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Verizon Communications Inc. (NYSE:VZ)

Q4 2007 Earnings Call

January 28, 2008 8:30 am ET

Executives

Ron Lataille - Senior Vice President, Investor Relations

Doreen A. Toben - Chief Financial Officer, Executive Vice President

Dennis F. Strigl - President, Chief Operating Officer

Ivan G. Seidenberg - Chairman of the Board, Chief Executive Officer

Analysts

John Hodulik - UBS

David Janazzo - Merrill Lynch

David Barden - Banc of America

Michael Rollins - Citigroup

Mike McCormack - Bear Stearns

Tom Sykes - Lehman Brothers

Daniel Gabedi - Morgan Stanley

Chris Larsen - Credit Suisse

Ron Lataille

Good morning and welcome to our fourth quarter 2007 earnings conference call. Thanks for joining us this morning. I’m 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’d like to cover the differences between reported and adjusted earnings for the fourth quarter.

Reported earnings per diluted share were $0.37. Adjusted earnings, or EPS before the effects of special items, were $0.62. We are excluding the following special items from adjusted results.

The first is a $477 million after-tax charge, or $0.16 per share for severance and other related expenses. These costs are being recognized as a result of work force reductions which began in the fourth quarter and will continue throughout 2008. The charge is associated with the reduction of approximately 9,000 employees. Nearly 4,000 were in the fourth quarter of 2007 and the remainder will be during 2008.

Next is a $139 million, or $0.05 per share charge for additional taxes and related expenses associated with an increase in the distributable earnings from Vodafone Omnitel.

We are also excluding a $36 million after-tax charge, or $0.01 per share, for non-operational costs incurred in connection with the spin-off of access lines in Maine, New Hampshire, and Vermont. These costs are mostly related to network, software, and other activities which will enable the impacted facilities and systems to function on a standalone basis.

The last item is a $58 million after-tax charge, or $0.02 per share, for merger integration costs.

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

Doreen A. Toben

Thanks, Ron and good morning, everyone. The fourth quarter capped a year of very strong performance and momentum as all key strategic areas of growth did well. One of our objectives in 2007 was to noticeably increase shareowner value by accelerating growth. Top line growth improved to 5.8% compared with 3.3% pro forma growth in 2006. We also focused on productivity and margin improvements.

Both operating income and EBITDA margins expanded over last year. Operating income increased $2.5 billion, or 17.9%. As for earnings, we posted double-digit growth in adjusted EPS from continuing operations.

Our $0.62 compares with $0.52 a year ago, up 19.2%. We finished the year at $2.36 per share, up 15.1% from 2006. In September, we announced a dividend increase of 6.2%, or $0.10 per share per year, a clear indication of the confidence we have in our cash outlook, and we’ve continued to repurchase shares.

In the fourth quarter, we repurchased more than $1.1 billion of our common stock, bringing our 2007 total to more than $2.8 billion. Over the last two years, our stock buy-back program has totaled $4.5 billion and at current prices, we will continue to be buyers of our stock.

Our strong performance in 2007 reflects our commitment to investors to accelerate growth, expand margins, and create shareowner value.

On slide four, you can see that fourth quarter revenues increased to $23.8 billion, up 5.6% year over year. For the full year 2007, consolidated revenues totaled $93.5 billion, an increase of $5.2 billion, or 250 basis points of incremental growth.

In addition to these revenue gains, our focus on cost reductions and several ongoing productivity initiatives helped improve margins. Our fourth quarter operating margin of 18.2% represents a 200 basis point improvement over the same quarter last year. EBITDA margin of 33.5% was also up 110 basis points compared with fourth quarter last year. For the full year, operating income margin expanded 180 basis points. So good progress at the margin, with profitable revenue growth in both wireline and wireless segments.

Turning to cash flows, we received a net $2.1 billion in dividends from Vodafone Omnitel in December. This helped cash flows from continuing operations to reach $26.3 billion for 2007, an increase of 14.2%. We finished the year with just over $31 billion in debt, paying down more than $5 billion during 2007.

Capital expenditures for 2007 came in at $17.5 billion. Wireline spending was just under $11 billion and wireless was $6.5 billion, and our ratio of CapEx to revenue improved to 18.8%.

Our balance sheet is as strong as it’s ever been, so let’s look now at our segment results, beginning with Verizon Wireless on slide six.

