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CenturyTel, Inc. (NYSE:CTL)

Q4 FY07 Earnings Call

February 14, 2008, 11:30 AM ET

Executives

Tony Davis - VP of IR

Glen F. Post, III - Chairman and CEO

R. Stewart Ewing, Jr. - EVP and CFO

Karen A. Puckett - President and COO

Analysts

Jonathan Chaplin - JP Morgan

Gaurav Jaitly - UBS

David Barden - Banc of America

Simon Flannery - Morgan Stanley

Mike McCormack - Bear Stearns

Jason Fraser - Raymond James

Timothy Horan - Oppenheimer

Thomas Eagen - JP Morgan

Operator

Good day ladies and gentlemen, and welcome to CenturyTel Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference Mr. Tony Davis, Vice President of Investor Relations for CenturyTel. Mr. Davis, you may begin your conference.

Tony Davis - Vice President of Investor Relations

Thank you, Darlene. Good morning everyone and welcome to our call today to discuss CenturyTel's fourth quarter 2007 earnings results released earlier this morning.

During today's call, we will refer to certain non-GAAP financial measures and we've reconciled these measures to GAAP figures in our earnings release, which is available on our website at www.centurytel.com.

Your host for today's call is Glen Post, Chairman and Chief Executive Officer of CenturyTel. Joining Glen on the call is Stewart Ewing, CenturyTel's Executive Vice President and Chief Financial Officer. Also available during the call today is Karen Puckett, CenturyTel's President and Chief Operating Officer.

We will be making certain forward-looking statements today, particularly as they pertain to guidance for first quarter and full year 2008, selected information regarding 2007 and 2008, and other outlooks in our business. Please review our Safe Harbor language found in our press release and in our SEC filings, which describe factors that could cause our actual results to differ materially from those projected by us in our forward-looking statements.

Our call today will be accessible for telephone replay through February 20, 2008 and accessible for webcast replay through March 5th, 2008. For anyone listening to a taped or webcast replay of this call or for anyone reviewing a written transcript of today's call, please note that all information presented is current only as of February 14, 2008 and should be considered valid only as of this date regardless of the date listened to or reviewed.

With that, at this time, I will turn the call over to your host today, Glen Post. Glen?

Glen F. Post, III - Chairman and Chief Executive Officer

Thank you, Tony. We appreciate you joining us today as we discuss CenturyTel's fourth quarter 2007 operating results and our guidance for the first quarter and full year 2008.

Diluted earnings per share excluding non-recurring items was $0.82 for the quarter, or $0.11 ahead of the upper end of our previous guidance of First Call consensus of $0.71. These increased earnings were driven by higher than anticipated interstate access revenues and the impact of continued reductions in our cost structure, along with the impact of a reduced annual income tax rate and higher income from our investments in a wireless partnership.

Operating revenues excluding non-recurring items for the quarter was $657.8 million, which exceed the upper end of our previous revenue guidance of $645 million to $655 million. This revenue performance above our guidance primarily resulted from higher than anticipated interstate access revenues and other wireline revenues during the quarter. We also continue to see strong demand for broadband services during the fourth quarter, as we achieved 32% growth in data revenues over fourth quarter 2006. Excluding the Madison River acquisition... acquired properties the net growth was 18% in data revenue growth. This increase was primarily driven by the addition of nearly 129,000 high speed Internet subscribers or nearly 35% over the last 12 months, excluding the Madison River properties.

Growth in data revenues and the revenue contribution of the Madison River properties during the quarter more than offset anticipated revenue reductions attributable to the access line decline and all access revenues and all revenues associated with changes to the terms of our DBS agreement effective January 1, 2007 and a one-time negative adjustment to our fiber transport revenues during the quarter.

We also generated solid free cash flow of nearly $86 million in the quarter, while investing over $40 million in capital improvements than in the fourth quarter of 2006. For full year 2007, we generated a record $564 million of free cash flow. Our total capital expenditures for 2007 was $326 million and for the fourth quarter $141 million. These investments are primarily focused on increasing our broadband capabilities, our switched digital video operations, expansion of our core fiber network and on the newly acquired Madison River properties.

We added nearly 26,000 high speed Internet customers during the fourth quarter, which represents approximately 4.9% sequential growth in broadband customers. We ended 2007 with more than 555,000 high speed Internet customers or 31% penetration of DSL enabled lines and 26% of total access lines. We experienced access line losses of approximately 35,700 during the quarter, which equates to a normalized loss of 5.7%.

