Daniel McCarthy - Chief Operating Officer and Executive Vice President Gregory Lundberg - David Whitehouse - Senior Vice President, Treasurer 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 Michael McCormack - Nomura Securities Co. Ltd. Philip Cusick - JP Morgan Chase & Co Batya Levi - UBS Investment Bank Simon Flannery - Morgan Stanley David Barden Scott Goldman - Bear Stearns

Good day, everyone, and welcome to the Frontier Communications First Quarter 2011 Results Conference Call. This call is being recorded. And at this time, I would like to turn the call over to Mr. Gregory Lundberg. Please go ahead.

Thank you, Paula. Good morning, everyone. The purpose of this call is to discuss the 2011 first quarter results for Frontier Communications. The press release, supplemental slides and earnings presentation are available on our website, frontier.com. On today's call are Maggie Wilderotter, Chairman, Chief Executive Officer; Don Shassian, Chief Financial Officer; and Dan McCarthy, Chief Operating Officer. During this call, we will be making certain forward-looking statements. Please review the Safe Harbor language found in our press release and SEC filings. On this call, we'll also be discussing GAAP and non-GAAP financial measures as defined under SEC rules. Reconciliation between GAAP and non-GAAP is provided in our earnings release. Please refer to this material during our discussion. I will now turn the call over to Maggie.

Thanks, Greg, and good morning, everyone. We appreciate you joining us today as we discuss the first quarter 2011 results for Frontier Communications Corporation. Today's earnings call has a new format that includes supplemental slides available on our website, www.frontier.com. I will start with a summary of the quarter followed by a review of the business and key metrics before handing the call over to Don Shassian. Frontier's first quarter 2011 results showed that the company is delivering on its commitment: stabilizing revenue, improving retention, deploying broadband, generating positive growth in residential and commercial bundled products and successful local engagement. Some highlights of the quarter are on Slide 4 for your reference. We expanded broadband availability to 83,000 homes during the first quarter, bringing our total to 323,000 since taking ownership of the new markets in 14 states on July 1, 2010. When we reached our 85% availability commitment in 2013, we will have enabled nearly 1 million homes in these new properties. Increasing the penetration of high-speed sales to these new homes and increasing the number of products taken by existing customers are key drivers of our business. Every month since closing, we have made solid progress in new high-speed sales, net adds and bundles. Frontier's marketing sales and retention efforts yielded 15,000 high-speed DSL net additions in Q1 2011 compared to a net loss of 17,000 in Q2 2010 under previous ownership. This strong turnaround does not include some offsetting FiOS data losses, that I will address in a few minutes. As I mentioned last quarter, there is an approximate 90-day lag between the actual broadband enablement of a home and when we are able to market and sell to that home. During the first quarter, average penetration in new households built is 10% with some markets as high as 20%. We expect to continue to see this number improve as we open up more ports, as we aggressively market and as we finalize our backbone conversion project that removes congestion in certain areas on the network. Just a reminder, broadband household penetration in the acquired properties, at purchase, was 20% compared to 37% in the Frontier legacy markets. This is the gap we are targeting to close and the 240,000 households already enabled are providing us with inventory to do just that. We expect the 83,000 households turned on in Q1 to fuel additional high-speed sales in subsequent quarters. Revenues for the quarter continued to stabilize. Revenues fell less than 1% quarter-over-quarter compared to a 3.2% drop in Q4 2010. Our promotional activity, coupled with strong bundled sales and ancillary product take rate were the major drivers. Customer revenue dropped only $18 million compared to $36 million the previous quarter. Business revenues were also solid for the quarter and included improvements in wholesale, small business and CPE sales. Business revenue is 51% of our total customer revenues. Our local engagement and our 15 new sales representatives in the field made a difference this quarter. We continue to realize incremental cost synergies in Q1 2011 of $16 million. This brings our annualized run rate to $368 million, which is well on the way to achieving our $550 million target. Our adjusted EBITDA margin was 46.5% during the quarter, a good improvement over Q4 2010. I want to reiterate that we will remain confident in achieving our cost synergy objectives and in delivering revenue improvements in these markets. We are still on track to achieve consolidated margins of over 50% when we exit fiscal year 2012. Free cash flow during the quarter of $253 million reflects the continuing ramp-up in broadband and capital expenditures. Our dividend payout ratio, as expected and by design, was higher at 74%. We expect this payout ratio to come down in the future, as revenues and expenses improve and as capital expenditures decline when we complete our network improvement and our IT conversion. Turning to Slide 6. There are several operational developments to be highlighted for the quarter. Our commercial business is building strong traction across all of our regions. During the quarter, we installed high-capacity data services for several large cap companies. We sold hosted voice and data services to numerous municipalities, educational institutions, hospitals and medium and enterprise companies. In addition to winning new business, our sales teams are driving great contract renewal. Our view for the rest of the year built on this quarter results with a solid pipeline of CPE and demand for dedicated Internet, Ethernet over copper and other advanced network products. In residential, our Q1 results show that we're beginning to harvest our broadband expansion. Our promotions are working in the marketplace, and our teams are closing sales. The call centers in the acquired properties have more than doubled their sales conversion rate and continue to focus on selling value-added products. We have also improved first call resolution in the acquired call centers and obtained union approvals to move to our universal service rep concept in the Fort Wayne, Everett and Marion call centers. We expect to continue to increase sales penetration of the homes we launched late last year as well as the homes launched this quarter. Finally, we are on track to complete the system conversions for the first 4 states off the Verizon GTE systems onto Frontier Legacy system. The first 4 states are: Indiana, Michigan and North and South Carolina, which collectively represents 1/3 of the acquired line. These 4 states lets us move 3 of our 5 operating regions onto Frontier system, which will give us far greater command and control in all areas, from marketing flexibility to operational reporting. We expect that our continued progress in operations, synergies and conversions will drive improvements in the metrics outlined on Slide 7. I want to point out that the company is focused on keeping voice customers and on deploying more high-speed broadband bundled with satellite TV offers. On the broadband front, this is a combination of copper and fiber infrastructure to improve access, speed and capacity. Our focus is not our new FiOS video deployment. The cost to install, set up and market new FiOS video customers are very expensive and in our view, uneconomical. Increasing content cost drives significant pressure on our video margin. Based on this situation, we have raised new installation prices in all 3 FiOS video markets and have just implemented a FiOS video price increase in Indiana. We are positioned to raise monthly prices in Washington and Oregon as well, but have not yet done so. To address customer needs, we have an aggressive satellite offer in all 3 markets, and we are seeing a strong response from customers who are converting to DirecTV. There will be some headwinds in our customer broadband and video net adds for the next several quarters based on this FiOS decision. As a reminder, we have only 112,000 FiOS video customers in all 3 markets. We had a net loss of 12,000 FiOS video customers and 5,000 FiOS data customers in the quarter. Overall, we generated 27,000 video additions through our satellite partners, more than double the rate of Q4 2010. To continue the strong results in our markets, we are keeping the same promotional campaigns for residential and small business in place through May. Residential customer losses were slightly up sequentially. This was primarily due to a cleanup of nonpaid disconnects in January. February and March bounced back with a drop in customer losses, and that trend continued through April. In summary, our Q1 results reflect solid progress. Our Frontier legacy markets continue to perform well, and our acquired properties delivered cost synergy improvements and a more stabilized revenue stream. Our employees remain engaged and committed to win in the marketplace. In addition, our techs are improving our networks, expanding broadband and performing full installs with 2-hour appointment windows. Local engagement is in full swing and our pipeline for business sales continues to grow. Finally, our 4-state system conversion is on track. With that, I'll pass the call over to Don Shassian, Frontier's Chief Financial Officer.

