Gregory Lundberg - Mary Wilderotter - Chairman, Chief Executive Officer and President Donald Shassian - Chief Financial Officer and Executive Vice President

Christopher King - Stifel, Nicolaus & Co., Inc. Gray Powell - Wells Fargo Securities, LLC Daniel Gaviria - Morgan Stanley Michael McCormack - Bear, Stearns & Co. Batya Levi - UBS Investment Bank Scott Goldman - Bear Stearns Frank Louthan - Raymond James & Associates, Inc. David Coleman - RBC Capital Markets, LLC Derya Erdemli

Good day, ladies and gentlemen, and welcome to the Frontier Communications' Fourth Quarter 2010 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Greg Lundberg. Please go ahead, sir.

Thank you, Lisa. Good morning, everyone. The purpose of this call is to discuss 2010 fourth quarter results for Frontier Communications, which were released this morning and are available on our website. We anticipate the Form 10-K will be filed later this week. On today's call are Maggie Wilderotter, Chairman and Chief Executive Officer; and Don Shassian, Chief Financial Officer. During this call, we'll be making certain forward-looking statements in particular on matters related to 2010 results, 2011 results and estimates. Please review the Safe Harbor language found in our press release and SEC filings. On this call, we'll be discussing GAAP and non-GAAP financial measures as defined under SEC rules. In our earnings release and on our website, www.frontier.com, we've provided a reconciliation of non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP. Please refer to this material during our discussion I'll now turn the call over to Maggie.

Thanks, Greg, and good morning, everyone. We appreciate you joining us today as we discuss the fourth quarter and full year 2010 results for Frontier Communications Corporation. Our Q4 revenues were $1.4 billion and adjusted operating cash flow or EBITDA of $622 million represented a margin of 46%. Our dividend payout of free cash flow for the six months since closing was 67.5%. These results are a solid achievement as we continue to transition the acquired properties to our legacy Frontier standard. Our results reflect the investments we made in people and product to transform the under-invested and under-marketed properties into high-performance, broadband-rich assets. In 2011, we expect our quarterly metrics and financial results to accelerate from Q4 2010 levels as broadband expansion opens new opportunity and as the Frontier team begins to reap the benefits of our local engagement sales advantage. Our focus on the customer is keeping our legacy results strong and is changing the competitive game in the acquired properties. I'd like to take a moment to touch on each of these key value drivers for Frontier: people, products and profit. On the people side, we have met with all employees in January to outline our performance-based 2011 goals. Our three top goals are: to keep and increase customers on our products, to accelerate high-speed Internet deployment and net data subscriber growth and to improve and simplify the customer experience. Frontier's home-court advantage is that our 100% U.S.-based employees are engaged at the local level. Each and every action and customer touch-point builds deeper relationships, which improves Frontier's results and helps the community as well. Our employees are motivated and compensated on putting the customer first. Here are a few examples. We've improved the customer experience by expanding call center hours and by eliminating interactive voice response options. Compared to Q3, the percentage of calls answered in less than 60 seconds is up eight percentage points to 84%. Since closing, we have improved our ability to resolve customer issues quickly with a 25% drop in call transfer rates, and customer escalations have dropped 55% in West Virginia and 27% in Frontier's 13 markets. We have also reduced the number of calls outsourced to third-party vendors by 20% since close without adding any divisional customer service headcount. We introduced full High-Speed installs by our tech in the acquired properties and the percentage of High-Speed net adds installed by techs is over 75% in many of our new markets. We're pushing to drive up the usage of full installs throughout our properties. Since launching this program, we've seen a 65% reduction in trouble tickets. Our employee referral sales channel called Take the Lead, generated $11 million of annualized revenue in Q4 2010. We've seen leads double from under 10,000 in July to more than 20,000 per month in the fourth quarter. And we expect our 2011 Take the Lead results to be 25,000 per month. Local engagement is in full swing. Our general managers are active on chamber board, employees volunteer countless hours with local organizations and Frontier has sponsored dozens of events like the Fire on the Mountain Chili Cook-Off in West Virginia to the Dakota County Fair in Minnesota. Each event is an opportunity to bond with the community and to sell products and services. Shifting to product. Frontier's product goals are to be the communications provider of choice in our market, to build strong customer loyalty to reduce churn and to increase the number of products that residential and business customers take from us. To achieve this, we are constantly striving to simplify pricing and introduce new products and services. Customers learn about Frontier products through local engagement, which is how we're driving down churn in the acquired properties and increasing reoccurring customer revenues. Our broadband expansion is a core product focus for Frontier and a critical part of our overall strategy. Since taking ownership, Frontier significantly expanded broadband in our new market, which now stands at 70% availability. We build broadband to an additional 240,000 homes and opened more than 75,000 additional homes through enhancing existing network capacity. In 2011, we plan to make broadband available to an additional 400,000 to 450,000 homes. It's important to note that the vast majority of the