Good morning. My name is Therese, and I'll be your conference operator today. At this time I would like to welcome everyone to the ADTRAN's fourth quarter 2007 earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). During the course of the conference call, ADTRAN representatives expect to make forward-looking statements, which reflect management's best judgment based on factors currently known. However, these statements involve risks and uncertainties, including the successful development and market acceptance of new products, the degree of competition in the market for such products, the product and channel mix, component costs, manufacturing efficiencies and other risks detailed in our annual report on Form 10-K for the year ended December 31, 2006, and Form 10-Q for the quarter ended September 30, 2007. These risks and uncertainties can cause actual results to differ materially from those in the forward-looking statements, which may be made during the call. I would now like to turn the call over to Mr. Tom Stanton, the CEO of ADTRAN.

Thank you Therese Good morning everyone. Thank you for joining us on such a busy morning for our fourth quarter 2007 conference call. With me this morning is Jim Matthews, our Senior Vice President and Chief Financial Officer. Although, I would characterize the environment in the U.S as challenging, during the fourth quarter, our growth businesses including Broadband Access, Optical Access and Internetworking saw a strong 56% year-over-year revenue increase and, combined represented a record 44% of our total revenue. As most of you are aware, our Broadband Access products, gained traction in all of our key account areas during 2007 with all eight of the top wireline carriers in the U.S. selecting our Total Access 5000 multi-service access in aggregation platform. In the fourth quarter, we began shipping this new platform to our first tier 1 carrier account. These shipments were tied to Ethernet over copper, which is one of two applications we have now been awarded within this account. This ability of the Total Access 5000 to address multiple applications is showing success with many of our larger accounts. The Total Access 5000 has also been selected by all the major tier 2 carriers for various applications, many of these carriers receiving initial shipments in the second half of 2007. In the fourth quarter, our Broadband Access business continued to migrate to fiber-to-the node applications in a move to upgrade bandwidth. The most significant contributor to our record Broadband Access revenues was our 1100 series of fiber-to-the-node products. This line of products showed significant growth; both internationally and domestically as we brought on a new international tier 1 carrier in Latin America and as we saw the impact of bandwidth upgrades continue domestically. We believe this upgrade cycle will continue to provide a positive impact as we move…

Thank you, Tom and good morning to everyone. Revenue for the fourth quarter was $119 million compared to $109.1 million in Q4 of '06 and $123.8 million in Q3 of '07. Broadband Access product revenues for Q4 of '07 increased 98% to a record $27.3 million compared to $13.8 million in Q4 of '06, an increase of 50% compared to $18.2 million in Q3 of '07. Comparing Q4 of '07 to Q4 of '06, the significant increase in Broadband Access product revenues is primarily attributable to the effect of market share gains at a tier 1 Latin American carrier continuing bandwidth upgrades domestically and shipments of TA 5000 products. Comparing Q4 '07 to Q3 '07, the significant increase in Broadband Access product revenues is primarily attributable to the effect of market share gains at one large Latin American carrier and shipments of TA 5000 products. Optical Access revenues were $10.8 million for the fourth quarter of '07 compared to $8.9 million in Q4 of '06 and $13.9 million in Q3 of '07. Comparing Q4 '07 to Q4 of '06, the increase in Optical Access revenues was the result of market share gains across numerous accounts. Comparing Q4 '07 to Q3 '07, the decrease in Optical Access revenues was primarily attributable to seasonality at tier 2 and tier 3 carriers, partially offset by increased shipments to tier 1 carriers. Internetworking product revenues increased 31% to $14.2 million in the fourth quarter of '07 compared to $10.9 million in Q4 of '06. Internetworking products continue to experience increasing momentum, as a result of continuing efforts to improve traditional enterprise channel focus and leverage the carrier distribution. For the total company, Loop Access revenues were $46.1 million for the fourth quarter of '07 compared to $51.8 million for Q4 of '06, and $56.3…

Okay, thanks Jim. Therese, I think we're ready to open it up for questions.

Thank you. (Operator Instructions). Your first question comes from Vivek Arya with Merrill Lynch.

Good morning. Tom, I know you are not providing guidance for 2008 but how should we start looking at it given the moving pieces you have in your traditional business segments? Which are flat or I think down this year and then some of the newer business segments where I think you are seeing very good traction but sales are somewhat lumpy, can we expect at trying to grow high single digit, perhaps double digit in 2008?