Thank you, Maggie, and thanks, everyone for joining our call today. As Maggie mentioned earlier, our earnings release today is accompanied by a slide presentation available on our website. There, you will also find supplemental schedules that present pro forma and actual financial and operating data for 8 historical quarters to give you better visibility into the trending of key metrics for our business, broken out between legacy and acquired. Please note that our Q1 2011 earnings per share of $0.05 includes the after-tax impact of merger and integration costs. Our adjusted EPS, excluding those costs, is $0.06. Today, I'd like to start off by addressing the 4 legs for our 2011 strategy that I discussed with you last quarter: first, implement local engagement; second, sell and retain customers; three, reduce expenses; and four, build and improve the network. Our success from the first 2 of these, local engagement and sales and retention are best seen on Slides 7 and 8 of the deck. The key metrics that Maggie mentioned earlier on Slide 7, broadband and video net adds, customer losses and churn are leading indicators of future revenues. On Slide 8, you can see that we maintained our balance revenues with business representing 51% of customer revenues and 64% of customer revenues coming from business and broadband. We did see a bit of pressure on residential revenue per customer, but this was driven by slightly higher uncollectibles in acquired properties and by selling higher volume bundles, including unlimited long distance at a lower rate than stand-alone products, which we believe had an attractive return over the life of the subscriber through lower churn. Overall, our efforts have demonstrated solid improvement in the revenue trajectory of the business in seeking ownership. You can see the sequential -- our revenues declined 1.5%, the lowest to date. This performance was driven by business sales, which saw 2.1% sequential growth, a very strong result. We expect our numerous efforts in business to continue to make it a significant contributor to our future results. In both business and residential, the widespread local engagement and creative approach is deployed to sell and retain customers are working, and should help us reach our goal of stable revenues. The third leg of our strategy is getting the expenses out, which you can see on Slides 9 and 10. Total cash operating expenses totaled $16 million sequentially in Q1 2011 to $720 million. Please note that this is inclusive of $9.8 million of gifting cost in Q1 2011. These gifting costs relate to aspirational gifts for subscribers, such as computers or televisions, as part of our madness campaign, which will continue through May as Maggie mentioned. Despite these extra growth base investments to develop our customer base, we expect total cash operating expenses to continue to trend down in subsequent quarters as we removed cost from the business and as we make progress on our targeted synergy lists. The top chart on Slide 10, shows the changes in cash expenses between legacy and the acquired properties. In the acquired properties, we recognized an incremental $16 million of cost synergies in the quarter, bringing our quarterly synergy level to $92 million, in line with our expectations. During Q1 2011, these incremental cost savings came from contract to rationalization, vendor elimination, long-distance migration to another carrier, reduction in real estate expenses and benefit changes. There was a minimal contribution from backbone migration, which will yield meaningful savings in Q2 and Q3 of this year. On an annualized basis, our cost synergies are running at $368 million, which is well on the way toward a $550 million target for the end of 2012. Slide 11 shows that free cash flow in Q1 2011 improved over Q4, driven by our increase in operating cash flow as adjusted or EBITDA, with cost savings exceeding revenue reductions and from lower capital expenditures. Our dividend payout ratio is 74% during the quarter, as expected, and should come down comfortably as EBITDA improves and CapEx declines after the buildout. Slide 12 provides some more color on capital expenditures. You can see that our aggregate spending is much higher than the pro forma company, prior to closing, because of our broadband expansion. We expanded our network to serve 83,000 additional homes in the quarter and our 2011 plan is to reach an additional, in total, 400,000 to 450,000 homes this year. These 4 strategies I've talked about: implement local engagement, sell and retain customers, reduce expenses, build and improve the network, will put Frontier in an even stronger financial and strategic position every quarter going forward. Slide 13 shows our excellent current liquidity of $1.3 billion, and our moderate 3x leverage ratio. Our goal is to drive that leverage ratio to 2.5x. As we continue to drive our business towards improved revenues and lower cost, we believe that we'll start moving towards this ratio on EBITDA growth and through debt reduction. We have minimal debt maturities in 2011, 2012 and are constantly monitoring the capital markets for opportunities to proactively address our 2013 maturities. Turning to annual guidance for 2011. Please turn to Slide 14. We are reiterating guidance, free cash flow of $1.15 billion to $1.2 billion. Capital expenditures of $750 million to $780 million and cash taxes of $50 million to $75 million. We're also reaffirming our estimated integration expense estimates of $90 million and integration CapEx of $60 million. Lastly, our systems conversion in the first group of our remaining 13 states is on track. As Maggie mentioned, we are targeting an early Q4 conversion in the first 4 states, which are: Indiana, Michigan, North Carolina, South Carolina. These 4 states were chosen for 3 reasons: first, they convert around 33% of our acquired customers; secondly, they allow us to run 3 of our 5 operating regions entirely on Frontier's owned systems; and third, they enable us to address a broader array of both suburban and rural markets. Running on our systems is critically important. It reduces our IT operating costs, lets us drive sales and marketing with more flexibility and gives us the operational control that we're used to. To ensure the same conversion success we saw in West Virginia last July, the same team is working on the conversion using the same processes. We are presently in the midst of our second mock conversion and have 2 more planned. Unlike the West Virginia conversion, we are not held to a firm immovable conversion date. We have the flexibility to manage the conversion in our best interests and the best interest of our customers. As a reminder, all 13 systems run on the same platform so the blueprint for these first 4 states will be replicated for the remaining 9 states. In summary, we are focused on all the key factors to bring performance of the acquired properties towards legacy operating levels. Integrating and turning around a carve out of a larger company is a complicated undertaking. But as you can see in our Q1 2011 results, as you can find out by talking to our customers and our employees, we are changing this business and seeing positive results from those changes. We look forward to reporting our second quarter results due in August. And with that, let me pass the call back to Paula, to open up the call to questions.

