Stephanie Comfort - SVP, IR Dick Notebaert - Chairman & CEO Oren Shaffer - Vice Chairman & CFO

Jonathan Chaplin - JP Morgan Jeff Halpern - Sanford Bernstein John Hodulik - UBS Frank Louthan - Raymond James David Barden - Banc of America Securities Simon Flannery - Morgan Stanley

Good day and welcome to today's teleconference call. All participants are on the line in a listen-only mode. Please note this call may be recorded. At this time, I would like to turn the call over to Senior Vice President of Investor Relations, Ms. Stephanie Comfort. Go ahead, ma'am.

Thanks and good morning, everyone and welcome to our call. We are here to discuss our first quarter results. With us on the call this morning are Dick Notebaert, our Chairman and CEO and Oren Schaffer, our Vice Chairman and CFO. Before I turn the call over to Dick I would like to remind everyone that we will 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 make here. Let me also mention that in order to supplement the reporting of our 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 website. With that, I'd like to turn the call over to Dick.

Thank you, Stephanie. Good morning, everybody and welcome. Qwest reached another milestone today. We reported positive earnings per share from operations in the first quarter of 2006 for the first time since mid-2000 excluding any gains on asset sales. Achieving profitability has been a critical performance metric among many for this management team since our arrival in mid-2002. We recognize that the real performance goal is sustainable profitability and we're focused on continuing to implement our strategies to deliver that goal as well. In addition, we continue to make progress on our other performance goals. Most notably, this quarter we have further expanded EBITDA and EBITDA margins moving for the first time into the low 30% range. That is consistent with our stated target. We also grew ARPU across our growth products and bundles, achieved better than peer access line trends and continued to improve customer service metrics. Our progress and performance demonstrates that our strategies are working. We are investing in our growth products, increasing ARPU and bundle penetration, improving customer service, leveraging our asset base and reducing costs. As a result, we will steadily drive achievement of our longer-term goals of sustainable growth in revenue, profitability and especially free cash flow. This has been a disciplined and steady journey for Qwest with much achieved over the past four years. This, despite a highly competitive environment. We intend to drive this performance with a focus on returning value to all of our constituents. Here are the highlights of the 2006 first quarter. We delivered the fourth consecutive quarter of year-over-year revenue growth. Strong positive trends for our high-value, higher ARPU growth products and bundle penetration across our business units offset continuing those stable retail access line lost trends. In addition, mass-market revenue grew both sequentially and year-over-year. This was due to volume increases from the strategic growth products, such as DSL and long distance, and increased bundle penetration, including growth in our DIRECTV and wireless subscribers. Our Wireless segment posted the fourth consecutive quarter of subscriber growth and we are at the crossover point for breakeven Wireless segment income. Business revenue continued to improve both sequentially and year-over-year benefiting from data, IP and integration growth. With the industry consolidation in two mega mergers resulting in minutes moving on net, we were able to hold wholesale long distance revenues essentially flat sequentially. We are successfully implementing our strategy of driving more profitable minutes of use through our new pricing model and cost efficiencies resulting in higher margin revenue. Adjusted EBITDA totaled $1.067 billion and our adjusted EBITDA margin was 30.7%, squarely in line with our near-term goal in the low 30% range. The sequential and year-over-year EBITDA improvements were driven by significant progress on cost reduction and productivity improvement. As an example, in the first quarter, we reduced our wireline facility costs by $27 million sequentially and more than $50 million year-over-year further improving the profitability of our network. Also, through our continuing efforts to balance workforce and load -- I mean balance them -- we have been able to improve our customer service metrics to record levels while reducing head count through attrition. At the end of the first quarter, our overall head count was lower by 4.6% year-over-year while our revenue per employee increased by 5.7% compared to the 2005 first quarter. We experienced normal cash flow trends in the first quarter, which is essentially lower for operating and free cash flow while we maintained our discipline on CapEx. Our focus continues to be on driving revenue growth and maintaining the highest level of service. Now Oren Schaffer will provide the details in his comments. But the net effect was negative free cash flow in the quarter compared to marginally positive free cash flow in the prior year. The important point is that our outlook for CapEx and free cash flow remain unchanged for the year. For CapEx in 2006, we continue to expect to invest at, or just slightly more than, 2005 levels of $1.6 billion with approximately one-third focused on broadband and upgrading broadband speeds. For free cash flow, we continue to expect to generate growth of $450 million to $600 million in 2006. Now this is on top of the $900 million in free cash flow already achieved in 2005, both before one-time payments. This anticipated cash flow gain is based on operating improvements, working capital diligence and reduced interest expense resulting from the tender offer for our remaining legacy high coupon debt that we completed at year end. Oren will review the first quarter details with you in a moment, but first my comments this quarter will include a reminder of how we believe we are creating sustainable value for all of our constituents and a few thoughts on how we plan to capitalize on one of the opportunities resulting from our changing industry model. We recognize that long-term value creation is based on delivering sustainable, competitive growth in