Luke Szymczak – Vice President-Investor Relations Maggie Wilderotter – Chairman and Chief Executive Officer Daniel McCarthy – President and Chief Operating Officer John M. Jureller – Executive Vice President and Chief Financial Officer.

Batya Levi – UBS Securities Spencer B. Rosman – Morgan Stanley Stephen Douglas – Bank of America Merrill Lynch Scott Goldman – Goldman Sachs Frank Louthan – Raymond James Jonathan Epstein – Goldman Sachs.

Good afternoon everyone and welcome to the Frontier Communications Third Quarter 2014 Earnings Report. This call is being recorded. I would now like to turn the conference over to Mr. Luke Szymczak..

Thank you, Jill. Welcome to the Frontier Communications third quarter earnings call. My name is Luke Szymczak, Vice President of Investor Relations. With me today are Maggie Wilderotter, Chairman and Chief Executive Officer; Dan McCarthy, President and Chief Operating Officer; and John Jureller, Executive Vice President and Chief Financial Officer.

The press release, earnings presentation and supplemental financials are available on the Investor Relations section of our website, frontier.com. During this call, we will be making certain forward-looking statements. Please review the Safe Harbor language found in our press release and SEC filings.

On this call, we will also be discussing our GAAP and non-GAAP financial measures as defined under SEC rules. Reconciliation between GAAP and non-GAAP is provided in our earnings release. Please refer to this material during our discussion. I will now turn the call over to Maggie..

Thanks Luke and good afternoon everyone. Thank you for joining you joining Frontier’s third quarter 2014 earnings call. I will begin on Slide 5. Frontier continued its solid momentum and delivered another very strong quarter. We are particularly pleased that we grew revenue sequentially in both our residential segment and our business segment in Q3.

We’ve been working very hard to improve our revenue trajectory and we believe these results illustrate that we are moving closer to an overall inflection point, reflecting the hard work of the entire Frontier team and the significant investments we have made in the business.

We’re also extremely pleased to report the successful completion of our Connecticut acquisition and to welcome our new Connecticut customers, employees, and communities into the Frontier family. We have delivered day one synergies of $150 million, double our original estimate of $75 million.

And our confident that we will exceed our targeted total synergies of $200 million ahead of our initially estimated three year target. The successful Connecticut acquisition comes on top of strong performance in our ongoing markets.

This quarter, we achieved our seventh consecutive quarter of strong broadband net adds with 21,900 in the quarter and 87,000 year-to-date. Frontier increased broadband market share in 81% of our local markets through the first nine months of 2014.

Earlier today, we announced an expansion of our strategic relationship with Intuit within agreement valued at approximately $100 million of revenue over three years. We will provide premium technical customer service support to our U.S.

based Frontier Secure support services team for several Intuit products including QuickBooks Online, QuickBooks Desktop, Payment and Payroll products. We’re delighted with this expansion of our relationship with Intuit which further demonstrates the growing success of our technical helpdesk capabilities.

We now have three premium tech support relationship, where we are the frontline customer support and there are several prospects in the pipeline. You also may have seen the recent headlines about the launch of America’s Best Communities. Frontier is one of the founding sponsors for this program, which I will discuss in more detail shortly.

Our relentless focus on customers, operations, revenue growth, and expenses results in maintaining a sustainable dividend. Our dividend payout ratio remains one of the lowest in our industry and the just completed Connecticut acquisition will improve our dividend payout ratio even further. Please turn to Slide 6.

After months of planning and preparation by the entire team, we closed the Connecticut transaction on October 24 and have completed our flash cut conversion and most of our integration activities.

Since we announced our agreement to purchase the Connecticut business, AT&T worked hard to keep customers and maintain quality network operations, while Frontier took the lead on the approval process, attaining those approvals ahead of schedule, and prepared for the full conversion and integration.

The co-operation between our two companies provides a model for a successful transaction. I want to thank AT&T’s CEO, Randall Stephenson and his entire team for their partnership and support during these past 11 months. We now have our Connecticut management team in place who are experienced and have a proven track record of success.

We moved our east region headquarters to New Haven, Connecticut and located our state headquarters in Hartford, Connecticut. As you can see from the map on this Page, we are bringing Frontier’s signature local engagement strategy to Connecticut, segmenting the state into five markets, each with its own area general manager.

These managers will be responsible for operating and growing our business in these territories and for being Frontier’s visible and approachable ambassadors in their communities. We have already started to aggressive market our products, communicate with customers, and reach out to new communities.