[Operator Instructions] And we'll take our first question from Batya Levi with UBS. Batya Levi - UBS Investment Bank: I have a couple of questions. First, I want to start off with the broadband market. Cable results were very strong this quarter. Do you feel you need to continue your promotional activity beyond May to keep up the momentum you've seen -- you've been seeing? And also, can you give a sense of how much revenue improvement is delayed because of the promotions you have out there? And on the business market side, legacy continues to improve on an annual basis, but acquired property revenues fell year-over-year and they had stabilized in the fourth quarter. Can you talk about the competitive environment and if you expect the sequential improvement you saw to continue from here?

Hi, Batya. Let me start, and Don and Dan can both jump in as well. With regard to the momentum on high-speed Internet, we will continue to be aggressive in the marketplace through the summer. But we will be targeting and segmenting that aggression in a different way. So we've been pretty much blanketing all of the acquired properties and our legacy properties in the first quarter promotion that we've extended through May. In the summer months, what we're going to do is really aggressively target the new build households to try to drive penetration in a big way. So you will see us be aggressive, but it will be more targeted aggression than what we've done through the first several months of the year. We feel very good about the upcoming promotions that will follow on, the promotion that we have in the marketplace. And we did extend the promotion because what we saw is in the first couple of months, whenever you do a new promotion, you have to get the entire organization comfortable with selling the value of that promotion and you build on it. We've sort of started to hit the crescendo of really driving the numbers in March. So we wanted to carry that over and keep that momentum going, which we did see in April. So we'll start to shift over at the end of May, but we feel good about that. In terms of the competitive environment, both in legacy and the acquired properties, we have not seen any substantial increase in competitive plays in those markets. We are driving for excellence to deliver for our customers. We do know that win backs are critical to our success in the long run. And one of the shining lights of our first quarter promotion is we drove a tremendous number of win backs, both in acquired and legacy. So we do know that our marketing and promotions are working to get customers back on service in addition to new customers.