homes that were newly enabled in Q4 occurred in December. As a result, our Q4 High-Speed net additions do not reflect our ability to convert broadband opportunity to sales. We expect to see momentum on penetration in late Q1 and in Q2, 2011. Overall, Frontier has 52% availability of six megabits per second service and 64% availability of three megabits per second. In the acquired properties, our three megabits service is now available to 63% of the households, putting us well on our way toward our SEC commitment of 72% availability by year end. Frontier crossed a major milestone on broadband in Q4. We pushed High-Speed subscriber growth in the acquired properties from a loss of 18,000 in Q2 2010 prior to our ownership to a net gain of 4,000 in Q4 2010. That's a significant rate of change, and we're very excited to have turned that corner. This was accomplished by introducing new products, getting all employees selling, local engagement activities and improving the customer experience which dramatically reduced churn. We introduced a new pricing structure in Q4 in our legacy market. Custom value pricing offers a 5% to 15% discount on products purchased based on the number of products selected. This pricing rewards customers for commitment and multiple products. The new pricing is resonating with customers, as evidenced by 52% of legacy High-Speed net additions during the quarter coming from win backs. In the fourth quarter, we did not aggressively roll out any new promotions. However, in the last few weeks, Frontier launched its 2011 TV madness campaign. For a two-year triple-play on a Price Protection Plan, residential customers can select a year of free satellite TV service or a 32-inch web-enabled HDTV with Blu-ray. A Hewlett-Packard 15-inch laptop is also a gift choice. Small business customers on a two-year Price Protection Plan for a double-play of unlimited voice and data get a 15-inch HP laptop and a free copy of Microsoft Office 2010 business edition. We have hired an additional 50 account executives in commercial sales, giving us important coverage for our medium and enterprise businesses. The commercial team is active across the country, but I wanted to highlight two key sales initiatives started in Q4 in West Virginia and in Myrtle Beach, South Carolina. The FiberNet [indiscernible] business was sold in West Virginia, and through Frontier's efforts, the Public Service Commission required FiberNet to give all of their customers a 90-day out of existing contracts as a condition of the sale approval. This out took effect in December, and during the month, we converted over 100 accounts to Frontier, including 81 locations for better food [ph]. Through the end of January, we have now won back over 525 accounts, representing more than $1 million in 2011 revenue. The commercial team also recently closed a sale with Tidewater Plantation and Golf Club in Myrtle Beach South Carolina, which has committed upfront to 350 voice and Internet subscribers for five years. Overall, Frontier has the opportunity to sell in to 550 homes and 450 condos. And just this week, we signed a WiFi deployment in the Holiday Sands North Hotel on the Myrtle Beach Boardwalk. The last key value driver is profit, which is a direct result of our people and product initiative. In the acquired properties, better customer service and products drove a 33% reduction in residential customer disconnects in Q4 2010 from Q4 2009. The related customer churn rate dropped from 2.3% to 1.8%. In addition, we expect our 2011 promotional activity to have a positive impact on growth subscriber addition. We're pleased to report that Frontier has reduced the year-over-year access line loss rate in the acquired properties by a full percentage point since taking ownership. This helped drive the total company line loss rate to 8.95% in Q4 2010 compared to a 9.27% decline in Q3 2010, which is a big step in the right direction. Residential customer revenue was driven by a 7% lift in products per customer and a 2% lift in ARPU, and we expect improvements from follow-on sales into newly launched broadband markets. Call centers for the acquired properties had a 7% increase in revenue per call in Q4. In commercial, our customer revenue showed positive year-over-year growth in Q4, reflecting the high level of activity I described earlier. This strength in business is helping Frontier keep revenues from business and broadband at a solid 62% of total customer revenue. We continue to make good progress in all of our markets, but there is still much work to be done. While we have removed lots of costs and allocations from the new properties, we have also had to invest selectively in our people, our network and our service delivery. We will continue to do so in 2011, making appropriate trade-offs on expenses that can be eliminated and expenses that are necessary to win in the marketplace. We have also experienced a challenging few months of weather, especially in the Midwest, South and Northeast. Our techs have been working overtime to keep customers in service and restore service in affected areas. I'm very proud of the work our teams have done in dangerous blizzards, ice storms, tornadoes and floods zones. We keep service up and running through heroic efforts, and I have received many thank-you letters from our customers. Our synergy programs are on track, and we remain committed and bullish on $550 million in total synergies through 2013. Frontier's three Ps, people, product and profit, provide a roadmap for our employees and create growth and stability in our financials. The fourth quarter results represent another sequential improvement in many areas of the business, which puts us on the path to deliver on our commitment to provide investors with growth in cash flow and improved balance sheet and a secured dividend. On that note, I will now hand the call over to Don Shassian, our Chief Financial Officer, who will give you the financial overview for the quarter and full year of 2010 and an update on our systems conversion activities. Don?