revenue, earnings and cash flow. As I have said repeatedly, this is our ongoing focus. The components of value creation for Qwest include top line growth, continued cost reduction, including productivity improvements, improving EBITDA margins to competitive levels, sustainable profitability and free cash flow growth driven increasingly by operating performance. To summarize our progress to date on value creation, achieving top line growth has clearly been the toughest nut for us to crack. We have stemmed overall revenue declines through investment in our growth products and again let me repeat those: long distance, broadband, advanced data products and VoIP, for voice over Internet protocol. At the same time, we have built a full suite of product packages and bundles that also include video and wireless. These growth products, bundles, localized initiatives and our continuing focus on customer service improvements have helped to stabilize retail access line losses and provide Qwest with a solid, competitive position in our markets. Our strategy to achieve modest revenue growth continues to be driven and continues to drive higher penetration in ARPU on our growth products and to close the gap on our peer group benchmarks for these metrics. This strategy requires selective and disciplined investment. In terms of both CapEx and marketing support, we continue to carefully review and adjust our pricing as appropriate. Our growth products are increasing ARPU and market penetration. For example, let me just give you a couple. In the first quarter, our broadband penetration reached 13% compared to 11.4% in the fourth quarter and 8.3% a year ago, a better rate of gain than the industry average. Our long distance penetration increased to 38% from 34% a year ago compared to an industry average in the mid-40% range. Long distance ARPU increased nearly 17% compared to the first quarter a year ago and we continue to drive better pricing and higher value customers. We also have seen some positive trends in enterprise data. Demand for emerging data products, such as Metro Ethernet, VoIP and our IQ suite of services are driving strong volumes on our MPLS backbone, now at a run rate of nearly 4 billion VoIP minutes per month. Our bundle penetration increased to 53% in the first quarter from 51% in Q4 and 47% a year ago, a continuing result of last year's bundle launch in May and promotional initiatives introduced last July. We believe we have a significant revenue opportunity in achieving industry benchmark metrics on our growth products while we work to hold our access lines stable. Now net connections, which include consumer, small-business primary and secondary lines, high-speed Internet, wireless and video subscribers, grew over 140,000 in the quarter. We have added over 330,000 connections since we reversed these trends on our bundling and localized sales initiatives that began last May. You know, we have also made great strides in cost reduction and productivity improvements, including more than $1.5 billion in cost reductions alone since 2003. The good news is that we believe we still have significant opportunity to improve our cost structure and productivity, especially on our long-haul network; but even within the local service areas. At the same time, we continue to drive volume on our network while we have improved profitability by implementing our new pricing model. Our more competitive cost structure along with our successful strategy to improve profitability on our wholesale business and our network have driven our progress in improving EBITDA and EBITDA margins. As we have said before, our goal is to increase our EBITDA margins to the mid-30% range through a combination of continued improvements to our cost structures, further leveraging our existing assets and driving modest revenue growth. Our first quarter profit is a good start to achieving sustainable profitability and we expect continued improvement through the course of the year. With profitability, we will have the opportunity to begin utilizing our significant tax loss carryforward, which we estimate to be in the range of $6 billion. The net effect of all this has been a significant improvement in free cash flow and free cash flow growth. We have achieved these results to a great extent through debt reduction and restructuring, but to an increasing degree through our operating improvements, which we believe will drive free cash flow growth in the future. Given our free cash flow expectations for 2006 and beyond and assuming that we will maintain a cushion of approximately $1 billion in cash on our balance sheet, we are exploring the most value creative ways to utilize free cash flow to reward shareholders. Now I want to spend a few minutes talking to you about one of the opportunities I see for value creation as the industry model continues to change. In my view, the foundation of value creation resides in providing customers with unique products and services that best meet their needs. That is something we are committed to doing. We have always provided customers with choices in our industry and at Qwest based on the level of service they desired either for themselves or for their customers. Let me say very clearly: Qwest supports net neutrality and we have done so since the minute the FCC policy statement was issued last August 5th. Kevin Martin has stated those principles and we support him. That policy is meant to ensure that there is no impediment to anybody's ability to fully utilize the net. It does not mean and was never intended to mean that we cannot provide our customers with differentiated services that enhance their position in their market. Our goal and position is to offer customers -- including content providers -- the opportunity to enhance their customers' experience and provide faster delivery of their products and we will be paid accordingly for this product segmentation opportunity. Now I know this is not everybody's view, but we strongly feel that it is the right course, that it is doing the right thing for the right reasons. We are willing to lead and take a stand much as we did on naked DSL and on VoIP. Our industry model is changing and to grow, we must adapt and we must leverage opportunities, which the Internet clearly represents. Now let me turn the call over to Oren for the details on Q1.