If I may add, on a competitive front, we saw a little bit of response in the couple of markets from some competitors on the residential side to our madness campaign. A little bit more gifting being done by a couple of players, but isolated in many cases. In the business side, not seeing a lot of movement into higher end of business customers by competition. I think on the really plus side, about your question, as we've revamped the whole sales organization and approach and the more feet on the street and more attention to the business side, I think we're starting to really see some traction. The pipeline is growing, as Maggie mentioned, on just basic sales, CPE sales and really building the relationship. So this quarter is a very good quarter both on legacy and acquired on business. And we're -- I'm not sure we're going to see this kind of growth rates quarter-over-quarter, but I think we're seeing very good momentum to continue to move it forward and grow it.

And moving on, our next question will come from Scott Goldman with Goldman Sachs. Scott Goldman - Bear Stearns: Two questions. First, I think you guys did a pretty good job explaining the ARPU on the residential side coming down. Customer churn going up, I think as a result of the FiOS actions you guys took. Maggie, you talk about expecting that to continue for the next couple of quarters. I wonder if you think that's something that sort of stays at that current levels or something that could maybe get a little bit stronger as you guys implement price changes possibly in the Northwest. And then secondly, Don, I guess more on the cost side. It was interesting to see if you look kind of, x the synergies, that you had more of the cost savings coming from the legacy side of the business than you did on the acquired properties. So maybe give us a little sense as to how you're looking at the cost structure and savings opportunities as you go throughout the year?

Hi, Scott. So I'll start with regard to FiOS. We are hopeful that what we saw in the first quarter will be indicative of what we will see in subsequent quarters, in terms of some of the headwinds. And it's not getting worse, which is one of the reasons why we've held off in Washington and Oregon. We are focused right now on Indiana. We've actually put a team of specialized customer service reps in place to focus on those customers. And if you think about it, what we're also doing is we're raising prices for customers that don't have Price Protection Plans in place. So what will happen is over time, as customers come off contract, we will move those customers to new pricing. But what we're focused on right now is sort of the bubble of month-to-month customers first. And we are having very strong conversion rates with those month-to-month customers. So we feel very good that, as we continue to work with customers, we're just going to get better at it. And we'll see -- we've seen those conversion rates improve throughout the quarter. And we believe that we'll continue to see those conversion rates improve. So we are focused on maintaining the FiOS service and keeping that very high quality for the customers that are using it. We will see a slight bit of revenue lift on the existing customer base to take the price increase, but we're also trying to protect the downside in terms of the churn.

And if you look at the ARPU and the churn, Scott, as you mentioned, legacy has been very stable and the churn continues to improve. In the acquired properties, the ARPU did drop, and churn did go up. To Maggie's comments, we do not expect to see the ARPU dropping in the acquired properties nearly anything pronounced going forward. I think that we have a lot of -- things have got cleaned up. We had debt issue on the acquired properties as well. We have some of this change out Maggie was talking about. And the churn was also some disconnects. And we've been seeing churn continue to improve. And whenever we've done these promotions, the ensuing quarters after we do these promotions, churn significantly improves. So we're expecting to see improved churn in the acquired properties in Q2 and going forward.

Yes, the other thing that's driving churn down in the acquired properties is that we implemented full installs for high speed. I think as you know, when we first did that in our legacy markets, several years ago, the churn that you typically see in that first 120 days dropped to just about nothing. We were actually seeing exactly the same thing happening in the new acquired properties. So as we continue to drive that out to all of our channels, we know that we'll continue to drive churn down as well.

On the cost side, Scott, first on the acquired properties. We do have a targeted list of synergy projects we're going after. We are expecting a number of cost-savings initiatives to kick in this quarter. The main one being the network migration, which will get a very large number of expenses out incrementally in Q2 and again in Q3. There are also some additional contractor reductions and some vendor rationalizations that will be going on. On the legacy side, we had both wage and non-wage expenses coming down. We had some network maintenance cost come down. We had some contractual items on IT we were able to redo. We have some competition and benefit reductions based on some people issues as well. So we're just continuing to squeeze in a lot of different areas. You may recall that with the conversion we had in West Virginia, we had a bubble force that we had to ramp up too. We moved that bubble force over to business as usual in Q4 and a lot of that is starting to trend down. And so that also is showing some of the positive sign on the legacy side.

Yes, I think as we go forward too, Scott, just keep in mind, that this is a combined entity. So you can get some cost reductions in legacy that are really more about the scale and scope of the entire integrated business. They might show up in the legacy numbers, but it's really driven by the acquired properties as well. Scott Goldman - Bear Stearns: Okay. One very quick follow-up just on the synergies. I think last quarter, you guys said you expected $100 million of incremental synergies this year. Perhaps $16 million, I think are incremental in the first quarter. Sounds as though, with the network stuff and with the systems conversions coming in early 4Q, are we still on pace for $100 million? Can we beat the $100 million? How we think -- how should we think about that?

