Iowa Telecommunications Services Inc. Q4 2007 Earnings Call Transcript

| About: Iowa Telecommunications (IWA)

Iowa Telecommunications Services Inc. (IWA) Q4 2007 Earnings Call February 29, 2008 9:00 AM ET

Executives

Kevin Inda - Corporate Communications

Alan Wells - Chairman and Chief Executive Officer

Craig Knock - VP, CFO, and Treasurer

Analysts

Todd Rethemeier - Soleil Securities

Chris King - Stifel Nicolaus

Jonathan Levine - Jefferies

Dave Coleman - RBC Capital

Simon Flannery - Morgan Stanley

Frank Louthan - Raymond James

Patrick Rien - Lehman Brothers

Operator

Good day, everyone and welcome to the Iowa Telecom conference call. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Mr. Kevin Inda. Please go ahead sir.

Kevin Inda

Thank you, Amber and welcome to this Iowa Telecom conference call to review the company's results for the fourth quarter and year-ended December 31, 2007, which were released this morning.

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

Conducting the call today will be Alan Wells, Chairman and Chief Executive Officer, and Craig Knock, Vice President, Chief Financial Officer, and Treasurer. Before we start, let me offer the cautionary note that this call contains forward-looking statements that are not based on historical facts, including, without limitations, statements containing the words believes, may, plans, will, estimate, continue, anticipates, intends, expects, and similar expressions.

Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual results, events or developments to be materially different from future results, events, or developments described in the forward-looking statements. Such factors include those risks described in Iowa Telecom's Form 10-K on file with the SEC.

These factors should be considered carefully, and listeners are cautioned not to place undue reliance on such forward-looking statements. All information is current as of the date of this conference call and Iowa Telecom undertakes no duty to update this information.

With that stated, I'll turn the call over to Alan Wells.

Alan Wells

Thank you, Kevin, and good morning. We're glad you joined us this morning as we talk about our fourth quarter and year-end results. I'll just take a few minutes to focus on our operational and financial highlights, and then update you on several market-related topics, which we discussed in last quarter's call. Craig Knock, our CFO, will then review the financial results in more detail and we'll then take your questions.

We're very pleased with our fourth quarter and 2007 financial results, which we believe were outstanding. We believe that our performance reflects a relatively stable nature of our rural telecommunications business and the focused efforts on growing our CPE and data businesses.

In terms of our financial highlights. Total revenue increased 2.6% for the quarter and 7.4% for the year, primarily as a result of our DSL growth and the expansion of our CPE and data businesses. Operating income increased 19.3% to $18.4 million for the quarter and $81.9 million for the year. Adjusted EBITDA increased 10.2% to $31.7 million for the quarter, and increased 8% to $134.3 million for the year. Our net income was $6 million or $0.19 per diluted share for the fourth quarter, and $29.3 million or $0.91 per diluted share for 2007.

Our net income was down slightly compared to 2006, primarily as a result of our provision for income tax, which was $20.9 million for 2007 compared to $12.3 million in 2006. As a reminder, during the second quarter of 2006 we've again recorded book income tax expense due to our current tax position, and thus the 2006 results do not reflect the normalized year's income tax expense.

Craig will elaborate on income tax in his remarks. But it's important to note that this income tax charge is primarily non-cash in nature and thus does not impact either our cash flow or ability to pay dividends. Despite this income tax charge in the income statement, our actual cash payments for income taxes during the quarter were only a $139,000 and were only $633,000 for the year, reflecting the usage of our net operating losses and our continued goodwill amortization for tax purposes.

Our capital expenditures were $7 million in the fourth quarter and totaled $26.9 million for the year, in line with our guidance. For 2008, we expect our capital spending for the year will be similar to 2007 and will be between $26 million and $28 million. Interest expense for the quarter excluding amortization of debt issuance costs was $7.8 million and totaled $31.3 million for the year. For 2008 we expect cash interest expense to between $29 million and $31 million. Our guidance for both capital expenditures and interest expense is exclusive of any expenditures for Bishop which we'll discuss in a few minutes.