Thanks, Dick and good morning, everyone. To reiterate, we are very pleased with the progress we made in the first quarter with the revenue trends improving and margins and income reflecting solid growth. We are equally encouraged that we are well-positioned to build on these positive trends throughout the year. Revenues totaled approximately $3.5 billion in the quarter compared to $3.4 billion in the year-ago quarter. This marks the fourth consecutive quarter of year-over-year growth and puts us squarely on the track for revenue growth this year. Some of the key drivers of the growth included strong performance in our mass market segments, an indication that our bundling strategies are working; solid growth in data helped by record high-speed Internet ads, as well as encouraging trends in the IP service area; and, we had continued solid performance in small business where we gained an impressive 25,000 lines in the quarter. Following similar trends in the fourth quarter, wireline revenues grew again in the first quarter with all retail channels up year-over-year, as well as sequentially. Mass market drove 2.5% growth with strength in high-speed Internet and long distance revenues. The most significant drivers of wireline revenue were increased bundle penetration, growth in small business and high-speed Internet. Mass market data revenues grew 34% year-over-year and 11% sequentially. High-speed Internet subscribers grew a record 13% sequentially, and that is on the heels of fourth quarter 10% sequential growth. Much of the demand reflects continued, focused efforts on improving our penetration relative to peers. As a result, our high-speed Internet penetration now stands at 13%, up significantly from just over 8% a year ago. We still have significant opportunity to close the gap to peer penetration levels. We continue to benefit from successful pricing and promotion strategies, as well as lower churn. As a result of the strong upward service migration, 90% of our new subscribers signed on for 1.5 megabit service or higher in the first quarter. Also helping us this quarter was the benefit of accelerated migration from dial to broadband. We would expect high-speed Internet subscriber growth to continue at levels closer to the fourth quarter's pace as some of these dial initiatives moderate. Finally, we continue to increase our network availability both in terms of network-enabled, as well as higher speeds. Currently, 78% of our households have broadband availability compared with 68% a year ago. We will continue to advance our broadband network capabilities in 2006 with a focus on increasing speed, as well as some additional network enablement so that we will approach the 80% level by year end. Mass market long distance revenue grew nearly 15% year-over-year. We initiated a price increase in the first quarter, which contributed to a slowing of ads in the quarter. However, our intended consequence of driving long distance ARPU appears to be working. We saw ARPU increase sequentially and nearly 17% year-over-year and we believe that our ads will reaccelerate in the next several quarters. Long distance remains an important area of focus and a significant opportunity for us in 2006 as we continue to drive ARPU and penetration. We launched our integrated local long distance product, Digital Voice, this quarter. Access line decline continued at a pace similar to what we have been seeing throughout the past year. Wireless substitution continues to be the main driver in loss and residential lines. Losses to cable and VoIP players continued at a similar pace to what we have been seeing over the past year as well. We are keeping our top line growing through further penetration of our bundled services. Customers continue to combine local, long distance, DSL, DIRECTV and wireless in Qwest's quadruple play. Customers taking a four-product bundle increased over 42% sequentially and the growth in the three-product bundle grew nearly 24% sequentially. Our bundle penetration continues to advance, now standing at over 53% of our customers take a bundle. Our DIRECTV alliance has been a strong contributor to our bundling success. We now have 170,000 customers on DIRECTV, adding over 40,000 this quarter and over 125,000 increase over last year. Evidence of the success in our bundles is consumer ARPU, which increased 6% in the first quarter when compared with the first quarter of last year. Turning to the business segment, the business channel grew 3.3% year-over-year as our data products continue to gain traction and offset pressures from access line trends in the business market. Data and IP revenue grew 8% year-over-year driven by emerging data products such as Metro Ethernet and our IQ suite of services, as well as government business. We continue to see positive trends in private line, as well as strength in the demand for our VoIP services. We saw the wholesale channel improve again this quarter as our pricing diligence continues to translate into higher quality, higher margin revenue. In addition, demand for wholesale services from rebillers continues to grow as we benefit from growth and share in the higher value area of the wholesale market. Wireless revenue grew over 10% year-over-year, again the fourth consecutive quarter of subscriber increases. As Dick mentioned, we are at the crossover point for breakeven wireless segment income. ARPU reached $50 a month, an increase of $4 year-over-year benefiting from, among other things, higher take rates in our data offering. Over 50% of our new subscribers are taking a data service. In addition, we continue to drive down churn and remain focused on driving bundle penetration with our quadruple play. We have the opportunity for further subscriber revenue and margin expansion as we progress throughout the year. Let me now shift to the rest of the [PRIs] Adjusted EBITDA was $1.067 billion for the quarter after an adjustment of $22 million for restructuring. This advanced our margins to 30.7%, an improvement of 200 basis points year-over-year and very consistent with our near-term objectives of low 30% margin. We continue to have our sights on driving mid-30% margins over time. Margins should continue to benefit from traction and revenue growth as we increase penetration of key products and improve our ARPU. Productivity improvement continues to be a key part of our strategy in driving further improvements in EBITDA and sustainable profitability for Qwest overall. We are seeing evidence that productivity initiatives are contributing to our improving profitability. We reduced operating expenses by 4% in the quarter compared with a year ago. Cost of sales and SA&G were down $51 million in the same period after adjustment for restructuring and realignment expenses in both quarters. Our overall head count declined 4.6% year-over-year. We continue to utilize the 5% to 8% natural attrition in our business to optimize workforce levels. At the same time, we are benefiting from our wireline facilities' cost optimization initiatives. We reduced wireline facilities' cost by another $27 million in the quarter and over $50 million in the year-over-year comparison. Importantly, both our fixed and variable unit costs are coming down, reflecting the progress and ongoing sustainability of these efforts. We believe there is still opportunity to reduce costs and improve efficiency with a focus on our long-haul network. We are encouraged by the progress we're making and in many of our grooming and hubbing initiatives and believe they will translate into further facilities' cost improvements this year. CapEx in the quarter totaled $390 million and was consistent with our expectation to invest at or near the 2005 levels of $1.6 billion. Importantly, we continue to increase the proportion we are spending on broadband by enabling higher speeds and greater availability. This focus on generating revenue growth from high-speed Internet enhancements caused us to pull forward an increment of CapEx to the first quarter. We would expect a similar result in the second quarter with offsets occurring in the third and fourth quarters. Free cash flow benefited from improved operating results, offset by anticipated seasonal and one-time items in the quarter. Cash flow from operations was $140 million, which included $100 million in one-time payments related to shareholder litigation. As expected, the quarter also included seasonal payments of $250 million for employee bonus and timing on payroll. We expect free cash flow before one-time items in the range of $1.3 billion to $1.5 billion for the full year '06, a $450 million to $600 million increase from the $900 million of cash flow we generated in 2005. We continue to look for $200 million to $300 million in improvement coming from operations and an additional $250 million to $300 million from interest expense reduction. In the first quarter, we were on track with the expected benefits from operational efficiencies, as well as interest expense reductions. We look for the impact from the balance sheet to be neutral year-over-year. We posted EPS of $0.05 in the quarter as a result of the continuation of our previously announced emphasis on improvements in productivity, operating efficiencies, network optimization initiatives, as well as lower interest expense and depreciation. This is a milestone for the Company and we believe it is a sustainable milestone. In closing, we are very pleased with our first quarter results. We advanced retail revenue. We increased the penetration of our key growth products while driving higher ARPU and strategically raised prices on select products. We made substantial progress on our EBITDA margins bringing us closer to our goal of mid-30%. More importantly, we reached positive EPS. We continue to see opportunities to sustain profitability and meaningfully grow our cash flow in 2006. With that, let me turn the call back to Dick.