From our overall bundle standpoint, 34.5% of residential customer on legacy CenturyTel properties that served to one of our bundle offerings, compared to 28.5% a year ago. We also continue to improve sales performance on digital satellite product that began in third quarter, driven by our focus on the triple play bundle positioning a promotion strategy. As of December 31, 2007 we served more than 54,000 satellite TV subscribers, which includes over 8,000 added during the fourth quarter. We are expecting our penetration in this service to growth in the months ahead.

Before turning the call over to Stewart, I want to briefly comment on a couple of other items. First, as you know, we completed the acquisition of Madison River on April 30th, and we... the integration of the properties into CenturyTel operations is well underway with revisioning and billing conversion, now completed for three of the four properties. At year-end 2007, we had achieved a run rate of nearly $10 million in annualize synergies from these properties. We still expect to complete the conversion of the final property in second quarter 2008, and we believe we are on target to achieve approximately $17 million in annual net synergies along with additional incremental cost savings over time.

We remain very focused on customer acquisition and retention, we are expanding our consumer distribution capabilities and we move to neighborhood queues in our call centers. We've had great feedback from our employees, and more importantly, from our customer on that positive experience from these initiative. We continue to position ourselves as the broadband provider of choice in our marketplace, our bundle offerings in high speed up to 10 megabyte, continue to drive strong demand for our broadband products.

We also continue to return significant cash to shareholder during the fourth quarter, as we repurchased more than 2.8 million shares of common stock, for approximately $122 million under our $750 million repurchase program authorized by the Board in August of 2007.

We ended 2007 with the strongest balance sheet in our industry sector and we've had the financial flexibility to take advantage of growth opportunities, as they arise.

And with that, I'll turn the call over to Stewart, to provide additional detail on our results for the fourth quarter and update you on our financial guidance for 2008. Stu?

R. Stewart Ewing, Jr. - Executive Vice President and Chief Financial Officer

Thank you, Glen. During the next few minutes, I'll cover some highlights from our fourth quarter 2007 operating results and briefly discus CenturyTel's capital structure and liquidity. I'll conclude my comments this morning with a discussion of first quarter and full year 2008 guidance provided in our earnings release issued earlier today. As a reminder, all comments regarding actual results for fourth quarter 2007 and 2006 excludes those non-recurring items detailed on the financial statements accompanying the press release.

For fourth quarter 2007, operating revenues increased 8.3% to $657.8 million from $607.7 million in fourth quarter of 2006. This increase was primarily due to the $49 million revenues contributed by the Madison River properties. Excluding the revenue contribution by the Madison River properties, operating revenues increased modestly or about $1.2 million year-over-year. Our voice revenues for fourth quarter 2007 were $225.5 million versus $214.2 million in the fourth quarter a year ago. This 5.3% increase in voice revenues was primarily driven by voice revenues from the Madison River properties and growth in long distance voice revenues, which more than offset revenue declines associated with lower access lines.

Network access revenues were $216.6 million versus $211.8 million in fourth quarter 2006. This increase of nearly $5 million was driven by network access revenues contributed by the Madison River properties, which more than offset revenue declines associated with lower intrastate minutes of use and lower interstate revenue requirements as a result of lower operating expenses and a decline in our net planned investment.

Data revenues increased 32.3% from $92.3 million in fourth quarter 2006, to $122.1 million in fourth quarter of 2007, primarily driven by the strong high speed Internet customer growth during the last 12 months and the data revenues contributed by the Madison River properties that more than offset revenue declines associated with lower dial-up Internet revenues.

Fiber transport and CLEC revenues decreased 3.3% to $38.5 million in fourth quarter 2007 from $39.8 million in fourth quarter 2006, due to CLEC customer disconnects along with fiber customer billing settlements and related adjustments, which more than offset wholesale revenue growth in our fiber transport business and revenues from the acquired properties. Other revenues were $55.1 million compared to 49.6 million in fourth quarter 2006. This 11.2% increase was primarily driven by the revenues contributed by the Madison River properties.

Operating expenses increased 9.2% from $434 million in fourth quarter 2006 to $473.9 million in fourth quarter 2007. This increase in operating expenses was primarily driven by the acquisition of Madison River properties and growth in high speed Internet customers, which were partially offset by lower personnel-related cost.

