivity improvements and overall reduction in cost.
So looking at the opportunities that we have to improvemargins, FiOS metrics were on target to be EBITDA positive in '08. Reducingaccess costs in Verizon Business will also help. We will get our EBITDA marginsto at least 14% to 15% in the next couple of years. Also, we have some cost reductionopportunities across the business, including real estate, procurement sourcingand through IT in aggressively transforming some of the transaction-relatedoperations. So for the fourth quarter and '08, we are very focused oncontinuing to drive growth, top line revenues and overall increasing ourmargins.
On the MDU issue, there really are no technology areas thatare in our way in MDUs. The issues for us with MDUs are first to get a premiseaccess license arrangement. That is, permission to get into a building withFiOS. Secondly, with the landlords marketing agreement, that is the ability tomarket within the building. Finally, to sign up customers. Of course, all ofthis is gated upon our ability to get a video franchise.
Some statistics you may be interested in, about 25% of our accesslines are in MDUs. Thus far, we have cast about 2.1 million MDUs, and we haveopened 400,000. We're feeling pretty good about where we stand, and we arelooking for a strong result in '08.
Your next question comes from Mike McCormack - Bear Stearns.
Mike McCormack - Bear Stearns
First on the wireless side, we saw the iPhone price cut in mid-September-ish.Can you give us sense for how your margins reacted throughout the quarter andwhether or not you had a competitive response? More importantly, looking intoQ4 and the holiday season where I think we will have a number of iPhone sales,is there something we should be looking at from your margins as to how you'regoing to respond to that threat?
Secondly, on the business access lines, it looked like anout of trend, worse than normal quarter, on a year-over-year percentage declinebasis. Is there something there from cable companies, or is there an impactfrom a softer economy we should be thinking about? Thanks.
On the iPhonequestion, Mike, we have seen minimal impact in the iPhone thus far. We did see,as we mentioned last quarter, an initial jump in our local number portabilityrates and quickly after two to three weeks, back to normal. We saw the sameoccur when the price was lowered on the iPhone. I think as you see from ourchurn number, not appreciably different than what you have seen in other thirdquarters. So relative to iPhone, we don't see any major impact on our business.
Now as Doreen mentioned in her initial comments, we have avery aggressive fourth quarter planned in terms of introduction of newproducts. A product called the Voyager, which we think will be a very closecompetitive offer to the iPhone; but a number of the other handsets that arebeing introduced in the quarter. I think all are fairly priced, and we lookforward to a good fourth quarter and are not overly concerned about the impactof the iPhone.
Mike McCormack - Bear Stearns
Denny, before we move off wireless, can you just give us anindication of what the wholesale disconnect issue was this quarter?
We have overall anumber of wholesale customers, but two large ones. The major disconnects havecome from the two major resellers that we have, as you might guess, and it is justan issue on pricing and volumes, Mike. Nothing extraordinary there; as you seeour last few quarters, we have taken some disconnect on the wholesale side. Noreal change in our strategy relative to resellers.
On the business access line, Mike, what I would say is therewas nothing unusual. There was no big tick-up from competition. I think youhave to be really careful with the business access line number. At least 50% ofit is enterprise, which is really not a relevant measure because there are so manyprivate lines going to DS1s, DS3s or OC12s or whatnot. So nothing unusual thathappened on the business line access line side.
Mike McCormack - Bear Stearns
When you look at thenumbers, you have not had a decline of 3.8% since early 2004. So I just thoughtthat was unusual.
Yes, but as I said, nothing unusual. I think it is much moreon the enterprise side of the house that it was on the small business side.
Your next question comes from John Hodulik - UBS.
John Hodulik - UBS
First on FiOS, the dilution there seems to be coming downabout $0.01 a quarter, and you are obviously sticking with the EBITDA positiveguidance for '08. The changes we should see over the next 12 months, is thatmore a function of scale or improving cost metrics in terms of installationtimes, marketing, that kind of thing?
Second of all on the business, growth slowed a bit duringthe quarter. Are there any underlying trends we should know about there, or howdo you expect the growth to shape up in that segment over the next 12 months?