Thank you, Oren. For 2006, we have the opportunity to drive modest organic revenue growth and improve EBITDA margins. In closing my remarks, our strategies are working. Our progress is demonstrable. We have momentum that is tangible and a positive outlook for the future. We believe Qwest has the opportunities through our significant customer base, strong market position and product portfolio. We have the assets, including our state-of-the-art long-haul fiber-optic network, the strategies and the commitment to deliver growth and shareholder returns over the next several years. So let me stop and now let's take questions.

(Operator Instructions) Your first question comes from Jonathan Chaplin - JP Morgan. Jonathan Chaplin - JP Morgan: Thank you very much for taking the question. Just two quick ones. I am wondering if you could give us a little bit of color on what you're seeing in terms of enterprise pricing. Actually, in terms of pricing in the long haul business generally and where we are with capacity utilization, both in your network and where you think it might be for the industry overall? Secondly, if you could touch on what incremental margins are in this business. It seems to me that you have tremendous operating leverage in this business, so any increase in revenue should ultimately be very accretive to EBITDA and free cash flow. I'm wondering if you could touch a little bit on M&A. I know you have looked at IXC and CLEC acquisitions in the past. Level 3 has done a string of these acquisitions over the course of the last few months. I am wondering how that feeds into an improving pricing environment and whether there are opportunities for you to do similar acquisitions on the horizon. Thank you.