For fourth quarter 2007, we generated an operating cash flow margin of 48.9%, compared to the 49.4% in fourth quarter 2006. Operating income for fourth quarter 2007 was $183.9 million, a 5.9% improvement over fourth quarter 2006 operating income, of approximately $173.7 million. This increase was primarily driven due to the incremental operating income contribution from the Madison River properties.

Other income was favorably impacted by about... by approximately $5.9 million during the quarter, due to higher income from our equity interest in a wireless partnership. Additionally, income tax expense decreased as a result of adjusting to our annual effective tax rate of 37.7%.

Net income for the quarter rose nearly 13.1% to $89.8 million, compared to $79.4 million in fourth quarter 2006.

There were also several non-recurring items that occurred during fourth quarter. First, we received an after tax insurance reimbursement of $1.9 million related to hurricane-related claims. Second, we received after tax proceeds of $2.4 million related to liquidation of Rural Telephone Bank stock. And third, we recognized $32.7 million tax benefit related to the adjustment of income tax reserves due to resolution of previously uncertain tax positions in accordance with FIN 48.

These items were partially offset by an after tax impairment charges of $12.3 million related to CLEC assets and a non-operating investment. Collectively, these items positively impacted diluted earnings per share under Generally Accepted Accounting Principles by $0.23.

At year-end 2007, CenturyTel's debt to equity ratio was 0.88 to 1 and net debt to full year 2007 operating cash flow, excluding the revenues that were recognized in the third quarter 2007 was 2.3 times. As of June 30, 2007, those ratios were 1 to 1 and 2.6 times respectively.

Overall, 2007 was a solid year financially for CenturyTel. As Glen mentioned earlier, we achieved a record $564 million in annual free cash flow. During 2007, we completed the Madison River acquisition for approximately $830 million, returned nearly $490 million to shareholders through share repurchases and dividends, invested $326 million in our plant and facilities and we are still able to maintain net debt to full year 2007 operating cash flow, again excluding the third quarter revenue settlements at a solid 2.3 times versus 2.1 times at year-end 2006.

So, CenturyTel continues to maintain a solid balance sheet and is in great shape financially. Additionally, we believe our strong cash flows and excellent liquidity positions us to take advantage of opportunities and meet challenges as they arise.

Finally, I would like to discuss the first quarter and full year 2008 guidance provided in our press release this morning. Let me begin by reminding you that our guidance excludes any non-recurring items that may occur in the first quarter and full year 2008. Also first quarter and full year 2008 guidance are based on shares outstanding as of January 31, 2008 of approximately 108 million, which reflects all shares repurchased through that day under our $750 million repurchase program announced in late August last year.

For first quarter 2008, we anticipate total revenues in the range of $646 million to $656 million. We expect diluted earnings per share for first quarter 2008 to be in the range of $0.69 to $0.73. This decreased from fourth quarter, 2007 is due to a number of items; lower universal service funding that we spoke about in last quarter's call, lower income from the company's equity interest in a wireless partnership, increased marketing expenses, revenue declines associated with access line losses and other telco revenues, the impact of adjusting our effective tax rate in the fourth quarter, settlement of a derivative instrument, that will negatively impact other income in the first quarter and lower interest expense. These items in the aggregate represent about $0.11 per diluted share.

For full year 2008, we expect operating revenues to be flat to modestly higher than 2007 operating revenues, driven by the full year contribution of the Madison River acquisition versus eight months that were recognized in 2007 and anticipated growth in high speed Internet and data revenues, which we expect to offset revenue declines associated with the $42 million of revenue settlements that we recorded in the third quarter of 2007 that will not reoccur in 2008, lower access revenues, reduced universal service funding and access line losses.

For full year 2008, CenturyTel anticipates diluted earnings per share to be in the range of $2.90 to $3. I will briefly like to discus the items outlined in our earnings release this morning that will hopefully assist you in updating your models for 2008, since First Call estimates currently reflect a 2008 diluted earnings per share range of $2.80 to $3.14.

First, further penetration of broadband service offerings and cost efficiencies including incremental synergies related to the Madison River acquisition are anticipated to positively impact 2008 diluted earnings per share by $0.16 to $0.20. And share repurchases made during 2007 and January 2008 along with lower interest expense are anticipated to positively impact 2008 diluted earnings per share by $0.22 to $0.24.

