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Verizon Communications Inc. (NYSE:VZ)

Q3 2007 Earnings Call

October 29, 2007 8:30 am ET

Executives

Ron Lataille - IR

Doreen Toben - CFO

Denny Strigl - President, COO

Analysts

David Barden - Banc of America Securities

Mike McCormack - Bear Stearns

John Hodulik - UBS

Michael Rollins - Citigroup

Simon Flannery - Morgan Stanley

Tim Horan - CIBC

David Janazzo - Merrill Lynch

Tom Seitz - Lehman Brothers

Operator

Welcome to the Verizon third quarter 2007 earnings conference call. (Operator Instructions). It is now my pleasure to turn the call over to your host, Mr. Ron Lataille, Senior Vice President of Investor Relations of Verizon.

Ron Lataille

Good morning and welcome to our third quarter 2007 earnings conference call. Thanks for joining us this morning. I am Ron Lataille. With me this morning are Denny Strigl, our President and Chief Operating Officer; and Doreen Toben, our Chief Financial Officer.

Before we get started, let me remind you that our earnings release, financial statements, the investor quarterly publication and the presentation slides are on the Investor Relations website. This call is being webcast. If you would like to listen to a replay, you can do so from our website.

I would also like to draw your attention to our Safe Harbor statement. Information in this presentation contains statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties. A discussion of factors that may affect future results is contained in Verizon's filings with the SEC which are available on our website.

This presentation also contains certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are also on our website.

Before turning the call over to Doreen for a review of our results, I would like to cover the differences between reported and adjusted earnings 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 from adjusted results:

The first is a $471 million or $0.16 per share charge for international taxes and related expenses that would be payable as a result of possible distributions from our Vodafone Omnitel investment. We're estimating that our portion of their distributable earnings may amount to as much as $2.5 billion pre-tax over the next 12 months.

The second item is a $44 million after-tax charge, or $0.02 per share, for costs incurred in connection with the spin-off of access lines in Maine, New Hampshire and Vermont. These costs, which we are excluding as non-operational, are mostly related to network, software and other activities which will enable the impacted facilities and systems to function on a standalone basis. We will continue to incur these types of costs between now and closing, so you can expect a similar special item to be excluded from our results next quarter.

The last item is the $28 million, or $0.01 per share, charge for MCI merger integration costs.

With that I will now turn the call over to Doreen.

Doreen Toben

Thanks, Ron and good morning, everyone. Before we get into the numbers, I would like to make a few observations. The third quarter was another very solid quarter for us. All key growth areas of the business performed well. Wireless and FiOS customer growth was particularly strong. Verizon business revenues increased once again, and we continue to make improvements in wireline revenues and margins. Our results once again demonstrate the focus we have on accelerating customer and revenue growth, controlling costs and expanding margins.

Consolidated revenues increased to $23.8 billion this quarter, up 6% year over year and more than 2% sequentially. Our operating income margins expanded to 18.1% as operating income increased 18.5% year over year and more than 3% sequentially.

As for earnings, this is our third consecutive quarter of double-digit growth in adjusted EPS from continuing operations. Our $0.63 compared with $0.55 a year ago, up 14.5%. Year-to-date, EPS from continuing operations have increased 13.6%.

Let's take a closer look at consolidated revenues and margins. Our accelerating revenue growth has resulted in a $500 million sequential increase and a $1.3 billion year-over-year improvement. During the third 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% and Verizon business revenues increased 2.2% compared to a year ago. This revenue growth has resulted in higher ARPU and margin expansion.

In addition, productivity initiatives are helping to reshape our cost structure. On slide 4 you can see the operating income margin improvement. Of note, both wireless and wireline are contributing to positive operating income growth. Our third quarter operating margin of 18.1% represents 190 basis point improvement over the same quarter a year ago. Consolidated EBITDA was 33.3% or 100 basis points better than a year ago; so very profitable growth as we drive the business to accelerate revenues, increase ARPU and expand margins.

Our cash flows from continuing operations remain strong. Our year-to-date totaled $18 billion, representing 5% growth over last year. We have continued to repurchase shares. During the quarter we repurchased nearly $800 million 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 the first nine months with both wireline and wireless right where we expected them to be.

Now let's look at our segment results beginning with Verizon wireless on slide 6. In wireless, our key focus is on the retail market, and we have sustained our industry leadership. As we have said before, more customers use Verizon wireless than any other wireless brand. We had another strong quarter of customer growth with 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 net adds were postpaid. Retail postpaid customers grew 1.7 million to 59.4 million this quarter.