We'll I think, in a normal environment I would say -- I would have a lot of confidence in that type of growth. I would say even in the environment we are in today. I guess that the real key to that is what is the underlying economy doing, how, may that affect our traditional product lines. I have no doubt that our new product lines are Optical Access product lines, Total Access 5000, the things we're doing with our 1100 series fiber-to-the-node and Internetworking are all positive contributors and I expect fairly good growth in 2008. I guess -- the real key is that underlying piece, we're not expecting at this point of time a significant downturn in our traditional business. HDSL was flat in 2007 to 2006 and we stated again and again that we think that new technologies really aren't impacting that business as much as just the economic environment. So I'll have to leave it to you to come up with your number, but I think you know the deals that that we have secured. You know the products that we're starting to ship now pretty much across all of our fronts and we are confident to see growth in 2008.

I see, I think Jim you mentioned in Q! you expect a return to a normal operating model. Can you please refresh us with what that normal operating model looks like, gross margin wise, operating margin wise?

Well, we do anticipate gross margins to continue to be in the high 50s and our gross margins will vary quarter-to-quarter as we've seen in the fourth quarter. In terms of OpEx, again two historic trends, typically as we go through a year 2008, we do anticipate our revenues increasing sequentially, with the possible exception of the fourth quarter in which we typically see seasonality and as those revenues decrease we expect our SG&A to converge on the high teens and our R&D to converge on the low teens. Okay, so again that's fairly consistent with our operating model that we've seen in the past.

Okay. Thank you.

Okay.

Thank you. Your next question comes from Bryan Coyne with FBR Capital Markets.

Hey guys, good morning. I was wondering if you could just clarify your outlook a little bit, maybe I missed it. If you could confirm it, you said we should be seeing year-over-year growth, but just given the spending of [wireless] it might be down sequentially. Is that what I am hearing? But then, if you could just talk about where you are seeing the biggest impacts it sounds like tier 1 and tier 2, but is it sort of focused on your biggest tier 1 customers?

Well, the slowness that we've seen in the -- pretty much through this year actually has been in our larger tier 1 customer's and specifically a large tier 1 customer. And, the tier 2s, we've seen some, we've had one tier 2 that was kind of slugging. But, I mean, I would say in general that the environment just hasn’t been that strong.

All right, we talked I guess, a little about the Broadband side. Can you just talk about market share at your biggest customer and sort of what you are seeing there? How is that trend going?

Well, Broadband has been -- the new product category in general, I'd say have been the bright spots. Broadband; we've seen traction, pretty much across all customer segment. The tier 2s have picked up, that we have a tier 1, who has significantly increased their deployment, and then we've some international carriers and specifically the one in Latin America that is substantially increased. And we see that continuing to move forward into 2008.

And as you said about significant growth of your biggest customer, so it sounds like, at least you are not seeing much in terms of competitive erosion there? And I guess, finally in terms of Latin America as you mentioned, how much, do you think, how much they did factor into the quarter, was that pretty much all the growth in the international revenues that we saw? And then, what kind of timeframe -- you announced it last quarter and began shipping in the fourth quarter, but what's the time horizon for that rollout?

That wasn’t all of the growth that we saw in international. And the project on the particular carrier, Latin America is a multi-quarter, multi-year project. So, it's something that we think will continue for some period of time.

Great, finally I apologize, if I missed this part, did you talk about the tax rate for the full year or just sort of what your outlook would be?

No, we did not. No we did not. But the tax rate will typically move around from quarter-to-quarter. Do remember that the R&D tax credit for 2008 has not been approved yet, has not been passed yet. So, we can expect the rate to go up just a little bit in the first quarter because of that until it's approved.

Great. Okay, that’s all I had. Thank you very much.

Thank you.

Thank you. Your next question comes from John Anthony with Cowen & Company. John Anthony - Cowen & Company: Good morning, guys. Couple of questions, I apologize, if you covered any of this. Tom, the comments that you made on HDSL it sounds like you are fairly optimistic for this year and I don’t want to put words in your mouth. So, just kind of asking it again flat '07 versus '06, but definitely kind of a downward trend over the last several quarters given the visibility is limited? Do you have any sense whatsoever of what the plans are going to be like for some of these folks to spend on HDSL? And do you think, there is any risk of substitution of 5000 at the expense of HDSL and is that necessarily a bad thing or a good thing maybe?