In wireless, we had another strong quarter of customer growth with 2 million total net adds, 1.9 million of which were retail. We ended the year with a customer base that is 97% retail, reflecting our continued focus on this market. Eighty-seven percent, or 1.65 million of the retail net adds in the quarter, were postpaid. We now have 61 million retail postpaid customers.

Our industry leading churn rates continue to be excellent. Total churn was 1.2% and retail postpaid churn was 0.94%, so a very strong year of customer growth with 6.9 million retail net adds, and 6.3 million retail postpaid.

Turning to slide seven, total service revenues were up 13.7% in the fourth quarter and nearly 16% for the full year. Retail service revenues grew 14.4% this quarter as retail service ARPU increased 1.4% to $51.49.

For the full year, retail service ARPU grew 2.2%. Data revenues represented 21.3% of total service revenue in the quarter, as compared to 15.8% a year ago. We saw wireless data revenues grow $2.9 billion, or 65% in 2007. In 2007, retail data ARPU increased 44% or $3.09 per user. Retail data ARPU in the fourth quarter was $11.06. We see enormous potential for growth in wireless data for years to come.

With our national 3G network and track record of innovation and industry first, we are well-positioned to take advantage of this huge growth opportunity.

In summary, Verizon Wireless continues to lead the industry in retail customers, total revenue, customer loyalty, and profitability.

Wireless revenues of just under $44 billion, which represents 47% of total Verizon revenues, grew 15.3% in 2007. Half of this annual growth was from data. In fact, about 74% of our retail customers are data users.

Most important, we’ve sustained our track record of profitable growth. 2007 EBITDA grew $2.4 billion, or 16.8%, and EBITDA margin expanded 30 basis points to 44.6%. We have a proven business model. These results are further evidence of great execution, sustainable growth, and strong cash generation.

Within wireline, our strategic products also showed impressive growth in 2007. On the consumer side, I’m pleased to announce that we now have more than 1 million FiOS TV customers.

As you can see on slide nine, we added 226,000 net new FiOS TV customers in the fourth quarter, ending 2007 with 943,000 subscribers and a penetration rate of 16%. At the end of the year, we were marketing FiOS TV service to about 5.9 million homes, up 1.2 million from the end of third quarter. Almost half of the increase at homes open for sale came in December.

Total broadband subscribers, DSL plus FiOS Internet, increased to 8.2 million, up 1.2 million or 18% from a year ago. During the quarter, we added 245,000 net new FiOS Internet customers and 19,000 net DSL subscribers for a total of 264,000 net broadband adds. We now have more than 1.5 million FiOS Internet subscribers representing 21% penetration of the 7.5 million homes open for sale.

Retail residential line loss of 616,000 in the quarter showed some improvement from last quarter and was about the same as the fourth quarter a year ago. We continue to see an increasing correlation between the availability of FiOS TV and improved line retention. At the end of the year, almost 80% of the 7.5 million FiOS homes open for sale could also subscribe to our video service.

Clearly our consumer retail business is increasingly centered on broadband, video, and bundles. As shown on slide 10, our legacy consumer revenue growth was 2.7% for the fourth quarter and the full year, a significant improvement from negative growth this time a year ago.

Increases in broadband and video revenue have driven consumer retail ARPU to $59.48, an increase of 11% year over year. All of our regional markets had ARPU accretion in 2007. Our strategy of investment and innovation is clearly driving consumer revenue growth.

Now let’s take a look at Verizon business. In this market, we continue to see strong demand for data services. Total Verizon business revenues grew 0.5% for the fourth quarter, and 1.8% for the full year. The fourth quarter was disproportionately impacted by some customers moving traffic off of our network and some contract timing issues. However, we are confident in our ability to overcome these effects and expect revenue growth to be back on trend within the first half of 2008.

Our strategic services, which represent about 27% of total Verizon business, sustained strong revenue growth trends, increasing both sequentially and year over year. Here, our fourth quarter and full year revenue growth exceeds 25%. Growth was once again driven by Private IP, managed services, and security.

Looking at total wireline on slide 12, we continue to see revenue and margin improvement. In 2006, revenues declined nearly $2.9 billion, or 5.3%. In 2007, revenues declined $639 million, or 1.3%. This improvement was driven by growth in Verizon business as we continue to win new business and compete successfully as the transition to IP continues for large enterprise customers.