I would also highlight our continued leadership in customer loyalty. Retail churn was 1.21%, and retail postpaid churn was 0.96%, both seasonally higher on a sequential basis. Postpaid churn was essentially flat year over year. Retail gross add performance was very strong, up 12.3% sequentially and 3.8% year over year with more than two-thirds of these retail sales coming from direct channels. Total net adds for the quarter, including wholesale, were 1.6 million.

Turning to slide 7, total service revenues were up 15.1% in the 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 revenues grew 63% year over year and now represent more than 20% of total service revenue, 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 data revenues come from business applications driven by laptop AIR cards and email. Quarterly revenues from these applications are showing strong sequential growth and were up nearly 74% compared with a year ago.

Messaging revenues, which make up just less than half of all of our retail data, continue to grow steadily, up 58% versus last year. During the quarter, customers sent or received more than 36 billion text messages, up from 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 retail customers, total revenue, customer loyalty and profitability. On slide 8 you can see steady increase in quarterly revenues, now well in excess of $11 billion. 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 our retail customers have a broadband capable device.

We have recently previewed some great new devices -- the LG Voyager and Venus, the Samsung Juke and the world's first high-speed BlackBerry Pearl. These and other devices will be part of our strongest lineup ever for the fourth quarter. In August we announced an innovative partnership with MTV and RealNetworks which will further differentiate our mobile music service.

Our EBITDA was $4.4 billion this quarter, up 14.3% since last year and our EBITDA margin was a very strong 44.7%. All in all, another excellent quarter for Verizon wireless.

Let's move to wireline. Within wireline we had a strong quarter of residential customer growth, particularly with our FiOS services. In FiOS TV we added 202,000 net new customers this quarter, about 21% more than our second quarter net adds. That is an average of about 3,200 net adds per business day for the quarter.

As of September 30, we were marketing FiOS TV service to about 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-digit penetration and in one region, our TV penetration exceeds 30%.

With respect to revenues, our FiOS TV ARPU has increased consistently each quarter and compares well to industry norms. We are also seeing great customer acceptance of FiOS Internet service. During the third quarter, we added 229,000 net new FiOS Internet customers, representing about a 13% increase over last quarter and an average of about 3,600 net adds per business day. We now have 1.3 million FiOS Internet customers, representing a penetration of 20% of the 6.5 million homes open for sale. In all of our regions, we have reached penetration rates of 13% or better with two-thirds of our regions exceeding 20% penetration.

Last week we announced the new symmetrical FiOS Internet service featuring upload and download speeds of up to 20 Mbps. This upload speed is unmatched with nothing else even close.

Total broadband subscribers increased to 8 million in the third 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 adds were FiOS Internet customers. Our DSL net adds this quarter were 56,000. Overall, FiOS TV and broadband, as well as our bundling initiatives, are resulting in net customer growth.

The total number of primary consumer units grew 1.8% year over year, and we ended the quarter with 32.3 million total RGUs which were modestly higher than a year ago. On an absolute basis, our total line losses this quarter increased sequentially, but were fewer than the amount we lost in the third quarter last year.

Retail residential line losses of 664,000 were more than we lost 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. As we continue to increase the availability of FiOS TV, we are seeing an increasing correlation to improve line retention.

We are encouraged by the fact that in highly penetrated video markets, access line retention is significantly better. Take Rhode Island, for example. We began offering FiOS TV in parts 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 were losing lines in excess of 10% annually.

Our consumer retail business is increasingly centered on broadband, video and bundles. As you can see on slide 10, our legacy consumer revenue growth was positive again this quarter, increasing 3.1%. Year-to-date, legacy consumer revenues have increased by about $300 million. Increases in broadband and video revenue and an increase in the number of bundled customers have 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% this quarter compared with a year ago. Last quarter the year-over-year growth rate was 55%. We continue to see growth and retention opportunities as we increase triple play availability, and we have begun adding wireless to the mix. In early October we announced some great new home and wireless bundles.

Now let's take a lot at Verizon business on slide 11. We continue to see strong growth in data demand and some stabilization in voice pricing. Our 2.2% revenue increase is the fourth consecutive quarter of positive year-over-year revenue growth. In enterprise -- which includes premier multinational 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, which include both retail and wholesale, were $789 million. This is the same as last quarter and down $4 million versus last year. Retail revenues increased, but were offset by volume declines in wholesale.