We're definitely on pace and don't want to change the guidance at this point, Scott. The second and third quarter are the big quarters for us to be a cost out. Our fourth quarter can be very focused on making sure these conversions are right. And we want to make sure that the customer experience is going very well. So right now, I'll keep it at that level. And we'll see what we deliver for you in Q2 at that time.

Next, we'll go to Simon Flannery with Morgan Stanley. Simon Flannery - Morgan Stanley: If we can talk about access at revenues, regulatory revenues, you had a sequential improvement on the revenue side. But a sequential increase on the cost side on network access, which sort of was going against your overall cost reduction efforts. Maybe you could just provide a little bit more clarity on what's going on there and whether that's something we should expect to continue. And then maybe Maggie, you can just update us on what's going on in Washington around Intercarrier Comp USF, if there's been any more progress on the last several weeks?

Let me -- just quickly on some of the numbers, and I'll pass to Maggie. First of all, our network access cost, Simon, the over $9 million of gifting cost, $9.8 million in the quarter are in network access. So at lot of that increase you're looking at is for that promotional aspects in the gifting. And I think hopefully that better explains that variation in network access expense. Simon Flannery - Morgan Stanley: To be clear, if it's a TV or something you have to expense that immediately? If it's service, then that's amortized, is that right?

That's correct. If we are giving a tangible gift, we are required to expense it in the current period of the installation for the customer, if you would. To the extent we are giving a reduction in high-speed revenue, giving high speed free for 6 months or giving free TV, DirecTV or DISH services for the rest of the year, that essentially is being booked each month against revenue. That's correct. Simon Flannery - Morgan Stanley: So we'll see this number, it will still be elevated next quarter. But as May comes and goes, then in Q3, that number should drop down again?

That network access expense -- gifting, I would expect would drop obviously, yes. Correct. And on the revenue side, Simon, there were some favorable disputes in the air. But the real increase that you really can see is from the USF contribution factor, which increased. So you got a surcharge that's included in there that has increased, obviously that’s both in revenue and expense. I don't think it's a trend overall quarter-to-quarter that you're going to see access revenues continue to grow. We still forecast access, and subsequent revenues continue to decline. And I think you will see that occur in Q2, 3 and 4.

Simon, with regard to your question about USF and Intercarrier Comp in Washington, we continue to have very proactive dialogue with the Federal Communications Commission as well as our peers throughout the industry. I think we've been very clear in working with the FCC on changes that needs to be made. We all agree that changes must be made. But we want to make sure that the transition periods for those changes are appropriate, so we can plan for those changes in our business. I have not seen anything that indicates other than that. I think the FCC Commissioners that we've spoken with are sensitive to that and want to make sure this is done correctly and appropriately. And also they understand that there's still a lot of people out there that rely on traditional phone service, especially in rural America that don't have broadband or can't afford broadband. So it is their lifeline. But I think you will see transition as this happens. I think there's still a discussion about what the broadband mechanism looks like. If there's a subsidy for broadband and how that works. So there's still a lot more work to come, but we are staying very close to it. And Kathleen Abernathy, our Head of Regulatory and our Chief Legal Officer is spending a lot of time with our peers as well. Simon Flannery - Morgan Stanley: What's your expectation on when this gets resolved?

I think it will be resolved this year. I think there's a good chance toward the third and fourth quarter that this will get resolved. I think that the Chairman would like to put this to bed. And I'm not sure if it will be third or fourth quarter. But I do think that he has a line of sight in getting it done this year.

Simon, one other item I want to mention on the access expense that I forgot. The increase is also due to increased CPE sales. We had increased CPE revenue, and they're off -- obviously some increase CPE cost going with that as well. But the main item that shows that increase is the gifting.

Our next question will come from Chris King of Stifel, Nicolaus. Christopher King - Stifel, Nicolaus & Co., Inc.: Just had a quick and a broad question for you with respect to the M&A environment following one of your fellow [indiscernible] (48:06), taking a harder look at the data center space recently. Just was wondering if you see that as something that you guys could be interested in or looking at perhaps expanding into at some point? And any thoughts you may have, vis-à-vis, that the push of the ILEC community in general to get a more exposed to that segment. Particularly given your commercial revenue growth that you saw in the quarter?

Hey, Chris, I'll start and Don can, of course, jump in on this. We do believe that hosting and cloud services for our customers are important product sets for us to deliver. We are actually doing a number of hosting services for customers in some of our larger markets. For example, we've been doing that type of service in Rochester for many of our customers for the last several years. And so what we're in the process of doing is looking at, does it make sense for us to buy something that would help be a catalyst for the marketplace or continue to organically grow these services through our own activity? We do have hosting facilities all around the country already, especially with the acquisition. We've acquired a number of locations that would be very easy for us to set up data centers and to provide those services. But we also are very aware that the premiums attached to a number of these companies today are pretty rich. So we are -- we would not go forward and do an acquisition if we didn't think there was a right return for our shareholders in doing so. And we're also very focused on making sure that the product sets, if we were to acquire are U.S. based because that's where we do business, and that's our sweet spot. So we want to make sure from a scope perspective that we can leverage that in our markets, possibly add a territory, too. But definitely, U.S. centric.