Overall our financial performance for the quarter and the year were exceptional, particularly in line with the increased competition we faced in several of our markets beginning on the second quarter. The success of our financial results is evidenced by the cash flow we generated in 2007. During the year we utilized our excess cash, after paying our obligations and dividends to reduce our debt. As a result during 2007, we are able to reduce our net debts by $21.3 million.

We were also pleased with our operating performance during the fourth quarter. Our total access line loss was 3000 lines during the quarter, as ILEC clients declined by 3800 lines and CLEC clients increased by 800 lines. This is an improvement of more than a 1000 lines from the third quarter of 2007. For the year our total access lines loss was approximately 4.5%.

As we noted during our last conference call, Mediacom entered many of our markets with voice service mid-way through the second quarter of 2007 and therefore we had fully expected to have somewhat higher than normal access line losses immediately after their launch.

Our DSL product continues to grow as do our bundled product offerings. We had 2200 DSL customers during the quarter and 12,800 subscribers during the year, an increase of over 25%. It’s important to know that despite the slightly higher access line losses during the year, total revenue increased 7.4%. This is primarily the result of our DSL growth and the expansion of our CPE and data business through Baker Communications which we acquired late in 2006. I'd now like to turn my discussions to the competitive landscape and provide a very brief update of the competitive situation in some of our markets.

As we discussed in our last call, mid-way through the second quarter, Mediacom launched voice offerings of approximately 108 communities within our service area. We've seen no major changes in Mediacom's offering since our last conference call. And I continue to believe they're focused primarily on residential customers within the city limits of our ILEC markets, where they have launched service. We believe the preparations we make on Mediacom's market entry are proving successful. Our DSL broadband service continues to have strong growth as an important component of our bundled offerings.

Further more, our video service included in our bundle packages through a strategic partnership with EchoStar's DISH Network are proving to been an attractive low cost alternative for our customers. We continue to believe, that customers are finding our bundled packages including our DISH services to be a very attractive and economical option. Furthermore, we believe that our strong financial results for the quarter and the year reflect our impetus in our CLEC, data and CPE operations, which have not been materially impact by Mediacom's market entry.

Looking ahead, we intend to continue are focus on free cash flow, by increasing our sales, traditional enhanced services such DSL and our bundled offerings. These and other products help to increase our revenue from each customer.

We also are focused on increasing our CPE and data services to business customers, which have been further enhanced through our acquisition in 2006 of Baker Communications. In addition through our competitive local exchange carriers subsidiaries we intend to continue to selectively pursue customers and markets in close proximity through our existing markets.

Furthermore, we will continue to pursue selective acquisitions that are lying with our cash flow focus and that clearly meet our criteria for acquisitions to be accretive to cash flow on a per share basis, such as our recently announced acquisition of Bishop Communications.

In closing, let me briefly discuss our pending acquisition of Bishop. Earlier this month, we announced our plans to acquire Bishop Communications for $43.9 million in cash subject to customary closing balance sheet adjustments. We currently expect to finance this transaction through $100 million revolving credit facility. Bishop fits our acquisition criteria very well and that it provides an excellent opportunity to profitably grow our rural telecommunications' business. Most importantly, it meets our criteria for our acquisitions to be accretive to cash flow on a per share basis.

Bishop is much like Iowa Telecom, and that it operates in attractive service territories with appealing demographics, and has a very solid reputation with its customers and within the communities that it serves. Bishop covers 378 square miles in Central Minnesota, operates high quality fiber-to-the-node networks, has relatively lower regulatory risks due to virtually no US [self] reliance volumes and has a favorable regulatory standing. This acquisition is our first venture outside of our traditional operations in the State of Iowa, and is consistent with our strategy of growing our business with selective acquisitions which are accretive to our cash flows.