Thank you, Maggie, and thank you, everyone, for joining us today. If you have not done so already, please visit our website for supplemental schedules that present pro forma and actual data for eight historical quarters, reflecting key financial and operating data for both legacy Frontier and the acquired properties, to give you better visibility through the trending of key metrics for our business. We have posted this as a document and also in Excel on our Investor Relations website. Please note that the fourth quarter represented our second quarterly close for the new properties. Our further review and analysis of the acquired properties has led us to change some of the historical operating metrics to conform to our data reporting standards. We have shaded in those supplemental schedules on our website any figures that have changed. Those changes are not significant impacts on any trends that was previously reported. Our Q4 2010 earnings per share include the after-tax impact of merger integration costs. Because these costs are much smaller than in prior two quarters, our adjusted EPS, excluding those costs, is unchanged at $0.05. As Maggie mentioned, we have achieved good, positive sequential momentum, but there's still a lot of work to be done. There are four legs to our 2011 strategy that I like to address with you. One, implement local engagement. Two, sell and retain customers. Three, get the expenses out. Four, build and improve the network. I'll discuss the first two of these in the context of Q4 customer trends and revenue drivers, then we'll switch to expenses and finally, to our network capital plan and cash flow. Maggie spent some time on local engagement, and it's important to emphasize again in the context of our financial results that when you meet a customer in a personal way, engage in a dialogue and understand what their needs are, you can convert this relationship into new sales, reduce churn and more products per customer. For Q4 2010, I want to highlight some key trends that set the stage for revenue trends in 2011 and beyond. Our residential customers as of Q4 2010 were $3,445,000 and reflect the 23% reduction in quarterly disconnects since closing, given largely by the improvement in acquired properties. Our customer churn rate was 1.6% in Q4 2010, down from 2% in Q2 2010. This solid reduction in churn is being driven by new products, pricing and local engagement in the acquired properties where residential churn during 2010 has decreased from 2.3% in Q2 to 2.1% in Q3 and to 1.8% in Q4. This positive sequential momentum in customer metrics is an important leading indicator of future revenue. Residential customers are buying more products from Frontier with a 3.3% increase in products per customer since closing, which translated into a 2% year-over-year lift in Q4 2010 average revenue per customer over pro forma Q4 2009. Importantly, in the acquired properties, residential products per customer have grown during 2010 from 2.06 in Q2 to 2.10 in Q3 to 2.15 in Q4. Net additions for High-Speed Internet services showed sequential improvement, as well to a positive growth in Q4 with total net additions of over 5,000 compared to a loss of 5,000 in Q3 2010. In the acquired properties, this was even more pronounced with 4,000 net additions compared to a loss of 8,000 in Q3 2010 and a loss of 18,000 in Q2 2010. Net additions for video services also showed sequential improvement as 16,000 in Q4 2010 improved over 11,000 in Q3 2010 and 8,000 in Q2 2010. Although video doesn't have the same revenue impact on the financials of the broadband or voice customer, video is a strong marketing tool and a churn reducer and a very critical weapon to compete against cable. The acquired properties Q4 2010 video net adds were 207%, above Q2 2010 levels. These data points are beginning to be seen in our customer revenues with $1.2 billion in Q4 2010. 65% of our revenues are from the acquired properties, where I'm pleased to report Frontier reduced the customer revenue loss rate by over two full percentage points to 7.1% in Q4 2010 compared to 9.2% using the pro forma revenues in Q2 2010. This was driven primarily by business revenue which shows slightly positive year-over-year growth. Our focus on business customers continues, and business represents 49% of our total customer revenue. Turning now to expenses. In Q4 2010, Frontier realized incremental cost savings of approximately $13 million in acquired properties from 44 of our previously identified target lists of initiatives, driven by conversion of high-cost contractors to employees, vendor and real estate rationalization and from initial savings on long distance and interconnection circuit costs. We therefore achieved $304 million of annualized cost savings from our target list and are on track to implement all of our 125 cost reduction initiatives in 2011 and 2012. I feel good about the progress we made in Q4 in reducing costs by implementing our targeted cost reductions. However, we were still getting our arms around these new markets, and we do need to incur $16 million of additional costs to meet customer, network and certain support demands in the quarter. Our Q4 EBITDA margin of 46% reflects these additional costs. I want to reiterate that a good line of sight to getting the $550 million in expenses out of the business, and we're not changing our course of perspective on these cost savings. We continue to be very comfortable with our plans and ability to drive the overall business expenses and margins toward legacy levels. Going to the transaction, our legacy business had over 10 consecutive quarters of adjusted EBITDA margins at or above 54%. We are extremely focused on getting our current cost structure down, but we are also very sensitive to the fact that we're putting these two businesses together for the long term. As a result, we will invest where necessary to ensure we are creating the best customer experience. Positive impacts for further synergy projects will show up in the first half of 2011. Most notably, we are well underway in reducing non-wage vendor costs, migrating traffic into our backbone and moving all the LB [ph] traffic to a different carrier. We are very comfortable with the synergy ramp that we have already communicated to you which is an annualized run rate of $400 million by the end of 2011 and $550 million by the end of 2012. We haven't seen anything to change our expectation, but approximately 30% of these savings will be driven by non-wage costs around network and IT. The last strategic leg I want to talk about is building and improving the network. Obviously, a reliable and robust network is the backbone of our business. The network that we just acquired was not in perfect shape, as you all know. The profits of network improvement and taxable operating capital expense we are seeing in the near-term costs of this change, but these expenses produce long-term benefits. Capital expenditures in Q4 were $229 million or 17% of revenues, excluding $19 million of integration CapEx. In the acquired properties, capital spending for the six months ended December 31, 2010, was just shy of the guidance we gave you, which was 12% of revenue plus $50 million for the second half of 2010. The higher levels of spending in Q4 2010 reflect the broadband build out of an additional 240,000 homes during the quarter. In 2011, we expect to provide High-Speed to an additional 400,000 to 450,000 homes. In addition to broadband expansion, our 2011 capital spending will also be very focused on increasing speed and capacity within our existing footprint. Before I turn to 2011 guidance, I want to spend a minute on switched access and subsidy revenues. In Q4 2009, legacy Frontier switched access and subsidy revenue was 17.4% and when one excluded surcharge revenues, which are recorded in both revenue expense, our regulatory revenue was 15.7%, again, that was in Q4 2009. In Q4 2010, the new Frontier switched access and subsidy revenue was 11.8% and when excluding surcharge revenues, our regulatory revenue was 10% in Q4 2010. The supplemental schedule on our website gives a full breakdown of these pieces. Let me now give 2011 guidance on some key metrics. We believe our capital expenditures, excluding integration CapEx, will be between $750 million and $780 million. Our adjusted free cash flow will be between $1.15 billion and $1.2 billion. Cash taxes will be between $50 million and $75 million, which reflects the benefits of bonus depreciation. We also expect to incur $90 million of integration expense and $60 million of integration capital expenditures in 2011. At December 31, 2010, our leverage ratio was 2.98x net of cash and applicable restricted cash. During Q4 2010, Frontier generated $213 million of adjusted free cash flow, paid dividends of $186 million or a payout ratio of 87.5%. Since taking ownership, our second half 2010 payout ratio was 67.5%. Based on the 2011 guidance, our expected 2011 payout ratio is 62% to 65%, which reflects the favorable impact of our cash tax outlook and our higher CapEx spending to expand and enhance the network's broadband capability. We remain committed to maintaining both our 75 to annual dividend and/or reaching our leverage target of 2.5x or below. We believe this is achievable through a combination of EBITDA improvements and/or debt reduction. At this time, we expect residual free cash flow after any debt maturities to build on the balance sheet, and we're not contemplating any near-term changes to our dividend policy or any share buyback programs. Lastly, 2011 will see another very critical milestone in the acquired properties, which is a conversion of a group of states off of Verizon systems and onto Frontier's own systems. As a reminder, we already converted West Virginia on July 1, 2010. The next 13 states should be completed by the end of 2012, and all 13 of them we're critically operating on identical platforms. The benefit of converting to Frontier's own systems are financial savings from IT and software licensing fees, but also from increased flexibility for customer and competitor response. We are in the conversion planning and implementation process for the remaining 13 states. We have completed the upfront conversion analysis and are in the process of making some enhancements to our systems. In addition, we've started to get data extracts from the GTE systems. Data classification coding will be ongoing, and we plan to once again perform multiple mock conversions prior to cutover. As we demonstrated in West Virginia, prior preparation and multiple mock conversions are critical to converting with minimal impact to customers. In summary, we're very focused on the four key strategic areas I mentioned earlier. One, implement local engagement. Two, sell and retain customers. Three, get the expenses out. And four, build and improve the network. As we've shown you historically, Frontier as a firm does what it says it's going to do, and we see expect you to see improvements in all four fronts throughout 2011. Our Q4 2010 results shows steps in the right direction. Our 2011 outlook for free cash flow looks very solid, and we're committed to delivering on your expectations. With that, let me pass the call back to the operator, Lisa, to open up the call for questions.