Let me try and take a run at them and then Oren, you can jump in. First of all, on the pricing environment, I think there are four factors occurring in the enterprise space today. There is good momentum in the marketplace and that is refreshing. It feels good, and we can feel it. Volumes are strong, particularly in the data and in the IP area and I think Oren and I both mentioned we are benefiting from that. By the way, that includes Metro Ethernet, private line, VoIP and our IQ services, which I mentioned in my opening remarks. When you think about it, if you look at our growth on our MPLS backbone, we are in that 4 billion range per month and if you go back and look at our prior calls, that has had meaningful growth. I also think that there is a real opportunity we haven't seen for quite a while and that is a technology migration. We are continuing to move from that circuit switch, that legacy network, to an IP-based service and that gives companies like Qwest an opportunity to capture through a suite of services -- you've got to look at our IQ and our Web hosting and everything -- to capture revenue. Finally I think the pricing environment remains competitive. I don't think we should deny that, especially in the high-end enterprise space. We are seeing, and I know it is anecdotal, but we are seeing signs of stabilization of rationality. That is a good thing. On the capacity areas, I think all of this translates into increased demand for our data and IP products. Volumes are strong, particularly in those two areas, and in the Ethernet and our IQ services. Let me assure everybody; we do not have capacity constraints. We have the ability as we keep saying and have been saying for a number of quarters and a very disciplined way to deploy CapEx if needed -- if needed -- to add capacity to our network if -- and only if -- it makes economic sense. So we are in very good shape and we haven't hit that point. We feel good about where we are and by the way, if you can get good margin services, that is just a very rational investment because you need to get that ROIC. We are continually monitoring our state-of-the-art network to assure an optimal customer experience and we have said it in our comments that customer service is the key to this. All of that translates into your margin question. I think you're right. I think the more we sell, the better the margin, especially with the type of pricing strategies that we have implemented. So my answer to your question on margin is yes. On the M&A activity, let me just tell you that we are very discipline. We have shown that before. We've talked about it on these calls. We scan the horizon. There are two issues and I will just repeat them. Whoever we might look at has to be strategically complementary to us, even if it is in the hosting space or integration space or in the traditional facilities space. Secondly, the price has to be rational. You look at our currency, whether it is cash or our stock, and it is a very real thing. We have stabilized the balance sheet and I think Oren and his team have done an outstanding job in doing this. So we have to be very thoughtful and be able to put pencil to paper and say to owners, look, this makes sense. It's got a short payback. It is definitely accretive in a very short term. Oren, you want to add on the M&A?

No. I think your answer was very complete. So everyone understands, we continue to have a very disciplined approach to this. We look at, I believe, everything that is out there. We are not surprised by any opportunities nor are we surprised when someone else makes an acquisition, but we just haven't found anything that fits our measurement criteria. Jonathan Chaplin - JP Morgan: Thank you very much.

Our next question comes from Jeff Halpern, Sanford Bernstein. Jeff Halpern - Sanford Bernstein: Good morning, guys. My question related to the ability to push high bandwidth connectivity to consumers in small businesses. To date, you have focused primarily on increasing DSL availability to consumers in the region. Dick, first, if you could philosophize a little bit about where you want to see your ability to deliver high bandwidth services going over the next five years. How much bandwidth do you think is necessary? Then technologically, how do you see achieving that goal, which of course predisposes that you believe you need more bandwidth to the consumer either in the double-digit or even triple-digit megabit level per second? Oren, if you could just tag onto that a comment on whether or not you believe you can execute whatever strategy Dick articulates within the constraints of the spending levels that we are currently seeing on CapEx? Thanks.

