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

Michael McCormack - Nomura Securities Co. Ltd. Gray Powell - Wells Fargo Securities, LLC Philip Cusick - JP Morgan Chase & Co Batya Levi - UBS Investment Bank Michael Rollins - Citigroup Inc Simon Flannery - Morgan Stanley Scott Goldman - Goldman Sachs Group Inc. Frank Louthan - Raymond James & Associates, Inc.

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

Thanks, Jennifer. Good morning, everyone. The purpose of this call is to discuss 2011 second quarter results for Frontier Communications. The press release, earnings presentation and supplemental financials are available on the Investor Relations section of our website, frontier.com. On today's call are Maggie Wilderotter, Chairman and Chief Executive Officer; and Donald Shassian, Chief Financial 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. Also, on this call, we'll 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'll now turn the call over to Maggie.

Thanks, Greg, and good morning, everyone. Thank you for joining us today as we discuss the second quarter 2011 results for Frontier Communications Corporation. For today's earnings call, I ask that you follow along with the supplemental slides available on the Investor Relations page that Greg outlined. It's on our website at www.frontier.com. I'll begin with a summary of the quarter, followed by a review of the business and key metrics before handing the call over to Don Shassian. On July 1, we celebrated the 1-year anniversary of our transformational acquisition. While the operating metrics and financial results, we're about to discuss, represents a good progress report on how we're doing, they don't fully capture the amazing contributions of our 15,000 employees over the past year. The entire company is now customer focused at the local level, a significant but welcomed change for our new employees. This is no small task when you consider that the acquired properties are more than twice the legacy company size from customer service to network engineering to sales and in all of our corporate support functions we truly are the new Frontier. So I want to say thank you to all of our employees for an amazing first year. Frontier's second quarter 2011 results showed solid progress on many fronts. We are still working hard to get even better operational and financial results in the acquired properties. The priorities are quality networks, expanded broadband and competitively engaging residential and business customers. Early indicators of our success can be seen in our consistent quarter-over-quarter lower churn rates for both access line and high speed. We are continuing to improve customer satisfaction and rollout new products. Some highlights of the quarter are on Slide 4 for your reference. We are raising our annual synergy target range to a $475 million to $500 million run rate by the end of this year, and now expect to exit 2012 at a $600 million run rate. That is a $50 million increase from our prior Q3 2010 target and a $100 million increase from our initial forecast. The $600 million represents approximately 28% of the annual operating expenses we inherited with the Verizon transaction. In Q2 2011, the largest new contributor to synergies was the migration of traffic to our own national data backbone. We completed this project at the end of Q2, which will improve service delivery and substantially reduce our costs. You will see further positive cost reduction impact in Q3 from this one initiative. The second quarter also delivered substantial operating cost reduction. Our cash operating expenses were down $32 million from the first quarter of 2011. Our EBITDA grew 1.2% sequentially, and our margins expanded 1.4% (sic) [141 bps] to 48%. We're on track to improve profitability in the acquired market to legacy levels. In our acquired markets, we expanded broadband availability to a 142,000 homes during the second quarter, bringing the total to 466,000 since taking ownership on July 1, 2010. As a reminder, when we reach our 85% availability commitment in 2013, we will have enabled 1 million homes in these new properties. A key differentiator between our network and cable competition is that you consistently get the speed you pay for. There's no sharing at the local level. High demand for bandwidth-intensive applications like video are putting pressure on all wired networks. To that end, we want to make sure that we have more than enough capacity to satisfy the expectations of our customers. We're spending capital in all parts of the network with specific emphasis in the middle mile, which will enable us to consistently deliver a quality customer experience for our customers of today and tomorrow. Frontier's marketing sales and retention efforts yielded 12,300 high-speed DSL net additions in Q2 2011. This is a major improvement from a pro forma net loss of 17,000 in Q2 2010 right before our ownership. However, we acknowledge that we still have not gotten a net add momentum that we expect. In Q2, we had many areas with unacceptable levels of network congestion, which negatively impacted our growth in net high-speed additions. We believe all of the major congestion issues will be fixed by the end of Q3, and that will enable us to drive higher growth and net broadband activation in the new properties. I thought it would be helpful to highlight the major milestones we have achieved in our largest state, West Virginia, over the past 12 months. First, we converted all of the operational, billing and financial systems to our legacy Frontier platform. We enhanced the middle mile fiber optic network extensively, providing 100-fold capacity improvements to carry traffic throughout the entire state. We increased broadband availability from 62% to 76%. By the end of 2012, West Virginia will go from 1 of the bottom 5 states in the country in broadband connectivity and capacity to 1 of the top 5 in the nation. We have achieved 14% market share of the new households with broadband service, experienced a 53% reduction in customer complaints and a 16% decrease in trouble tickets. Our new service orders are up, call center close ratios have improved and the Customer Satisfaction Index is the highest in the country. As we bring the remaining 13 states onto our systems and continue to enhance the network in all of these states, we expect to replicate these same results throughout the acquired property. Slide 5 is a financial and operational snapshot of the past 4 quarters for the company. It's clear we're improving our broadband and churn metrics. We're substantially reducing the cost of running the business, and we're growing EBITDA. Our demonstrated margin improvement means that future revenue growth will have an immediate and positive impact on free cash flow. Turning to Slide 6. I would like to update you on Frontier's operational developments during the quarter. Our commercial business continues to build strong traction across all of our regions. A good level of installations drove new revenue in the quarter, but an even larger lift of sales commitments will drive revenues in future quarters. In small and medium business, we're selling Metro Ethernet, voice system, customer premise