These increases are expected to be more than offset by lower revenue settlements mentioned earlier that should negatively impact 2008 diluted earnings per share by $0.23 to $0.25, reduced interstate universal service funding, which is expected to negatively impact 2008 diluted earnings per share by $0.08 to $0.10 and anticipated access line losses of 4.5% to 6%, continued pressure on access revenues and expected lower income in 2008 from the company's equity interest in a wireless partnership of 28 to $0.30 total for these items. Also these items are expected to impact 2008 diluted earnings per share reflect an anticipated effective income tax rate of 37.4%, primarily due to the resolution of uncertain tax positions in late 2007.

Finally, from a capital expenditure standpoint, we expect full year 2008 capital expenditures to be approximately $300 million, an 8% decline from the $326 million we spent in 2007. That concludes my prepared remarks for the day.

At this time, the operator will provide further instructions for the question-and-answer portion of our call.

Question And Answer

Operator

Thank you [Operator Instructions]. Our first question comes from Jonathan Chaplin of JP Morgan. Your line is open. Jonathan, if you are on a speaker phone please lift you handset.

Jonathan Chaplin - JP Morgan

I am here... two quick questions. I understand that you guys are going to be through the integration process for Madison River some time around the middle of year. How do you think about the M&A environment once that's behind you? How do you... are there... would you be able to do... would you be in a position to do a deal once that integration process is finished in the second half of the year? And as you look at the landscape, are there assets out there that are of decent size that's attractive? And then I am wondering if you can just give us a quick update on the impact of the economy on operating trends, just generally? And what you're seeing on the cable competition side? Thanks.

Glen F. Post, III - Chairman and Chief Executive Officer

Okay, Jonathan, regarding the M&A situation, absolutely we will be ready to do another deal if the right opportunity arose and then our strategy is that, deals that we believe we can drive long-term shareholder value, we would be ready to pursue that as soon as the... we are complete with this acquisition conversion. So there is no question about where we stand there.

Regarding M&A opportunities, we have... there is nothing out there specific today. There are certainly opportunities that could arise, that we'd be attracted. But you never know in this business, until something really is there that some one willing to work on... toward a transaction. So we are ready, but nothing on the horizon that we know of today.

As far as economic impact in our markets, we are seeing some changes in housing and you have restarts and the basic economic indicators are of negative. However, we are seeing very little impact on our business as a result of the economy out there, so that we... it's not been a major issue for us at this point. Karen, you want to talk about cable company?

Karen A. Puckett - President and Chief Operating Officer

Karen Puckett. In terms of the cable competition, from third to fourth, I can say that we saw a lot of changes. I would say in general I think they stepped up their direct mail and may be go after the verticals a little bit more in terms of adding voice or data as opposed to triple play.

Jonathan Chaplin - JP Morgan

That's great. Thank you very much.

Operator

Our next question comes from Gaurav Jaitly, I am sorry if I pronounced your name wrong, of UBS. Your line is open.

Gaurav Jaitly - UBS

Great thanks. Good morning just a couple of question if I may, on the guidance. First, on your access line loss guidance, it looks like you're projecting just based on your... the range that you gave here, that you would lose fewer lines in 2008 versus 2007 and that would be a reversal of the trend that you've been seeing through the course of this year. I'm just wondering what do you think of the drivers of that, since you still got a fair amount of cable and VoIP competition to go in your footprint. And you're talking about some leading economic indicators that are probably negative. Just if you can give some color on that, that would be great. And then secondly, on the margins obviously you saw nice sequential improvement in margins in the fourth quarter, higher than what you were looking for just wondering if this is a good run rate for cost as we look into 2008. Thank you.

Glen F. Post, III - Chairman and Chief Executive Officer

Gaurav, regarding the access line loss guidance, we are in the same range we projected last year, 4.5% or 6%. We do have a number of efforts underway that we are hopeful of bringing that number down from where it was in '07, but there is no guarantee of that, but we want to... our target is to improve. Several things we do, we are upgrading approximate 60 of our bill payment locations, to build customer service centers where customers can take care of any service issues and order out really our complete array of services. We've also been updating these centers to emphasize CenturyTel's positioning in the market as a premier provider of broadband services, we are deploying an MDU developer sales team to specifically target MDUs and developers in our market, a number of markets we have a large number of MDU developments and opportunities there we believe, really about 20% of our residential footprint is MDUs today. So we are focused there.