And Chris, our goal is to own the relationships of all of our customers, both residential and business. So we need to be able to offer more and more products and services to our customer base. On the business side, yes, we like to be able to offer a variety of different, more services. Do we have to own it? Can we partner, can we resell? Whatever, we want to make sure that we're delivering that. And we want to have that relationship with the customer. And that's something we just got to continue to focus on. It is not job 1. Right now, job 1 is this integration, continue to get it done. Job 2, is looking at, how do we increase the product suite? And we'll continue to look at it. But it's -- we can -- been very, very strategic to make sure it's getting the right answer for the customer first because not -- we do not have to own it to go and give to the customer.

And we have a very good track record on partnership. So it's something that we have a good core competency on. So if we need to some time to market, we can do that through partnerships as well.

And moving on, we'll go to Phil Cusick with JPMorgan. Philip Cusick - JP Morgan Chase & Co: Maybe 2 things if I can follow-up first on Simon's question. To get USF sort of done this year, we would have to see some sort of proposal over the -- I would say the next couple of months. And we met with Kathleen and the FCC a couple of months ago, it seemed like it really was on the carriers to come up with a proposal on bringing that to the FCC. Is that still sort of the plan, or are we relying a little bit more on the FCC for the initiative here?

No, I think it's both instead of one or the other. We have tried to be proactive with our peers and with the USTA to try to come up with a comprehensive proposal that the FCC could evaluate in the context of this decision. And we are still in good faith working on that proposal with other members in our industry. But I do think that the FCC has their own points of view on this as well. So I think it will be, probably a combination of both. Philip Cusick - JP Morgan Chase & Co: Okay. And then a couple of quick ones for Don. One, on the 4Q cost lines that create a lot of controversy. Can you give us any update on what's happening there? It didn't seem like things were going to come down quickly. But how are things progressing, particularly on the health care side?

Well I think some of the costs did come down. Some of that increase was on the healthcare, as you mentioned. We've really been focusing on making sure we've got refined and refined estimates on the medical. And we feel very good that we are probably aligning it based on claims that are coming in, not seeing it increase. And I think the past couple of months, you're seeing it's being pretty much aligned with what we saw in the fourth quarter. So I think we caught it up, we got it to that level. I think we now got to go through, continue to manage the healthcare side of the business in a variety of different ways, which is with our management employees, all of our new employees on the management side are now contributing more towards healthcare. And we'll continue to pursue that topic throughout the rest of the employee base over the next number of years as we address things. The network maintenance costs, which increased in Q4, we continue to address those. There's some that we've been able to reduce. Some, it's going to take us a little longer to get out, but we'll continue to focus on getting it down. But some of the decrease that you saw this quarter was some of that reduction. And we'll just continue to knock them -- knock them off over the next several quarters. Philip Cusick - JP Morgan Chase & Co: That's great. One more if I may, you called out, particularly the backbone migration coming off in the second and third quarter. Can you sort of outline for us migration timing and potential savings there?

Dan, why don't you take that one?

Sure. So we've been actually been working on that project now since virtually we closed the transaction last year. Most of the savings, if you imagine the process that's moving every single customer, both residential and commercial, from the current backbone to our backbone. And the savings are realized as we disconnect the circuits that connect to the Verizon backbone. We'll finish up that project and be completely off of the Verizon system by the end of the second quarter. And we'll realize full savings as we come into the second and third quarter.

The maximum savings, Phil, in the second quarter for us could be anywhere from about $7 million to $10 million in the quarter and could be in Q3 an incremental $5 million or $6 million on top of that. The numbers are a range because it really is a very manually intensive process that Dan’s folks are going through and getting it all done and lined up, dealing with customers and dealing with a lot of different facilities. But very tangible, real savings will be coming out in Q2 and Q3.

And Philip, if you think about it, there are 2 big benefits to this project. Not only is it a major cost reduction on an annualized basis. But in addition to that, it relieves a lot of congestion problems that we've had on the network because of the way the Verizon circuits are not expandable to let us manage the business as we continue to grow it. So we're going to get 2 bites of the apple here that are going to be a huge benefit for the company and for our customers. So the other thing that we saw in Q4 is, we had to hook up a lot of circuits first before we can disconnect the other one. And that's where you saw some of the bubble in the cost. But now that we're actually in the throes of converting everything, you will continue to see sequentially those costs come down exponentially.

And next, we'll go to David Barden with Bank of America.

I guess, 2 if I could. Maggie, I think you called out that there was a cleanup on the line side in the acquired properties that have impacted the comparisons. If you could quantify that, that will be super helpful in understanding of kind of what the truer run rate was? And then second, maybe Don, I guess just the big, I think, revenue surprise as to kind of the big sequential step-up in business revenues in the acquired properties as well about, I guess $9 million or so. We actually saw a big step-up in first quarter versus fourth quarter a year ago as well. We don't have a ton of history here, but is there a seasonality or anything that kind of was going on, other than obviously, the selling efforts of Frontier's part in the acquired properties?

David, I think you are referring to the access line number, cleanup?

Correct, yes.