Good question, Jeff. One thing I would like to point out, we talk about availability and Oren mentioned it, but we also over half of our customers now can get that 5 megabit and we've got a large segment of our customers that can get 7 megabit today. That sometimes get missed in what we're doing. Our strategy is one of just-in-time bandwidth delivery. So, Jeff, if you wake up tomorrow morning and you want 10 meg, hopefully we put it in tonight so tomorrow morning it is there for you. We are really working on this return on invested capital. We have to be very disciplined and rather than just put it out there and they will come, we are really try to measure our customers, talk to our customers and when they need 7 meg, it is there and when they need 10 meg, it is there and 20 meg, it is there. So this just-in-time bandwidth delivery really impacts our capital deployment. We are getting towards the end of our plan on reaching out to customers when we get to that 80% point and then we will have to look at WiMAX and the other issues or other technologies that are available. So just-in-time bandwidth delivery is very important to us. Over the next five years, we can see this moving forward, but remember it is not just the buzzword of 10 meg or 20 meg, it is what does the server do, what does your streaming do, what are the applications you're going to run on it and so far taking just over 30% of our CapEx and putting it into that bandwidth -- don't think about putting RTs out there -- think about the bandwidth delivery just-in-time. Increasing that bandwidth as customers want it has served us well. So I think our strategy is right as long as we stay close to the customer and see the world through the eyes of the customer. Oren, do you want to answer his CapEx question?

No, I think thankfully the strategy issue you laid out is the one we are working on. My answer to the CapEx question will be very easy. Jeff, we continue to have this very, very tight link between marketplace needs and our capital spend. As you can see, we are already increasing the percentage of CapEx that we spend on broadband, moving it from probably some 20% of the total a year ago to 30% and now beyond 35%. And what is important to remember there is as the footprint becomes enabled, which we believe by the end of the year it will essentially be enabled, all of that capital simply goes to improving the speed and the capacity. I think that in our current capital spending pattern, we can certainly support and our models have shown that we can support the strategy that Dick just laid out for us.

On the fiber issue, we do, as we've said before, put that in the greenfield starts. We do look at, whenever we need to reinforce a remote terminal or an RT, whether or not we need fiber and we can use an existing asset. So I think this ROIC and just-in-time bandwidth delivery is key. Jeff Halpern - Sanford Bernstein: Thanks, guys.

Our next question comes from Simon Flannery, Morgan Stanley. Simon Flannery - Morgan Stanley: Dick, if I could just follow up on the bandwidth and in terms of exactly or be a little bit more specific about the kind of services, the kind of agreements we might see. Are you basically saying that you will enable other people's sites other people's content or might you be an aggregator yourself? I don't whether it is iTTV or something that looks a little bit like that. How far away is this? Is this something where we might see some agreements from you in the next quarter or two or is this more a couple of years out? Thanks.

Thanks, Simon. We are already an aggregator. We would remind everybody on the call that we have cable TV availability and we do aggregation both in the Denver area, down in Phoenix and in Omaha, Nebraska. So we have all of those contracts and relationships with the entertainment providers ranging from the networks to the non-networks. So we are already there. If we wanted to turn something on, we just hook it up to the head or add a head in. So that is not an issue for us. The real question is that as you look out in the future, do you want a la carte channel selection or do you want a la carte programming selection? For example, some of us watched the Olympics on the Internet. It was kind of fun and we got more venues and I thought just as good of coverage. You could have watched the NCAA playoffs from the beginning through there and on the Internet or streaming. That was a lot to do and we have seen recently where Disney has started to make not just their library, but some of their programming available. I think we're going to see a change. I think there will still be a need for some aggregation in the near term, but over the long haul, using a hosting center to put the entertainment on there once you get used to time shifting, at TIVO style device, you will be very comfortable with it. What you will not see from us is an announcement of our intention. What you will see from us is an announcement of what we're doing. In other words, when it is market ready, when the silicon and the set-tops and the middleware and everything is functioning correctly -- if it does, which it will -- then at the appropriate time you'll see us roll it out because that's when customers buy it. It is all driven on revenue and return on invested capital. So thanks for the question, Simon.

Our next question comes from John Hodulik, UBS. John Hodulik - UBS: Good morning, everyone. Two questions. First on the revenues, we are four months into the year and can you give us an update on how you think the revenue trends are going to trend throughout the remaining quarters? I guess a quick question for Dick. There would seem to be some restatements of last year's numbers. Could you just give us some input on why that was? Finally, Dick, I didn't quite catch the comments you made earlier on the return of capital. I think you tied it to a certain extent to giving customers new capabilities or services. You are obviously going to have a lot of cash on the books by the second half of the year. Could you just talk about your thought processes on how you might go about returning that to shareholders in the form of either buybacks or dividends?

Let me do the last one first. What we have said consistently is that as we accumulate this cash and the cash flow that Oren has talked about, free cash flow, and then we will keep a cushion on the balance sheet, we will make an evaluation later this year as to the best way to reward our equity holders. I think if you are a bondholder, you feel pretty good about what has happened with your experience with Qwest. As I talk to bondholders and as Oren talks to bondholders, that's the feedback we get. On the equity holders, it is just a question of how do they get rewarded? As we did when we were talking about debt, there are only a few vehicles to do this with and we will of course review or listen to the inputs from our shareholders that will help us make that determination later this year. But we will definitely use it to reward shareholders.

