Good day ladies and gentlemen, and welcome to CenturyLink second quarter 2012 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder, this call is being recorded. I would now like to turn the conference over to Mr. Tony Davis, Vice President of Investor Relations. Mr. Davis you may begin.

Thank you, [Zaid]. Good afternoon, everyone, and welcome to our call today to discuss CenturyLink’s second quarter 2012 results released earlier this afternoon. Let me begin by saying I apologize we got the release out a little later than we have planned; had a little glitch in the release process and we will certainly strive to get it out sooner next quarter. So thank you for your patience and understanding in that. The slide presentation we will be reviewing during the prepared remarks portion of today's call is available in the Investor Relations Section of our corporate website at ir.centurylink.com. At the conclusion of our prepared remarks today, we will open the call for a Q&A. On slide two you’ll find our Safe Harbor language. We will be making certain forward-looking statements today particularly as they pertain to guidance for third quarter and full-year 2012; the integration of Qwest and Savvis and other outlooks in our business. We ask that you review our disclosure found on this slide as well as in our press release and in our SEC filings which describes factors that could cause our actual results to differ materially from those projected by us in are forward-looking statements. We ask that you also note that our earnings release issued earlier this afternoon and the slide presentation and remarks made during this call contains certain non-GAAP financial measures. Reconciliations between the non-GAAP financial measures and the GAAP financial measures are available in our earnings release and on our website at www.centurylink.com. As you turn to slide three, your host on today’s call is Glen Post, Chief Executive Officer and President of CenturyLink. Joining Glen will be Stewart Ewing, CenturyLink’s Chief Financial Officer and also available during the question-and-answer period of today's call will be Karen Puckett, CenturyLink’s Chief Operating Officer who leads our Regional Markets Group, Bill Cheek, President of our Wholesale Markets Group and Jim Ousley, Chief Executive Officer of our Savvis and President of our Enterprise Markets Group. Our call today will be available for telephone replay through August 15, 2012 and accessible by webcast through August 30, 2012. Anyone listening to a taped or webcast replay or reading a written transcript of this call, should note that all information presented is current only as of August 8, 2012, and should be considered valid only as of this date regardless of the date heard or reviewed. As we move to slide four, I will now turn the call over to your host today, Glen Post. Glen?

Thank you, Tony. Good afternoon everyone and thank you for joining us today as we discuss CenturyLink’s second quarter 2012 results and guidance for the third quarter and full year 2012 as we provide an update as well about our business. During the second quarter CenturyLink achieved solid results and we continue to make good progress on a number of fronts. As announced previously, we restructured operating groups during the second quarter. We completed the reorganization successfully with minimal disruption of our business operations; we are pleased with the results of that restructuring. Our national and international legacy Business Markets Group, BMG customers, our Savvis customers and Federal Government customers are now served by new Enterprise Markets Group or EMG, and our end region large business customers and state and local government customers are now served by our Regional Markets Group, RMG. We believe this restructuring strengthens our ability to better serve our business and government customers locally, nationally and internationally. We also continue to make good progress with integration of Qwest and Savvis and remain on-track to meet our synergy targets for these transactions. Our operating group restructuring is just one example of how we continue to further integrate these acquisitions in to CenturyLink. Additionally, we continue to see solid bookings in our enterprise business segment and we continue to map integrated network, co-location, managed hosting and cloud services and we continue to invest in additional data center capacity to position us to drive further growth from these services in the months ahead. With our fiber-to-the-tower initiative we continue to make excellent progress in completing power builds and enabling high bandwidth Ethernet data services to support the growing demand for wireless data backhaul capacity. As we have previously discussed, while this transition rather than from traditional copper based data…

Thank you, Glen. I'll spend the next few minutes reviewing the financial highlights from the second quarter and then I'll provide a brief liability management update and then conclude my remarks with an overview of the third quarter and full year 2012 guidance we included in our earnings release issued earlier this afternoon. Now turning to slide 12 first, in order to provide more relevant comparisons, I will be reviewing the financial results on a pro forma basis as if Savvis was fully included in the results of all periods. I will also be reviewing the results excluding special items as outlined in the earnings release and associated financial schedules. With that let's turn to our results for the second quarter. As you can see, we generated strong operating revenues and solid cash flows. Operating revenues were $4.6 billion on a consolidated basis exceed in our guidance for the quarter and represent a 1.2% decline from pro forma second quarter 2011 operating revenues. This also represents a solid improvement from the 3.8% revenue annual decline in the year ago period. Excluding data integration revenue, the year-over-year decline in revenue is 1.7%. Strategic revenue in the quarter increased to 45% of total revenue from 43% in pro forma second quarter a year ago due to growth in strategic products such as high-speed internet, data services, Prism TV and Managed hosting services. Adjusted diluted earnings per share for the second quarter was $0.65 exceeding guidance by driven primarily by higher growth and strategic revenue than anticipated and a one-time adjustments to depreciation expense. As we discussed on prior earnings calls, adjusted diluted EPS excludes special items as certain non-cash purchase accounting adjustments. Total cash operating expenses increased modestly from pro forma second quarter a year ago to second quarter 2012 with synergy…

(Operator Instructions) and our first question comes from Simon Flannery [Morgan Stanley].