[Operator Instructions] Up first is Scott Goldman, Goldman Sachs. Scott Goldman - Bear Stearns: First, Don, maybe you can give a little bit more detail in terms of the margins between legacy and the acquired property. It looks like we see on a year-over-year basis a pretty good degradation, more so in the legacy than in the acquired. But maybe just talk about some of the incremental costs you guys took on. And I guess I would have expected a bit more stability on the legacy side and perhaps a bit more fluctuation on the acquired side. So maybe just give us a sense for what's going on, on the costs within both those sides.

First off, I mentioned we're trying to give transparency to all of our stakeholders the past two quarters and trying to it do for another two quarters. And I'll tell you, it is difficult to keep all of the costs relevant to the acquired properties clearly separate. There are some costs in the legacy side of the business that have increased somewhat relative to the transaction. Example, we created a bubble force when we did conversion. We have excess number of call center people to enable the call center metrics to be very solid in West Virginia. We then brought them back in to be a you, and we're trying to reduce those levels based on pure attrition. So there was a little bit of an increase cost happening from what I'll call the bubble force, winging its way down a little bit on the legacy side. We also had to make some investments in the network on some circuit costs and enhancing the backbone to make everything at the conversion customer experience very, very solid. On the acquired side, we did have some increased costs. We have some great synergy coming out. We are hitting all the activities we wanted to hit, but there are some increased costs. Example, one is probably half of the increase that I talked about in that $16 million comes from higher estimated medical costs on the acquired employees. It's an estimate. It's based on what we're seeing of medical claim costs coming in. We are self insured. And we're hoping we can repeat or refine that in the next couple of quarters. And we felt it appropriate to take it up based on some estimates we're seeing coming in for these past six months what was coming in. We've also had some higher interconnect circuit costs. We have higher fuel costs. We hired some additional sales people on the commercial side and some network maintenance costs. All of those, as Maggie mentioned in her prepared comments, and I too have alluded to, were things we thought we needed to do to continue to sure up the business, make it solid, a very, very good customer experience. And all of those are either generating revenue for us or they are on the list to continue to reduce the costs and get them out of the business. Does that help? Scott Goldman - Bear Stearns: Second question on the broadband side. So nice results getting back to positive on the acquired properties. Legacy, I think, a little over 1,000 customers added. Just want to get a sense for what kind of contribution we may have seen to the numbers coming out of the incremental homes passed. Obviously 240,000 is a lot of homes passed. I realize Maggie talked about a December timing. But what sort of benefit may we have gotten from those? What is the competition? And what speed are you offering for those incremental homes? And then as we kind of look forward, are the incremental homes passed at the 240 just did the 30, in last quarter the 400, the 450 for next year. Should we really be thinking about that as the primary driver for broadband? Or are you still implementing with the promos you're implementing able to drive good penetration increases in the legacy markets?

Hey, Scott, it's Maggie. I'll take a stab at the question. One thing I did want to add to Don's response on the cost question is we run the company today, and over these last several months, we've been very focused on running the company as an integrated entity. So we have moved functionality around into legacy to support the new properties and actually, we have stuff we've moved into the acquired properties to support legacy. So I think one of the challenges is continuing to break out and being pure to say, "Well this is legacy expense, and this is acquired properties expense." For us, we really look at it as a holistic basis. The other thing I would mention and I said this in my script, we did hire 50 additional commercial sales people in the quarter. We also had some overtime associated with storms. We also have a number of contractor conversions going on where we're hiring employees, and we're taking contractors out of the business. So when you do that, you have an overlap, sometimes for a couple of weeks with contractors and employees both being on the payroll, so to speak. So a lot of these things are one-time that will go away. I think Don mentioned the biggest expense, which is really the medical accruals that we're looking at because we still don't have a good handle on what the overall medical expenses will be for the acquired properties. But again, we're looking at this basically from an integrated entity perspective. Shifting over to broadband, of the 240,000 homes, again, we turned on the majority of those in December. So from a growth add perspective, there are maybe a couple thousand homes that we actually converted over to Frontier in that period of time. Because once you turn the home on, what happens then is we put together a campaign to go after those neighborhoods with door-to-door technicians. We put signs in those market areas, lawn signs, et cetera. So what we do is once you turn on, it's usually 30 to 60 days as you start to ramp up the momentum to go get homes converted. So that's why you would see most of the activity for those homes we turned on in the first and second quarter of this year versus in the fourth quarter. As I think about broadband growth for 2011, it really comes from two areas. First and foremost, it is these new households we're turning on. The big opportunity for us, not all of these new households are only choice for broadband. Many of them are getting as competitive in areas where broadband already exists from a cable operator. So we are going after those households in a very aggressive way. But in addition to that, it's really focusing on win backs and going after customers that because we didn't have a broadband choice in the new properties, and we now have double and triple plays that we can sell the customers, it's really going after customers and bringing them back onto Frontier service. So I do think there are opportunities in both those areas. They require different focuses on marketing and spend from a cost per ad perspective. But we feel very good about the fact that we'll be able to grow in those areas. The third piece of the equation on getting to better net numbers is reduce churn. So one of our big focus areas, and I think you know from our history, is we deliver very low churn rates, because we really do focus on the customer experience and not stemming the tide of losing customers on broadband. We've done a good job in the first two quarters. We are relentless on our focus in improving that experience and continuing to do the multiple things you have to do to keep customers, and that includes Price Protection Plans. It includes answering the phones in 30 seconds by a human being. It includes full installs of broadband, which reduces churn exponentially in the first 90 to 120 days and multiple other things, including an improved network from a quality access, speed and capacity perspective. So broadband is a big focus. Scott Goldman - Bear Stearns: What speeds are you offering in those new homes that you're bringing online?

