Good morning. My name is [Tamara], and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Qwest conference call. (Operator Instructions) Mr. Porter, you may begin your conference. Rahn Porter – Senior Vice President, Investor Relations: Thank you, Tamara. Hello, everyone, and welcome to our call. With us on the call this morning are Ed Mueller, our Chairman and CEO, and John Richardson, our Executive Vice President of Finance and CFO. Before I turn the call over to Ed, I'd like to remind everyone that we'll be making forward-looking statements. These statements contain risks and uncertainties which could cause actual results to differ materially from those expressed or implied here on the call. Those risks and uncertainties are on file with the SEC. Additionally, we do not adopt analyst estimates nor do we necessarily commit to updating the forward-looking statements that we have made here. Also let me mention that in order to supplement the reporting of Qwest's consolidated financial information, the company will discuss certain non-GAAP financial measures, including EBITDA, free cash flow and net debt. A full reconciliation of non-GAAP measures is included in the quarterly earnings section of our web site. With that, I'd like to turn the call over to Ed.

Thank you, Ron. Good morning, everyone, and thank you for joining us. I would like to begin by giving you my perspective on our fourth quarter results as well as recapping our strategies. I'm sure you already reviewed our earnings release and what we disclosed about the quarter and the full year. John will go into greater detail on this shortly, but I wanted to touch on the principal results. Revenue totalled $3.4 billion in the quarter and $13.8 billion for the full year, with growth in data and Internet products in all channels. Total revenue for the quarter was flat sequentially and down 1.5% compared to the prior year results. During the quarter, we experienced revenue and volume declines in our wholesale channel and a tough December in retail which were offset by growth in the business channel. In our mass markets channel, full year revenue increased slightly. During the year, the impact of declining access lines was offset by growth in broadband and video subscribers, RPU increases and higher bundle penetration. Positive trends in our business channel continued as our customers transitioned from legacy platforms to strategic data products. Our investment in this channel is starting to pay off. In fact, the fourth quarter was our third consecutive quarter of revenue growth. We believe this, as well as our ability to sell into the network's program, will result in growing this business. For the year, our wholesale channel experienced the impact of continued industry consolidation throughout 2007. Here we are primarily focused on minimizing losses and margin. The bottom line for Qwest is we drove revenue growth in strategic products, holding overall revenue roughly flat. In 2008 revenue will be flat to down slightly from 2007 results. On the expense side, we continued to improve efficiencies, productivity and…

Thanks, Ed, and good morning, everyone. Qwest showed improvement in several financial measures as our focus on cost reduction expanded adjusted EBITDA margins year-over-year for the 13th consecutive quarter. Normalized earnings excluding tax benefits and litigation charges were over $1 billion in 2008 as cost reductions throughout the remainder of the income statement complemented our operating improvements. As a result of these benefits, as well as our continued discipline related to capital investment, free cash flow reached $1.8 billion for the year. Most importantly, our confidence in the sustainability of these results led to the decision to resume quarterly dividend payments in 2008 and created over $2.1 billion of net income from the reversal of our allowance against deferred tax benefits. All in all, it was an important year for Qwest on several fronts. Now let me review the results for the quarter and the year in more depth, beginning with revenue. As Ed mentioned, revenue totalled $3.4 billion in the quarter and $13.8 billion for the full year. Looking at channel results in more detail, the mass markets channel grew revenue modestly on a year-over-year basis, with broadband, wireless and video subscriber growth continued to effectively combat pressure on access lines, causing total mass market connections to be flat compared to the second quarter. Access line results reflected the impact of technology substitution and competitors in our territory. The rate of line loss in this channel increased from 7.2% to 7.7% on a year-over-year basis in the quarter, however the absolute number of access lines lost was essentially flat with the third quarter. We believe that the trends in access lines, broadband and video subscribers have been affected by certain consumer market pressures, including housing starts. As we mentioned on the third quarter call, we continue to note a…

(Operator Instructions) Your first question comes from the line of John Hodulik with UBS.

Good morning, John.

Sorry about that. Good morning. How you guys doing?

Good.