As far as the restatement goes, the only thing I can think of is that we have got mass market and some previous DSL subscribers. When somebody says restatement around us, we are little… We pay very close attention when you talk about that. What restatement are you talking about? John Hodulik - UBS: Right.

What restatement are you talking about? John Hodulik - UBS: We can just follow up offline. Just that the revenue numbers from a year ago looked a little different than what we had in the model.

The only thing we did different is we have got a fellow that is very good named Pat Lewis, and we moved his mid-market and we moved some of the lower-end single-line businesses out of our mass-market into our BMG group. So that is the only thing I can think of where the numbers… but again, we would be happy to answer the question. Was there another question in there, John? John Hodulik - UBS: Just on revenue trends, it looks like you had about 0.8% growth. Do you think that can accelerate throughout the year based on the competitive trends you're seeing?

Well, I do. I think we can do better at this. We have that opportunity. So I would say based on the opportunity, we feel we have a shot at doing that. The other thing is, and I think this is when you look at the Q and I think I said it in my remarks, although maybe too obliquely. The wholesale business, with the mega mergers a lot of the wholesale minutes that we were getting from those large companies moved on net. In other words, you know, they consolidated. Therefore, they had the network capacity so they moved the minutes that we might have been providing them on a wholesale basis on net. So our wholesale group which had basically flat revenue increased margins was able to make up the majority of that loss of business by finding other sources, as Oren said; rebillers, et cetera. So the fact that it was flat it really amazing because if we wouldn't have had those mergers, then in fact we would have had significant, meaningful growth in that segment. Keeping it flat and making it up that quickly after those mergers, I think is a pretty darn good accomplishment by Roland Thornton and his team in our wholesale group. But we've made that up pretty much, and now I think we expect to see growth there which you couldn't really get at. In the consumer, I think we will continue to see good trends. Our BMG on the VoIP and data can only get better. Our IQ services are really very attractive. Oren, do you want to add anything on the revenue?

No. John Hodulik - UBS: May I follow up just quick on that wholesale stuff? Did guys said how much of revenues you have from those that you expect to fall out as a result of the mergers? Like you said, you did a great job in replacing that revenue this quarter. So do you think you'll be able to keep up with those trends as more and more of that traffic shifts away?

Well, we have been so far, and there is lots of opportunity out there and we are very focused. You know, at Qwest we have always viewed wholesale as a channel that we really value. I mean they are great customers, and we embrace them just as we would our retail distribution outlets. So yes, I think so. Again, it's those two mega mergers, and I think the team has done pretty darn good. We expect to see growth in that area, now that we have overcome the loss of that business.

Our next question comes from Frank Louthan - Raymond James. Frank Louthan - Raymond James: Great, thank you. Just a couple of other questions. I apologize if you already addressed this, but where do you stand as far as the out-of-region business, maybe lowering costs and doing some network grooming? What sort of initiatives do you have to continue that? Then you mentioned hitting the basic industry metrics. You have thrown out a few of your potential revenue opportunities you could get from that. Where do you stand on making progress towards those from a revenue standpoint? How much more do you think that you have to go just getting to the industry average in a lot of those metrics? Thank you.