Yes, we did in January. And this is typical of what we do in the business, but with the acquired properties since they were new to us, there was a little bit more scrutiny that we looked at there. We did a lot of nonpay cleanup from the fourth quarter in terms of making sure that if we felt that customers were not going to make it, we wanted to clean that up and get that done in the first quarter. So in January, we did do some extra cleanup on nonpay. You did also see some reduction in access lines based upon the FiOS decision that we made. But predominantly, it was a cleanup of nonpay that was completed in January that spiked up some of the access line losses for the quarter. But as I mentioned, February, March, backed right back down and April has been a very, very good month for us from an active line perspective. So we felt it was a onetime thing and off we go. So I think you'll continue to see a good improvement on access line.

Is there a number around that, Maggie?

David, I will give a ballpark, say about 8,000 incremental disconnects from nonpay from the cleanup. And on the second comment is revenues. I don't think I can comment on the period of time that we did not own those properties, David. But I don't think there's seasonality on the business revenues. I do think that we are seeing some very good traction on selling to the business customer base. We have reconstituted, as I've mentioned and Maggie's mentioned before, the whole business commercial sales force and focus and attention. I think we've got a very good backlog and really paying attention to our customer base that was, not previously had a attention paid to. We've got a good backlog of CPE sales, so I don't think it's seasonality. I do think there was a lot of things that were -- some stars aligned to give some nice lift in the quarter. I wouldn't say it's going to have that rate of lift sequentially. But I think we are still seeing some very good movement. And as we've mentioned before, it is -- 50% of our customer revenue is business and it is a very big opportunity for us in these acquired properties. There's a number of businesses that we do not have relationships with, but we're going to build those relationships based on local engagement. And that's a huge opportunity, just to win that customer and then grow that ARPU. We've got great market share on our acquired -- in our legacy business. Great market share and great ARPUs, great relationships, great churn numbers. But the acquired properties, we don't have it as robust to market share on the business side. So the very big opportunity that we're going after and we're seeing some positive results is coming from that.

Yes, and David, I would just add that we -- the economy has sort of put a lid on a lot of businesses buying equipment. We did see some opening of that in the first quarter that we've been working with a number of businesses on CPE sales, and we saw that start to come in. And as I mentioned, there is very strong pipeline for CPE. In addition, we put 50 more feet on the street in medium and enterprise. And as we -- what we saw in the first quarter is starting to get the fruits of that labor. We have those folks in place. They've been up to speed, they've been trained. They're now out in front of customers. As Don said, because our market shares are not as strong in the acquired properties and frankly, there's been nobody in front of these customers for a very long time, we do think there's some pent-up demand that we're taking advantage of. And I believe we're going to see that continue to the next couple of quarters.

Okay, I appreciate that. I just -- the only thing I wanted to just get color on was because from a selling standpoint, we had 8,000 customer loss. Last quarter, 8,000 quarter loss this -- customer loss this quarter. But the ARPU was up 28% annualized quarter-over-quarter. So it really seems like either you raised prices or on a per customer basis, something really changed this quarter versus last quarter?

On business side, it is, I wouldn't say it's pricing, it is selling more and more circuits. There's some very good sales going on and just some good activity. We have a sales force that 50 people on the street that we did not have a closing. There's another 35 people going on the street that were not in a closing. So there's an attention being given to a customer base potential that was not there before. So we're starting to ramp that up and starting to see that benefit. And many -- of our some just really good push through sales.

Yes, I also think that it has a lot to do with the fact that we focused more on CPE. As a company, we haven't focused there before. And when you sell the equipment, you get the maintenance. So we are actually getting more revenue from customers than we did in the past, not just the onetime revenue, but the ongoing revenues on the business side.

I would just add, David, that when you think about the properties that we acquired, in many cases there's no holistic service provider that can provide that equipment solution as well as our network. And as we've introduced that capability, it's been something that's really simulated demand.

And our next question will come from Michael Costantini with Nomura. Michael McCormack - Nomura Securities Co. Ltd.: Guys, it's actually Mike McCormack with Nomura. Don, just can you give us a sense on the goal to get leverage down, and I guess with a focus on the maturity this year, what the plans are to meet that? And then secondly, I guess maybe for Maggie, you guys have historically talked a lot about the wireless opportunity in region and the WiFi products you've worked on. Any update on that particularly as you think about going to the acquired properties? And then also I guess, attached to that is this fiber to the tower opportunity that one of your peers is going after very aggressively calling it a land grab? Just wanted to see if you guys sort of see that same opportunity in the footprint?

Mike, I'll cover the first items. On leverage side, we -- the theme of this case is to improve the revenues and improve the cost structure, making investments in these properties, both local engagement and the network. And we are planning to grow EBITDA. And so the plan here is growing EBITDA and to be able to improve the leverage, generate free cash flow, use that free cash flow to pay down debt. We do have maturities this year. Our plan presently is to use cash to pay that down, about $280 million and one's in beginning of May and the other one, I think, it's third, fourth quarter. We will -- we may be opportunistic to see if there's any term loans that we can do to maybe refinance both, but we'll see. It'd be very opportunistic, but those maturities, we feel comfortable on dealing with on the cash side.