And then we've initiative of last year, expanded our save and retention and win back programs to manage that really as a complete customer life cycle. We have expanded our customer sales... save efforts to include a scaled save desk. We are currently saving approximately 50% of our customers that are calling into disconnect. But these are some of the things that we are doing we believe we will have an impact on access line losses in 2008. We are going to see more rollout of... we believe of VoIP competition, but we are targeting some improvements here.

Gaurav Jaitly - UBS

Great thanks and on the margins?

R. Stewart Ewing, Jr. - Executive Vice President and Chief Financial Officer

On the margins, there was some improvement this quarter but we would expect for our margins to decline somewhat in 08, just simply because of the loss of... the continued loss of the higher margin revenue related to access lines and access revenue which we expect again to be offset by the growth in our DSL and data revenue, which is a little bit lower margin. On the expense side, the major increase in expense that we will see in 2008 is really related to the Madison River properties from the standpoint that we'll own for a full year as opposed to just eight months.

Gaurav Jaitly - UBS

But Stewart, just in terms of the absolute level of cost looking from the fourth quarter on, is this a good level for absolute level of cost on the expense side or do you see some more opportunities for potentially cutting costs in 2008?

R. Stewart Ewing, Jr. - Executive Vice President and Chief Financial Officer

There might be some chance for marginal improvements, but we're also doing some things such as Glen mentioned that costs money from the standpoint of the distribution associated with access line, so... and our video product. So I think you may see expenses in marketing and in some of these areas, the distribution side to increase somewhat.

Gaurav Jaitly - UBS

Great. Thank you.

Operator

Thank you. Our next question comes from David Barden of Banc of America. Your line is open.

David Barden - Banc of America

Hey guys, thanks for taking the question. A couple if I could. Stewart, maybe just on the buyback as we look at the stock price in August, when you launched the buyback $250 million of stock was in the high 40s. Now it's kind of in the mid to high 30s. Does the stock price level kind of influence your thinking about how aggressively you want to be in the market or are you trying to be more methodical and kind of stretch this thing out quarter-to-quarter? The second if I could, would just be I remember at the Analyst Day, we talked about the regulatory outlook that you guys had at that time. We've obviously seen the new SEC and PRMs on the USF reform. I was wondering if you guys could kind of give us any comment as to whether you guys are in favor of the direction that the SEC is going and what impact if any, you see there? And I will leave it there. Thanks.

R. Stewart Ewing, Jr. - Executive Vice President and Chief Financial Officer

Okay David, thank you. On the buyback, basically we have a metrics. We have a 10b5-1 like plan set up with a broker and in the metrics, the lower the price goes, the more cash we spend basically to buy shares. So it does somewhat... the decline in the price does somewhat influence the shares that we purchases, but we are trying to not get ahead of ourselves from the standpoint of using free cash flow to really fund the share buyback. And I think Karen can speak to regulatory.

Karen A. Puckett - President and Chief Operating Officer

Yes, in terms of the... on the reform in terms of the kind of three reverse auction, CT&T base of support and high cost USF reforms. In terms of the auction process, I mean we are listening and participating in that. Fundamentally, we don't support it, but we will continue to work that process and in terms of... our objective is to make sure that we have stabilized the USF and that the wireless providers only take out... based on out cost structures, so we are pretty hopeful on that piece and that we are looking forward to trying to get a broadband components to USF.

Also, on a positive note, they have opened some comments for the four attachments and we've been working that one hard in terms of price point. Our objective there is to get parity with cable.

David Barden - Banc of America

Perfect, thanks Karen.

Operator

Thank you. Our next question comes from Simon Flannery of Morgan Stanley. Your line is open.

Simon Flannery - Morgan Stanley

Okay, thank you. Good morning. Could you talk about capital spending for a minute, you have taken the CapEx down about 8% or 11% of revenues. Is that a good run rate long-term and what are the things that you are able to do this year or you don't have to do this year that, you've done in years past? Is there any sort of impact from slower housing growth there and then I think you talked about other revenue been impacted by some settlements around the fiber unit and some CLEC disconnects, just wanted to see some more detail on that and whether that's anything we might see more often in the next couple of quarters. Thanks.

Glen F. Post, III - Chairman and Chief Executive Officer

Yes Simon, regarding the CapEx, first of all, we divest quite a bit especially in the fourth quarter this year in our core fiber network upgrading it with next generation optical technology, improving the capability there. Those are investments we do not have to make this year also, with some expansion in our wire line footprint, the fiber expansion and some DLC deployments that we will not make this year. So, that's where the most of the reduction is coming from, so not a major impact. We think we can, excluding any major new initiatives in the various... in broadband someway, we think $300 million is sustainable.