Well, as that substitution happens, we would consider that a good thing because of the differences in the ASPs of those products being substantial and the 5000 being higher. As far as significant impact in 2008, our view is first of all, there is only one large carrier at this point and they are the head of the pack now. We will rollout services, we believe in 2008. Our belief at this point and time that first level services will be tiered in multiple different segment some of those segments, HDSL does not play in. And that rollout will be a controlled rollout and the ability of the total numbers to really impact a very, very large HDSL number, is just probably not going to be there. So we cannot fall back to same in 2008 we think the biggest impacts to HDSL will be the economic environment and wireless upgrades. We haven't thought about 2009 yet. But in 2008 we just believe those are going to be the big movers. John Anthony - Cowen & Company: Okay and the follow-up, I am going back to the first question that was asked. If we were to assume arbitrarily that HDSL is flat-to-down, would it still be possible for ADTRAN's total top line to grow this year in your opinion?

Absolutely. John Anthony - Cowen & Company: Okay.

Absolutely. John Anthony - Cowen & Company: And is that driven largely by the 5000 or is it just across the board?

Well, I think Optical should be stronger, Internetworking should be stronger. The 5000 of course will be stronger. We have awards that we have won that -- for instance we started shipping to our first tier 1 and at the tail end of the fourth quarter and that's something that will continue to ramp. We have other tier 1 accounts that have not started shipping yet, that will start shipping throughout the year. And the fiber-to-the-node products, our 1100 series we expect to have a good year 2008. So yeah, our belief is yes. John Anthony - Cowen & Company: And lastly, can you just give us an update on the pricing environment? Obviously your largest competitor is suffering pretty badly right now and have you seen anything change dramatically one way or the other on the pricing environment? Thanks guys.

No, we haven't. It’s been fairly consistent now for the last year and half or two years and I would call it as far as telecom equipment goes from our perspective it's been relatively stable.

Thank you. Your next question comes from George Notter with Jefferies.

Hi guys, this is James [Gizmy] calling in for George Notter. Can you hear me?

Yeah James. Go ahead.

Yes. First of all [I am going to] talk about the Latin American carrier outlook. How should we think about that business? Is that a lumpy business or should we think that is like, a broken ship type business as we roll through quarters, how do we think about that?

I hate to say it, because I know that you don't like this word but I would not characterize at this point of time as lumpy. I think it's a carrier that's trying to do some aggressive role outs, I think that, they will have to take equipment and get it installed and go through the learning curve of doing that and its also a fairly new customer to us. So, I think, just our understanding of their buying habits, is very fresh right now. Until we get kind of more history and more run-rate with this customer, I would characterize this as lumpy.

And just a follow-up, you heard about cost ex-rate products to a carrier, was that the Latin American carrier and how much was that cost and will that come out of the P&L in Q1 and going forward?

I'll let Jim comment on the actual cost but the carrier was the Latin American carrier when we saw that impact.

And without those expedite costs, we could have probably broken 59% on the gross margin line.

Guys, appreciate that.

Okay.

Thank you. Your next question comes from Cobb Sadler with Deutsche Bank.

Yeah. Thanks a lot. A question on the Broadband Access business, can you talk about what the rough split is between, traditional products and may be ATM based, so like the 3000, and traditional ATM based, [remote tunnel] DSLAM versus the TA5000/1148 after the newer type products. Could you give us a rough break out there, or are you keeping that quiet?

It is not as easy as that, maybe we would like it to be. Our 1100 series products are fiber-to-the-node products which have a capability of operating both in an ATM mode or in Ethernet mode. So it's tough for us to be able to say whether or not there -- whether or not a particular shipment is being operated at one node to another. I will tell you the 3000 series which is our traditional older ATM DSLAM was down and the majority of the -- in fact all of the increase that we saw therefore was fiber-to-the-node 1100 series and then the 5000 series product.

Okay. Great, and 3000 it's less than the half of the current product category of Broadband Access?

It is significantly less than half of it.

Okay. Great, the Optical Access you talked about growing this year is it mainly wireless backhaul or what's the real application there?