We also saw growth in small and medium business as legacy revenues topped $5 billion for the year and grew 3.6%. Within wholesale, special access revenues of $4 billion grew 4.1%, and on the residential side, even though line losses continue, we successfully increased revenue per customer, which resulted in improved legacy consumer revenue growth.

As in wireless, data services are a big driver of wireline revenue growth. Data in the fourth quarter represented 38% of total wireline revenue and grew nearly 12% for the year.

In terms of improving profitability, we are making good progress. Fourth quarter wireline operating income margins expanded 80 basis points year over year and 30 basis points sequentially to 9.7%. Estimated earnings dilution from FiOS was $0.09 in the fourth quarter, bringing our full year total to $0.39. We’ve seen improvements in customer acceptance rates, capital unit cost trends, and installation productivity.

While we continue to focus on driving top line and ARPU growth, we are equally focused on reducing costs across the entire business. We want to make sure that revenue growth and increased efficiencies continue to result in improved profitability and margins.

When looking at our cost profile, one of the big categories is obviously the employee workforce. As shown on slide 13, we’ve steadily reduced wireline headcount by about 12,000 over the past two years. Ron mentioned severance associated with forced reductions that started in late 2007 and will continue throughout 2008.

As we look further out in the planning period, we see opportunities for ongoing force reductions. We also continue to see additional cost reduction opportunities through system consolidations by moving to common platforms and by innovations in the area of customer self-service. Both Denny and I remain very bullish about our opportunities to achieve incremental cost savings throughout the business.

So as we close the book on 2007, I’d say we made great progress and delivered very strong financial and operating performance. But as a management team, we recognize there is much more to do. We are in aggressive pursuit of a number of revenue growth opportunities. Our network capabilities and the strength of our products and services position us well to sustain our growth momentum.

In wireless, our business plan targets continued double-digit revenue growth and in wireline, revenue growth will continue to improve.

As I said, we are equally focused on productivity and operating efficiency, which provide opportunities for margin expansion. In wireless, we continue to see service EBITDA margins in the range of 43% to 45%. In wireline, we are striving for continued margin improvement. Our goal is to expand wireline EBITDA margins targeting a range of 30% to 33%.

We will continue investing in the networks and new technologies to provide the platform for growth, innovation, and productivity. For 2008, we are targeting capital spending to be below this year’s number of $17.5 billion, and we’ve set targets for wireline and wireless that are slightly lower than 2007.

Before we get to your questions, there’s been a lot of speculation about the potential impact of an economic slowdown. I would say that we have not seen a change in sales expectations through January. Obviously we are monitoring numerous metrics very closely and at this point, we don’t see any material changes.

We expect 2008 to be a solid year. We are targeting another year of meaningful earnings growth and growth in operating income margins. Our cash flow projections provide for continued network investment and the ability to pay a competitive dividend. And we will also continue to regard share repurchases as a prudent use of cash.

In summary, we are very confident in our outlook for 2008 and the ability to deliver strong results and create shareowner value.

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

(Operator Instructions) Your first question is from John Hodulik with UBS.

John Hodulik - UBS

Two quick ones; first, on the FiOS homes passed, the 9.3 million is a little bit more than I think you guys had targeted. Could you talk a little bit about ’08 and what the plans are there?

And second of all, the wireline margins were also a little bit better than we thought and then, I think the guidance you guys just talked about, 30% to 33% -- first of all, could you talk about over what timeframe you expect to get to those levels and what the cause of the strength was in the fourth quarter here?

Doreen A. Toben

I think if I take them in reverse order, the wireline 30% to 33%, I would say that’s over the planning period, which I would say is three to five years from that perspective.

As far as why the margins kicked up, I think clearly a lot of the people went off in the fourth quarter. They went off late third quarter, into the fourth quarter so the biggest bump of headcount really came in the fourth quarter. We were also able to do some things. We had outsourced EDS last year and we really started to get the bulk of those benefits in the fourth quarter because it was much higher last year, so those really have come down.

And just continued emphasis on cost reductions, and I think Denny’s talked about before, in some of our centralized organizations has really started to kick in. We’ve seen some of the synergies in Verizon business really start to help us, so they have been on the right trajectory for continued margin improvement as we go into ’08.

And on the FiOS homes passed, I think --

Dennis F. Strigl

Three million more this year.