Okay, just a couple quick questions. Could you just talk about what you're seeing in terms of competition from cable, say, this quarter over what you've seen throughout the year? And then if you could expand on some of the comments, I think, in the prepared remarks. Ed, you talked about December being tough in retail. Were you referring to what you were seeing in the mass market? And just a little bit more color in terms of the guidance for revenue growth in the mass markets considering some of the economic issues you're seeing, and sort of what you've got factored in for potentially, you know, the economic issues that we have now to persist through at least the first half.

Thanks, John. John here. On the cable side, I think that we, you know, we continually see competition from cable in parts of our business, and I don't think that we've seen anything that is dramatically different from prior quarters on that front. As it relates to the latter part of the fourth quarter, you know, we saw some softness, I think as many people did, in the retail space in the fourth quarter. You know, we - as I indicated in my prepared remarks, we're not real sure whether that's from general economic conditions, whether it's from competitive pressures or other factors. We believe that one month does not make a trend, and we're obviously watching it very closely as we jump off to - in 2008.

Did you see it reoccur in January?

We typically don't provide information out of quarter on our results.

Okay.

But we're watching it obviously very closely. Lastly, as it relates to mass markets, you know, we do have a range in there which we're basically focusing on flat to slightly up. We think that we have some room in there to deal with any softness that we might have in the general marketplace going forward.

Okay, great. Thanks, John.

Thanks, John.

Your next question comes from the line of David Barden with Bank of America.

Morning.

David, how are you?

Good, thanks. Appreciate taking a question. If I could, just a couple questions. The first was just if you guys could talk - obviously, you know, good data growth. I was wondering if you guys could talk a little bit about what, if any, kind of CPE revenues were in there in the quarter as a trending item for next year? Also, you guys talked a little bit about some of the timing issues related to real estate and other things as they impacted Capex in 4Q. I was wondering if you could provide some more detail there. And then just last, if I could, pension costs and their impact on '08 would be great. Thanks much.

Okay, David, let me take the data, and then I'll turn it over to John for the real estate and the pension. On the data growth, yes, we had CPE but I think we had a good balance of CPE as well as recurring revenue. So to me that was really a really good sign in the fourth quarter, and I'm really happy with our progressing. Also, I think our business team and our sales teams we put on are really starting to come to fruition, and we look for a great year in '08. So on that front, the data front, I think a great balance in the fourth quarter for our business teams. On the real estate and pension, John, I'll turn that over to you.

Could you repeat your questions again, David?

Sorry, yeah. You guys talked about in the release how timing issues on things like real estate and one-time items impacted capital spending in the quarter. It wasn't clear to me whether that increased capital spending or decreased capital spending and what they were specifically. And then also, with respect to pensions, you know, how your assumptions - outlook for next year - might be positive or negative for margin performance.

Right. On the real estate side it was really just kind of some sequential issues where we had some real estate projects that landed in the fourth quarter that in the prior year were in other quarters, so it caused a little uptick in our capital expenditures in the quarter. As it relates to pensions and, you know, our assumptions are largely similar to last year and our net periodic pension costs and [inaudible] costs are really kind of in line with where we were in 2008. We'll hold onto the gains that we had for 2007.

All right, great. Thanks, guys.

Thanks, David.

Your next question comes from the line of Jonathan Chaplin with J.P. Morgan.

Good morning, Jonathan.

Good morning, guys. How's it going?

[inaudible] thank you.

So I just wanted to get a little bit more color on the guidance for '08. It looks like you're looking at flat to down revenue but flat to up EBITDA, so obviously some margin expansion there. I'm wondering if you could give us a little bit of color on where the costs are going to be coming out? I know that, you know, facility cost reductions, people expense, are going to be big sources of cost reduction over time but, you know, it seems likes those sources of cost reduction really didn't translate into margin expansion in the latter part of - or really in 2008 at all - in 2007 at all, so I'm wondering how the trends change in 2008. And then looking at enterprise, you know, it looks like you're on a very positive trajectory with close to 3% growth this quarter, and I'm wondering why that doesn't just continue to accelerate going into 2008. You know, what are you seeing that makes you - in terms of the trend - that makes you think it'll only grow in the low to mid single digits? And then finally on wholesale, where do you see that business stabilizing? How much more downside is there? Our impression on that business was there was temporary pressure because of consolidation, but most of that pressure had passed and that the underlying drivers in the business are pretty positive. And I'm wondering what's kind of changed in that business. Thanks.