John, on the overall FiOS where do we go from here, I thinkthat we definitely will be ramping up, particularly with a greater number ofhomes passed. Actually, we are rolling out FiOS probably as fast as we can atthis point. We still have some major urban markets to open in the next 18 to 24months, which will significantly expand our opportunities. Frankly, we're notgating our FiOS rollout from a dilution or a franchise perspective.
So the answer to your question in general is yes, we will beramping FiOS even further with more homes passed. Productivity has improvedacross the board in all of our regions, but there's still more work to do inthat regard.
I would just add on the FiOS dilution question, you heardthat it is still going to be EBITDA positive in '08. I would say we are ontrack with where we thought we would be, and it is a mix, John. We haveproductivity improvements that will drive the number, as well as the fact asyou continue to get scale. We still have a lot more states and areas that weare opening up, of which the longer that you are in a particular region and youexpand it, your costs come down. So the answer would be a mix.
John, on the Verizon Business growth, the question that youasked, absolute revenues increased sequentially and the growth rate down onlyabout 10 basis points. In that regard, there's nothing really to note. We arenot seeing any change in our metrics or our sales funnels that would indicate aslowdown. We're encouraged that strategic services continued to show verystrong growth.
Your next question comes from Michael Rollins - Citigroup.
Michael Rollins - Citigroup
Good morning. On the DSL, can you talk about the slowdown inDSL out of the FiOS region? What impact FiOS might be having on the straightDSL product? Is it more of an industry or competitive issue? And is it one alsoI guess that could be economic?
Michael, good morning. We are really not seeing any overalldecline in our broadband metrics, and I think we need to look first at thetotal broadband market rather than just DSL alone. So this quarter we sawcontinued healthy growth in broadband. Broadband subs year over year were up21%. We have 8 million broadband customers in total. We added 285,000 newcustomers this quarter and about 1.4 million over the last 12 months. I thinkDoreen mentioned in her comments that we are adding about 3,600 FiOS Internetsubs per day. In fact, FiOS alone took more than 40,000 DSL subs in the thirdquarter.
So just a couple of other comments on this. Looking at thepercent of homes covered by FiOS Internet and video, those number of homes areincreasing. FiOS Internet now covers about 20% of households in our footprint.That is up 35% since the beginning of the year, and our availability of FiOSvideo has doubled this year to 15% of households. So overall, we continue toexpect strong broadband growth going forward, and this will particularly relateto the increased coverage that we have.
Michael Rollins - Citigroup
When you look at the FiOS adds only about 20% of that comingfrom DSL, does that mean that you're taking significantly more share from cablecompetition when you're adding high-speed Internet customers to the fiberproduct?
As you might guess, from cable and also some new to thecategory, but the answer to your question would be yes.
Your next question comes from Simon Flannery - MorganStanley.
Simon Flannery - Morgan Stanley
Denny, first on wireless, the cost of services and sales wasup about 8% sequentially. What is driving that? Is that equipment subsidies, orare there other things going on there, some seasonality?
Doreen, could you just take us below the operating incomeline and talk about the tax rate? It seems to have come down a bit. What weshould expect for fourth quarter and if there's anything unusual in equity andunconsolidated or other income expense?
Yes, to answer your question on the wireless costs, that isprimarily handset-driven; obviously greater functionality in the handsets andhigher costs.
Simon Flannery - Morgan Stanley
Should that persistin Q4?
I think you canexpect this to continue in the fourth quarter.
On the tax rate, I think we had some out of periodadjustments this quarter. We were able to amend some of our prior tax returns,which allowed us to record a benefit for additional foreign tax credits. I would say for the full year, I have notchanged the 35% to 37% range. However, in the fourth quarter, you will probablysee a rate that is lower than the average of the first three quarters. I actually think that you're going to see a 35%to 37% go through 2008 as well. So you will see a little bit of a higher taxrate.