John Hodulik - UBS

Okay, great. Off of the 9.3, I take it? Sounds great. Thanks.

Ron Lataille

Thanks, John. Operator, next question, please.

Operator

Thank you. Your next question is from David Janazzo with Merrill Lynch.

David Janazzo - Merrill Lynch

Doreen, you mentioned the economy and looking at numerous metrics. Can you review with us what those metrics are? And versus history, I mean, the business mix is a little bit different now -- no more directories, obviously more wireless and wireless substitution. How do you think about the response of the business in the future versus some of the historical measures?

Doreen A. Toben

Okay, David. As you would imagine, I have been all over this for months, so on a daily basis I look at wireless sales, wireless disconnects, net adds, and churn, all by region, so very localized. For wireline, I look at access lines, I look at broadband, FiOS DSL, FiOS TV, all also by region and enterprise, I look at sales.

On more of a weekly/monthly basis, where I’ve been really looking hard is what you expect the discretionary services, so if I look at wireless, what are the ringtones doing, what is music doing, what is games doing? If I look at FiOS, I’m looking at the premium channels, the VODs, the DVRs. Broadband, I’m looking at speed.

By the way, I’ll get to the trends in a second but just to mention, we went live with some self-provisioning on our remote shortly and the premium channel take-up has really increased, so really good trends.

And then, both wireline and wireless, of course I’m looking at the write-offs, I’m looking at bad debt, disconnects, non-pay, the percent that the collection agencies are actually collecting, CPE sales, and of course volumes of DS1s and DS3s.

And then externally what I try to do is I look at housing starts, mortgage delinquencies, unemployment, and then I actually do sort of a running regression to see which are the most impactful, and then competitive activity.

So if I put all that together and say what do I see, I really don’t see much trend change at all for us, including through January. A real small pocket of one or two states in the Midwest where I see some impact having to do with the economy. Very small numbers of lines for us in those states, so not impactful at all. Not really seeing anything in any of the urban areas. I have seen a small impact on, and Denny mentioned this previously, on Verizon Wireless and the over 90-day on collectibles. Still very low, below 2% but some impact.

But I think the point of your question was right -- our base has really changed. So we have a lot more customers now under contract than we ever had. From the enterprise side, we have much more international exposure. Typically we would have seen the first impact years gone past in directory on non-pay but we don’t really have directory anymore. Our wireless customers are always the highest credit standards, the need for broadband continues, so to say I’m looking at this on a daily basis is absolutely accurate and not seeing trend changes, so I’m encouraged by that.

David Janazzo - Merrill Lynch

And just to comment maybe on some of the FiOS markets, particularly the FiOS video market versus a non-FiOS market?

Doreen A. Toben

The FiOS markets are clearly stronger from that perspective. As far as when I look at access lines and the trends at access lines, it is absolutely clear that FiOS is impactful. However, even looking at areas of non-FiOS, we’re still not seeing a change in trend but FiOS is clearly helpful.

Dennis F. Strigl

I would add to what Doreen has said here that if we did see an impact developing on the business, I believe that we can take steps to avoid any material disruptions. For example, we can make adjustments to the force, overtime levels, consulting and contractor expenses, travel and so on.

The point is that I think Doreen and I remain very confident about 2008 despite all of the noise we are hearing about the economy.

David Janazzo - Merrill Lynch

Thank you.

Ron Lataille

Thanks, David. Operator, next question, please.

Operator

Thank you. Your next question is from David Barden with Banc of America.

David Barden - Banc of America

Just maybe two, first on wireless; obviously there’s a growing sense that as we get north of the 80% penetration rate in wireless that the quality of the incremental subscribers is going to decline and to the extent that the industry’s been feasting on Sprint a little bit, that that might moderate or diminish this year.

I noticed 16% of the net adds were, retail net adds were prepay this quarter and I was wondering if you could kind of just speak to the general mix of how you see volume and ARPUs driving revenues in ’08 versus ’07.

And then the second on the wireline margin, I’m assuming we’re still targeting EBITDA positive on FiOS this year. If you marry that with the headcount cuts, presupposing that the overall wireline climate doesn’t deteriorate, we should be looking for some reasonable tick-up in wireline margins in ’08. I was wondering if you could kind of put some parameters around that and maybe talk about how pensions might affect that in ’08 too, Doreen. Thanks.