In terms of Bishop's financial and operating metrics, at December 31, 2007, Bishop served 12,000 ILEC access lines; 5,100 CLEC lines; 4,300 data customers and 3,600 video customers. For the 12 month period ended September 30, 2007, Bishop reported revenues of $19.5 million and EBITDA of $5.8 million.

Bishop's Lakedale Telephone or Lakedale Subsidiary provides ILEC services to customers in six rural Minnesota exchanges and CLEC services and several exchanges served by other carriers. Five of Lakedale's six exchanges are contiguous including Annandale, Maple Lake, Montrose, Waverly and South Haven. Their contiguous exchanges are located approximately 45 miles Northwest of the twin cities and have grown at a 5% annual rates since 2000. The remaining exchange, Pennsville is located at 20 miles Northwest of the contiguous exchanges.

With an average density of 33 access lines per square mile, Lake Dale service area include a mixture of small towns and rural areas, all located in close proximity to the twin cities. The company’s DSL service is available to all of Lake Dale's ILEC access lines and a digital video service is enabled to approximately 83% of ILEC access lines. We are very excited about this transaction and expect to close the acquisition this second half of the year.

In summary we are very proud of our fourth quarter and our 2007 results, and are excited about 2008. I will now turn the call over to Craig Knock, to review our fourth quarter and 2007 financial and operating results in more detail. Craig?

Craig Knock

Thank you Alan and good morning every one. Since you have access to our full news release let me review certain of the financial highlights and then we will take your questions.

Overall, operating revenues for the quarter were $61.4 million compared with $59.8 million in the fourth quarter of 2006, reflecting an increase of $1.5 million or 2.6%. Local service revenue decreased $847,000 or 4.5% for the quarter. The decrease is primarily due to the loss of access lines, however this is partially offset by higher revenue from enhanced local services and local rate increases. Network access revenues decreased $1.1 million or 4.7% for the quarter. The decrease is primarily due to loss of access lines.

Long distance revenues decreased by $30,000 or 0.6% for the quarter. The decrease in revenue is due to decreases in both the number of long distance customers which decreased by approximately 3,000 and in the average minutes of use per customer. Data and internet services increased by 897,000 or 13.1% for the quarter.

The increase is primarily due to growth in DSL internet access revenues, which increase $1.2 million or 24%, but was partially offset by decrease in dial-up in the net revenue. Other services and sales increased by $2.7 million or 58.3% for the quarter. The revenue increase was principally due to higher revenue from CPE sales.

Operating income was $18.4 million for the quarter, compared to $15.4 million a year ago. The change is principally due to the pension plan charge in the fourth quarter of 2006.

Our total operating cost and expenses decreased $1.4 million or 3.2% for the quarter. Cost of services and sales increased $3.2 million or 18.2% due to cost of CPE sales and a higher access cost for our long distance and CLEC customers.

SG&A cost decrease $1.6 million compared to a year ago, as the 2006 period included a $2.7 million pension settlement charge related to amendments to our define benefit pension plans. In addition, contract and other service provider cost decreased for 2007. Depreciation and amortization was $12.5 million flat for the year ago, interest expense, decreased 210,000 or 2.6% for the quarter. This was due to lower average balance on our revolving kind of facility.

In terms of income tax expense, we reflected $4.4 million in book income tax expense during the quarter, compared to $3.9 million last year. The recorded book tax expense did not impact the cash taxes paid during the quarter. Again, let me remind everyone as in relation to cash income taxes, the book accounting for income tax expense does not change our outlook for paying cash income taxes, as we continue to expect the overwhelming majority to be deferred.

Again, we have a very strong tax shield position driven by our continued goodwill, amortization at the rate of approximately $40 million per year through June 2015, coupled with existing NOL of approximately $160 million. Both of these items will shield from material cash income taxes for a good number of years. However, as we previously disclosed, we may be required to pay AMT cash taxes in the near term. And as noted in the release, we paid cash income taxes of $139,000 during the fourth quarter and $633,000 for the year.