And Mike, let me shift over to wireless. I think as you know, it's always been an important area of our business. We have been leading and providing WiFi mesh networks throughout our markets. We have 19 markets today that are built. We are in the process. We've just gone through a whole analysis for the acquired properties. And I think you'll see us turn on over a dozen new municipal builds for mesh in the newly acquired market. We also are very strong on selling hotspots throughout all of our footprint. We have over 500 hot spots today, 390 anchors, which are colleges, universities, hospitals, even municipalities themselves that pay us on long-term contracts, 3 to 5-year contracts for people to use the WiFi network. In addition, we have wireless modems that we've put in every single one of our households on the legacy side over the last 3 or 4 years. We are now moving aggressively to do exactly the same thing in the acquired properties. So all new high-speed installs are wireless modem. And we will do swap-outs of existing modems in the homes. So every home becomes a hotspot for us as well, which in the future, as we look at offering voice over IP on WiFi, we can have both a voice service, in addition to a data service in all of our markets. So we are working very aggressively at least for our day-to-day operations for small business and residential from a WiFi perspective. In addition to that, on the tower side, we are, of course, working with all of the major wireless carriers for fiber to the towers where it makes sense. We are also making sure that we appropriately balance capital for the buildouts that we're responsible to do for broadband and also providing fiber where it's cost effective for us to do so with the carrier partners that we have out in the marketplace. So different than some of our brethren, we do not foresee our guidance changing on capital this year. So we are continuing to do a good job of balancing and making sure that we do the right things from a fiber to the tower and the broadband build in network improvement.

So let me expand on that, Mike, you know Maggie's comments. We're going to do this where it make sense as a dividend paying stock. Cash is very important, so we look at every opportunity on a wireless backhaul on business-case basis. And is it going to give us the right return. Yes, we'll make those investments. If it doesn't give us the right return, not, not for us. So we are not looking to achieve a “land grab”, we want to do things that make economic sense. And if there's towers in our area that we can't get the right returns on, then maybe it might be somebody else who will serve those towers, but pure economic basis, a case-by-case scenario. Michael McCormack - Nomura Securities Co. Ltd.: So when you think about that, Don, I guess sort of either you see a lack of urgency? Or do you think the opportunity's just longer term? Or just from a financial standpoint, you're more diligent, I guess, about looking at the opportunity?

I think it's financial diligence. But in addition to that, remember, we're the leading provider of these services in rural America. So in a lot of cases, we are the provider to these towers as well. So we try to balance to make sure that we're working appropriately with those carrier partners. But we also want to make sure we get the right economic return, and we're not just going to do it for the sake of doing it. So I think that's really, it's a -- you walk a tight rope on this, but I think we're doing it the right way. I think we're -- we have very good relationships with the wireless carriers, and we will continue to manage that balance. Michael McCormack - Nomura Securities Co. Ltd.: It makes sense. Thanks, guys.

And our final question will come from Gray Powell with Wells Fargo. Gray Powell - Wells Fargo Securities, LLC: Most of mine have been answered. I just had a couple of broader ones really quickly. I think Verizon's broadened penetration of homes passed is close to the 30% versus legacy Frontier at about 40%. Just longer term, how quickly do you think you can close that gap? And in terms of broadband speed, at the end of 2010, I think about maybe a little over 50% of homes in your territory can get 6 meg speed, 25% can get over 10. Can you just update us on those stats and discuss your goals for improving broadband speed?

Yes, let me start by talking a little bit about penetration just to sort of give you a sense. As I mentioned, in the acquired properties, the penetration rates were around 20%. And we're driving those penetration rates up, Gray, but we plan on getting them up to that 37% to 40%. And we think that's a combination of the new household getting penetrated at an accelerated rate, and it's also about reducing churn. Churn has been very high in these markets compared to our markets. We have industry-leading churn in our broadband household on the legacy side, and we are driving churn down every single quarter. And we will continue to do that. And it's all by keeping existing customers and then adding the top line of growth, especially as we've expanded broadband into these markets. With regard to speed...

About 56% and get upwards of 6 meg and 28% and can get upwards of 20 meg. So we're going to continue as we do this broadband expansion as folks are doing -- we're pushing to build out to the 3 and 6 levels. We're going to continue to see that 6 meg number just continue to increase. That 56% today is going to continue to grow.

Yes, and from an engineering perspective, we designed the 6%. We might build to 3% in these markets, but it's very easy for us to continue to expand to get more speed and capacity on the network based upon the designs that we're doing. We're also very bullish on the DSL capability. We are seeing extremely good speeds in our legacy markets, upwards of 30 to 40 meg on DSL. And we know that we can continue to get more out of that product set. So we're pretty bullish to continue to aggressively grow in the markets both from an expansion perspective and speed and capacity. Michael McCormack - Nomura Securities Co. Ltd.: Got it. Thank you very much.

Thank you. Well thanks, everyone, for joining us today for the first quarter overview for Frontier Communications. We're going to continue to keep our heads down and focus on continuous improvement for these new markets and holding around in the legacy markets. We look forward to talking to all of you in the summer when we report second quarter results. Thanks again.

And that does conclude today's conference call. We'd like to thank you, all, for your participation.