Strategic services showed strong revenue growth again this quarter, up 28.6% versus last year and 8% higher on a sequential basis. Growth was driven by private IP, managed services and security. Strategic services are becoming a much larger piece of the overall revenue stream. It is now more than 25% of total Verizon business, up from 20% a year ago. With the majority of our customers transitioning to IP, we continue to see significant opportunities to increase our market share. We believe we are very well-positioned to take advantage of the global demand for IP, managed services, security and hosting.

Overall, we believe this quarter provides further evidence that our strategies are paying off in the wireline business. On the residential side, even though line losses continue, we have successfully increased revenue per 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 have continued to show steady improvement as the year-over-year rate of decline has lessened each quarter. Third quarter revenues declined 0.8%; excluding former MCI mass-market, wireline revenues actually increased 0.9%. As in wireless, data services are a big driver of revenue growth. Data now represents 37% of total wireline revenue. This quarter, data revenues were up 13% year over year.

In terms of profitability, third quarter wireline operating income margins expanded 60 basis points year over year and 40 basis points sequentially to 9.4%. Margin expansion is being driven by revenue growth, as well 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 our progress in improving installation productivity and expect to see better efficiencies as we gain scale. So we're making good progress in improving profitability.

So let's wrap this up and get to your questions. If I take a step back and look at the big picture, I would say that our focus on revenue growth, productivity and margin expansion is clearly taking hold. Our growth in earnings from continuing operations is solidly in the double-digits. All key growth areas are performing well.

Wireless had another strong quarter in terms of profitable revenue and customer growth, as well as strong cash generation. In wireline, revenues and margins continue to improve. In the consumer market, our broadband, video and bundling initiatives are driving ARPU expansion and demand for our FiOS services has never been better. We are well positioned to increase market share and capitalize on growth opportunities in Verizon business.

Our strong balance sheet gives us the financial flexibility to continue investing for growth and at the same time return capital to shareowners. In September we raised the dividend by 6.2% or $0.10 annually, a clear indication of the confidence we have in our cash outlook. We have increased our share repurchase program target to at least $2.5 billion for the full year, up about $500 million from our original guidance.

In sum, good progress in key strategic areas and we are pleased with our third quarter and year-to-date results.

With that, I will turn it back to Ron.

Ron Lataille

Thanks, Doreen. Operator, Denny and Doreen are now available to take questions.

Question-and-Answer Session

Operator

Your first question comes from David Barden - Banc of America Securities.

David Barden - Banc of America Securities

First on the wireline margins, up it looks like 50 basis points sequentially. Is it all just incremental FiOS revenues that are moving the margin up there? What are the moving parts behind that margin? As importantly, where do you think that those wireline margins can go over the next year?

If you could just talk to the FCC talking about getting rid of the exclusive contracts between cable companies and multi-tenant dwelling unit landlords. Is that a barrier to getting more aggressive in the MDU footprint with the FiOS product, or are there still technological barriers to be overcome? Thanks a lot.

Denny Strigl

I will handle both of those. First of all, on the margin question, obviously we have made progress this quarter. We saw margins better than the last quarter. But to be candid with you, I'm not satisfied with that. We are working to improve our margins every day and I am confident that we will see continued improvement. The team is very focused on productivity improvements and overall reduction in cost.

So looking at the opportunities that we have to improve margins, FiOS metrics were on target to be EBITDA positive in '08. Reducing access costs in Verizon Business will also help. We will get our EBITDA margins to at least 14% to 15% in the next couple of years. Also, we have some cost reduction opportunities across the business, including real estate, procurement sourcing and through IT in aggressively transforming some of the transaction-related operations. So for the fourth quarter and '08, we are very focused on continuing to drive growth, top line revenues and overall increasing our margins.

On the MDU issue, there really are no technology areas that are in our way in MDUs. The issues for us with MDUs are first to get a premise access license arrangement. That is, permission to get into a building with FiOS. Secondly, with the landlords marketing agreement, that is the ability to market within the building. Finally, to sign up customers. Of course, all of this is gated upon our ability to get a video franchise.

Some statistics you may be interested in, about 25% of our access lines are in MDUs. Thus far, we have cast about 2.1 million MDUs, and we have opened 400,000. We're feeling pretty good about where we stand, and we are looking for a strong result in '08.

Operator

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 and whether or not you had a competitive response? More importantly, looking into Q4 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're going to respond to that threat?

Secondly, on the business access lines, it looked like an out of trend, worse than normal quarter, on a year-over-year percentage decline basis. Is there something there from cable companies, or is there an impact from a softer economy we should be thinking about? Thanks.