Well, actually in many of the approvals that we are getting now it's for any application that you reduce an Optical Access Multiplexer 4. I think we still tend to believe and I think the carrier customers tend to believe that potentially the largest piece of that will be for wireless backhaul.

Okay. Sounds great, and then last question on the Optical Access, it's primarily OC-12 or are there any OC-48 shipments yet and do you expect those happen in the year?

We started shipping OC-48 in the second half and when you expect to OC-48 shipment to ramp through this year.

Great, thanks a lot.

Okay.

Thank you. Your next question comes from Marcus Kupferschmidt with Lehman Brothers

Hi, good morning guys.

Good morning Marcus.

My first question will be, I am trying to understand the comments about the tough spending environment, kind of what you are assuming in the first quarter. Can you give us a sense of whether revenues could be kind of a high and low point? But again what are the product areas where you see the biggest variability in the first quarter and how much of that is the challenging spending environment versus just operationlizing some new wins?

Well, I mean the environment we are looking for in the first quarter is not substantially different than the environment we saw in the fourth quarter, or third quarter for that matter. So, we're not expecting some big dramatic shift. The thing that could impact that if you look a year ago, first quarter of 2007, we saw a very, very strong HDSL quarter especially, I think it was a record HDSL first quarter. We are not expecting that and on guidance if that could happen, if that does happen that will be a great day. We are expecting continued momentum in our 5000 product and continued momentum in our 1100 series products and then carrying on with our Optical Access was. So, it’s the growth products that will be driving that. The one of the unknowns is does HDSL see that same type of bounce back that we saw on the first quarter, but we are not expecting that at this point.

Okay. And just to clarify with the momentum actually it means sequential revenue growth, and maybe year-over-year revenue growth. But I assume the Latin America win is a lumpy deployment yet a fabulous fourth quarter. So, I assume your Broadband business should be down a little bit sequentially in 1Q?

Yeah. We [give not] for granular but yeah when I meant momentum, I really meant more customer traction than this. So, we think sequentially one way or another, I think, there is absolutely that capability. But I wouldn't get into that kind of…

Okay. And just to clarify in terms of your comment about the T1 business for HDSL. I guess your view is you are shipping a lot less than the current consumption of the carriers and therefore you are optimistic that you will get some sort of snapback and finish, also are these guys finished growing inventories?

Let me not. No, I mean, I didn't mean to convey that. I guess, what I'm saying is what we are expecting right now in Q1 there is an environment that is very similar to what we saw in Q4. My only point was that we did see a snapback first quarter of last year of 2007. We're not expecting that this year. So, I don't want to believe that.

All right. And I think, that just to clarify you are shipping to meet the current demand of the customers or is there any inventory going, situation has gone up?

I'd tell you, I mean, you've seen the numbers and.

Yeah.

AT&T has not been the strongest customer by any stretch in 2007. And now, I think, some of it is out, as they changed the way that they operate. I think that they are able to operate today at least it seems like with the lower inventory level that they have in the past. But we haven't seen a fundamental shift and if you talk to the customer base out there they haven't really shifted to different types of technology. So, really the real answer is I don't know.

Thank you very much.

Thanks.

Thank you. Your next question comes from Ehud Gelblum with J.P. Morgan.

Hi. It's [David]. I appreciate it. Couple of questions, if I could guys. First of all, you mentioned which I thought was kind of very interesting that you saw that specifically in the Internetworking small, medium businesses were strong for you. Total aside, but just that's one of the areas that most people are most concerned with the economy, you are not totally agreed on the economy. But are you continuing to see the small, medium businesses continue to be a strong point for you in your -- I'm curious to see, if you see any weakness at all in that customer segment? And then more closely related to you, Fairpoint recently in the lines that they have still not bought from Verizon but, could be closing on sometime relatively soon depending on what the PUCs do, decided to choose competitor of yours [Akem] over your solution in, well to me it was kind of a surprise win. I would like to hear your comments on kind of how that procedure went and why you may have lost that, and whether you can maybe get back into that, and how much revenue that may have represent for you? And then a follow-up on some other TA5000 types of things.