Dennis F. Strigl

Let me start on the wireless side and then turn it over to Doreen. First of all, yes, 80% penetration levels in wireless. We continue to expect to take a disproportionate share of the industry gross adds over the planning period. Our focus is on revenue growth and maintaining industry-leading margins.

Relative to prepaid, our focus has always been on the retail post-paid market. However, we have seen more adds coming from prepay. We enhanced our own prepaid products late last year and we expect continued strength in retail postpaid and some increase on the prepaid side of the business.

I think looking at ARPU, our ARPU has been driven in large part by growth in data revenues and our retail data ARPU grew 44% in 2007. And our expectation is that we’ll continue to see some strong data growth going forward into ’08, so that’s the data side, the wireless side of the business.

Doreen A. Toben

On the wireline margin, yes, we are -- I am still confident that we’ll be EBITDA positive in ’08. In fact, we have at least one or two states that are EBITDA positive now, those that have been around longer, so we feel good about that.

Other than to tell you the target is sort 30% to 33% and I feel confident that we will have improvement next year, I’m not going to give you a pinpoint number.

On the pension and OPEB, expect it to be relatively flat year. There will be some medical costs that will tick up so that -- basically pension and OPEB you should plan to be relatively flat.

David Barden - Banc of America

Okay, guys. Thanks for that.

Ron Lataille

Thanks, David. Operator, next question, please.

Operator

Thank you. Your next question is from Michael Rollins with Citigroup.

Michael Rollins - Citigroup

Just a couple of questions; first, I was wondering if you could give us a little more detail on what’s happening with DSL, especially outside of the FiOS markets and what we should expect on that front for 2008.

And Denny, just a quick clarification; a few weeks ago you mentioned that the long-term wireline OIBDA margin could approach 33% to 34%, which is the higher end of the range that you guys provided this morning. So is that still the long-term goal for OIBDA margins or do you see a need to take that long-term goal in a little bit? Thanks.

Dennis F. Strigl

Michael, we continue to see that as the long-term goal, yes. On the DSL side, if you look at the combined net adds for DSL, FiOS Internet, and FiOS TV, the net add numbers are fairly constant, about 490,000. What’s changed is the mix, which reflects our investment and the marketing focus that we’ve had over the last year. You see some DSL migration to FiOS Internet. You also see DSL migration to wireless broadband and churn incidentally has actually remained fairly constant. DSL subs actually grew 6.5% in ’07 and revenue grew nearly 14%. So I don’t see these dynamics changing going forward.

Michael Rollins - Citigroup

Thank you.

Ron Lataille

Thanks, Mike. Operator, next question, please.

Operator

Thank you. Your next question is from Mike McCormack with Bear Stearns.

Mike McCormack - Bear Stearns

A couple of things; on the enterprise side, it looked like the year-over-year rate of growth slowed pretty dramatically and I know at least historically, fourth quarter is typically a pretty tough quarter for that. I’m just wondering if it’s typical seasonal patterns or whether you are seeing something else there.

And secondly on -- the primary voice lines continue to deteriorate and you had another fairly bad quarter on primary lines. I’m just wondering when we’re going to start to see the impact of FiOS line retention on some of those primary line counts. Thanks.

Dennis F. Strigl

First, looking at the enterprise side, our enterprise sales momentum actually is continuing to be very strong and actually what occurred in the fourth quarter was frankly kind of annoying to me. We did not offset the take-back fast enough. This is a timing issue. The lower growth number this quarter really shouldn’t be interpreted as a shift in the structure of the business. All traffic from these few primary, major customers that we lost will be gone within the first half of the year. We expect revenue growth to be back on trend within the first half of the year as we grow through the loss. Incidentally, one of the losses was a large cable company, so no surprise there.

Mike McCormack - Bear Stearns

Denny, could you give us a sense -- I think that was on the wholesale side. I was looking more --

Dennis F. Strigl

-- million dollars in the first half of ’07 and the fourth quarter growth would have been 1.2% excluding that issue.

Mike McCormack - Bear Stearns

Hey, Denny --

Dennis F. Strigl

By the way, if you look at our enterprise customer base, all-in with international revenues, for example, our revenue grew 2.4% in the fourth quarter.

On the line loss, I’d just simply say my goal is to retain as many customers as possible. We’re not seeing any change in the macro drivers, technology substitution, or competition. A very competitive marketplace and as I think you know, as we are more successful, we’re more successful actually in retaining customers where we have FiOS TV, so as we expand the availability of FiOS it should help our retention.