The bottom-line for us this quarter was net income of $6 million or diluted earnings per share of $0.19 compared to the $3.5 million or diluted earnings per share of $0.11 a year ago. Our adjusted EBITDA as defined in our credit agreement and reconciled in our press release was $31.7 million for the quarter, up $2.9 million from $28.8 million a year ago.

Now I'd like to turn to the full year 2007 as compared to 2006. Operating revenues for the year increased $17.3 million or 7.4% to $251.4 million for 2007 as compared to 2006. Local service revenues decreased $2.5 million, or 3.3%, for 2007. The decrease is primarily attributable to the loss of access lines. The decrease was partially offset by local rate increases combined with higher revenue from enhanced services. Network access revenues increased $4.4 million or 4.6% for 2007. The increase was primarily due to $5.8 million of revenue from certain non-recurring network access billing matters with connecting carriers.

Long distance revenues decreased by $591,000, or 2.7%, for 2007. LD customers decreased by approximately 3000 coupled with a slight decline in average minutes of use per access line. Data and internet service revenues increased by $4.5 million or 18% for the year, primarily as a result of growth in our DSL internet access service. Other services and sales increased by $11.5 million or 78.7% for 2007, as compared to 2006. The increase was principally due to the growth of our CPE business, primarily as a result of our acquisition of Baker Communications in August 2006.

Operating income for 2007 was $81.9 million, up $4.3 million from $77.7 million in 2006. Our total operating cost and expenses increased $13.1 million or 8.3% in 2007. Cost of services and sales increased $11.7 million or 17.6% principally due to our acquisition of Baker Communications. SG&A cost decreased $4.1 million or 8.9% principally due the $3 million pension settlement charge in 2006. Depreciation and amortization increased $1.3 million or 2.6% for 2007, primarily due to depreciation and amortization related to the acquisitions of Montezuma Mutual Telephone Company and Baker Communications.

Interest expense increased $177,000 or 0.6%, principally as a result of higher interest rates on our variable rate debt. In terms of income tax expense, we reflected $20.9 million of book income tax expense during the year, compared to $12.3 million in 2006. The decrease is primarily due to higher income before income taxes in 2007 and the reversal in 2006 of evaluation allowance on our deferred tax assets. The bottom line for us this year was net income of $29.3 million or diluted earnings per share of $0.91. For the year, our adjusted EBITDA was $134.3 million as compared to $124.3 million in 2006. The increase is largely due to the settlement of network access issues in 2007 in the pension settlement charge in 2006.

I'd like to take a minute now to discuss our debt and related interest expense. As of December 31, 2007, we had outstanding $477.8 million senior debt under the term facilities and $80 million drawn under our $100 million revolving credit facility, which are offset by $7.8 million RTFC capital certificates and $21.9 million of cash. Our net debt or adjusted total debt is defined in the credit agreement was $466.1 million at year-end. That level of adjusted total debt correlates to a leverage ratio as defined in the credit agreement of approximately 3.5 times. Additionally, I should note during 2007, our net debt has decreased approximately $21.3 million.

Our cash interest expense as defined in the credit agreement was on track with our expectations for the quarter and the year at $7.8 million and $31.3 million respectively. For 2008 guidance, we expect that our cash interest expense will be between $29 million and $31 million, excluding any increases related to the pending Bishop acquisition.

Turning to our capital expenditures; for the quarter our capital expenditures were $7 million and $26.9 million for the year. As Alan indicated, we expect that our 2008 capital expenditures will be between $26 million and $28 million exclusive of any expenditures related to Bishop.

Now, I'd like to summarize our cash sources and uses for last 12 months, as they demonstrate the strength our ability to pay dividends. Starting with adjusted EBITDA of $134.3 million and deducting cash interest expense of $31.3 million, capital expenditures of $26.9 million, and cash income taxes of 633,000, results in $75.4 million in cash available for dividends. At our dividend rate of $1.62 per share, we paid dividends of $51.5 million. Thus for the trailing 12 months, our payout ratio of our free cash flow was approximately 68.2%.