Okay. On the SMBs I mean, you're right. I don't think that our Enterprise router business at this point of time is just only a good gauge for that. And that's just because in the relative terms of market share we are still fairly low. It's tough for us to segment how much is that because of a robust or lackluster SMB environment versus what it is that we are doing in our broad channel and carrier channel. And I think the growth that we would see -- we have in 2007 was market share gains with whatever market there was because of our focus on the Broadband carrier channels and that has just been very successful in 2007. If that environment hinges into the same extent it was in 2007 into this year, then we would expect that same type of reaction. I think the momentum that we have and our current approach to that market we are absolutely expecting Internetworking will grow this year, now. The environment, who knows where the bottom to the economy maybe, and we're expecting some type of stable environment in that type of scenario. As far as Fairpoint I hate to comment on specific customer, their actions like that. ADTRAN did win the Verizon piece to that business, our Total Access 5000 is actually shipping to Fairpoint and we're planning on continuing to shift Fairpoint. And, you know how our reaction is to things like that, and we tend to continue to move forward and continue to [plug away] and more times than not we end up doing well. So, that's pretty much my comment on that.

Okay, great. I am curious that other thing from 5000 appears to be even [aggregation] when you had -- seems you have done pretty well while starting. You had some wins I believe using it for ATM aggregation and some fiber-to-the-node types of applications you are using the 5000 for. Can you give us an update on timing of those?

Yeah, we have, there are multiple customers that are looking at both of those applications, some of those who actually started shipping in the first half. As far as the larger tier 1carriers, we continue to believe that we will have one of the other tier 1 starting to ship in the second half and our hope is to have the other one shipping in the first half. So, we started shipping to one tier 1. There are three tier 1s. We started shipping to one. Our hope is to have an additional one shipping before the half and then the third one shipping in the second half. That's still our current outlook but I will continue to remind you that these are big carriers and sometimes they don't meet their dates and we just have to keep people updated of that shifts.

And post-Christmas, any contact you had with them? Has anything changed at all from what you thought going into Christmas.

No, no. But post-Christmas, pre-Christmas we were continuing to think that we would have one before and one after. There is still a lot of work to be done there and I will tell you it's a fluid situation with all of these customers until you actually give them shipping. So, we tend to pull a little bit of a delay into our forecasting because we know how things work and sometimes they still surprise us. So, we are still with that mind set.

Great, thanks Tom.

Okay.

Thank you. Your next question comes from Ken Muth with Robert Baird.

Hi, can you just give us an update on your ONT outlook and you are developing that and looking at coordinating that with the TA5000 any updates there it'd be helpful.

Yeah we haven't announced our GPON product that I will where I guess -- and I would really hate you because I tell you a lot of competitors are looking for that. We will have that product this year. And we will pass the -- I guess we need to just leave it at that. We'll have the product this year and I think that will be at a timeframe that will meet the requirements for our customer base.

And I guess the part of the reason for the question you think there's any delay in your customer behalf of waiting for that product to be launched in coordination with your TA5000 deployments?

I will tell you, the customers that we've -- that we are working with and we've been talking to and I think their biggest push right now is just making sure that the ONT and the OLT the whole GPON solution is going to be available. We're keeping them up to speed and what our time frames are and I will tell you some of them are actually trialing the product. So, I think we're in pretty good [lock-step] there.

Okay, thank you.

Okay.

Thank you your next question comes from Simon Leopold with Morgan Keegan.

Thanks. I wanted to see if we could get a couple of quick house keeping items. One if you could walk through some color on your 10% customers in the quarter?

Sure, Simon this is, Jim. AT&T including Bell-South came in at 18%, Verizon at 10%, Embarq at 12% and Qwest at 15%.

Great thanks and also the breakdown on stock based compensation. The split between COGs, SG&A and R&D?

Sure. For the quarter for Q4, SG&A was $273,000, R&D was $817,000. And we had an adjustment again because of the true up in the fourth quarter that I mentioned in my call notes in cost of sales of a credit of $15,000. So, the net pretax effect was $1.75 million and of that's true up in that regard was $5,000 credit, so, the net after tax was $1.70 million and that detail is also in the 8-K that’s been filed early this morning, Simon.

Great, thanks. And more along on the lines of some of the trending, a number of companies have had issues with their cash position and the interest they were earning. If you could talk a little bit about what you may or may not be doing differently with your cash on the balance sheet and what kind of interest returns you're getting in this environment?