equipment, wireless data systems and web hosting. In enterprise, we're also selling e911 systems and higher bandwidth connection. Finally, our carrier and wholesale team continues to meet this segment's need for greater bandwidth, including the pursuit of tower backlog projects that makes sound, economic sense for Frontier with numerous national and regional wireless carriers. In residential, I'm pleased to announce that we have signed a new video partnership with DISH Network. We have worked well with DISH in the past and are very pleased about our new multi-year relationship. As we convert each of the remaining 13 states to our legacy system, we will migrate our new satellite video sales and service orders to DISH Network. Our residential customers will also benefit from other new products, such as an enhanced Frontier secure suite of products that includes: technology assistance; identity theft protection; hard drive backup service; and in-person phone or online support called Rescue Tech; a new relationship with Yahoo! for expanded integration of e-mail, portal, and Yahoo! branded services; and a high-speed service called Second Connect [ph] that gives our customers 2 exclusive connections in 1 household, and we're the only provider in every market that can do that. Much of our residential and commercial activities are being driven by local engagement from business roundtables involving state governors to participation in local farmers market or food drives, we have feet on the street all of the time everywhere we do business. Our employees continue to be active in their community and our Take the Lead program is our second-largest sales channel after our call centers. On the integration front, we are on track to complete the system conversions of the first 4 states onto Frontier's legacy system in Q4. These 4 states are Indiana, Michigan and North and South Carolina. System migrations are critical to improving our ability to manage the business and to further reduce our cost structure. We are also beginning the planning process for converting the remaining 9 states in 2012. On Slide 7, you can see where we stand on several of our key metrics. The first chart shows that broadband net additions, including 12,300 DSL additions. This positive growth shows the demand in the new markets we serve and stable results in our legacy operation. As with last quarter, we continue to face a headwind from our decision to increase FiOS video pricing to market levels in one state. The second chart shows solid satellite TV additions of 21,000. In the third chart, total access line losses improved to an 8.6% year-over-year decline, our lowest level since taking ownership when the pro forma loss rate was 9.7%. We also improved the acquired property to a loss rate of 10.1% compared to 11.4% in Q2 2010. Overall, we have made great progress in improving customer retention since close, but we're not satisfied with those loss rates and are very focused on growing and keeping customers through local engagement, broadband expansion and new products and services. The last chart shows our churn in both legacy and acquired properties continues to improve, through better products, improve networks, local engagement and one call resolution customer service, which has been launched recently in our Everett, Washington, Fort Wayne, Indiana and Marion, Ohio call centers. A universal representative means any question, issue or sale can be handled by our employee who answers the phone. Customers are no longer transferred around to get the answers they need, and our call center processes are streamlined. In summary, our Q2 results show continuing progress in the right direction. 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 a reminder, our website has supplemental schedules that present pro forma and actual financial and operating data for legacy and acquired for the past 8 historical quarters. Before we go to the key drivers of the quarter, I'd like to highlight 2 items. First, we incurred certain nonrecurring items, which negatively impacted our Q2 EPS by $0.03. Acquisition integration charges and severance charges of $31.3 million pretax reduced EPS by $0.02. Also, a one-time noncash tax write-off related to new tax legislation in the state of Michigan reduced EPS by $0.01. Adding back all 3 of these items, our pro forma adjusted EPS will be $0.06 for the quarter. Secondly, I did want to point out that we reclassified approximately $8 million of Q1 revenues from business to residential. Please turn to Slide 8, which presents the 4 key strategic tenants that I have been relaying to you since we closed the transaction. At our 1-year anniversary, we are making progress and seen good tangible results in all 4 areas: implementing local engagement, selling and retaining customers, getting the expenses out and building and improving the network. Slide 9 shows you the tangible results in revenues of the past 4 quarters from implementing local engagement and selling and retailing customers. Our Q2 results show that we continue to have a healthy customer revenue mix at 51% business and 49% residential. In addition, 64% of our customer revenues come from business and broadband, up from 63% last quarter. For the second quarter in a row, we had a positive sequential growth in data and Internet services revenue. This was offset by pressure on local and long-distance services, which mostly came from the acquired properties, as legacy is essentially flat quarter-to-quarter. Overall, our customer revenues fell 1.4% sequentially, the second consecutive quarter of slowing customer revenue decline. Turning to Slide 10. The decline of residential customer revenue translated to a solid sequential improvement in Q2, driven by fewer residential customer losses in the quarter and higher average revenue per customer, which was up sequentially on higher products per customer. In business, as I mentioned earlier, we reclassified Q1 revenues by moving $8 million of business revenue to residential. Our Q2 business revenue was essentially flat on a sequential quarterly basis. Our business customer losses in the quarter were less than the previous quarter as we saw good progress in both retention across all of our segments and new sales to small, medium and enterprise customers. We continue to sell more products to our business customers as the network improves. This is reflected in a 2% sequential improvement in average revenue per business customer. Our CPE revenue was not as robust as in the previous quarter. But our closed sales during Q2 and our strong pipeline of potential new recurring revenue, driven by our enhanced network, should develop into greater customer traction and increased share in the marketplace in future quarters. Turning to Slides 11 and 12, you can see that we made our most significant progress since our acquisition 1 year ago on the third leg of our operating strategy, getting the expenses out. Total cash operating expenses fell $32 million sequentially in Q2 2011 to $688 million. At the 1-year anniversary of the transaction, it is an appropriate time to look back of the fact that through Q2 2011, on a total company basis, we have achieved $106 million of quarterly cost synergies and