R. Stewart Ewing, Jr. - Executive Vice President and Chief Financial Officer

Yes, Simon in terms of the revenue impact, basically we had $2 million adjustment with the customer that was negative in the fourth quarter in the fiber business and that is something that would not reoccur.

Simon Flannery - Morgan Stanley

And the CLEC disconnects?

Karen A. Puckett - President and Chief Operating Officer

The CLEC disconnect if you separate those out from enterprise and wholesale; on the enterprise side, we are actually best-in-class in our enterprise churn. So that's not where it has, it has always been in the wholesale side and its driven by some dial-up business that we had taken over from KMC and some of wholesale carriers that has consolidated.

Simon Flannery - Morgan Stanley

Okay. Great, so that and that should be... mostly fourth quarter?

Karen A. Puckett - President and Chief Operating Officer

Yes and cycling through the year.

Simon Flannery - Morgan Stanley

Okay. Thank you.

Operator

Thank you. Our next question comes from Mike McCormack of Bear Stearns. Your line is open.

Mike McCormack - Bear Stearns

Hey guys, thanks. Just two quick things; on the... the CLEC asset impairments, Stewart, can you give us little more clarity on what that is? And maybe on for Karen, just your thought on where you can bring DSL penetration of your primary access lines over time. And how penetrated you are in the 10 megabit product?

R. Stewart Ewing, Jr. - Executive Vice President and Chief Financial Officer

Yes. Mike, on the impairment of the CLEC assets, we own several markets that were acquired from KMC, that are not really core to our CLEC operations because they are isolated from our outlet business and our CLEC markets as well as our fiber network. And when we purchased these markets, we allocated purchase price based upon the original planned investment that KMC have made in the properties instead of looking at the EBITDA contribution. Had we allocated the purchase price on the EBITDA contribution, impairment would have really been pretty minimal, and we expect to dispose off these markets in the next few months.

Mike McCormack - Bear Stearns

Okay.

Karen A. Puckett - President and Chief Operating Officer

On your DSL penetration, any kind of additional color on it, you know what I would say is that we had excellent year-over-year increase in the penetration and our objective and strategy as Glen pointed out before, is to really own that broadband market. So we will continue to be aggressive in our inward. Our churn is really great; I mean our churns went down to about 2.1%. So we have seen a decline in our churn we've worked very hard on the actual expansion of our broadband customer.

And then the other key is just being competitive in the marketplace. So, speed plays a part and we feel great that we were one of the first to get the up to 10 meg products. We go out and actually advertise that, we actually feel better with that, when we migrate existing subscribers out as opposed to maybe a new inward. We typically what we see is the new inward come in either on the vertical on the entry vertical or on the bundle of 1.5 and then we have lots of success here in last couple of quarters of migrating them with more speed.

Mike McCormack - Bear Stearns

How ubiquitous is that 10 meg offer, Karen?

Karen A. Puckett - President and Chief Operating Officer

I am sorry.

Mike McCormack - Bear Stearns

How ubiquitous is that 10 meg offer?

Karen A. Puckett - President and Chief Operating Officer

It's about 50% of what we call our port which covers the little over 42% of our access line footprint.

Mike McCormack - Bear Stearns

And when you look at the competitive share between cable, do you have a sense for what the share is both on the installed base as well as the inflow share during the current quarter?

Karen A. Puckett - President and Chief Operating Officer

Yes, that's always a guesstimate for us, given that, we don't cover... we have lots of different cable competitors and they report on a national basis. We do think we're winning on the inflow side.

Mike McCormack - Bear Stearns

Okay. Got it.

Operator

Our next question comes from Jason Fraser of Raymond James. Your line is open.

Jason Fraser - Raymond James

Hi Good morning, Just wanted to get a quick update on just the web-based video service and how that is progressing and just kind of long-term strategic plans for that service relative to IP TV. And second just on the idea of... just give us an idea what the PC penetration is in your markets and if you have any thoughts about offering a PC, free PC promotion to try to drive some more DSL penetration. Thanks.