These efforts will remain intensive over the next several months as we build awareness throughout the state and introduce Connecticut to Frontier packages, products and local engagement. All of these activities are being implemented on Frontier’s more efficient cost structure foundation.

Our strong day one synergies of a $150 million are derived from replacing AT&T’s cost structure with ours for many functions across the business including IT, network operation, engineering, and administrative overhead. Dan and John will discuss these synergies in greater detail. Please turn to Slide 7.

Connecticut has been acquired and integrated without Frontier losing site of our key deliverables in our other 27 states or our long-term objectives. This acquisition was another example of sticking to our core business experience and leveraging our core competences. As a result, over the past five years, we have built a platform for scale.

The Connecticut acquisition enhances our capabilities to serve all of our customers, creates an opportunity for our employees, drives greater operating efficiencies, and enhances shareholder value. We are the only company that has successfully acquired, converted, and integrated wire line markets in states from both Verizon and AT&T.

We’ve developed a range of products and services that resonate with customers and transitioned easily to new geographies. For example, we have deployed Frontier Secure and our internet of things portfolio in Connecticut. We also have been very consistent in building out robust and competitive high-speed broadband capabilities.

This is important as consumers continue to gravitate toward a broadening array of internet usage activities including streaming video, eCommerce, and social activities. We have remained very customer focused. Everyone in the company has frontline responsibility for keeping customer satisfied and taking ownership of the outcome.

Put the customer first is our primary value of Frontier and it’s at the core of our culture. You will see that spirit in Connecticut as well. We also have retained true to our rural and small to midsized city focused.

The largest cities in our footprint have populations around 200,000 and we have only a handful of these cities including the new cities we have acquired in Connecticut. Please turn to Slide 8. Execution is as important as strategy.

Leveraging our customer focus and substantial network investments through these we have continued to excel in gaining broadband customers. We had a strong first nine months in 2013 and have improved on that performance in 2014.

Cumulatively, since the start of 2013, we’ve added 199,000 new net broadband customers and we expect our momentum to continue. As I mentioned year-to-date, we’ve increased share in 81% of our markets, slightly ahead of last year and evidence that our success is broad based.

We believe the attractiveness and simplicity of our offers, pricing without surprises, customer choice, and the increasing network speed options are all elements of what’s allowing us to grow our broadband customer base and put Frontier in a very strong position going forward. Please turn to Slide 9.

Frontier is a founding sponsor of America’s Best Communities price campaign or ABC. Last month, along with our partners DISH networks and CoBank, we launched this groundbreaking price campaign to drive economic development, revitalizations, and sustainable growth in small towns and rural communities across our footprints.

ABC dedicates over $10 million in cash and other rewards to support and inspire innovation and investment to transform small towns and rural communities. The top three communities will be awarded between $1 million and $3 million, but along the way we will be providing seed money and support to as many as 50 communities.

We estimate that the $10 million seed money will be leveraged with other donated funds to yield a multiplier effect of eight to ten times. The best creative ideas will also be shared with all community participants across the country.

In the 45 days since the launch, over 70 communities have already registered for the contest and the ABC website has received 4,000 visits. We are thrilled to announce that our long-term partner CoBank recently joined DISH and Frontier as the lead sponsor.

Frontier, DISH, and CoBank are proud to support our local communities through this 2.5 year ABC contest. This truly takes our local engagement model to the next level.

So in summary, Frontier was focused on driving performance continuously improving upon our products, services, and the experience we provide to our customers, and creating a positive work environment for our employees. These steps result in enhanced shareholder value.

As we head toward 2015, we welcome our new customers, employees, and stakeholders in Connecticut and we remain excited about our prospects across all 28 states where we do business. I will now hand the call over to Frontier’s President, Dan McCarthy, who will provide more color on Connecticut and our Q3 operating results..

Thanks Maggie. Please turn to Slide 10. Over the last 10 months, the organization has been focused on planning for the system conversion and integration of the Connecticut property. We have successfully converted to Frontier Systems over the last several weeks.

We experienced some issues during the first several days on some services and those have largely been rectified. We are still in the integration stage of this transaction, but I am very comfortable with the initial synergies we have seen during the early integration efforts and we have immediately implemented our proven distribution strategies.

Instrumental to our success will be the leadership team we have deployed in Connecticut. This team has comprised of seasonal leaders from Frontier’s existing operations, coupled with great new talent we have assembled from our Connecticut markets. The team is in market and began executing on our first day of ownership.