only $15 million of incremental cost. This net $91 million cash operating expense reduction on a total company basis, on a quarterly basis, equates to 12% of the total combined company cost structure prior closing, which should clearly demonstrate to you our ability to run the new Frontier with a much leaner operation. Slide 12 provides additional detail on our Q2 2011 cost reduction. The top chart shows we realized $14 million of incremental cost synergies in Q2 from backbone circuit migration, further contractor reductions and other projects on our target list. Our Q2 promotion costs were $9.1 million lower than Q1 at the nationwide promotional gift program we phased out. We also realized $8.7 million in additional cost savings from a variety of initiatives and seasonal activities across the company. As you can see on the bottom chart, we are at an annual cost synergy run rate of $424 million, which is 20% of the annual cash operating expense of acquired properties in Q2 2010 just before closing. Our continued focus on cost synergies has resulted in higher-than-expected savings in some areas and more definitive savings in several that were still in the planning stages. Higher 2011 savings have come from the backbone migration project and the elimination of additional outside contractors. More definitive savings are now evident relating to exiting several lease facilities by the end of 2011 and renegotiating third-party software expenses. As a result, we are increasing our 2011 run rate target from $400 million to a range of $475 million to $500 million. Achieving $500 million cost synergy level by year end 2011 represents 100% of the original goal we committed to you on May 2009 and is one full year ahead of schedule. As we look forward to 2012, we expect to continue to execute our cost synergy target list and are increasing our 2012 run rate cost synergy target from $550 million to $600 million. The level that represents 28% of the original operating expense structure prior to closing. We are confident we are on track to achieve this level of cost savings. Slide 13 focuses on our capital expenditures, which are critical to reaching our goal of retaining and growing customers and removing cost from the business. Building and improving the network is the fourth leg of our operating strategy. As Maggie mentioned, we have expanded broadband to 466,000 new homes, including 142,000 in Q2, which puts us very much on track in our network expansion plan. We've also made enormous improvement with performance and capacity of existing networks between our customer and our central office and from there to our national backbone. As I'll discuss momentarily, we're achieving this with CapEx that's at the original guidance levels we gave you. Q2 capital spending accelerated seasonally from Q1 levels and Q3 will remain robust, but we expect much lighter spending in Q4. Our Q4 free cash flow was highlighted on Slide 14, where planned higher levels of capital expenditures offset our growth and EBITDA. Dividends were 81% of free cash flow for the quarter, 77% year-to-date and 72% on trailing 4-quarter basis. As you know, U.S. tax policy regarding the ability to accelerate depreciation and capital expenditures are currently scheduled to be eliminated for fiscal year 2013. Despite the increase in cash taxes for capital-intensive companies like Frontier, we remain focused, driving our dividend payout ratio downward to higher EBITDA via revenue growth, continued cost reductions and lower levels of capital expenditures when our broadband buildout is completed mid-year 2013. These same factors should improve our already strengthened credit liquidity. Slide 15 shows that we have $1.2 billion of cash and borrowing capacity as of Q2, which is incremental to our trailing 12-month free cash flow of $1 billion. We repaid $77 million of debt during Q2, and debt maturities for the remainder of 2011 totaled only $202 million. We are constantly monitoring the market for refinancing opportunities, which, combined with positive performance in the future quarters, should also help lower our incremental cost of capital. In terms of strategy, we are still targeting a net leverage ratio of 2.5x and see this as a primary use of residual free cash flow. We expect EBITDA improvement and gross debt reduction to get us there. Our annual 2011 guidance, as shown on Slide 16, includes some changes I'd like to note. We are lowering our cash tax guidance to approximately $25 million, while maintaining our outlook for capital expenditures of $750 million to $780 million, and our free cash flow outlook of $1.15 billion to $1.2 billion. We are increasing our integration capital expenditure estimate to $70 million, which is excluded from our definition of free cash flow and also increasing our integration expense estimates to $120 million, which is excluded from our definition of adjusted EBITDA and free cash flow. Both of these increases relate to additional cost synergy investments and some work now expected to be done in 2011 related to the 2012 system conversions. With regard to our system conversions, we remain on track to divert all systems of the next 4 states onto our legacy platform in early Q4. Our team has performed 3 mock conversions to date and is moving forward on schedule, as it did in our successful West Virginia conversion last year. Our third mock conversion was completed in July and demonstrated very strong improvement over our previous mock conversion, much fewer issues and overall quality very much within expectations. Some of our GAAP releases were implemented in July while the remaining system enhancements were placed into service in August. Lastly, we have been conducting biweekly end-user billing conversions, enabling us to perform actual billing comparisons, which, as we would expect at this juncture is showing good prices and reducing error rates. All key indicators are well within expectations at this time. Our Q4 conversion is on track. On the operations side, we are very heavy into training and hiring a global force of full-time employees and contractors to help our people be prepared and productive at conversion. Net-net, progress for the Q4 set of system conversions is going well. The progress on this Q4 systems conversion is going so well, I wanted to inform you that we are now accelerating some of our planning for the system conversions for the remaining 9 states. We currently believe that we should be able to convert the remaining 9 states in the first half of 2012. Our increase in integration expenses forecast for 2011 reflects this anticipated acceleration of work. In summary, our financial progress continue during the quarter in a positive way on several fronts, including lower churn, stable business revenue, accelerated expense reductions and network improvements and expansion. As Maggie mentioned, we haven't yet realize all the potential on the revenue side. We are confident of our local engagement and constantly improving network will continue to penetrate the opportunity that's out there for us. We look forward to reporting our third quarter results due in early November. And with that, let me pass the call back to Jennifer, to open the call up to questions.