Basically, three meg in the new homes is where we're very focused, and we'll have 10% more broadband deployed at three meg than we've done so far. So as I mentioned earlier, we've got 64% of our footprint now at three meg, 52% at six, and about 25% somewhere between 10 and 50 meg. So you're going to see us continuing to expand those numbers as well.

Up next we'll take a question from Batya Levi, UBS. Batya Levi - UBS Investment Bank: I wanted to follow up on the expense question. Even if we adjust for the $60 million expenses you identified, it looks like margins were lower in the fourth quarter sequentially. And with higher promotional activity starting in the first quarter, do you think margins could start to ramp up as you see the synergies coming in, or do you think that's a little bit pushed out now? And I believe your internal synergy targets is quite a bit higher than the 550 you gave us. What would it take for you to increase it to that level? Or the unexpected expenses that came up in the fourth quarter, is that an offset for that internal guidance you have?

Batya, I think, the issue on the margins in Q4 we had some access line losses and some revenue reductions and we don't have the corresponding expense reduction going with that yet. And as we've told many of you on the call, we threw a model for improvement in Q1 2011, but we think we're going to see some noticeable changes in Q4, which I think we did a lot of the metric. All the underlying metrics on this business, we are seeing some very good things from a customer perspective, buying churn, loss rates, ARPU in certain areas, business opportunities, for some still that will happen. And I think with the compression you saw in Q4 was really the revenue we didn't get to churn yet. We're in the process of churning it and we didn't have the expenses accelerating in Q4. They weren't planning to be. We have a couple of increases. I think we're expecting in Q1, we've got some promotional activities going on, as Maggie mentioned. We do feel comfortable starting to really start pushing a little bit harder. And how those are taken will depend on the impact. Some of those could be taking some of the hardware that Maggie mentioned, whether it's HDTV sets or laptops. Others, they could be selecting the free Direct TV or DISH service. So there'll be a reduction in revenue. So I think the margin expansion on a promotion period usually does not usually happen. So I don't think you're going to see a lot that expansion in the first half of the year. But do expect you're going to start seeing that as the expenses really start coming out throughout '11 and the benefits of all these underlying metrics really start to take hold. You do start to see that improvement going up for the rest of the year. On the expense question, yes, we have a higher internal target. I mean, Maggie's philosophy is you got to aim high, you're going to get high. And we are, we got some big targets in turn that we're going after. Our ability to want to talk about raising a number is based on when the items are on the list or go on to the list, and we've got a plan in place, and we have a very good line of sight to say, "We've got it." Probability is really strong and we'll raise that guidance when we see that. I think we've got a lot of activities going on. Maggie mentioned we're converting -- we've taken out several hundred contractors out of the business. We've also converted several hundred contractors to employees. We've been doing a lot of things in the backbone, on our network side, looking at a lot of non-wage costs. In our vendors, there's been a lot of vendor rationalization going on in the call center and in network. And all that is paying good dividends. We've got a lot of other initiatives underway with real estate rationalization and continued focus on the contractors and in other areas and as they have better line of sight, we'll talk about raising. But right now, we're comfortable we'll hit the 550, we'll deliver on the 550 and that's what we're focused on.

Hi, Batya, just to add on to what Don said, I think, also from a synergy line of sight perspective, we'll have a better feel in the second half of this year once we get the first set of conversions off the ground. That's a big initiative for us. It is a big synergy driver. We, of course, have estimates of what we think the synergies will be as we convert the 13 states over to our legacy system. But with those conversions, the first conversions happening in the second half of the year, I think we'll get a better sense for that.

Our next question today comes from Phil Cusick, JPMorgan.

This is Derya calling in for Phil. First of all, your stock was up 9% earlier, it's down around 5% right now. Is there something you think people are misunderstanding here? What do you think has scared people off? And secondly, we're seeing a nice churn reduction in the acquired properties. But ARPU has declined quite a bit as well despite increasing products per household. So are you doing any special promotions or retention offers there? And also you mentioned, you expect an increase in gross adds in 2011 from increased promotions. So should we look for a turnaround in gross adds starting as early as 1Q? And how should we think about the revenue trajectory overall?

On the first question. I haven't looked at the stock price. Sorry to hear that it's off. I think people have expectations. We try to get people understand that we won't going to have monumental changes until Q1 2011. People, obviously, think we're going to get it done a lot quicker and we'd like to get things done quicker. We could be doing a lot of good work in this business, really engaging an additional 10,000 employees in this business getting us focused on the customer in a different way. Fixing a network so that it really helps the customer. And it's not necessarily showing up in the revenues and the expense maybe the way people expected to happen earlier. We never talked about getting it done earlier. We're trying to build this up block by block, nickels and dimes, a lot of blocking and tackling to fix the business and really focus on the customer, and we think we're doing a darn good job in getting there. It is not showing up in the revenues and the expense this quarter, but it's a continued improvement. Every quarter is an improvement and that's what we're going to continue to do. And we just think we're on plan to what we want to get done.