You mentioned the pension impact. Can you give us an update on the labor negotiations with the contract up in October and what you are hoping to achieve from those. Also noted that you were doing some metro fiber builds in Charlotte. Perhaps you can provide a little bit more color on how extensive those metro deployments are and are we going to see more of those over time and what’s the sort of the payback on some of those projects?

Yes, Simon. Regarding the union negotiations, we are not going to really discuss any specifics at this time, but we could be looking for ways to really better align our cost of revenue sources. That will be our primary objective. The Qwest contract expires October 6th. We’ll be well prepared for the possibility of a strike, but we remain really cautiously optimistic that we will be able to reach agreement with the CWA and IBEW. We will negotiate in good faith and expect the CWA and IBEW leaders do the same. However, you just never know until the negotiations are over as we have seen this past week with AT&T sort of things happening there. But we're cautiously optimistic and have begun preliminary discussions with them.

And Simon, on the metro fiber build at Charlotte, I am not familiar with that one. (Inaudible) build I know that we do, we are building to customers as we pickup additional customers and it makes sense from an economic standpoint.

So there is no real change in your mix of CapEx?

No, there is no real change. I mean we are doing some data center builds. We are building in some data centers that we have not been built into previously. We are also in conjunction with Savvis doing some work there to basically integrate their network with our network and give some redundancy to some of the data centers that Savvis has. So, we are doing some things like that, but there is no real specific change in our CapEx budget or philosophy there.

Our next question comes from Frank Louthan [Raymond James]

Can you give us an idea on the enterprise side, so what percentage of new RFPs and things are incorporating more to the Savvis type products versus the more traditional voice and data products. And looking at your fiber-to-the-tower expansion there, are there any fiber-to-the-tower builds that you are seeing that are uneconomic, that you're walking away from or you are pretty much going after everything that comes up?

Frank, I'll get the last one first. With respect to fiber-to-the-tower, we are walking away from some of the builds that aren’t economic for us. It's really very, very insignificant I think and I mean generally if we can't build a tower, no one else can either. And we are not seeing a lot of people build in our markets that we're aware of from the standpoint of the towers that we wouldn’t be willing to build to. So with the agreements that we have with major carriers and some of the smaller carriers as well, we feel very good about our ability to be able to capture the revenue that would otherwise be cannibalized from the wireless providers.

Frank, I'll make a brief comment about the (inaudible) to talk to more about your question about the RFPs. I don’t have the RFP percentages, but I just know in our dealing with customers and the request we are receiving from our large customers, I would say that the vast majority are talking about the Savvis type or the cloud hosting products that I talk with. And that as I talk with our sales folks around the country and they are very interested; some long sales cycles here, but a lot of interest. And Jim, you want to --

Frank, I would just reinforce that now with the combination of the old BMG enterprise sales force working together, virtually every one of our major enterprise CenturyLink customers are now interested in talking about Savvis products. So we are not seeing a big change in the RFP type alignment; but clearly every major customer is now talking about Savvis products and vice-versa. The Savvis enterprise customers are requesting information on CenturyLink capabilities, so we are going to see leverage from it, no question about it.

Thank you. Our next question comes from David Barden [Bank of America-Merrill Lynch].

Hey guys, this is Julia (inaudible) for Dave. Thanks for taking the question. I guess just on synergies and so where they are coming in this year; is it more sort of fourth quarter weighted or are we going to see some in the third quarter; may be just some detail on kind of exactly where those synergies are coming from? And then just a side note, you guys put in the supplemental breakdown of Savvis; are going to continue to give that going forward? Thanks.

So we ended the quarter at a run rate of about $380 million, so we still expect ending the year about $465 million or so. We will see incremental synergies in the third quarter and then we will see some other incremental synergies in the fourth quarter as well. So I would say if you are doing a model basically spread evenly and you will be in a pretty good shape. Also we will continue to breakout Savvis as we did this quarter and the rest of the year. And we're probably going to do more than just bringing Savvis out; I think we're going to provide you with a schedule. We have data hosting. Our segments are really more about customers. So we have customers, the Wholesale Group and the RMG Group that also have hosting services and we are basically going to provide you a schedule of all of the hosting revenue across the company, so we’ll get that hopefully on the website next week or so.