True Simon, we've always maintained a safe position in terms of our cash balances. It was not in a cash deposit account. We are normally invested in non-taxable annuity vehicles that are typically very short-term. We do have a bond portfolio that is s based. Our average rating is AA+. The duration on the bond portfolio is 0.47 years. So, our maturities are very, very short. So, again that’s an example of how we're running a very, very conservative cash management position.

So, is it fair to estimate your other income line should continue to run in the neighborhood of just being south of $3 million?

Well, it really depends on what interest rates do going through '08 Simon. But I'd imagine it would be something at or around what we saw in the fourth quarter. It could potentially go down a little bit again because of interest rates.

Okay. And then just one final one, the international business, nice surprise this quarter popping up and you did mention you see that as a multi-quarter customer. I like to hear your thoughts on other international beyond that that one Latin American customer that you've highlighted today?

Well, we are continuing to push on multiple fronts. Latin America was one of those fronts. We continue to win. We've won some smaller opportunities in South America. We actually have won some EFM business in Europe and we are in RFP situations or in trial situations in other areas in Europe and part of Europe. So, our nervousness about talking in greater detail is just the uncertainty of that customer base being is relatively new to us. But I'd say from an opportunity perspective, it has never looked brighter for us as far as the interest that we've with that customer base.

Great. And just a quick status on your share buybacks and then I'll yield the floor.

Okay. Sure, Simon. So, during the quarter, we repurchased as I said in my notes 1.871 million shares. We've remaining on the current program 1,532,000 shares.

Great, thank you.

Okay.

Thank you. Your next question comes from Paul Silverstein with Credit Suisse.

Tom, Jim, can you hear me.

Yeah.

Okay, Paul.

Great. First of all thanks to Simon for asking half of my questions. TA 5000, can you give us some idea, it's early and I know you don't want to give too much granularity. But can you give us some idea, where you are in terms of revenue from that platform?

Yeah. Over the course of the year it was part of the up tick that we saw in fourth quarter it was a part of that up tick. But, I'd say that the biggest part was actually the, our fiber-to-the-node 1100 products.

So, the 5000 numbers are still relatively small, Tom?

Yeah. I'd still say it's relatively small. I'd say we are still very early in that cycle.

And at the risk of pushing it, is it sort of safe that it's meaningfully less than $10 million?

It's less than 10. And…

Okay.

And I'll tell you we tried to talk to as many people about this, as we can. We did start shipping to a tier 1 in the fourth quarter and the reason for talking about that wasn’t necessarily the volume of that shipment. It was the fact that we had gotten through the integration phase and I have turned that into a real living customer that we think will continue to grow for many years. So, but yeah, I mean, it was less than $10 million.

All right. I think you might have spoken about this in the past. Is there any benchmark you can offer us in terms of your expectations for the 5000 in '08? Is this a $50 plus million product or is that too early to expect to reach that type of numbers [this year]?

The variable there is really the larger carriers and what they do. There are enough opportunities that we've secured and as I had mentioned in my notes, we actually at a point now that we are securing multiple application within some of these largest carriers. So, initially for instance at one of our carrier, we talked about just Ethernet over copper. Well, now we are talking about two applications in that carrier and that’s happened in several different carriers at this point. So, I think the opportunity is there. But, I think the problem with us is timing and trying to figure out when these things will actually get operationalized only now?

Okay, so that being said in terms of the Optical Access the OPTI product line and that's through up most of the [seventh] story was, it was just a matter of timing before the various wins you had would kick in. At this point of time is there meaningfully more visibility in terms of thinking about the growth rate for that product line. Is there something we should think about as a 20% year-over-year, is there any benchmark that you can offer us there?

The real, those are the things that we've been waiting for on OPTI at least in the second half of the year. I mean, if we had a strong third quarter very third quarter in OPTI, where a lot of these things gelled and the big unknown at that point in time was when do we get phase 2 at one of our largest carrier are rolling. We're very, very glad that we got that behind us at this point in time. We believe that that's the biggest potential within that carrier that that significantly opens up that market space. So we're comfortable in saying that we're going to have some meaningful growth in 2008, but we haven't been able to pull up the number to it.

Tom that phase 2 you are referring to is that tens of million of dollars in terms of the opportunities?