[Operator Instructions] And our first question will come from Batya Levi with UBS. Batya Levi - UBS Investment Bank: I had 2 questions, one on the revenue side and one on the expense side. On revenues, when you look at -- it looks like the local engagements approach is really starting to work in lowering residential line losses in the acquired footprint, but when you look at the revenue decline on an annual basis, it still worsened. Is this a function of the delay in the revenue improvement due to the promotions you had in first quarter? And should we expect an uptick in the second half? Or is it more due to the loss of higher ARPU customers? If you could reconcile those 2 trends. And on the expense side, when you look at the acquired footprint, the $9 million reduction in other expenses was pretty strong. Is that a reversal of the uptick we saw in the fourth quarter? And can you give a little bit more guidance on where those cost savings are coming from, and if we can continue to see those in the second half?

On the revenue side, Batya, I think the local engagement is doing extremely well in reducing churn and selling more products to customers and moving them upstream. I think you're still seeing the delay. We saw some pretty sizable losses in Q3 and Q4, right out of the gate, after we closed. I think you just continue to see good improvement. All indicators, all things that I look at, the information I get on feedback and talking to the field, information that Maggie and Dan McCarthy see out in the field, very good traction improvement in retaining customers and taking advantage of opportunities there. I think it's just simply a delay that you're just not seeing -- getting the revenues.

And Batya, I agree with Don. I also think as some of the promos wear off, you will continue to see revenue lift across the board. And we've been pretty strong in selling the triple-play. As you can tell by the video numbers for the quarter, those are all attached to other products and services for Frontier. So we do so very good about that, because I think, as you know, as you add to a double play or triple play, you reduce churn by 50% and a 100% based upon a single phone line customer. So we are seeing very good traction, and I think you'll start to see the revenue uplift over the next several quarters.

And on the expense side, Batya, the additional $8.7 million are savings netted, both multiple pressure on costs and then some savings. From a variety of things that happened to business, that will not specifically targeted, if you would, on a synergy target list. There's a lower long-distance minutes of use, so we've got lower carriage costs there. We've also had some induction in some vehicle repairs that is a pretty sizable number, offset in some cases by some other increases in some expenses for some software and some other items. So I do believe that most of that can be recurring. I think most of it is very good traction. We continue to have items that are pluses and minuses in the business, but I think, for the most part, there should be a pretty good traction carryforward for the next several quarters, yes. Batya Levi - UBS Investment Bank: Can you give a sense of how much of that was due to seasonality?

Some of the seasonality that I'm alluding to is partially due with capital expenditures. There's some capitalized overhead and people costs because of the very heavy construction activity that's going on, so that is sort of benefiting the quarter. And well, obviously benefit third quarter as well, so we have a little bit of reversal. It's worth a couple of million dollars in the quarter. Batya, it's not a huge number, but it's noticeable and attracts the level of spending that we're doing in fixing the network and expanding the network.

Our next question will come from Gray Powell with Wells Fargo. Gray Powell - Wells Fargo Securities, LLC: So yes, we definitely saw that you left free cash flow and CapEx guidance unchanged. If I'm just doing some rough math, but if I take your guidance and assume stable working capital and interest expense, I basically get to an implied EBITDA number for the full year 2011 that's well above the run rate of the first half of the year. I know you don't want to give explicit guidance, but can you just tell me if I'm directional thinking about it correctly, and what you see as the main drivers to improved operating cash flow in the second half of the year?

Yes, Gray. We are pushing an awful lot on the revenue side, we think there's some very good opportunity on continue to expand broadband. We think commercial has been very good opportunities for us. So we think there's going to be a turnaround on the revenue side, and we still continue to see improvements in the expense side. I mean, we are -- we need to continue to grow EBITDA in this business, and it's not a run rate -- from where we are, we're going to grow it, both revenue and expense. And that really is one of the fundamental drivers. The other one is on CapEx. CapEx is extremely heavy in the first half of the year, which is not normal for us in a normal scenario, but we're putting a big emphasis in improving the network, expanding and trying to get that down as much as we can in the beginning part of the year, so that we can be selling through to those homes through the whole year. CapEx in Q3 will be high and elevated, but Q4 will drop pretty significantly to get to our guidance. So if you do the math, yes, EBITDA has got to grow. CapEx is going to come down as well, but it is all about revenue expense, which we're pushing an awful lot of -- putting a lot of initiatives on, both new product and focusing our cost synergy target list.