Thank you. Our next question comes from [Nicole Black]

Stewart, I was hoping you could clarify the comment you made about the $1.5 billion debt reduction excluding debt refinancing, we look at that does not net out the $2 billion of bond issuance that CenturyLink did in March of the $900 million of bond issuance that Qwest Corp. has done this year?

So basically, when we first look at the debt pay downs that we will do; we didn’t know what refinancings we will do. So we basically looked at the maturities that were coming up as well as the other debt that was going to be coming due. The debt was going to be coming due plus other debt that I am not able to recall. And we were going to get to $1.5 billion to $2 billion. The $1.5 billion really includes everything that we have paid off to-date that was a scheduled maturity or something that we could call early. The other the $1.1 billion really takes into consideration all the refinancings that we did and the associated premiums that we had to pay as well. So we paid about $350 million to $400 million of premiums associated with the debt that we called associated with the refinancings that allowed us to really get our maturity towers to where we needed to get them for the next five years.

Does that mean $1.1 billion is how much you have accomplished against the $1.5 billion to $2 billion goal?

If you look at it that way then basically we will probably get towards the lower end of the range maybe $1.4 billion or $1.5 billion or so because we have got a $319 million maturity that comes up August 15th that we expect to pay off and put it in credit facility, but we’ll ultimately pay that off. If not by the end of fourth quarter or sometime during the first quarter; if you count the premiums that we had to pay and in fact then we’ll get closer to the $2 billion. So that’s a way to look at it. The way to look at it really is we’ll get kind of towards the bottom end if you look at net debt more or less; if you look at the debt including the premiums that we had to pay then basically we’ll be closer to the top-end of the range.

And then at your Analyst Day I believe you cited that your leverage target of 2 to 2.5 range; do you have a timeframe associated with that?

Yeah, we really don’t; I mean our leverage with leases was about 2.8 times trailing 12 months and in the third quarter probably about 2.7 times or so to exclude leases and our target is more or less in that range, but not any specified period of time to get to there.

And the ratings agencies do count leases in their calculations, correct?

Yeah, they do and of course Moody’s has in their calculation and their target for us is to get down to 3 times and we are a little bit over 3 times now based on the target that they have for our rating.

Thank you. And our next question comes from Chris King [Stifel Nicolaus].

I just wanted to follow-up a little bit on the regulatory issues that are impacting you in the third quarter to the tune of $25 million or so. And realizing there is a lot that’s yet to be decided at the SEC level in terms of timing up of step downs and subsequent recovery mechanisms. Just was wondering if we could get your quick thoughts on kind of how you see that at least at this stage playing out over 2013 and as they say, right now you guys expecting to see another kind of $25 million step down in the middle of 2013, is that kind of your internal plans for right now and then secondly just wanted to get any of your latest thoughts regarding special access, I guess re-regulation at the (inaudible) and where that currently stands in your mind? Thanks.

So Chris the $25 million inclusive of $15 million step down in the USF contribution right, you know that will result in reduced revenue but it also results in reduced expense for us as well the way we account for. The access reform on a net basis, if you take the access charges that reduction which is I remember right about $30 million, $27 million, $30 million and you net that with the increase that we can flow through to our customers, it nets to about $10 million negative in the third quarter and of course that will recur, it will be flat in the fourth quarter. So next July, we will see another step down really don’t know how much at this point and then we're in the process of building on our 2013 performance to go over with board and we will have that done by the mid-September so timeline but wouldn’t expect anything more significant in the step down than we saw this year.

Thanks. And on the special access?

Yeah, basically, I mean, you know, we provided additional information to the SEC we know that this is something that’s on their agenda to look at over time, I mean its been there for long time, I mean at this time there is plenty of competition in special access market so we don’t really foresee any re-regulation of special access, I mean that would really be the long shot if that were to happen, its probably not in the near term.

Our next question comes from Scott Goldman [Goldman Sachs].

I wonder if you can may be talk a little about the revenue trajectory you guys highlighted in the $25 million impact in the third quarter but the trajectory would suggest the second half it should be about 1.2% decline and may be even little bit worse presumably in part due to 25 million with potential, possibly even sequential step up in the fourth quarter I just wonder if you guys can just kind of way out the trajectory for revenue and what some of the drivers there in the (inaudible) as well?

So if you look at the fourth quarter probably there will be about 6% decline, 1.6% decline from the year ago.

Is it 1.6%?

Yeah, about 1.6% probably.

I assume part of that just a tougher comp from the year ago quarter?

Yeah.

And so I mean if your say 1.2 now obviously a tougher comp, how do you think about the trajectory over revenue going into 2013 in your ability to possibly even grow revenue on a sequential basis.