Yeah, what period of time and is that tens of millions in a year. That's a tough thing to say Paul. I would say yes, I mean the way that we're looking at it and the way that we believe that the market potential is for that product the answer should be yes, but lot of those things are outside of our control.

And last two quick ones. Seasonality, I know it [weighs] off but you just reported 4Q can you just remind us, historically carriers have blown of their budgets in the fourth quarter. I recognize things have changed in the recent past. Can you explain why that shouldn't be the case this year, you mentioned your fourth quarter has been down historically. What's your explanation for why we shouldn't see strong 4Q? And then finally on visibility, historically I know it's been a book-and-ship business, you've often commented that its [10 days] of visibility. Has that changed?

Visibility has not changed. I just looked at this very recently and our visibility is pretty much where it always is and the type of customer base that we have is pretty much hasn't changed and their buying habits haven't changed. Fourth quarter has, if you look over the history of ADTRAN has, there are times where it is flat, typically it's down and the times where we have seen an up tick in the fourth quarter or sometimes even the flatness in fourth quarter is more associated with timing of market share wins or ramp ups in the customer base. So that's why we kind of just fall back to saying it's seasonally down and then first quarter is typically seasonally down after that.

Tom, why don't you benefit from carriers [blowing] out whatever budget they have left? Why shouldn't we see that in 4Q dollars?

I will tell you part of the rational is we typically haven't gone after that. Now historically with our -- if you look two or three years back where substantially -- a very substantial majority of revenue was kind of more HDSL/T1 related. We were in a position to the extent that they spent that money in the fourth quarter and the underlying demand didn't change. All we were doing is hurting first quarter over second quarter. So we typically shied away from that type of situation and we just haven't had and maybe the product set that we have or the relationships and the way that we tend to not try to have influxes as a cost of demand, because at the end of the day if the user takes were the drives demand. We just haven't had people come to our door with big wads of cash and saying here we take this.

Thanks a lot, I will pass it on Tom.

Okay.

Thank you, your next question comes from Jason Ader with Thomas Weisel.

Very well pronounced, thank you. Hi guys, how are you doing?

Good.

So, couple of questions. First on HDSL, I think, I guess, I'm just struggling with this segment of the business as I have for the last couple of years, just trying to figure out where it is going, yes it was flat in '07 after being down, I think about 6% in '06, which I guess is improvement, but when I look at the fourth quarter numbers and your commentary on Q1. It was flat on that line item from Q4 to Q1, it will be down 20% year-over-year, just doing the math, real quick.

Right

And in the face of a potential recession in the US, it just seems like, you'd probably still be able to grow the overall business even if HDSL does get it pretty hard in '08 but it just seems like, a lot of people seem to be faking, flat from your commentary, sort of flat is sort of the way to think about it and I just want to clarify, in term of your model and your outlook for 2008. Are you expecting the business to be kind of flat or are you trying to be a little bit more conservative, just given where we were last couple of quarters and given the outlook in the US?

I think, that's a key component of this whole discussion is what's the outlook in the US. Today was a day that's some potential we'll have, long term impacts, we have had some lack of stability, I'd say over the last actually last fairly significant period of time. We are not expecting the bottom to fallout at this point and time in our modeling. If there is a significant downturn in the economy, I'm not going to sit here and tell you that, that won't affect our HDSL number and there are other pieces of the business. But at this point and time, we are not smart enough to tell you if we are near the bottom or when we fall substantially lower than where we are today. So, we're really expecting an environment and saying that we see that business in the right word, I think is stable. I won't tell you that it won't be down single digit percentages. I won't tell you, it won’t be up. I'd be, financially, I thought, I'd be more surprised if that was up unless we saw an increase in wireless spending. But, we are expecting in saying that we are saying that's true, if the environment kind of hangs and in the way it is, as hung in the last six months or so. If that

Okay.

That help, you at all. I mean, I'm not going to sit in here and try to forecast what the US economies going to do six months from now.

Yeah. Well, I guess my point was just looking of the Q4 number, I mean, Q1 that would be just flat the result would be down 20%. So, I mean, why shouldn't we be thinking of any deterioration in the economy the HDSL business to be down let's say 10% to 20% in '08?