Gray, the only thing I would add is -- to reinforce what Don said about capital. We have front-loaded capital this year to get the most benefit out of that capital early on, but we have a very good grip on the capital expenditures and you will see some substantial reductions in the fourth quarter. Gray Powell - Wells Fargo Securities, LLC: Got it. That is very helpful. And then, once you complete the integrations in Q4, you're going to have about 65% of your lines on common systems. Does that give you any improved flexibility from a marketing standpoint?

Absolutely. These 4 states are 1/3 of the subscriber count of the acquired market. So we're very excited to get those 4 states in, because it does a couple of things. One is, it takes our Southeast region and our Midwest region, and they will be 100% on all of the legacy systems. So for local engagement and go-to market with marketing and sales programs, we can make changes in days instead of months, the way it is today on the systems that we have. So there will be huge flexibility improvement for our competitive engagement in the marketplace. I think what I mentioned in West Virginia from a results perspective is that great indication of -- what happens is, when you put these new markets onto our systems, you can transform those markets a lot faster than on the existing systems they're on today.

Our next question comes from Scott Goldman with Goldman Sachs. Scott Goldman - Goldman Sachs Group Inc.: Also, a couple of questions, if I could. I guess, first, encouraging to see the increase in the synergy target, up to $600 million; was not expecting that this quarter. Given the path that you've laid out this year to -- for the $475 million to $500 million, I think you've laid out about $94 million coming from the Verizon software arrangement, as well as some other IT costs that should come out at the end of the term with Verizon. Is there any reason why we shouldn't think about the $600 million as being conservative and obviously relative to the number that you guys have sort of internally targeted prior? And then, secondly, just wondering if you could maybe talk a little bit more about the -- Batya talked about the other cost savings, which seem to be largely in the acquired properties. But wondering -- I guess, it wasn't clear to me, are these sort of the recurring cost saves, but should we expect incremental cost saves in addition to what we saw this quarter going forward? And how do we think about those cost savings in the legacy markets specifically rather than the acquired properties?

Scott, I'm going to do just an overview and really kick this to Don, because he can give you a lot more detail in terms of the question. But we keep a running list of all integration and synergy opportunities in the company, and it's a list that is alive and well and it changes on a daily basis. And we are constantly looking at, where can we take cost out, how can we improve the processes, how can we streamline what we do. So we feel very good about the $600 million, because if you think about it, there's a huge opportunity with these 13 states system conversions to drastically reduce our costs by putting everybody on the same platform. So that's a very good benchmark for us from a line of sight. But I think you also know in our culture, we're always looking to improve our processes and reduce costs and deliver a better customer experience, because we really believe that simplicity matters. So we will continue to keep our heads down to push, to deliver the maximum amount of synergies we possibly can on these platforms. The other thing I would say on the other cost savings is when you are tracking synergies across every facet of the business and you have all employees looking at opportunities to save money, you get a lot of ancillary benefits from that. It's collateral upside, we call it, because there's a whole host of things that happen in the business that might not be directly related to a specific synergy project. But because we're focused on that, we're also delivering other cost reductions.

Scott, for the comment on the $600 million, as we've always said, we will put guidance out to -- on a number of that we see a good line of sight to based on plans, in-place and being implemented, and I know we're going to hit that number. Yes, we've got higher aspirations and we're going to push for higher numbers and savings where we can get them. But that number is based on the plans we've got in place and initially have been placed and whilst you can try to do better than that is in the next several months. On the second question, I do want to point out that we have to date, now for 4 quarters, try to break out expenses between legacy and acquired. It is very difficult to do. It is becoming increasingly difficult to be able to differentiate as we start to really, really, really run this business as one. And I suspect that I may not be able to break out the distinction in expenses between legacy and acquired into those 2 buckets going forward. We report it -- the revenue we can do it, expense would may be more difficult. Yes, there are expenses in legacy and acquired to this one company, and so you have expense savings, as Maggie sort of mentioned, to continue to be looking at throughout the business and it becomes really not a distinction between legacy and acquired. It's continue to find opportunities as we run the business tighter and tighter to really focus on the customers. So I think there'll be more, we'll continue to identify them -- delivering them. We have never been bashful or shy in reducing expenses in this business, and we continue to be very aggressive and continue to do so. Scott Goldman - Goldman Sachs Group Inc.: I appreciate that, Don. I'm just curious whether you're able to comment. I mean, you look at the revenue breakdown and legacy Frontier sort of declining in the low to mid-3% range, and yet if you look at what you're able -- at least breaking out at this point in time for the legacy Frontier cash operating expense looks as though that's actually up on a year-over-year basis and maybe only modestly, down sequentially. So I mean, is that just an allocation issue that you were just talking about that complicates that? Or is it -- how easy is it going to be to really grow your legacy margins at this point in time, I guess, is the question?