Okay, Jonathan, let me start through here. On the EBITDA measures, for '07 the wholesale drop was bigger than we thought, and so there was definitely margin there while we did increase the RPU and our consumer and our business started to come along. So I think - let's weave that into your other wholesale question - we see that we're mitigating now this pressure consolidation, but to answer your question, EBITDA expansion in '08, with the decline and kind of the bottoming out of the wholesale, we are truly really, really focused on the operating contribution in wholesale, and so that will be a big deal. Excuse me. We did get some facility cost out, employee cost out, as John said, but the entire mix was as it showed in '07. We're really comfortable with '08 moving the other direction. On the business side, we have projected, I think, a continual trend with our business revenues and our business products and our data products to be expanding. And I guess we're being, I think, pretty prudent in the low to single digit growth rate. If we outperform that, terrific. But our sales teams are coming up to speed. We believe by at least the end of the third quarter, they'll be producing exactly what our teams are doing today, and that's a significant number. So that's where we are on that. I think I've answered most of the questions that you had here, so I'll just stop here.

Thanks, Ed. That was great.

Your next question comes from David Janazzo with Merrill Lynch.

Morning, David.

Morning. Ed, now that you've been on board for a few months, can you give us your assessment of wireless? What value added does that provide for Qwest? And is Sprint the right long-term partner for you or is that something you'll consider along the way?

A real good question, David. I think we have much to do in wireless, let me put it that way. We will be assessing every avenue here. We talked about in our strategy call on December 12, which I think was a prelude to you - or helps with the answer here - we need a partner not only for voice, but we need a partner for data and the broadband data. So as we look forward we need somebody to help us with both of those so we will be looking at everybody, including Sprint. And so I think that's a real area for us to accelerate and do better in, and our wireless offerings need to be state of the art, they need to be in what I'd call right up front with everybody else. We also need more help in our wireless in our business marketplace. The good news there is that's all opportunity for us. So we are working really hard on the partnership, and it's a big deal in our strategy of partnerships, so I hope that kind of gives you where we are.

Thank you.

Your next question comes from the line of Chris Larsen with Credit Suisse.

Morning, Chris.

Good morning. Thank you for taking my question. I have two questions - the first, on the wholesale side, the weakness, is it a function of pricing share or the market shrinking in your opinion? And secondly, on the share buybacks, you've been aggressive, obviously going through 75% of the buyback already. Can you give us a sense for maybe the Board's appetite to reauthorize a new share buyback assuming that you use up the last 26% of it relative to having issued the dividend recently? And John, maybe how low you're willing to go in terms of cash levels on the balance sheet with the $1 billion or so that you came into the year.

Okay, let me take - I'll take the wholesale and I'll give John the capital question. It's really a market shrinking for us in the wholesale market and the consolidation. And let me just be clear: On the pricing side, we are not chasing down prices to get revenue. That would be - probably the truth is, we're going the other direction. We will look for every pricing opportunity not only in wholesale but in our retail segments to sustain our revenue growth. We do, as I said before, we do think that is stabilizing and as we move to the data products, then we try to shift out of what I call the low-margin long distance legacy products. We have a good chance here to really improve the operating contribution by definition, and the math works for margin expansion in the wholesale market. And I'm really encouraged. We're changing our compensation for our teams. So I think we've got everything lined up to do what's right in the wholesale. John, you want to take the capital question?

Sure. Yeah. Thanks, Chris. Chris, on the share buyback side, I think, you know, we are really ahead of the program here. Through this earnings announcement, we have 75% of the program complete. We've instituted a fixed component of our return to shareholders in the form of the dividend. Going forward, our Board will always, as they normally do, review our rewards to shareholders and act accordingly. But as it relates to our cash balance, our cash investments were $1.1 billion for the quarter. Our cash balance was just under $1 billion. You know, we have targeted between $750 and $1 billion as the cash balance that we want to maintain. I mean, particularly in these times with choppy credit markets and so on, we believe that it's prudent to do that. The other thing that many times you don't see is because of the unevenness of our cash flows through the year, our cash balance does drift down at points in the year below that $750 million, and then comes back up to the end of the quarter. So we think that it's prudent to keep our cash balances in the neighborhood of where they're at.