We can take you through a lot of what is below. Op incomehas to do with CANTV in particular and Omnitel one-timers that happens eitherthis year or last year. CANTV does not book in the same place PRTC orDominicana did. So I think those are the two units that really caused the “looksfunny” that you might see.
Your next question comes from Tim Horan - CIBC.
Tim Horan - CIBC
The wireless data was a very, very strong quarter, probably thestrongest we have seen, maybe ever. Could you give us some more color aroundthat, and where do you think that can get to as a percentage of revenue?
I might have missed it, but Doreen, could you tell us whatthe FiOS dilution was this year?
First, if you look at the number of data capable devicescoming into the market this of course, is a big driver. About 50% of our retailsubs currently have a broadband capable device, so we think there is lots ofopportunity there.
The second driver is also that we're seeing new applicationscoming into the market. Obviously we will see customers increasingly use thoseapplications. We now see about 35% of our retail data revenues coming frombusiness applications, and that is up significantly from the prior year.
But I might point out that messaging revenues continuestrong growth, about 50% to 60% remarkably each quarter. About 68% of ourretail customers are now data users.
So to your question, where do we go long term here?Eventually we can see that we may hit the 30% range, and a lot of factors inthat coming into play. The capable handsets, deeper penetration of our productsand a rollout of new services, just to name a few. Our wireless team continuesto be highly focused on growth in data ARPU overall.
Tim Horan - CIBC
But it seems like thetrends, I'm very surprised how strong it has been, but might even be like a 35%longer-term number. I know you're not putting it out there now, but do youthink that is possible?
It is possible.
Tim, in case youmissed it, on the FiOS, it was $0.11 first quarter, $0.10 second quarter and$0.09 third quarter.
Tim Horan - CIBC
Can you break thatout EBITDA versus depreciation? Is there any way to get color on that?
No, I mean we arethinking about whether next year we will just show EBITDA if we show anything,but not off the top of my head as far as that.
Your next question comes from David Janazzo - Merrill Lynch.
David Janazzo - Merrill Lynch
A couple of weeks agothere was some reference in the news to a meeting between Verizon and Google.Presumably it relates to 700 megahertz option, maybe wireless broadband in thefuture. In general, how are you thinking about opportunities to partner, and interms of at Verizon and at Google, what could each party do you think bring tothe other?
First of all, as you would expect, we meet with lots ofcompanies and people all of the time, including companies like Google. Frankly,we don't have any other comments, and as you know, it is our policy not tocomment on rumors, or discussions that we may or may not have had. So I think Iwill leave it at that.
David Janazzo - Merrill Lynch
Anything justgenerally on what you could bring to a company like that or what they couldbring to you?
I have no furthercomment on that.
Your next question comes from Tom Seitz - Lehman Brothers.
Tom Seitz - Lehman Brothers
When you look at what is going on in places like Rhode Island where you have rolled out FiOS and you'reactually increasing access lines, are you tempted at all to push back thedilution estimates such that you can take advantage of a product that has gotreal momentum right now? I mean listening to the cable operators on theearnings call, their change in tone of perception about FiOS is remarkable.
Secondly, can you update us as to where we are in gettingmargin improvement out of the system integration with MCI and the access linesavings from the CapEx spend this year? I mean not to get perfectly exact, butcan you give us a sense of perhaps maybe what inning we are at in terms ofrecognizing those improvements?
Denny went through some of this, but I would say as far asincreasing FiOS deployment, at the moment at least we are about going as fastas we think we can. We do have, as you mentioned, some urban markets that wehope to open up in the next 18 to 24 months. That will significantly expand ouropportunities. I would say that from a rollout perspective, we are not tryingto manage dilution based on the rollout. So if we wanted to roll out quicker,we would go ahead and do that.
I will comment on the synergy targets. For Verizon businessin 2007 we're planning about $900 million in synergies. That is up,incidentally, from an original target of $825 million. In the third quarter ofthis year, approximately $300 million in synergies.
Yes, and then I guess if you ask me what inning, I would saywe are probably with a three-year program so we have got one more year to go,and we think we will be where we need to be.
Operator, that willconclude our call for today. Thank you, everybody for joining us.
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