It is also equally important to note that as of December 31, 2007, we had cumulative distributable cash, or actual dividend capacity as defined in our credit agreement of approximately $80.2 million or said another way, over 1.5 years dividend requirement. As a reminder, about the 2007 tax status of our dividends, our dividends for 2007 were classified for tax purposes as 54.72% non-dividend distribution or a return of capital, and approximately 45.28% ordinary dividends.

Actual treatment of our 2008 dividends will not be determined until 2009, however at this juncture we expect that at least a meaningful portion of our 2008 will be treated as a return of capital. Overall, we are very pleased with our results for the quarter and for the year.

Amber, we will now answer any questions. Kindly provide instructions for the Q&A session.

Question-and-Answer Session

Operator

(Operator Instructions) And we'll first hear from Todd Rethemeier, Soleil Securities.

Todd Rethemeier - Soleil Securities

Thanks, good morning guys.

Kevin Inda

Good morning.

Todd Rethemeier - Soleil Securities

Two quick questions for you. You mentioned that you maybe paying AMT taxes, could you just give us a little more color on that, maybe quantify it? And then the second question on the CLEC business seemed pretty good this quarter, was there anything -- were you doing anything different or did you go into new markets or what exactly was causing that? Thanks.

Craig Knock

Okay. Good morning Todd. Yeah, on the AMT taxes if you look over to the course of 2007, I think we mentioned we paid roughly $633,000, and last year was slightly higher than that. Off the top of my head I think it was about $900 million or roughly $1 million last year. Again we expect that we will continue to pay AMT and that it should be in that range. So the 2007 numbers of these are fairly good number. And again it’s, it should be less than $1 million for the foreseeable future.

As to your CLEC, yeah as we said over the past, we've had a less of a focus on residential and the much more business focus and frankly the fourth quarter was a good quarter. We hired up may be one or two additional sales people in that time and they hit ground and are producing, and again these are largely business customers that we are adding at this juncture and we are quite pleased with our operations on the CLEC business right now.

Alan Wells

But Todd I think generally there's no new markets in the fourth quarter; we just had a good strong quarter?

Operator

(Operator Instructions). We will now hear from Chris King, Stifel Nicolaus

Chris King - Stifel Nicolaus

Good morning and congratulations, very solid access line trends on ILEC during the quarter as well. Quick question regarding Bishop, just was wondering if you could give us a sense in terms of the capital expenditure requirements you see for that business over the course for the next couple of years at least at a very high level with a similar range in terms of the percent of total revenues that you are currently using now for the Iowa Telecom properties, be a good reference point for the amount of CapEx that Bishop will likely need over the course of the next year or two.

Alan Wells

Good morning Chris. Thank you. Yeah, I think if you look at our cap expenditures on access line basis or revenue basis for us as Iowa Telecom that probably wouldn’t be too far at line for Bishop. I think they have a good strong network today, and we're pleased with the network and we think the CapEX would be reflective of that. But the same time their [growing] markets will have some CapEX with the growth that goes along with it.

Chris King - Stifel Nicolaus

Okay, thank you very much.

Operator

(Operator instruction). We'll now hear from Jonathan Levine, Jefferies.

Jonathan Levine - Jefferies

Great, I just wanted to ask a little bit on the ILEC access lines. I know that it's declined from the third quarter, but it's still fairly high relative to last kind of eight quarters. So can you talk a little bit in terms of kind of what you're seeing there, what you kind of are looking for in '08 as well as kind of how you see the economy playing in to this?

Alan Wells

Thank you, Jonathan. Good morning, I think if you look at our fourth quarter access line losses and you kind of compare the last half of the year to the past couple of years, I think we've been influenced by some additional competition; we talked about in the remarks from Mediacom. So we've kind of expected our access lines with losses would bump up a little bit once they launched service [net launch] in the second quarter of 2007. As far as the economy, I think we are probably seeing the same thing just focusing across the nation, probably to a little less to the extent since we are in such rural markets, but I don't think the overall economy is having a significant effect on business.