That's real helpful, John. And then if I can just follow on one other question, when does your window reopen for re-continuing your share repurchases? I'm assuming you've closed prior to announcing the numbers.

After the release, I think it's going to be open here tomorrow.

Great. Thank you.

Your next question comes from the line of Michael Rollins with Citi Investment.

Morning, Michael.

Hi, good morning. Just a couple questions. First just a clarification - could you specify the amount of CPE improvement that you got in the fourth quarter just to give us a better comparison for seasonality purposes heading into 1Q? And then if I could just follow up on the residential business, if you could talk a little bit more about the RPU trends. It looked like RPU was sequentially flat you know, obviously there's probably some rounding in there between 3Q and 4Q - and as you compare that with some of the volumes, I'm wondering what you're seeing, whether - you know, are you seeing the impact of people just interested in spending less and converting down market or is that, just the RPU slowdown sequentially, just more reflective of the change in mix? Thanks.

The first question on CPE, I think CPE for the quarter was largely flat and for the year, I mean, it's - we had about the same amount of CPE sales year-over-year. So I think, you know, as it relates to the trending in 2007 versus 2006, there's not much there. As it relates to the RPU, obviously, you know, we continued to increase our RPU. It does not necessarily go into it in a straight line. We increased our RPU $4 or 7.8% year-over-year. We expect as we go forward into 2008 that with the mix of products and services that we're offering it's important for us to continue to March with RPU increases, and obviously we have those increases built into our plan.

Okay. Thank you.

Your next question comes from the line of Simon Flannery with Morgan Stanley.

Good morning, Simon.

Good morning. You talked a lot about uses of cash today. You've also talked about partnerships. You haven't really talked about M&A. As you've got your you know, you're several months with the business here. Do you think there are areas where you could benefit from either sort of niche acquisitions or from something larger or even, for that matter, divestitures? And then just coming back on the tough December in retail commentary, can you just be a little bit more specific? Was it weaker gross adds on broadband or was it higher non-paid disconnects in wireline or was it bad debts overall - what were the specifics that you saw leading to that comment? Thanks.

Okay, Simon, on M&A, you know, we don’t comment publicly on activity there. Our position is still the same. If we found M&A activity that would be accretive or was a fill-in, it'd be great for us, but we continue to look at the marketplace and we're not adverse to it, but we're very careful and we're also making sure that our use of cash is accretive for the shareholders. I'll give John the question on the retail.

Right. Good morning, Simon.

Good morning, John.

In December, you know, it was largely for us an issue of, I would say, weaker net adds. And as I mentioned in my prepared remarks, you know, we continue to see our inward call volume - we have reductions there, and we believe that the slow housing market is one of the reasons for that. And so it was really that. As it relates to bad debts, I think you'll see in our 10-K when we publish it today that our bad debt expense and actually our write-offs are basically flat yearonyear.

And was there any regional impact or was it fairly much across the 14-state region?

I think it was largely, you know, across the 14-state region. So it was what many other retailers experienced, you know, a weak retail season in December.

Thank you.

Yes.

Your next question comes from the line of Mike McCormack with Bear Stearns.

Morning, Mike.

Hey, guys. How are you?

Hey, Mike, good.

Just to follow up on that question on access lines, it seems like, you know, just looking at the year-over-year rates of decline, you guys have, I think, arguably one of the worst rates of decline in the industry. It seems like everybody else will be impacted by the housing market as well. Is there anything from a competitive standpoint that you're seeing that maybe some of your peers are not seeing? And secondly, when you look at DSL penetration of primary access lines, based upon quick math at my end, I've gone from about 32% penetration to close to 39% at year end. I'm just trying to get a sense for your revenue guidance for '08. What's the anticipation as far as DSL penetration in your markets? Thanks.