I think that's true. Weighing on, what Don said is absolutely right. We have tripled the size of this company and in the first six months, we have made I think tremendous progress on what I call the foundation issues, which you have to do first in order to grow revenue and really expedite cost and expenses out of the business. Now, with that said, we've taken a ton of costs out of this business as part of this process, and we've also turned around very negative trends in terms of the customer metrics. That's what you've got to do and it's like turning an aircraft carrier. We've always said that you're not going to really see material changes in the numbers until 2011, and we are very focused on that. But I think today, we've given you an opportunity to understand where we've made the changes in the fundamentals, how we've set the table in order to continue to get costs out and to grow revenues. And I think we feel very good about that. I think our teams are doing the right thing. They're focused on the right things, but we knew this was going to be a big turnaround. That's why we bought these properties. And it takes investment of time, effort and energy in order to get them turned around. So that would be where I think everybody needs to focus on is the fact that we're making very solid progress on that front.

The second question, on the net adds, we feel comfortable in the acquired properties capabilities to be able in the first quarter to start promotional activities. We didn't do it right out of the gate, because we didn't feel comfortable. We didn't feel we had a good handle and the organization itself could handle a more complex way of approaching the customer. We have some blocking and tackling. We have implemented a number of initiatives. We are expecting to see continued improvement on net adds on High-Speed, continued improvement on net adds on video, continued reduction on access line losses and that is what our goal is and our plan is we've seen in 2011.

And the growth adds are just part of that whole process.

Growth adds and improved churn gets better net numbers.

Our next question today comes from Chris King, Stifel Nicolaus. Christopher King - Stifel, Nicolaus & Co., Inc.: First of all, with respect to FiOS, pretty decent net adds there in the quarter. I think at least by our numbers, the highest net add quarter of the year on those assets that you acquired. And obviously, I did see that you guys raised prices somewhat meaningfully with respect to the video product in those areas. Just was wondering if you could shed a little bit more light for us on the economics of FiOS, what you're seeing there, what your plans are. And if any longer-term determinations have been made, what you like about the business and not like about the business at this point? And then secondly, just was wondering if I could get kind of a macro comment on revenue trends as you see them playing out throughout 2011. It looks like you guys have something in the kind of 6.5% to 7% in the year-over-year decline on revenues on a pro forma basis. Do you see that trend changing materially throughout 2011 from an improvement standpoint, getting those numbers down to 5% to 6% kind of rate of a decline or is a little too early to make that call at this point?

I'll take the FiOS question, I'll have Don talk about the revenues, Chris. So in the fourth quarter, we did not raise rates on FiOS. We didn't do that until the first part of this year. So it was pretty much business as usual to continue to push with all product sets, which includes FiOS in Indiana, Washington and Oregon. We do see the expense of FiOS is hefty. We've said that from day one. We only have a little over 100,000 customers on the video service. So our negotiating power with programming networks and our ability to have scalability for that product set is not great. So we are still in an evaluation mode, but we felt we had to look to raise rates in order to cover the expenses associated with the business. We've only raised rates in Indiana. We have not raised rates in the Pacific Northwest. We also are looking to convert customers over to DirecTV with this TV madness campaign. So even with a rate increase, we're giving customer's choice and we've been very clear on the marketplace that the date of service that's delivered to the home, that's part of the FiOS package, that doesn't go away and there are no increases on the price for those data packages. As a matter of fact, we've lowered the price on our data packages for FiOS across the board, which again gives our customers a better entry point for a larger bucket of capacity into their homes. In the past, you'd have to pay $60 to even get a data package on the FiOS network. Today, we're bringing that down substantially in the $30 to $40 range. So I think what we're trying to do is to right-size this to make it appropriate for our customers. Again, we're going to play this out another couple quarters and see what happens. But we have not made any final decisions on FiOS at this point.

And Chris, on the revenue comments macro, if you're looking at Q4 2010 to Q4 2009 pro forma numbers, yes, it's about a 6.5% decline in revenue. Its legacy is about 3.5% and acquired is like 8%. There was a bigger drop-off in both fourth quarter relative to regulatory revenue. I think we expect regulatory revenue drop about 10% in 2011. But the real driver here is the distinction on the customer side between legacy and acquired. Legacy customer revenue Q4 to Q4 dropped 1.6%, acquired properties is over 7%. So the macro, what we are doing very, very hard is trying to win back those customers, improve the service, reduce churn, sell more products per customer. So we're trying to drive that change in revenue on the acquired side, way down closer to our legacy levels but we need to get there in one year and it makes you question, what drive it hard. So we are -- yes, we are expecting to improve the revenue decline. 6.5% is what you're looking at, we're expecting to see something substantially lower. But it's all going to be driven from the acquired customer side and even within customers in place residential. On the business side, legacy business revenue is just slightly down quarter-to-quarter, acquired business revenues slightly up. So it's really on a residential side and it’s the acquired that was really down Q4 to Q4, which is where we're putting a lot of attention to. So we do expect to have very significant improvement in those metrics on revenue.

I would just say too that we also see the business side having opportunity as well, even though business is more stable than the residential side from a revenue perspective, we do think that there are opportunities for us to expand revenues on the business side.

Next up, we'll hear from Daniel Gaviria, Morgan Stanley. Daniel Gaviria - Morgan Stanley: Don, you talked about how you would use your exposure to regulatory revenue. I wanted to get your view on the USF, ICT and PRM. And I want to get a sense if you think there's going to be a more defined reform roadmap before the end of the year, or do you expect this to drag along further?

Daniel, it's Maggie. Just to sort of give you a sense, we are working with the SEC on Universal Service funding and the intercarrier compensation proposed rule-making. We've been very active and involved with the SEC on this subject for months. We do believe in 2011, there might be some low-hanging fruit, near-term fixes that take place. To think that the SEC will probably save this rule-making and we have been talking with the SEC about phantom traffic, about traffic pumping and voice traffic on the network and getting some of those issues settled which there is more consensus around than really tackling the bigger issues of trades-offs between voice and broadband for subsidy. So we're hopeful that we'll see some of those actions take place in 2011 . Those would all be positive actions for us. But the more complex USF and ICT issues will likely take us beyond 2011 before they're finalized.