Jonathan Levine - Jefferies

Okay. Just want to follow up. In regards to Bishop, first, when do you plan on closing that and then if you could talk about some of the synergy opportunities, whether that's assuming that's primarily cost, but if you talk a little bit in terms of what you think you can get on the synergy side, that would be great. And then also if you could give us a little idea in terms of what the integration costs will be? Thanks.

Craig Knock

Okay, Jonathan, good morning. Thank you. We have put out a formal number on the synergies, but I think if you look at some similar transactions out there from some of our peers I think a range in the 5% to 15% of revenues, on Bishop's case that would be roughly $2 million at that mid-point is the synergy number that I think some folks have used as a basis to analyze the transaction.

In terms of all our cost integration and that we haven't disclosed any of that yet, but we'll have those baked into our synergy numbers respectively.

Alan Wells

And I think the integration cost, there's mostly going to be internal folks working on the integration. I don't think we see huge external out-of-pocket cost for integration. And you asked about timing, we have made the filings with the regulators in both Iowa and Minnesota, and I think the SEC filing for approval should be taking place pretty quickly. So we're still hopeful we'll be able to close this in the second half of the year. We'd like to think it's the first of the second half that we'll kind of wait to see what the regulatory process brings us.

Jonathan Levine - Jefferies

Okay, great.

Alan Wells

I can't point out, but we don’t see any issues with the approvals, we're just [entering] into the process.

Jonathan Levine - Jefferies

Okay, thanks.

Operator

Moving on, we'll hear from Dave Coleman and he is with RBC Capital.

Dave Coleman - RBC Capital

Thank you. Just back to the ILEC business, the decline in access lines was better than the previous two quarters. I am just wondering if in some of the initial Mediacom markets where they rolled telephony service. Has there been sort of a slowing in rate of access lines losses that helped your ILEC business.

Craig Knock

Yeah. Good morning Dave. Yeah certainly it’s as we said, both after the second quarter and the third quarter, they got the lower hanging fruit in plain English, and we've seen the rate of loss in those towns declined. We've continue to have our offers out there and frankly Mediacom hasn’t changed up their offer in any material way, since they launched in mid-second quarter.

Alan Wells

And I think Dave we've looked at the industry kind of nationwide in preparation of Mediacom launch. Sort of was the pattern that most cable companies when they launched voice service had some significant early successes and then things kind of tapered off as the market stabilized more. So we expected that, and that’s kind of what’s happened today.

Dave Coleman - RBC Capital

Great. And then the DSL business, let's say the number of DSL subscriber adds slowed a bit in the fourth quarter. Just wondering if there's any seasonality there for, I was just trying to understand what’s happening in that business.

Alan Wells

Yeah Dave I don’t know that we had much seasonality relative to that. I think you've probably you seen in others that DSL business was slowing a little bit. But we certainly weren’t pleased with the number that we had in the fourth quarter and we continue to step up our efforts in Q1 and still think that we have plenty of market to go on our DSL.

Dave Coleman - RBC Capital

Great, thank you.

Alan Wells

I should point out just relative to our DSL, Dave we continue to roll out the product we call extreme DSL and we are certainly focused on Mediacom towns and getting that out in those particular markets and again that product will go from anywhere from three upwards of 15 [Meg] closer to our CO. So we are pleased with that the reception of that and the ability to fight the cable provider on terms of speed as well.

Operator

Our next question will come from Simon Flannery, Morgan Stanley.

Simon Flannery - Morgan Stanley

Thanks a lot. Good morning. Could you talk a little about our trends in the network access business, any sort major rate changes or anything that we should be aware of going into 2008 or is this sort Q4 run rate year-over-year pretty good one? And can we talk about your ability to more M&A; you are drawing down a big part of your revolver to fund Bishop. Does that basically preclude any major deals for the rest of the year or do you think there's still the ability to do some small acquisitions or use stock or whatever? Thanks.

