Rick Lindner: It would be 1.5MB to 3MB product and in business we have a 6MB product. We are launching speeds up to 6MB in consumer this week.

Mike McCormack (Bear Stearns): Confirm that the margin guidance does not include the proportion that serves Cingular?

Rick Lindner: That is correct. It is guidance on a reported basis adjusted for the merger costs, predominantly the intangible amortization.

Mike McCormack (Bear Stearns): How much of the margin improvement has been from the legacy SBC initiatives implemented last year versus the new things done this quarter with the AT&T new deal?

Rick Lindner: It is tough to separate the two because we have had a number of initiatives going on. We also took the opportunity last year to stop some spending and to take some costs out of the business through attrition in anticipation of the AT&T merger closing. Thus those two pieces come together.
We are ahead of plan in terms of our total force reduction at 3,400 in Q1 and merger reductions related to the force in Q1. Those are both good signs. About 55% to 60% of our expense savings in the merger are force-related and that is an important piece of it.
The other thing in terms of the merger this year will be the movement of traffic on our network. Our plans will be to move all of the Legacy voice traffic that is off net onto the AT&T network. We will also move about 40% of private line circuits that are off net onto net. We also have some circuits that are provided for frame and ATM customers by external carriers. We will move about 90% of those on net this year.
We continue to show good progress even outside of the merger on the cost side. For example, DSL churn levels have dropped to below basic voice churn. All of those are positive signs helping us to take some costs out of the business.
The other area related to the merger is leveraging the scale of the company in terms of everything that we buy. We have targets set for this year for procurement savings and we have already negotiated and have in place contracts that will provide about 40% of those savings.

David Barden (Banc of America Securities): You mentioned the good recovery on the Enterprise segment. Looking at the voice category, it was down 12.5%. Is it going to be decelerating or accelerating and how is the other half of that revenue segment progressing?

Rick Lindner: We had a better trend in terms of volumes on the voice side and some sequential growth in LD minutes in our enterprise base in Q1.
We tracked two different sets of prices in enterprise. We tracked the point of sale price and it is beginning to stabilize. Our expectation is that point of sale pricing has stabilized. We are seeing the delta between the average price in the base and the point of sale price narrow. That is important. The other factor is we are seeing some encouraging signs in volumes.

David Barden (Banc of America Securities): The enterprise category as a whole had flattening data revenue and voice was negative at about 12.5%. the average of those is 6%, a big improvement largely on the data side. Would you expect to see the rate of leveling off start to moderate over the rest of the year?

Rick Lindner: There are three factors that go into it. Firstly, it has to do with sales activity volume growth which currently looks encouraging. That is going to help us as the year goes on. We saw an up-tick in Q1 in terms of new contracts signed and closed versus what we are seeing in Q4 and what we experienced in earlier quarters last year. Thus the reception in the marketplace is good.
Secondly, it has to do with the trend that occurs in the point of sale price and thirdly the speed of migration through the base. We would look for some continued improvement as we go forward over the next few years in the revenue trends and enterprise.

Frank Louthan (Raymond James): On the wholesale, can you give update on high chassis circuits, the growth from wireless customers and other retail?

Rick Lindner: The high cap circuit volumes have been increasing and they have been strong both in wholesale as well as retail. On the wholesale side, there is a lot of volume growth that is driven by wireless in that space. As more carriers roll out, expand their data offerings, build their 3G networks and more traffic moves to wireless, we expect that growth to continue.
Despite the strong growth, there is some pricing pressures and those pressures have kept high cap negative in wholesale during this quarter. When you look at it on a quarter-to-quarter trend, the overall trend in terms of revenues has been relatively flat. We are seeing some growth in high cap revenues on the retail side where volumes have also been strong.

Frank Louthan (Raymond James): Can you provide update on the Homezone product?

Rick Lindner: Homezone is in trial right now and is going on well. We would expect to roll it commercially later this quarter. We will roll that out focusing on a lot of areas, particularly areas that won’t have access to Lightspeed in the short term.

Jason Armstrong (Goldman Sachs): Looking at some of the mature markets where you have faced VoIP competition from cable companies, what would be your comment on losses/profits?

Rick Lindner: We have had cable competition and some of it circuit-switched for a long time. Those are probably some of our better markets. As you would with any product rollout, you do see it flatten out over a period of time. It is just a question of the base getting to a certain size and then churn begins to catch up.
When you look at our base and the company in overall, you have to put cable and VoIP competition in perspective. Currently, it is amazing because when we talk about VoIP competition, we are talking mainly about regional business. That is about 16% to 17% of our total revenues at the moment.
When you back off that base, customers where we have bundled those customers with DSL or bundled them with video service through dish. You then look at the remainder of the base and the usage those customers have and whether they are of such a profile that they tend to be more of a target or risk. This computes to a total risk that is about a third of that total consumer base. We are working against that base to bundle those customers and protect them going forward.

Jason Armstrong (Goldman Sachs): We are approaching IPTV launches this summer. What is position as regards content and how do the rates compare with those of larger cable companies?

Rick Lindner: We have a number of content deals done. We don’t see any issues with respect to either our current controlled launch or our commercial launch later this quarter. Pricing is now where we have expected it from a business case standpoint.
If you would compare our projections versus cable, what you see is content as a percent of revenues for an average customer that is probably a little higher than the average cable subscriber. Due to the packages that we will be selling and the fact that all our customers will be digital, those revenues will be higher. Thus the gross margin dollars per customer will be consistent with one for a typical cable franchise.

Blake Bath (Lehman Brothers): On the free cash flow and EPS guidance, does that include bidding activity you may do in the upcoming AWS auctions?

Rick Lindner: We are working with Cingular in terms of looking at the upcoming auctions and have not finalized a strategy. You should expect to see us get involved in the auctions. It is a significant amount of Spectrum that is coming on the marketplace. Looking at Cingular, the Spectrum depth is very strong. It is facilitating rollout of 3G. As we continue to roll out UMTS with HSDPA, we pick up additional efficiencies in terms of the volume we carry on that network, both on a voice as well as from a data standpoint. However, we will follow the auctions closely and identify opportunities at values we fell are attractive.

Blake Bath (Lehman Brothers): Is that activity likely to be significant enough to cause a downward revision of the double digit EPS growth and the free cash flow outlook?