Mike McCormack - Bear Stearns

If you could just pull apart the VZ business revenue, I think we understood the wholesale pressures but it looked like the retail enterprise also had a deceleration in growth. Is that just typical seasonal patterns?

Dennis F. Strigl

Yeah, the cable was in enterprise.

Mike McCormack - Bear Stearns

Okay. Thanks.

Ron Lataille

Thanks, Mike. Operator, next question, please.

Operator

Thank you. Your next question is from Tom Sykes with Lehman Brothers.

Tom Sykes - Lehman Brothers

SME still grew around 3.6% but DSL, I guess particularly out of the FiOS region, continues to be somewhat de-emphasized so I’m wondering, given the economy, what’s driving that growth? Is FiOS having an impact on SME? And given the softening economy generally impacts small business first, can you give us any trends in that area?

And then I was wondering if you could update us on any progress you might have made with some of the big metropolitan areas. There were some press reports regarding FiOS in New York City and any update there would be appreciated. Thanks.

Dennis F. Strigl

I think both questions are very closely related. FiOS is helping us in the small business market, yes, but not to any great extent at this point. Relative to the MDUs, as we put in place more big city franchises, you will see us passing more multiple dwelling units. That will help on the small business side as well as just the typical apartment housing and so forth.

Where do we stand in that regard? You will see in the course of 2008 that we will have a few major cities where we expect to have franchises granted. This will have an impact toward the end of ’08 and into the ’09 year. We think we’ve got some very good opportunity in the MDU market place. This will also help us significantly on the cost side.

Tom Sykes - Lehman Brothers

Okay. Thank you very much.

Ron Lataille

Thanks, Tom. Operator, next question, please.

Operator

Thank you. Your next question is from Simon Flannery with Morgan Stanley.

Daniel Gabedi - Morgan Stanley

This is actually Daniel [Gabedi] on behalf of Simon. My question is on broadband penetration. What’s your estimate of broadband penetration of households in your major markets and how much more room for growth is there? And if you could also talk about any plans to boost speeds of DSL in non-FiOS markets? Thank you.

Doreen A. Toben

I think if you look at broadband penetration of those homes that have a PC and those that are broadband, using broadband, it’s really close to 75%, so we think that there’s a relatively high penetration already of broadband.

And then as far as doing higher speeds of DSL, yes, we are actually looking at that. We’ve made some announcements of doing 7-meg so we’re rolling that out this year -- well, actually, we rolled out last year. We are rolling out more of it this year because we do think it’s important to kick up the speeds of DSL.

Daniel Gabedi - Morgan Stanley

Thank you.

Ron Lataille

Thanks, Daniel. Operator, this will be our last question, please.

Operator

Thank you. Your final question is from Chris Larsen with Credit Suisse.

Chris Larsen - Credit Suisse

I wonder if you could just talk a little bit about the FiOS, the installation trends, both in costs and lead times, and then maybe the demands for services as it relates to the free TV offer that you had in the fourth quarter and maybe some thoughts going into ’08 for those install times.

And then secondly on the FairPoint transaction, if you could just give us an update on timing and I know that there’s been some request for less debt -- if you could give us an idea of what the expected impact and your relative ability to delever off that transaction is. Thanks.

Dennis F. Strigl

Chris, let me take the FiOS part of this and we have made some significant progress throughout the course of ’07. In fact, we eliminated two to three hours off the installed time during the year. I’m still not satisfied with that but I’m confident that we can be more efficient, both from a time-to-install productivity overall on FiOS, so I think we have some good upside in that regard.

I’m at this point happy with the FiOS TV and Internet volumes that we experienced in the fourth quarter. We’ve made some steady progress in reducing our overall costs and again, we expect to be able to continue that into ’08.

During the fourth quarter, we did allow more overtime to meet the heavy customer demand that we experienced. Of course, that was our choice. The impact of the free TV offer during the quarter was really not material to our overall costs.

Doreen A. Toben

And then on FairPoint, I think we were expecting it to close first quarter still and the de-levering is about maybe $300 million, so not a huge number for the total transaction.

Chris Larsen - Credit Suisse

Thanks a lot, really appreciate it.

Ron Lataille

Okay, Chris. Thank you, everybody for joining our call today and have a good day.

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