Denny Strigl

On the iPhone question, 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 portability rates and quickly after two to three weeks, back to normal. We saw the same occur when the price was lowered on the iPhone. I think as you see from our churn number, not appreciably different than what you have seen in other third quarters. So relative to iPhone, we don't see any major impact on our business.

Now as Doreen mentioned in her initial comments, we have a very aggressive fourth quarter planned in terms of introduction of new products. A product called the Voyager, which we think will be a very close competitive offer to the iPhone; but a number of the other handsets that are being introduced in the quarter. I think all are fairly priced, and we look forward to a good fourth quarter and are not overly concerned about the impact of the iPhone.

Mike McCormack - Bear Stearns

Denny, before we move off wireless, can you just give us an indication of what the wholesale disconnect issue was this quarter?

Denny Strigl

We have overall a number of wholesale customers, but two large ones. The major disconnects have come from the two major resellers that we have, as you might guess, and it is just an issue on pricing and volumes, Mike. Nothing extraordinary there; as you see our last few quarters, we have taken some disconnect on the wholesale side. No real change in our strategy relative to resellers.

Doreen Toben

On the business access line, Mike, what I would say is there was nothing unusual. There was no big tick-up from competition. I think you have to be really careful with the business access line number. At least 50% of it is enterprise, which is really not a relevant measure because there are so many private lines going to DS1s, DS3s or OC12s or whatnot. So nothing unusual that happened on the business line access line side.

Mike McCormack - Bear Stearns

When you look at the numbers, you have not had a decline of 3.8% since early 2004. So I just thought that was unusual.

Doreen Toben

Yes, but as I said, nothing unusual. I think it is much more on the enterprise side of the house that it was on the small business side.

Operator

Your next question comes from John Hodulik - UBS.

John Hodulik - UBS

First on FiOS, the dilution there seems to be coming down about $0.01 a quarter, and you are obviously sticking with the EBITDA positive guidance for '08. The changes we should see over the next 12 months, is that more a function of scale or improving cost metrics in terms of installation times, marketing, that kind of thing?

Second of all on the business, growth slowed a bit during the quarter. Are there any underlying trends we should know about there, or how do you expect the growth to shape up in that segment over the next 12 months?

Denny Strigl

John, on the overall FiOS where do we go from here, I think that we definitely will be ramping up, particularly with a greater number of homes passed. Actually, we are rolling out FiOS probably as fast as we can at this point. We still have some major urban markets to open in the next 18 to 24 months, which will significantly expand our opportunities. Frankly, we're not gating our FiOS rollout from a dilution or a franchise perspective.

So the answer to your question in general is yes, we will be ramping FiOS even further with more homes passed. Productivity has improved across the board in all of our regions, but there's still more work to do in that regard.

Doreen Toben

I would just add on the FiOS dilution question, you heard that it is still going to be EBITDA positive in '08. I would say we are on track with where we thought we would be, and it is a mix, John. We have productivity improvements that will drive the number, as well as the fact as you continue to get scale. We still have a lot more states and areas that we are opening up, of which the longer that you are in a particular region and you expand it, your costs come down. So the answer would be a mix.

Denny Strigl

John, on the Verizon Business growth, the question that you asked, absolute revenues increased sequentially and the growth rate down only about 10 basis points. In that regard, there's nothing really to note. We are not seeing any change in our metrics or our sales funnels that would indicate a slowdown. We're encouraged that strategic services continued to show very strong growth.

Operator

Your next question comes from Michael Rollins - Citigroup.

Michael Rollins - Citigroup

Good morning. On the DSL, can you talk about the slowdown in DSL out of the FiOS region? What impact FiOS might be having on the straight DSL product? Is it more of an industry or competitive issue? And is it one also I guess that could be economic?

Denny Strigl

Michael, good morning. We are really not seeing any overall decline in our broadband metrics, and I think we need to look first at the total broadband market rather than just DSL alone. So this quarter we saw continued healthy growth in broadband. Broadband subs year over year were up 21%. We have 8 million broadband customers in total. We added 285,000 new customers this quarter and about 1.4 million over the last 12 months. I think Doreen mentioned in her comments that we are adding about 3,600 FiOS Internet subs per day. In fact, FiOS alone took more than 40,000 DSL subs in the third quarter.

So just a couple of other comments on this. Looking at the percent of homes covered by FiOS Internet and video, those number of homes are increasing. 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 FiOS video has doubled this year to 15% of households. So overall, we continue to expect strong broadband growth going forward, and this will particularly relate to the increased coverage that we have.