Up next is Dave Coleman, RBC Capital Markets. David Coleman - RBC Capital Markets, LLC: Just heard a lot today about win backs and increasing number of customers. But looking at your 4Q results, the business customers declined by almost 10% during the quarter. So I'm just trying to help -- if you could help me understand the sequential decline in number of business customers during the quarter. And then if I look at the residential and business access line loss rates, they came in about 100 basis points lower than the sequential decline in business and residential revenue change. I was wondering if you could help me understand why the rate of residential and business revenues is at a faster rate than access lines.

The loss on the business side are lower ARPU customers than higher -- and so there's some volume losses there that could evaluate. It's really based on loss of customers that are more lower revenue customers, which are volume basis. The difference between residential revenues and customer losses then also deals with ARPU. Our customers are losing a lower -- they simply do residential line only or they are more higher priced customer base and that really can drive the mix of the changes.

Then, I think, you can also look at in the business sector, we have lost customers too on the small business side. It was a challenging economy out there too. So it's not just competitive losses, we've also lost customers based upon customers not being in business any more. But I think we've also done a good job with the existing customer base we have in increasing the number of products they're using and increasing their revenue per customer. That's a big focus for us, that's actually how our sales people get paid as well. And I think Don is absolutely right, we got to look at the price product mix on residential and business. And we are stemming the tide on the access line losses. We are continuing to do a good job on that. And we're also now starting to push for more double and triple play sales, and we have more inventory to do that with. So we do think that you're going to see some rightsizing and a slowing of the revenue change compared to the loss change for access lines and broadband. David Coleman - RBC Capital Markets, LLC: And just a follow-up, you talked about some of the one-time costs during the quarter. I think you said about $16 million of additional cost. I think part of it is attributable to like a bubble force. Can you say how much of that sort of one-time or sort of non-recurring cash OpEx items you've incurred since the merger that would eventually go away through attrition or through active cutting once you've stabilized the business?

I want to clarify the question. I would not say the $16 million are one-time. That was on the acquired side. Our increased costs that we had not previously anticipated, but we looked at our own modeling, three, four or five months ago. We've seen facts in the business that caused us to increase our tools for medical. We see some issues of our network and the business we needed to make some investment in. Our goal is we're going to get all those costs out of the business over time. They're all on the list to get them out, but to not have made those investments, to not possibly accrue for the medical cost would be wrong, but to no make the investments in the network and the call center and everywhere else would have been a bad customer experience, which would be counter to our ability to sell and retain customers. So those are things we had to do to stabilize the business, enhance the business, and then it's on the list to get the cost out like every other dollar in this business, we're going to get it out. And so I think we look at it and say, "All right, if it increases the target you got to go after, we got to reduce those costs over the next number of quarters."

And we actually do have line of sight to reduce those costs too, as we uncovered those costs during the quarter and saw where we had to make the choice points, we also have a plan in place to go after those costs this year. David Coleman - RBC Capital Markets, LLC: Those increased costs were not anticipated since the merger closed? Or since the transaction closed?

Say that again, Dave?

Yes, that's correct, Dave. They were not anticipated when we closed the transaction. David Coleman - RBC Capital Markets, LLC: What's the aggregate amount including the $16 million in the fourth quarter? How much was there in the third quarter?

That's an impossible question to answer. I mean, there's a lot of gives and takes in managing a business of this size. And we've had some things we had to spend dollars on. We've also seen some good opportunities to reduce costs on. So I think third quarter was really getting our arms around it. Fourth quarter, we saw some issues. Beginning of the quarter, we had to make some investments which were not anticipated. And had it happened, we'll fix it, and we'll deal with it. Get the cost out and move forward.

I think keep in mind though too that more than half of this number is the medical accrual. So we're a very big company today. We've got several billions of dollars in expenses. So if you take half away from this, and you think that we spent $5 million to $7 million more in the quarter on investing in the network and making sure we sure up the stability of the business, it is a small number that we know we're going to get out anyway.

Next, we'll hear from Mike McCormack at Nomura. Michael McCormack - Bear, Stearns & Co.: On the cable competition side, can you guys just give us a sense in the acquired properties what you're seeing with respect to any response in the cable part. Also, I think in Rochester, you had a recent rollout of [indiscernible] from a competitive standpoint what you're seeing there. And then for Don, obviously very conservative on the cash flow situation going forward. But once we hit that 2.5 and we start to build up cash in the balance sheet, is there some sort of progression against hitting milestones in the integration process that we can look at to start thinking about share repo?

Hi, Mike. So I'll start talking a little bit about the competition, and then Don, you can weigh in on the financial side of the house. Yes, we have seen similar competition in these markets than we have in our legacy markets. It's the same people we compete with, it's Comcast, it's Time Warner, is the two big ones, just like in legacy. I also would say that before we closed in the first six months of 2010, the cable operators did try to take advantage of the situation that these properties were being sold. And the competitive activity absolutely varies by market. We did see, as you know, accelerated line losses and High-Speed losses as we got too close. We have changed the engagement tremendously in the first six months, and we are seeing positive results of doing that. The other thing that we've done is as, I mentioned, is we're going after their customers now. We're not just sitting there and just trying to keep the customers we have, we're also going after their customers. And we did a good job in the fourth quarter on win backs. You're going to see us continue to be very focused on that subject in 2011. These cable operators in the acquired property markets are not used to Verizon fighting back. So we have upped the game in all of these markets, and we will continue to do so in expanding broadband, in our local engagement, in really changing the paradigm in terms of how we go to market with promotions with aspirational gifts and really trying to drive the business in a different way. This first quarter promotion goes right after their basic business which is video and we have seen no response on their part in our market since launching our TV madness product. We do have some smattering of boxes, especially in the Pacific Northwest. But we also have a very robust data network, where we still have fees that are higher than the cable operators in the greater Portland and Seattle areas. So we feel very good that we have the right competitive suite of products to compete with that today. And we're going to continue to expand our speed capacity and reach for broadband in 2011 to stay competitive. Not just in those beach head markets, but throughout the country, as we've done in the legacy markets where we've had very high competition as well.