Yeah, we are getting closer than before and if you take our last six quarters or eight quarters and just plow them out you can see that we make really good progress in terms of getting the hopefully flattening out revenue and starting to grow revenue, you know we mentioned in our EMG network segment to exclude the CPE type revenue basically that fluctuates you know we've seen our second quarter of sequential growth so we are getting close, I mean we are not ready to put a stake in the ground and say its 2013 or some time in 2013 or 2014 but we are definitely moving closer and we would expect our revenue decline in ’13 to be lower than the decline that we end up with in 2012 because we expect continued growth in the network area, we are having good success with the local model that we have put in place in the markets where we are the primary telephone company and we are seeing improved growth we think in the second half of this year with respect to the data hosting revenues. So I mean if we think that’s setting it pretty well.

And then just to follow-up on your commentary about the network segment I thought you know I was looking at the proforma information you put out, looks like a nice step up on the year-over-year improvement in strategic services, but in equally good step down actually and the rate of decline in the legacy services so maybe you can talk a little bit about what's driving that and just what your expectations are for data integration for the back half of the year.

Data integration is hard to say, I mean we've got a number of deals in the pipeline but it's hard to say when they might close, that gets pushed from time to time and quarter to quarter. In terms of the strategic revenue, I mean we are seeing s good growth there. We are seeing good opportunities with larger business customers that have asked us to take a look at being a participant in providing services to them or taking over one of the other larger carriers or MPLS. And Ethernet growth is really strong and we expect it to continue to be strong during the rest of the year. And some of that revenue growth is actually cannibalizing some of the other revenues that we have, some of the legacy revenues that we have.

Thank you. Our next question comes from Michael (inaudible).

Just looking at the Prism TV adds in the quarter, they are maybe little bit lighter than I would have expected given how new you guys are in that business. I was just wondering if you could talk about anything in the competitive environment that you are seeing or if there are any changes that you guys are anticipating making in terms of maybe promoting the service or anything else that you might be thinking or planning to jump start growth in Prism adds as you go forward?

In terms of the Prism TV, I mean in general second quarter has weak seasonality and high speed and in Prism and when I look at overall, we're happy with our inward. From a competitive standpoint, we continue to get really good comments from our customers and depending on which market at least 50% of our customers are new to our company and so it is a big inward driver for us. As we expand we'll continue work on just a distribution of the inwards, but not any competitive issues. In fact we are very pleased with the performance of (inaudible) right now.

And we do expect to increase some of the advertising in some of these markets in the last half of the year as well Michael.

Our next question comes from [Brian Turner].

Just one quick for me. Can you give us any color on potential conversations you have had with the rating agencies as you look forward towards the end of the year and into 2013. Specifically have they provided any granularity around the criteria they might be looking for in order to maintain or stabilize the current ratings?

Yes Brian well we are not investment grade at S&P. So we are finding their terms of the writing that we have today and wouldn’t expect to get an upgrade there until we can show that we can stabilize revenue and start growing cash flow again. With respect to Moody’s and Fitch, on Moody’s we have had conversations with them. They are target more or less to take the negative outlook of the parent company is to -- is basically for them to be able to see that we can get down to three times debt to EBITDA based on their calculation and they are willing to give us some time to do that and they understand where we are. We have a conversation with them each quarter and we have face to face visits a couple of times a year. We expect to be able to give them our 2013 projections probably sometime after we meet with our Board in September. And again I think they want to be able to see clearly that we can get down to three times leverage on their basis in order to remove the negative outlook. With Fitch, the dividend payout ratio is more of what they look at and it's about 55% which is in line with where we are. I think they are willing to potentially give us a little flexibility, if we need to make other investments that they can see are strategic investments from the standpoint of driving revenue in the future or preserving revenue. And example of that is fiber-to-the-tower. So, that's kind of where we are at the agencies.

Thank you. That does conclude our question-and-answer session for today. I would now like to turn the conference back over to Mr. Glen Post for any closing remarks.

Thank you, (inaudible). We are pleased with the continued progress we made during the second quarter for stabilizing topline revenues in our business. And we believe our continued investment in what we see as key strategic opportunities will help us continue to drive growth, both near term and long term. Our strategic revenues continue to grow nicely and our guidance reflects our expectations that our revenues from strategic services will continue to grow in the months ahead. We also remain focused to ensuring that our operating costs are in line with our revenue mix and on achieving our operating expense synergy targets for the successful completion of the Qwest and Savvis integrations. Additionally, the expansion of our Prism TV service and launch of managed hosting and cloud services for small and medium-sized businesses and customers. Later this year, we will further strengthen our product portfolio and provide us additional revenue and growth opportunity as we look into 2013. Thank you for joining our call today and we look forward to speaking with you in the weeks ahead.

Ladies and gentlemen thank you for participating in today’s conference. This concludes our program for today. You may all disconnect and have a wonderful day. Thank you.