Craig Knock

Okay. Good morning Simon. As the network access, is there any rate changes pending relative to switched access or that, I'd say, generally no. Although, I would point out some of the favorable trends that we see in the network access area is, we see continued uptick in our special access across the system as many of the cell providers are continuing to augment their networks.

And frankly we are the only game in town, in many of the areas that these folks are putting up towers, and so we see continued growth in that area. So we're generally pleased with where we're at, and we think that there is some growth there to more than offset what we are perhaps loosing on the switch side relative to access line loss.

]

As the M&A and -- you are correct. At this juncture, we're likely to put most of the Bishop acquisition which is roughly $40 million on a revolving credit facility. But by the time we close, we will have the zero balance on our revolver plus we will have accumulated some cash and cash equivalents on that, and so we'll still have some capacity on the revolver plus with our free cash flow roughly $17 million to $20 million per year, we can pay off Bishop if you will in roughly two-year timeframe.

Simon Flannery - Morgan Stanley

Okay. So might see something but probably not until Bishop's done.

Alan Wells

Simon, this is Alan. I don't k now that I would go that far. I think if you look at our cash position at the end of the year on our revolver, we had a little bit ups in our revolver. We also had a sizable amount of cash in the bank. So we can take down the revolver of the Bishop transaction and still have plenty of dry power even without excess cash regenerating over the course of 2008. So we don’t view this by any means as being limiting on future acquisitions.

Simon Flannery - Morgan Stanley

And is buyback something that you might think more about?

Alan Wells

As we've talked about before Simon, you realize that we always consider what we should with our excess cash, and a lot of factors that go into that. Buyback is obviously one of things that we've looked at closely over the last several years. And particularly recently given some stock price declines that we in the rest of sector have had. We haven't announced that at this point, but obviously we continue to think about that.

Simon Flannery - Morgan Stanley

Great, thank you.

Operator

(Operator Instructions). We'll now hear from Frank Louthan, Raymond James.

Frank Louthan - Raymond James

Great. Just to follow up little bit the on earlier questions; one of the other LECs gave us some statistics regarding their ability to make up revenue that they were loosing from access line erosion, primarily coming from special access, as you mentioned your wireless backhaul and some data from other enterprise customers. Can you give us a sense for how you are trending into some of other parts of your business and could you give us some idea going forward what sort of comfort level we should have to be able to continue to offset the revenue that’s from access line erosion with some other sources of revenue and what some of those larger sources may be. Thanks.

Craig Knock

Okay. Good morning Frank. You hit on one of the key ones out there which I mentioned in, and we haven’t really broken out the particular numbers but we have seen sizable growth on special access largely wireless backhaul from increased wireless penetration across our network. Another item that we've had, I mean we had price increases. We had some in 2007, we will probably some in 2008.

Both the local side and also our long distance product, we've increased pricing there to offset some of the decline and frankly that’s call some of the softness in our subscriber metrics. But we intend to make up the overall revenue there. So I think the local price increases, increases on the LD products, continued sales on data services, and other big pipe stuff that’s non-metric driven or not necessarily related to access lines, continue to buffer our overall loss that we've had like every one else related to our access line loss.

Frank Louthan - Raymond James

Okay, great. And can you follow up a little bit on the CLEC side, what is their ARPU at CLEC Group right now, and do you see that opportunity expanding more? You've been fairly selective as you've expanded in to Qwest territory, some others, is that going to be a larger focus for you going forward?

Craig Knock

Yeah, I'd say our most recent ARPU has remained relatively strong; it's roughly 45 bucks, 46 bucks perhaps just lying. Again as I mentioned, I think a continued theme over the last year or so, as they are much more focused on business, and we have gone into other markets, we're licensed now state wide at across all the Qwest markets.