It's going to be difficult for me to be able to break out legacy standalone. It is very difficult right now. There are new launches in the business where people in our legacy corporate support functions are picking up additional work for the entire enterprise and the costs have sort of been born in that organization, that sort of happen in Q3 and Q4. So I believe it is a total enterprise business we should be looking at, and the distinction between legacy and acquired is going to be really lost. I can't really report it to you. I can't go beyond this quarter. And it's not the way we're managing the business, most importantly. We're managing the business on a total company basis, corporate support functions, providing a support function for both, all the businesses, all the regions. The regions are driving revenues for their region, their managing their costs as opposed to the customer -- we're managing it that way, and that's why I have to report it back to you now. We're trying to give a line of sight. We thought the fourth quarters would give you a perspective and be able to demonstrate and prove that we're getting costs out hard in the acquired properties, where we're going to lose that distinction going forward, Scott.

Yes, I think some of that, Scott, is allocation because we have to make some arbitrary decisions, but we run the business as an integrated operation. So in legacy, we're doing a lot of things through the acquired properties and in the acquired properties, we're doing separate legacies. So as Don said, on a go-forward basis, what we look at is the net for the entire organization in terms of revenue and in terms of expenses. And I think you also know that we've started with the highest margins in the industry on our legacy properties. We have very high margins in the mid-50s. So our goal is to get the entire organization up to those same margin levels.

Next, we'll hear from Phil Cusick with JPMorgan. Philip Cusick - JP Morgan Chase & Co: Can you talk about the recently proposed USF/ICC reform effort? How do you think about this as an impact on the long-term numbers? What sort of the maximum risk that you see here? And then, as you think about the income or the sort of offsets to that, how do you see it sort of playing out over the next few years?

Phil, I'll start on the proposal and I know Don will definitely jump in on some of the financial puts and takes. But I think, as you can tell, this was an industry proposal that provides the SEC with, what I would call, a consensus framework from the top 6 telcos in the United States. To basically have us all coalesce and come together with a proposal for the SEC was really the right way to do it from a bottoms-up perspective versus the SEC sending something down for us to react to. It does address phantom traffic and VoIP, which are critical issues to our industry, and it does create a regulatory certainty for all of us as we think about USF and intercarrier compensation on a go-forward basis. There are incentives in this proposal for broadband deployment in rural America, so we will be a big beneficiary of that. And it's a 5-year transition, so there's no flash cut from intra to inter to any rate that winds up being established by the SEC as the end game rate. So it's a package. When we looked at this, we looked at this in a holistic sense, not one here or one there, but all of these pieces have to be put together. And we were very pleased after we made this announcement that a number of the small operators, especially the small rural operators have now signed on in support of this proposal, so we're early days in this process. So the SEC is going to put this proposal out for comment. We believe that's going to take 30 to 60 days for a comment period. So we don't foresee any change being made until possibly the end of this year, if at all. So this is going to be a process. When we look at our numbers overall and we look at the trade-offs of these puts and takes, we feel good that we'll be in a position to manage through this transition without material affect to our business. That's not to say we're not going to have some reductions, but we've been seeing reductions over the last several years anyway, and we've been struggling as all carriers have been on the puts and takes on phantom traffic and VoIP. So we feel good that this is a proposal, not only we could live with, but would be amenable for us in terms of how we run the business and where we're headed.

If I may add, Phil, we've modeled reductions in switched access about 10% a year. So assuming we're going to continue to see 10% reduction, what the intercarrier comp and the traffic VoIP, a portion of this proposal by the industry is essentially the rebalancing. It's shifting the rates down on termination and then giving the option to the company about increasing the flick and recovering it from some other fund. And so there's a rebalancing there that I don't think has a very significant impact over the next several years absent the anticipated 10% decline that we've been saying, and I think we'll continue to see. So it's a glide path. It's trying to rectify some things in the industry that have been bothersome for a number of folks, and try to address the administration's goal of trying to get broadband further and deeper support in the country, and so there's a combination package here that we think can make an awful lot of sense.

And I think in the past, we have mentioned that if there is a flash cut to that rate, it would be about an $80 million EBITDA hit to the company and that was without any offsets at all. And again, we continue to see these fees go down on an annual basis anyway. So we think with the 5-year glide path and all the puts and takes, especially with VoIP and phantom traffic, fixed in this type of a proposal, we will wind up in a good situation.

We'll now hear from Simon Flannery with Morgan Stanley. Simon Flannery - Morgan Stanley: I wanted to touch on the DSL, if I could. You talked on a couple of occasions about network congestion and your hopes that, that was going to ease and help your performance. Could you just give a little bit more clarity around what steps you're taking? And is this really sort of backbone related? And what are the sort of investment requirements or whatever to improve the experience there? And then the thing you're doing to enhance the speeds of the DSL product would be great.

Simon, I'm going to have Dan McCarthy, our Chief Operating Officer, who's been leading the charge around the country on this subject, give you more color on it.

Simon, the real initiatives that we have underway are called middle mile, interoffice facilities, as well as some of the more aged equipment that's in the network. So as we go through, there's about 600 projects that are underway today that will improve both the speed and capability. And also, linked into the very ROADM networks that we've constructed in most of the states. At the end of the day, we should see it, Maggie pointed it out, congestion start to be alleviated as we go through the end of Q3, and we should start to see an improvement, both in churn and opening up networks for new opportunities as we get through the rest of the year.