Also mention on the docs' question in the Northeast, so far we haven't seen anything of any substance yet, Mike, but we have seen significant raising of pricing in bundles in that marketplace by the competition. So that's a good competitive forte for us to go to compete against. Your other question on milestones, There's a lot of milestones that we're looking at and tracking. I think that our stakeholders can look at obviously notices of engagement on local engagement wins and losses and how we're doing with that and how successful we are continue to reduce churn, the selling and retaining of customers, there's a lot of metrics that we'll be putting out on that. Getting continued cross out, getting the expense number savings to continue to grow, and to really push that aggressively. The network build-out, Maggie mentioned the 450,000 home, 400,000 to 450,000 this year, I think it's very, very important. The conversion, we've got the first three remaining phases of conversion, that'll be happening latter part of this year. And it is a very critical milestone for us and making that work very successfully really makes the other two conversions simple. Our IT folks will hate me for saying that, but we've got get through this one, it's a big investment. We're going to make it work. We'll be increasing our staffing and our bubble force to be with to make sure the service is well. We think we do this very well. We're well on our way. I think that's probably one of the biggest milestones we're going to have is that successful conversion the second half of this year along with those other metrics I think gives a good perspective of where that leverage is and what are we going to do with excess cash going forward.

Next we'll go to Gray Powell with Wells Fargo. Gray Powell - Wells Fargo Securities, LLC: So as you expand broadband coverage into the I think 850,000 homes over the next few years, what do you see as the biggest opportunity? Is it winning new Internet subscribers with your existing phone customers? Or is it selling double- and triple-play customers to people that could be new to Frontier?

It's both, actually. What we really see is the opportunity to take existing phone customers that we have today and what we call as up sell them to double or triple plays now that we would have broadband as part of that mix. In addition, we will go after double- and triple-play customers of our competitors to bring them over onto our service as well. So it'll be a two-pronged approach. We also have a greenfield in a number of these areas that we're building out, where there is no broadband available to anyone. So we think that there's a big opportunity in those areas to really increase the penetration rate in a pretty substantial way. Gray Powell - Wells Fargo Securities, LLC: I mean, I know that there's CapEx associated with expanding the broadband footprint. Just how should we think about operating costs as you expand the footprint? And should we expect any uptick in operating costs that could put pressure on margins?

We're building the network in a way that is putting a plant in the ground. So it's more fixed assets that's being invested. We are continuing to get circuit costs out that are impacting COGS and trying to reduce that, and we've got a very big effort to make that happen. I don't think it's going to be an increased network cost as we do this expansion. I think the question is going to be, "Do we have increased marketing in these new areas?" And as each new areas opened up, we have plans about how we want to approach those markets. So it's a variable cost for an acquisition of our customers, it's not a long-running, recurring expense train to manage the network. But we're going to build this out with capital expenditures and hopefully be able to reduce our COGS going forward. Gray Powell - Wells Fargo Securities, LLC: Just one of the goals you mentioned for 2011 is reducing leverage to around 2.5x. How should we think about you getting there? Is it paying down debt with your excess free cash flow? Or is it driving synergies and improving EBITDA?

Yes, yes and yes. It's all of the above. It's key for us to be able to improve our EBITDA, and to grow our EBITDA and to drive that ratio in the right direction, that's going to come from activities in the revenue side. It's getting the expenses out. It's also going to be using some excess cash that we have to pay down debt if we need to. We have about $280 million of debt comes up this year. We've got sufficient cash on hand to be able to pay that down. We may look at refinancing on term loans, if it's very attractive. But our view is we'll probably use cash to pay that down. So it's a yes, yes and yes in all fronts. It's not one versus any other. Fundamentally, we've got to grow the EBITDA. We've got to improve the EBITDA.

Our final question today comes from Frank Louthan, Raymond James. Frank Louthan - Raymond James & Associates, Inc.: Just quickly, can you give us what your net exposure is to USF and subsidy revenues? So you say it's about 10% of revenue. If you take out the cost for those items, what was sort of your net exposure be so we can gauge the cash flow? And did you get any sort of long-term agreements with Verizon as far as getting any preferential access for tower backhaul in any of the acquired properties?

Frank, the first question, let me answer them broadly. The annual revenue of this company that would be subject to reducing intra-state rates down to inter and the corresponding offset for reduced long-distance carriage costs approximate $80 million. So we sort of look at that and say, "All right how can we manage this process that Maggie and Kathleen are working with the SEC and various other parties in our industry, but how do we, having migration, change?" And that's sort of the migration bucket we're trying to work with.

I think on the Verizon side, yes, we have an inherited contract from Verizon with this acquisition, and we're in the throes of renegotiating them to make sure that they are appropriate based upon what Verizon wants to accomplish with 4G and what we would have to invest in order to support them.

To get the proper returns.

And to get the right returns. That's basically what we will look at always is making sure we get the right return on any capital that we'll put in for backhaul. It's no different process than we have with any of the other carriers we're doing business with. Still big opportunities. Well, thanks, everybody, for taking the time to join us on this call. I know that, hopefully, the transparency of this call and our forthrightness on where we are with this business gives you a good sense that we're making solid progress on all of the fundamentals of integrating these new properties into Frontier, and that we're going to continue to work it. We feel very good on the line of sight that we have for 2011. I think, as you know, with an annual run rate of over $300 million of expense coming out of this business, it's over 20% of the expenses that we inherited with this acquisition. So we are very focused on continuing to grow that to hit the 550. We will continue to focus on the revenue side, on the customer side in terms of sales and retention and deploying broadband. We think that the local engagement model is working extremely well in our market and you will start to see us also harness synergies, including our first GTE conversion over the next several quarters. So thanks again for your support. We'll talk to you again after we do the first quarter of 2011.

Ladies and gentlemen, that does conclude today's conference. Thank you, all, for your participation.