The network in Connecticut is in good shape. Our plans include upgrades to the existing fiber transport systems to ROADM Architecture in all markets. We have already begun to pursue a low cost approach to extend the U-verse footprint in our Connecticut markets.

These areas represent low hanging fruit in terms of deployment costs and are great opportunity to take market share while meeting our commitments on broadband deployment to Connecticut state regulators. Let me emphasize that these investments were already factored into our CapEx budget and cost projections as previously outlined for Connecticut.

Frontier’s successful go-to market plan includes simple pricing, no contracts, local engagement, and multiple distribution channels. We expect to see similar results as we have experienced throughout the country. Prior to close, we have the benefit of meeting our new Connecticut colleagues.

They are energized and excited to be part of the Frontier family and helping us to take market share in Connecticut. We are thrilled that they have become part of the team and they will be critical contributors to our success. Please turn to Slide 11.

Despite the myriad of activities necessary to convert and integrate of property like Connecticut, we have remained focused on execution in the remainder of our properties. We were very pleased to have added 21,900 broadband customers in Q3 despite this quarter being traditionally are weakest due to seasonality.

Our marketing programs produced a sales mix that was more balanced with simply broadband sales rebounding from Q2 levels. In Q3, 34% of broadband activity was above the basic speed tier. We continue to make progress driving higher ARPU broadband products as well.

As Maggie mentioned, we grew share in 81% of our local markets, so our success continues to be broad-based. We also continue to enjoy success with our Frontier Secure product sets with strong attachment rates to new broadband sales.

Frontier Secure is an important component of our strategy to add value for our broadband customers while differentiating us from our competitors. We believe we have substantial room to increase our residential broadband market share, since current share is less than 25% in our 27 states excluding Connecticut.

Driving broadband share higher remains our number one priority, and represents a significant revenue opportunity for Frontier. In October, Maggie announced the launch of gigabit and 500 megabit capabilities in Durham, North Carolina.

Durham is an attractive market where we can leverage our previous network investments to facilitate the ultra-high speed products without adversely impacting our capital expenditure trends. Following completion of these investments, we will be able to offer an expanded product suite from basic speed to one gigabit services.

And we’ll expand our current fiber-to-the-home footprint, which is already a healthy 10% of homes passed as of the end of Q3. Durham joins Beaverton, Oregon where we are also offering gigabit service.

Keep in mind that nearly 85% of our customers take only the data basic speed tier today even though 75% of our footprint is capable of choosing the higher speed service. This remains a tremendous opportunity to offer additional speed and capacities as customers’ broadband needs change. Please turn to Slide 12.

As Maggie mentioned, we grew both residential revenue and business revenue sequentially in Q3. All the work over the last few years is finally becoming evident in our improved revenue line. We feel very good about the progress we’ve made in residential.

The sequential growth in residential revenue in Q3 was driven by our retention efforts, an increased focus on bundled product sales and solid market share growth. We’re very excited about SME revenue as it grew sequentially. Our focus remains on offering a complete product solution through a wide variety of distribution channels.

These total solutions coupled with simple pricing and local customer service is a winning combination. Our wholesale segment remains stable with the exception of the wireless backhaul business.

The transition of wireless backhaul customers, Ethernet services continue to pressure the wholesale segment as we had expected and in line with what we communicated last quarter. Intuit support contract valued $100 million, illustrates our ability to leverage our core competencies and grow revenue apart from our traditional network services.

We believe we have significant opportunities to grow this revenue stream. We are in the proposal stage with several other companies to be their frontline support. Our Intuit contract reinforces our stature as a credible and reliable supplier. Please turn to Slide 13.

Customer losses improved from Q2, thanks to strong gross additions, which is positive considering the seasonal headwinds we traditionally face in Q3. Customer retention remains a high priority focus. Our share in the business market remains stable in Q3.

The decline in business customers reflects the ongoing decline in the total number of small businesses in our markets. Please turn to Slide 14.

The sequential uptick in Q3 operating expenses excluding pension and OPEB reflects storm costs, which will vary throughout the year as well as our other investments in staffing related to the Intuit contract we just announced. Nonetheless, cash operating expenses excluding pension and OPEB are down $2 million from Q3 last year.

John will discuss this in more detail. As we continue the integration of Connecticut, we will focus on driving synergies from further integration activities as well as rationalizing our cost structure through additional expense reduction initiatives. Please turn to Slide 15. We continue to make progress expanding our alternate channel capabilities.