Yes, just if you think about it, Simon, what's happened is, in a number of these new acquired properties, as we started to build high-speed -- in addition to that, we have the existing customer base continuing to use more and more capabilities on the network. Netflix, for example, is like 25% of the capacity usage of being consumed on our network, video is about 50%. So what we decided to do is to go for fixing the middle mile, which is the CO to the element in the neighborhood and to expand that capability by 100-fold. And then also, expand from the CO out to the Internet and make sure that we have huge capacity to deliver and receive capability to our customers. So when we sell 6 meg, 10 meg, 25 meg, 50 meg, the customer gets what we sell them and that was extremely important for us. So what we did is in the areas where we saw the congestion increase based upon usage increases, and we've built new households. We've held off on marketing to a lot of those new households until we fixed the congestion problem because we didn't want to exacerbate what we had already. We've shifted capital in terms of the mix of how we've spent capital to fix this problem. I'd say we're probably 75% of the way there in fixing congestion. This quarter is another big quarter for us to get all of the major issues out of the network, which will allow us in the back end of this quarter through the fourth quarter, to really start pushing the penetration levels where we've built new households in the areas that have been affected by congestion. Simon Flannery - Morgan Stanley: So this is about your peak hour speeds degrade, is that the main impact on the consumer?

That's correct, that's correct. And what we want to do is to deliver a consistent experience, that's the most important thing. And as you know, we've inherited markets that there has not been upgrades to capacity in these markets for many years and fixes to the networks, plus the elements as the DSLAMs, even the DSLAMs themselves are old. So we're replacing network elements in the neighborhood. We're splitting them and moving customers to other network elements to make sure that they have a good experience. And as Dan said, we've got about 600 projects going around the country to improve this overall.

Just to give you a feel, Simon, if you look at some of the transport that's currently in place, a group of customers might have had a DS3, which might be 45 megabits transferred. We're really installing transport for the future, so we're putting in a gigabit link which would be 1,000. So it kind of takes you very far into the future and provides a really good experience. And then it lengthens those ROADM networks that historically it might have been an OC-48 link that took an entire market out. And now with the ROADM we have, the ability to add 88 OC-192 is of capacity to bring it out. So really, sets us up for the future, as well as growth and high-quality product experience.

And if I simply add, this reallocation for capital is simply a reallocation. We are not increasing our capital spending. We are spending within our means with what we said we're going to spend, and we've changed some priorities to make that happen.

And the last thing I'll mention is that some of the statistics that I talked about in West Virginia are a direct result of doing this throughout the state of West Virginia. It was one of the first areas where we had the biggest issues and we fixed them quickly. And now you're starting to see pretty high penetrations in these new build areas, over 14%. And I think you'll see that in all of our areas as we go forward throughout this quarter and into next, Simon.

We'll now take a question from Michael McCormack with Nomura. Michael McCormack - Nomura Securities Co. Ltd.: Maggie, can you just talk a little bit about the new DISH deal? If I missed it, I'm sorry, but just if there's any change in the economics around that deal? And then secondly for Don, thinking about debt maturities over the next 18 months and then potentially a larger one in 2013. What's the thought process as far as refinancing, and what does the market look like right now as far as rates go?

Mike, so let me start with DISH. Let me say this, the terms are confidential, but the economics are better. So we feel very good about this feel. I think it's not just a win-win for Frontier, it's a win-win for DISH as well. As you recall, with this deal, we are DISH's largest partner, so it also puts us in a very good situation with DISH from a leverage perspective, because we deliver a lot of business for them. What we also like about doing this deal with DISH was what Charlie Ergen is doing both on the EchoStar side. So with the new set-top box equipment that they have that's both IP-based and satellite-based, so we -- with our wireless modems in the home, we can actually deliver IP video to the television set in a pretty seamless way, we can even have a Frontier channel on the TV set with our portal of MyFiTV and other products. In addition to that, with the Sling technology, our customers will now have the ability to take their video anywhere with them on any device, whether it's a tablet or smartphone, laptops, et cetera. And also with the purchase of Hughes, we have the opportunity for the last 5% that -- it will be always very difficult for us to build, to actually work with EchoStar in a white-label environment to deliver that type of service to those very, very remote customers we have in certain rural locations. And last but certainly not least, with the move on acquisition that they've done, they now have a technology where they can compress video capability down to 1 meg for streaming video. So again, I think the combination of what they've done on the hardware side, and then you look at the DISH Network itself between their channel capability, their price performance in the marketplace, in many cases, they're 15% to 20% cheaper than all alternatives, they have more high definition than any other player. They also have the Blockbuster partnership that we'll be able to work with them and leverage. And last but certainly not least, they're continuing to move forward with other capabilities that we can leverage throughout our market. So we feel very good about this partnership. We've had the partnership with them almost 7 years, so we know how to work well together, and I think they will continue to support us aggressively in the marketplace. Michael McCormack - Nomura Securities Co. Ltd.: And Maggie, do you have any thought or any numbers around how many of the free TV customers convert into paying customers after the promotion is over? And then the line loss characteristics that you have for video customers?

Well, the free TV, the Madness campaign we just did in the first quarter, we haven't had customers come off that promo yet. So it's too soon to tell. We haven't had any material DX with those customers that have taken free television service for a year, actually very sticky. Michael McCormack - Nomura Securities Co. Ltd.: Can you tell us something about the historical promotions you guys have done?