Let me take the access lines. I think it's just more of the same on access lines, where relatively - the rate has increased a little bit. I think we're like the rest of the region - wireless and cable. I don't think there's any new competition. It's pretty much business as usual. I do think the slowing of the economy has some impact, but I don't think - I think overall it's kind of the same as we've been tracking on. And the competitive landscape, I think, is still the same. And we will be pushing back. I think our broadband expansion will help us in the competitive marketplace. We've already talked about looking at wireless, and I think those are two areas which would be very helpful to us. RPU expansion will continue, I believe, as our broadband moves forward. So I think all in all, our broadband will expand. I think it's reasonable to think that in a marketplace that's kind of choppy - I'm talking about economically as well as you get higher penetrations, the growth rates won't be as great, but I think there's still a lot of headroom for us.

Hey, John, what about the trends in employer-related costs - a pretty good downtick there. Is that something we can sort of track for the rest of the year? Is that a good trend to look at?

I think, Mike, you know, the employer-related costs in 2007 was a combination of a reduced number of employees where we, year-over-year, we reduced employees by about 1,500 employees or 4%. And then also, you know, the changes in benefits where we reduced benefits and as a result of that reduced our liability for those and also our cost. You know, those cost reductions will continue into 2008, but there will not be an incremental add related to - excuse me, costs down related to that. We continue to focus on making sure that we have the right number of employees for the demands for our product, and part of our cost reduction programs in 2008 will be in the employee-related area.

Great. Thanks, guys.

Your next question comes from the line of Tim Horan with Oppenheimer.

Morning, Tim.

Hi, Tim.

Good morning, guys. Thanks a lot. Could you update us on what you think your cable competition overlap is and maybe what it was a year ago? And do you think there are steps that you can take, maybe from a marketing or a promotion basis to help improve the buying growth here in '08? ]

Okay, help me with the overlap part?

Do you think you have maybe 70% overlap at this stage of cable competitors marketing into your territory - 70% to 80% - and where was that last year? Have you seek a kind of marked increase in the areas where cable is marketing?

Let me give that a go, Tim. Obviously, you know, the cable people are in our region. You know, Comcast is in many of our markets. Cox is a formidable competitor, particularly in Arizona and in Nebraska and Omaha. You know, they're in a substantial portion of our region - the precise percentage I don't know. We have to deal with them day in and day out. We believe that we have the right set of products and services to compete with them effectively, and I think that it's evidenced by our growth in our mass markets revenue and also our RPU.

I would say, Tim, that in the places that count, it's a virtual overlap. In other words, it's 100%, if you want to look at that, as well as - obviously the video's a big driver to people's decision-making, whether they have a triple play or not, but I think in the great majority of our big markets, we would consider it just a competitor, head on, head on, every one of those. On the marketing front, we moved our marketing organization into our business units, and I know on our consumer side we're working feverishly to improve the marketing, not only how we go to market, but where we spend the money - we spend a considerable amount - and how to combat particularly the cable companies on how they go to market. So we're in the market right now testing probably 50 to 60 different variables, and we'll be concluding that by the end of the first quarter. So I'm comfortable that our consumer team is really not sitting back. They're being very aggressive here, including how we price.

That's very helpful. Ed, if you don't mind, just on the enterprise side, you had a really strong tick up this quarter. Do you think it's primarily because of your improvements to the sales force or is it more of a product improvement? Could you just give us a little bit more color on the big pickup this quarter?

Okay. I think it's both. Actually, I think the push that our business team has in the data products, the increased data products, and I don't think it would go unnoticed that networks provided many more [goodness] for our business group. The sales force - I think the encouraging thing for me, the sales force has a lot more to go, and we believe by the end of the third quarter that those sales teams will be producing equal amounts as our existing sales people. Our churn is good in these sales teams. We're not seeing an inordinate amount of churn. So I think it's kind of a combination, but I would say the push to the data products, the strength of the products, the continuation of our product teams giving our business units what they need, is very encouraging to me. I think we're now seeing that uptick and I just think with networks coming online probably second half of this year as the government gets their act together to get off of FTS and get on networks, there's a lot of what I'd call good, good upside for our business unit.

Thank you.

Your next question comes from the line of Peter Rhamey with BMO Capital Markets.

Good morning, Peter.