On the metrics, I think we narrowed the gap versus our peer group in DSL, with penetration increasing to 13% from 8% a year ago. We had a slowdown in LD adds due to pricing increases in the first quarter. But I think there again, we're closing the gap on the ARPU which is just as important, to have a zero-based customer versus getting the higher ARPU customers is very important. So I think that, from a revenue point of view, continues to be a good opportunity. If you look at line loss and you compare us to the peer group, you know, we were equal to or better than. I mean we did pretty good on that, although you hate to have any line loss. On wireless the fact that we continue to gain subs. Now, some people may look at that and say, gosh, you didn't have the growth that somebody else had. But remember, four quarters ago we were losing customers at a pretty strong clip, and our ARPU was below $50. In fact, our ARPU was in that $48 range. Now that ARPU has moved into the $50 range and we have had three quarters of growth, and as we said on the call, our wireless effort is now considered ready to cross over to profitability. I mean, it is basically flat or breakeven. So I think on that, we have made pretty good progress. You are never satisfied. I mean, and bundled penetration is up. We just aren't satisfied with it, but I think the momentum is there and we're picking it up. The first part of your question was lower cost opportunities on the long-haul. Quite candidly, I think we have got a lot of opportunity there. One of the things we have looked at was when we were looking at acquiring Allegiance, our team felt that the reason to buy them was to get the points of presence out in certain markets, and we would have picked up quite a few. Now, thanks to that exercise we did, that plus the MCI effort, we have looked at and Dan Willis has got a team and I've got great faith in Dan Willis being able to deploy what we call aggregation points. When we built our network years ago, we built it so that everything was a home run back to our PoP instead of running it to an intermediary office, aggregating a bunch of DS1s and then running it back on a DS3 or an OC3 or an OC12. So what Dan is doing and his team, and I think along with Barry Allen and the network folks, doing a good job of deploying these aggregation points and that should significantly reduce our costs going forward. Just to give you an idea of the opportunity and I don't think there are any secrets here, we're running in that $0.70 on the dollar range for facility costs, maybe a little higher. If you look at the old MCI before the merger, they were probably $0.50 to $0.55 on the dollar; and if you look at the old AT&T, they were probably in that mid $0.30 to $0.34 or something like that, in those ranges per dollar. So there's no reason in the world with the aggregation points and maybe some selective PoP deployments that we can't drive our costs down at least into that $0.50 range. Now if you look at the dollars of revenue we have got there and you say if you could reduce your costs from 70% to 50%, 55%, you can do the math. That is a pretty meaningful number. So I think there is lots of opportunity left.

Well, I agree with you and obviously it is a higher priority to try and recover that.

It's just a question of grooming, how fast can we groom it? That's all. Frank Louthan - Raymond James: Okay great. Thank you.

We are just going to take one more question.

Our next question comes from David Barden - Banc of America Securities. David Barden - Banc of America Securities: Thanks for taking the question. We have gone through a lot, maybe a couple of housekeeping questions if we could. The first would be the depreciation change ticked down pretty healthily. I think it contributed to the earnings number this quarter, Oren. Could you talk a little bit about the run rate there? The second would be in terms of tying out the cash flow statement this quarter, I was looking at EBITDA less interest expense, less the one-time items and I get to an operating cash number that should be somewhere in the $400 million range versus the $140 million you reported. Could you talk about what other moving parts were going on in the cash flow line here? Dick, we have been talking for a while about getting positive EPS and making decisions about using cash for the benefit equity holders. I know that there is a range of options on the table, but could you give us a timeframe when you would like to make that decision not just later in the year; but is it a third-quarter decision, a fourth-quarter decision? When are we going to make those choices? Thanks a lot.

I will think about that while Oren answers the first two.

The depreciation is just coming down and that is a sustainable parameter. There hasn't been any significant change in our policy on depreciable asset lives or anything like that. It is just depreciation will continue to trend down and, as you correctly point out, was a good contributor to the net income number. On the cash flow, I quite frankly would agree with you that the cash flow seems to be closer to $400 million than what we have said. It is in the balance sheet movements and, as I said in my remarks, that was simply a repetition of what we said earlier in the year, that we expect the balance sheet to be neutral year-over-year. In the first quarter, it uses, and it always seems to use, a significant amount of cash and it has to do with this year, for example, we had an extra payroll in the period versus the previous quarter. An extra payroll for us is about $100 million. We also had a more significant change shall we say than the previous year in the switcharound in the payables. It is $250 million. So these things are, like I say, they were expected. We have no reason now to change our view on cash flow for the year and also no reason to change our view that the balance sheet usage or source of funds will essentially be neutral year-over-year. So you are right about the $400 million and your arithmetic is correct.

It was a rather pointed question on the timing of it and as I sit here and ponder that, I think we're better off staying with what we have said in my opening remarks and that is that as the cash accumulation increases, which you can see where it is going and we have been pretty straightforward talking about this for the last I don't know how many calls, that as the year unfolds, that we will make a recommendation to our Board and discuss it with our Board in full and then announce it. I think we're better off not giving you the date or the week or the month of it because then if we slip it 24 hours somebody will be on me. Well, you know how it is. Let me just close this out by saying that we are very committed to rewarding the equity holders and I think this four-year journey that we have been on has benefited across all the constituencies and I think we need to find a way to reward utilizing that cash in the most effective manner. So thanks for the question. David Barden - Banc of America Securities: Thanks, Dick.

Now let me just end this call by thanking everybody for being on the call, for the commitment and the support that we have gotten from all the different constituencies. As you can tell, for us this was a major milestone. This was another chapter for us on our journey and we feel very good and our team -- I wish everybody, all 38,000 plus people -- could be on this call and tell you how they feel because we're very proud of what we've been able to accomplish. So thank you for being on the call.