Yes. In historical promotions, we've actually done extremely well in keeping those customers once they come off promotion. And we do a lot of touch, high touch to those customers within 90 days of when that promotion is going to expire to remind them of the value and also to work with them on the right package for them to be on, on a-go forward basis.

Yes. The churn on the customers who've opted into our various DISH promotions over the years, those customers' churn is well below 1%.

Yes.

Mike, on your other question on the debt maturities. We are consistent out for the markets. We've got a $200 million term loan that comes due at the end of this year. As you know, we do not have a lot of variable interest rate debt. We've only got about $274 million, and I think we'll continue to see whether we can expand a little bit of our term variable unsecured debt. And then, continue to monitor the market in terms of high yield and some tenders to look at the '13 and '14. We've got a little bit coming due in both years, about -- of roughly $600 million in each of '13 and '14, and to the extent we see good opportunities later on this year, we'll see what we can do in the markets. [indiscernible] always been aggressive trying to refinance ahead of time.

We'll now take a question from Michael Rollins with Citi Investment Research. Michael Rollins - Citigroup Inc: Just going back just to the cost side, as you've continued to move through the digestion of Spinco, there's been periods at which you've invested a little bit more in marketing to, of course, to take advantage of the expanded broadband coverage that you're providing. You've invested some incremental dollars to make sure the integration is going as well as you would hope it could. And how do we look at some of those expenses coming out of the system over the next 12 months? So in addition to the synergy, would you suggest that there's still an incremental layer of sort of core expenses on top of the synergy that you can extract? Or is the simple way of thinking about it is whatever revenue you lose, you take some typical margin off of that, and then you add back some synergy and that gets you to the EBITDA number? If you sort of had to summarize it from a high level, I'm curious how you look at that.

Mike, we look out at it from a standpoint of -- we are running this business more efficiently. There is more cost to take out of this business, both in our targeted cost synergy list, that we've talked about earlier in this call, that is the public number and in the internal number, and there'll be continue to be areas throughout the business and smaller initiatives continue to take costs out of the businesses. We have a lot more cost to get out of this business, period, everywhere. Just as we get systems to one; as we get one organization, one location managing different functions; as each of our region presidents has a one single view of their customer and one single view and management of their people and field; as we look at our marketing and we look at costs the gross adds, a little bit different and start segmenting. There's a lot areas here, Mike, we got a lot costs to get out of this business. I mean, whatever our cost synergy target is now I would expect that we'll be able to beat that, but that will not be the end of the cost story. We'll continue to get cost out of this business on that side of the equation. Revenue is extremely important and obviously the cost side, we will find ways, continually under Maggie's leadership definitely as we've always driven costs out of the business and continue to do it.

Yes. Mike, the only thing I would add, is when you think about marketing as we start to market holistically as one company through the marketplace, we will get economies of scale on our marketing dollars. We've already started to see some of that, but as we convert more and more of these states over onto our system, that will even become more apparent. Because with our systems, we have the flexibility to do a lot more on segmentation and local engagement, where we can have different offers in different markets based upon that specific marketplace, which will deliver better results for us in the long run. So we feel good that marketing will continue to have economies of scale. And on the integration front, we spend to get -- when we look at cost reductions, there are some investments we have to make, especially on the system side to make sure we can drive through. But at the end of the day, the cost savings are tremendous and the paybacks are very quick.

We'll now hear from Frank Louthan with Raymond James. Frank Louthan - Raymond James & Associates, Inc.: Just quickly, at what point will you be sort of at a full sales ramp with all of the homes that you pass with broadband? And have you finished taking the prices up from the FiOS markets? And how do you feel about that change in that market, and what the customer's reaction is going to be? Have we gotten to the bulk of that, or is there a little bit more of the more price-sensitive customers to exit, do you think?

So Frank, on the full sales ramp, we think it's Q4 and we're going to try to hit it hard with fourth quarter promotions in all of those new build areas. So Q3, we're still a little tentative based upon some of these congested areas, but you'll see a full sales ramp in Q4 throughout all of those homes that we've built. On the FiOS side, we took the pricing up on a monthly basis only in the state of Indiana, in the Fort Wayne area. Actually, it was a fairly hefty price increase, but it was still competitive in the marketplace. We also reduced our FiOS data pricing in that marketplace as a quid pro quo to the increase on the video side. And then all 3 states, so in Washington, Oregon and Indiana, we did increase the pricing on installation for new sales to have it be more of a cost recovery, geared more around our actual costs to do those installations. We have made no decisions to raise monthly prices in Washington and Oregon. We're holding our own there, so we don't feel the need to do that at this point in time. We will do it, if we feel we have to. But we're committed to that product set. We're continuing to support it. We're continuing to put some new customers on. We did know we would see some fallout in Indiana. We think that, that fallout will probably continue to subside in Q3 and Q4. So at this point, we don't really see any other changes to pricing for the next quarter or so.

And just to clarify, the price increase was for only customers in the month-to-month basis, not customers on [indiscernible].

Correct, not customers on contracts, right. Well, thanks everybody for joining us for this call. We appreciate the support. As you can tell, we are making very good progress in the acquired markets and throughout the company on all of our key initiatives. And we look forward to continuing to update you and to give you further clarity as we do our Q3 earnings call. Have a great day.

Thank you. That does conclude today's teleconference. We do thank you all for your participation.