Glen F. Post, III - Chairman and Chief Executive Officer

Jason, I'll talk about the broadband TV for a moment. Our content offering, as we've seen good interest from customers for broadband TV product. We've had good success in gross adds released initially, However the broadband TV content still lags cable, it lags satellite significantly, the content providers have yet to really determine, they introduces this their internet distribution strategies so they really don't have the content that's needed to compete at this point to the extent we like for it too. We do expect more competitive content packages in the future, but until that happens, the revenue opportunities I believe at least will be limited. We will see eventually them obtain access to I think a broad array of content and be able to scale the broadband TV product more significantly and we do believe that the product with the right content has excellent potential to drive market penetration over time, but the content is a key there.

Karen A. Puckett - President and Chief Operating Officer

And relative to the PC penetration market, I mean we can get 65% to 70% and how we thought about PC promotions, we watch the other companies, yes, we've looked at that. Right now, we feel good about our success with our current high speed and price point bundle offerings that we have and we would just want to make sure that we have the operational issues. So, we wouldn't say no, but at this point, we don't have any plans for that.

Jason Fraser - Raymond James

Alright, great. Thanks.

Operator

Thank you. [Operator Instructions]. Our next question comes from Tim Horan of Oppenheimer. Your line is open.

Timothy Horan - Oppenheimer

Well, thanks guys. Two clarifications or questions, if you don't mind. One on the pricing front, Karen, may be you are best to answer this. Do you think you have a lot of ability to may be raise prices in your... on competitive markets or services and lower them for more competitive products, where do you think you are with your whole pricing in terms of retaining customers and penetration? And then, secondly, I might have missed the answer on the stock buybacks, but it seems like, with the free cash flow yield you are at right now, would your preference really be to focus on stock buybacks as opposed to paying down debt at this point? Thanks.

Karen A. Puckett - President and Chief Operating Officer

I think, you can tell from our financial performance that we've had... we do a good job as managing our price points in general, where we have competitive markets rate, we need to be competitive on our price point and in our total value props. In our non-competitive markets, we do have different price point, I think that you'll say by this, that our LD performance this year we did increase some prices and we do believe that there are some opportunities in some products that we have, that we could increase prices, but in general, we do have a, kind of a too strong approach there.

Glen F. Post, III - Chairman and Chief Executive Officer

Regarding the stock buyback and the... obviously, we think at this, where our stock prices and look to the cash flow multiple of stock is a good buy at this point. We also have to weigh the value of our strong balance sheet and less leverage, given the flexibility for future growth. So we weigh those, but we definitely think we are buying stock back. I think that's a good investment right now.

Timothy Horan - Oppenheimer

Thank you.

Operator

Our last question comes from Thomas Eagen of JP Morgan. Your line is open.

Thomas Eagen - JP Morgan

Thank you for taking my question. I just wanted to follow up on Jonathan's M&A question and I know you guys probably get tired of getting this question, but in the past, you've typically been successful with acquiring small to medium size firms that you've integrated into the business. Even way back into the 90s, but this year is going to be a couple of companies that sometime around mid-year you will be freed up from some tax lock ups that they have that don't allow them to combine with other firms. So, I guess my question is, are you also open to much more larger transformational M&A possibilities with firms that maybe of equal size to yours in addition to the sort of blue print that you've used in the past?

Glen F. Post, III - Chairman and Chief Executive Officer

Yes, we are certainly open to acquisition of larger companies that I don't feel if you say are we... wouldn't be acquired, if that's your question. Our expectations as a company would remain independent. We have a proven ability, we believe to drive shareholder value over time as a standalone company and we expect to continue down that path. We do believe there will be continued opportunities to grow through acquisition, Thomas and we believe that overtime that we'll see transactions that we believe will drive long-term shareholder value and be successful in those. However, you never know until they happen, but our expectation is to remain independent while, we are now certainly open to large transaction.

Thomas Eagen - JP Morgan

Great, thank you.

Operator

Thank you. There are no further questions at this time. Please proceed with any closing remarks Mr. Post.

Glen F. Post, III - Chairman and Chief Executive Officer

In closing, CenturyTel conclude 2007 with strong fourth quarter and full year financial results. We believe we are well positioned. As we enter 2008, we will remain focused in the months ahead on being the broadband provider of choice in our markets and improving customer retention and expanding our market share. We remain committed to utilizing our strong cash flows and solid financial position and to drive shareholder value over the long term. We appreciate you participating in our call today. We look forward to speaking with you in the weeks and months ahead.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may disconnect and have a nice day.

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Source: CenturyTel, Inc. Q4 2007 Earnings Call Transcript
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