Because of our backlog situation, which is relatively non-existent and typically in HDSL. Yeah, I can sit and tell you that we are at certainty that it wouldn't be. What we have try to do and what we encourage people to do when they look at HDSL is look at over longer periods of time because quarter-to-quarter deviations in inventory from a very large customer right and we've our biggest customers for HDSL are all the biggest carriers and the they tend to be able to swing that pendulum fairly far, just one customer can swing it. So, we tend to look at it over a longer period of time. And so, your scenario, I won't tell your scenario is unbounded, and that could have happened. I'd just tell you, I think the likelihood of substantial decreases is probably not as high as a more stable environment.

Okay, I got you. All right. And then, Ethernet over copper is that the same customer, where you had the decline in HDSL? And then, I guess, is there any linkage there?

There is no linkage.

No linkage. But is the same customer?

It was the same customer.

Okay.

But no linkage.

Okay. And then on the Ethernet over copper, should we expect a big footprint ramp, where you are shipping a lot of chassis and that will drive the revenue there for the next couple of quarters or I guess is it going to be more dependent on new customer adds on that Ethernet service.

Well, I think that there will be, there are footprint pieces that are going out here. But we tend to think about the revenue growth on Ethernet over copper. It's been depending upon the user uptake and I think that's the right way to think about it.

Okay, great. Thank you, guys.

All right. Thank you.

Thank you. Your next question comes from Scott Coleman with Morgan Stanley.

Thanks, Good morning guys.

Good morning, Scott.

On the customer side a couple of follow-up question? So, Verizon looks like it was down about 30% sequentially, which seems to be and I'm assuming the big HDSL drop off was actually at AT&T. What's specifically happened at Verizon this quarter, it looks like the lowest revenue quarter you've seen from them in quite some time?

Verizon. Yeah, Verizon in the third quarter was 14% and yes it's down to 10% in Q4 as well. And the larger part of what they buy from us is they sell as well.

Okay. So both at AT&T and Verizon the sequential fall off was mostly HDSL?

Yeah.

I would say so.

Yeah, I would say mostly. But I would say AT&T accepted a new product area was pretty much down across the board.

Okay, interesting. So the 1100 strength was outside AT&T. So probably Quest and embarking carriers like that?

Well, Quest has is had a very strong year with us and had a very strong quarter again, so.

Okay. Last quarter you talked about a change in distribution from one of your tier 2 guys. I'm just curious if that transition is largely complete and you've found another solution to get to some other smaller US carriers yet?

Okay. Let me clarify you on our collective thoughts around that. I think we were asked questions about potential change in distribution strategy with one of our customers. And then my comments were, with the inventory reduction I wouldn't be surprised that we don't know that they were doing that.

Okay.

And I would still -- I would characterize it's the exact sense today.

Okay. Thanks for that clarification. And then maybe one last question from a balance sheet perspective. DSOs picked up on a sequential basis. It looks like they're also up year-over-year pretty strongly here December-to-December. And if you look out over the last I don't know five or six years given the linearity of your business DSOs tend to drop nicely in Q4. I'm just curious is this, you mentioned Total Access 5000 shipping late in the quarter but the change in the balance sheet tempo was a little bit of a surprise, I’m wondering if you can help us understand that?

Sure, Scott. Jim, here. So Scott, there is really a change in geographic mix. Again, the international revenue increased quite a bit in large part due to fiber-to-the-node, and again that was the larger driver of the increase DSOs.

All right guys. Thanks a lot.

Okay. Therese, one last question.

Okay. Your last question comes from Rai Archibald of Kaufman Brothers.

Good morning. Thank you. I just had a follow-up question on Internetworking business. I think in through the better part of this year a lot of the attraction had come from some of your tier 1 partners as distributors. And I just hope to get an update in terms of the productivity, some of the VAR channels, VAR partners that you've added in the last year or so. Where are we on that count, and should we look for some acceleration, momentum going in to 2008 from those partners?

We are absolutely looking for acceleration of VAR partner base. Now, it's up I think on a year-over-year basis from the closest 50% or so. We are continuing to move forward with recruitment of new VARs. The Internetworking on NetVanta sales into that base is growing and I think it's a meaningful piece and a very important piece to, what we are trying to do over the next few years.

Thank you. Very good. Thank you.

Okay. Thank you everybody. And we look forward to talking to you in our next quarter.

Thank you. This concludes today's ADTRAN fourth quarter 2007 earnings release call. Thank you for our participation. You may now disconnect.