Good morning, Ed. Thank you for taking the question. Just further on that theme of the enterprise, looking at the trends and previous commentary with respect to your outlook versus Q4, how much have you baked in for the networks-type contracts or is it - the lack of visibility there make it very, very difficult to put it in there, so we should look at it as - your call for low single digit revenue growth doesn't really have much networks in there? And the second question I would have is, I appreciate your focus seems to be transitioning on the wholesale side to margin improvement and that's key, but I'm wondering how much visibility on the revenue side you have on that part of the business and whether, looking at your current business right now, it's very difficult to gauge whether current trends will continue. Thanks.

Okay, let me take the enterprise question. Networks, it's small. And it's small not because we're losing anything. It's just because the government's not issuing or moving the contracts. We've had a full court press to try and get them there - myself, Tom Richards, our EVP over that, have been up in Washington - so I'd say it's small. We'll just see as the contracts are let. There's not been very many. We've got one or two here, so we feel comfortable there. Now help, I missed the wholesale part of that.

Well, I'm just wondering whether - it appears that your wholesale revenue trend must be not much different than what you saw in Q4 for 2008, and I'm wondering how much your outlook for wholesale has just been - you've pulled in your horns somewhat on your expectations just because it's very difficult to have good visibility in terms of recurring revenue out of that segment.

Okay, thanks. I think we're being conservative here. We really have shifted to the operating contribution of the products, and since - I think we're a little gun shy, actually, after the second half of the year not replacing or getting the revenue that we thought we'd get on the data IP and seeing the decline due to consolidation. I think the consolidation's behind us. So we're probably conservative. I hope so, because driving operating contribution will drive revenue in the right place, so I hope that answers your question.

Yeah, thanks. So what I hear from you is that you've almost baked in some sort of further consolidation into your outlook, but when you look at the numbers in the business, it probably will not occur?

I do think we have some more consolidation baked in. It's not just consolidation. You know, the [uni Ps] and the whole marketplace has declined as well as kind of pulled back themselves. I think with the consolidation, you see some of that. The activity in the resold lines obviously is less than it has been. That's probably overall for our business good news. While it may show up in the wholesale side, I think there are trade-offs there. And so we're just waiting and seeing, but we're taking a conservative approach on how to run the business.

Great. Thank you very much, Ed.

Your last question comes from the line of Tom Seitz with Lehman Brothers.

Good morning, Tom.

Hi, Tom.

Good morning. Thanks for taking the question. Two quick ones. Can you update us as to the progress of the integrated DBS/DSL box? I'm wondering how the testing's going and whether or not the revenue sharing agreement on this joint product might be a gating factor as well - just sort of any update there. And then secondly, I know that you don't want to say a lot in this matter but I think it would be helpful if you gave the investment community just kind of a high- level impression of how you think the union contract discussion will progress and how you feel like the initial discussions have gone thus far and, you know, if they've been constructive or not. Thanks.

Thank you. We're really early on on the DBS integrated strategy. As a matter of fact, our whole push - which we are looking at every possible way to connect [inaudible] whether it's connected through the DBS box or through other boxes or other partners - so we're too early on to be able to give you any insight there. As we get it, we will talk about it. In our analysts meeting, we'll have a little more color on kind of what we're doing. We'll have our product guy there to help tell you what we're up against. But I'm encouraged there, I really am. On the union contract, I think we're fine. There's no, I think, alarm bells or there's nothing out there that gives us any concern. Our teams have been working away, but I'm plenty okay with where we are today.

Okay. Thank you very much.

Okay, in closing, you know, we are well on our way in implementing our strategies. I hope you can see that. But let me say, we're focused on day in and day out operations. The revenue growth, how we do our cost, our capital discipline and to drive the margin and free cash flow is utmost in our mind. I would like to tell you that our leadership at Qwest knows that this ongoing daytoday blocking and tackling is essential and what really differentiates us in the marketplace and will bring financial success. We will execute responsibly and we will stay disciplined with the discipline you've come to expect from us moving forward. So thanks for your attention. Thanks for being on the call, and we look forward to seeing you the end of the month.

Thank you. This concludes Qwest's conference call. You may now disconnect.