Michael Rollins - Citigroup

When you look at the FiOS adds only about 20% of that coming from DSL, does that mean that you're taking significantly more share from cable competition when you're adding high-speed Internet customers to the fiber product?

Denny Strigl

As you might guess, from cable and also some new to the category, but the answer to your question would be yes.

Operator

Your next question comes from Simon Flannery - Morgan Stanley.

Simon Flannery - Morgan Stanley

Denny, first on wireless, the cost of services and sales was up about 8% sequentially. What is driving that? Is that equipment subsidies, or are there other things going on there, some seasonality?

Doreen, could you just take us below the operating income line and talk about the tax rate? It seems to have come down a bit. What we should expect for fourth quarter and if there's anything unusual in equity and unconsolidated or other income expense?

Denny Strigl

Yes, to answer your question on the wireless costs, that is primarily handset-driven; obviously greater functionality in the handsets and higher costs.

Simon Flannery - Morgan Stanley

Should that persist in Q4?

Denny Strigl

I think you can expect this to continue in the fourth quarter.

Doreen Toben

On the tax rate, I think we had some out of period adjustments 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 not changed the 35% to 37% range. However, in the fourth quarter, you will probably see 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 tax rate.

We can take you through a lot of what is below. Op income has to do with CANTV in particular and Omnitel one-timers that happens either this year or last year. CANTV does not book in the same place PRTC or Dominicana did. So I think those are the two units that really caused the “looks funny” that you might see.

Operator

Your next question comes from Tim Horan - CIBC.

Tim Horan - CIBC

The wireless data was a very, very strong quarter, probably the strongest we have seen, maybe ever. Could you give us some more color around that, 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 what the FiOS dilution was this year?

Denny Strigl

First, if you look at the number of data capable devices coming into the market this of course, is a big driver. About 50% of our retail subs currently have a broadband capable device, so we think there is lots of opportunity there.

The second driver is also that we're seeing new applications coming into the market. Obviously we will see customers increasingly use those applications. We now see about 35% of our retail data revenues coming from business applications, and that is up significantly from the prior year.

But I might point out that messaging revenues continue strong growth, about 50% to 60% remarkably each quarter. About 68% of our retail 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 in that coming into play. The capable handsets, deeper penetration of our products and a rollout of new services, just to name a few. Our wireless team continues to be highly focused on growth in data ARPU overall.

Tim Horan - CIBC

But it seems like the trends, 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 you think that is possible?

Denny Strigl

It is possible.

Doreen Toben

Tim, in case you missed 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 that out EBITDA versus depreciation? Is there any way to get color on that?

Doreen Toben

No, I mean we are thinking 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.

Operator

Your next question comes from David Janazzo - Merrill Lynch.

David Janazzo - Merrill Lynch

A couple of weeks ago there was some reference in the news to a meeting between Verizon and Google. Presumably it relates to 700 megahertz option, maybe wireless broadband in the future. In general, how are you thinking about opportunities to partner, and in terms of at Verizon and at Google, what could each party do you think bring to the other?

Denny Strigl

First of all, as you would expect, we meet with lots of companies 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 to comment on rumors, or discussions that we may or may not have had. So I think I will leave it at that.

David Janazzo - Merrill Lynch

Anything just generally on what you could bring to a company like that or what they could bring to you?

Denny Strigl

I have no further comment on that.

Operator

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're actually increasing access lines, are you tempted at all to push back the dilution estimates such that you can take advantage of a product that has got real momentum right now? I mean listening to the cable operators on the earnings call, their change in tone of perception about FiOS is remarkable.

Secondly, can you update us as to where we are in getting margin improvement out of the system integration with MCI and the access line savings from the CapEx spend this year? I mean not to get perfectly exact, but can you give us a sense of perhaps maybe what inning we are at in terms of recognizing those improvements?

Doreen Toben

Denny went through some of this, but I would say as far as increasing FiOS deployment, at the moment at least we are about going as fast as we think we can. We do have, as you mentioned, some urban markets that we hope to open up in the next 18 to 24 months. That will significantly expand our opportunities. I would say that from a rollout perspective, we are not trying to manage dilution based on the rollout. So if we wanted to roll out quicker, we would go ahead and do that.

Denny Strigl

I will comment on the synergy targets. For Verizon business in 2007 we're planning about $900 million in synergies. That is up, incidentally, from an original target of $825 million. In the third quarter of this year, approximately $300 million in synergies.

Doreen Toben

Yes, and then I guess if you ask me what inning, I would say we 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.

Ron Lataille

Operator, that will conclude our call for today. Thank you, everybody for joining us.

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