We've focused obviously on where we have sales people and where we have a critical mass in terms of our operations, but to the extent that a bank may have several branches in remote towns, so we'll continue to service that customer and turn up a align in a couple of towns that may not be our key focus. But on the margin, as I said earlier, I am still pleased with the growth of our CLEC business and the focus on the business market, and it will continue to be a in a bigger and bigger piece as we move into 2008 and beyond.

And it's also, frankly a spring board or a cross-sell opportunity to our Baker operations in terms of getting in to some of these larger businesses that have, perhaps branches or remote manufacturing facilities across the state.

Frank Louthan - Raymond James

Hey great. Thank you.

Craig Knock

Thank you, Frank.

Operator

(Operator Instruction) Patrick Rien, Lehman Brothers.

Patrick Rien - Lehman Brothers

Good morning guys and thanks for taking the question.

Kevin Inda

Yeah, good morning Patrick.

Craig Knock

Yeah, good morning Patrick.

Patrick Rien - Lehman Brothers

Couple of quick ones. First, if possible, can you give us some numbers around your DISH customers, maybe subs or what your penetration looks like, and then also maybe a percent of bundles? And then in regards to DSL, what are the penetration rates or can you give us the penetration rates in markets where Mediacom is? I think there's a 108 of them. And then maybe what are the speeds you're looking at in those markets?

Craig Knock

Okay. Good morning, Patrick. I'll try to hit these, the Mediacom -- I think we've said over the past that we try to beat Mediacom with just a base DSL offering into most of their towns, they beat us in a few, they probably have slightly better market share. But I think our initial entry and our focus initially in 2003-2004 timeframe; we were able to beat them in the market. So, I think we had first comer status there.

As I mentioned in just a brief commentary on our Extreme DSL, I think we've focused that product certainly in the larger markets that Mediacom that we overlap in, and so we have speeds that range from 3 meg to 15 meg, and frankly the product is much better on a direct one-on-one to Mediacom because in many of the small towns, you are more out to get 15 meg or 10 meg because you are much closer to central office. So from that perspective, we feel we have certainly a comparable product against Mediacom on the data side.

On the DISH side to date, we haven't broken out the number of units; I think we'll consider that in the future. And part of the reason is there's economics to us, overall EBITDA is not that significant but we are pleased that our relationship with DISH, and I think our relationships are actually getting better with DISH. Their partnership program seems to be renewed vigor there.

So I think we'll have continued help there, and likewise for the bundles we haven’t for competitive reasons. But necessarily publish that. But we continue to sell our bundles and that’s frankly our key entry to fighting Mediacom and being the best product out there in the market that we can so…

Patrick Rien - Lehman Brothers

Perfect. And can I get one follow up.

Craig Knock

Sure.

Patrick Rien - Lehman Brothers

What percent of your lines now I guess the total lines are able to get the extreme DSL and may be where can that get to, you think for the next year or so?

Craig Knock

I may have to follow up with you on that Patrick, but it’s - I don’t know off the top of my head, I do have that schedule. But it’s certainly our focus there, I know that we are in well over half of the Mediacom towns and clearly have a large focus on all the top towns. I don’t know, I don’t want to--.

Alan Wells

I don’t like the exact percentage Patrick, but I think we've taken the larger towns, we’ve kind of work our way down to the largest, the smallest communities and we are going through that state wide.

Craig Knock

Yeah. I am glancing at something right now Patrick said, that I know we have seven towns in the queue right now, to be turned up in the next I guess month.

Alan Wells

And I guess that's a large, as you know Patrick, our large towns aren't that big compared to what lot of folks are used to, our largest town is 15,000 population. So we are working all the way down the list from those.

Patrick Rien - Lehman Brothers

Great, thanks guys

Operator

And there're no further questions at this point, Mr. Wells, I'll turn the conference back over to you for any closing or additional remarks.

Alan Wells

Okay, thank you Amber, and thank you again for joining us this morning. We appreciate your time. We welcome your questions and hope you can join us again next quarter as we talk about our results for the quarter. Thank you.

Operator

And that's concludes today's conference. We do appreciate your participation, everyone have a great day and afternoon.

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