In Q3, 40% of broadband gross additions came through alternate channels. This is up from 36% in Q2 and reflects more than a doubling of their contribution since the first quarter of 2013. We’re very pleased with their performance and continue to look for additional channel partnerships to further broaden our distributional reach.

CPE was a contributor to sequential growth in Q3, and our pipeline remains robust for Q4. We continue to deliver very strong sales of Ethernet services with growth of 30% over last year. Customers continue to request more bandwidth and flexibility of network configurations. Our investments and operating processes enable us to meet those needs.

Please turn to Slide 16. We continue to enhance our network in Q3. We added 18,000 additional broadband households. We also completed our build to over 33,000 CAF households. Our broadband availability is now up to 91%, excluding Connecticut.

Network speed capabilities continued to improve with 55% of households capable of 20 mega bits or more, 75% capable of 12 megabits and 84% capable of six megabits. We are looking forward to the finalization of the SEC’s CAF II program. We plan on participating in the program for as many markets as possible.

I’m pleased that in Q3, we reached an agreement which was subsequently ratified with the Communication Workers of America in West Virginia. We also concluded other negotiations and all major contracts inherited from Verizon have now been through one cycle of renegotiation. In summary, we are quickly integrating the Connecticut property.

We have been very pleased with the condition of the network we acquired and with the enthusiasm of our new employees. Execution of our operating go-to-market plans continues with strong results in all of our existing markets.

We are making good progress in improving Frontier’s revenue trajectory, driving broadband share and leveraging our economies of scale for further success in the future. I’ll now hand the call over to our CFO, John Jureller.

Thank you, Dan. I’d like to review the third quarter results. Frontier’s earnings per share of $0.04 in the third quarter of 2014 remain consistent with the third quarter of 2013, and the second quarter of 2014.

Adjusting for expenses related to the acquisition of the AT&T Connecticut properties, gain recognized on the sale of a passive investment in a wireless partnership severance cost and certain tax items, our non-GAAP adjusted net income was $0.05 per share in the third quarter of 2014, now as compared to $0.05 per share in the second quarter of 2014 and $0.06 per share in the third quarter of 2013.

On October 28, the Board declared a quarterly dividend payment of $0.10 per share, consistent with past quarters. Slide 17 shows our revenue composition. Our revenues for the third quarter were $1.141 billion, a sequential decline of only $6.4 million, or 0.6% an improvement over the $6.85 million sequential decline in Q2.

Total customer revenue increased by $3.3 million or 0.3%, as compared to the second quarter, even in the phase of our voice and wireless backhaul headwinds. Total residential customer revenue was $498 million, an increase of $1 million sequentially. This increase was lead by our continuing growth in residential data revenue.

It is worth stepping back and noting the progress to improve the residential customer revenue trajectory that Frontier has made when comparing the nine months year-to-date 2014 results versus similar periods in 2013 and 2012.

Excluding the impact in all periods of our former Mohave Wireless operation, the nine month period of 2013 showed a residential revenue decline of 3.8% when compared to 2012. For the nine month 2014 versus 2013 periods, we improved this trajectory by 55% with a comparative nine month revenue decline of only 1.7%.

Business customer revenue of $518.6 million increased $2.4 million sequentially. This business revenue performance was primarily related to improvements in the small-medium and enterprise revenue offset in part by the anticipated step-down in wireless backhaul revenue.

As Dan mentioned, CPE was a positive per small-medium enterprise again this quarter, as is the growing contribution from Ethernet services.

Customer data and internet services revenue increased $6.1 million versus the second quarter of 2014 due to residential and business broadband growth as well as increased Frontier Secure revenue partially offset by the decline in wireless backhaul revenue.

As was shown previously on Slide 12, Frontier’s data services revenue continues to grow, increasing 10.1% compared to Q3 2013. Further, the sequential increase versus Q2 more than offset the sequential decline in (indiscernible) data revenues. Voice services revenue was flat sequentially.

Regulatory revenue for the quarter was $124.2 million, a decline of $9.7 million sequentially, driven by the expected decline in switched access as well as anticipated reduction in subsides. This step down was fully anticipated by us at the beginning of this year and was included in our full year estimates.

Overall, we are pleased with our revenue performance in Q3 as well as the substantial progress we have made over the last seven quarters. We maintained strong residential broadband acquisition and customer momentum in Q3, which has now driven two quarters in a row of sequential improvements in our residential revenue.

Likewise, we are very pleased with the improved revenue rends in the small-medium enterprise portion of the business revenue. Slide 18 provides an analysis of our average revenue per custom. In residential, average revenue per customer, or ARPC, of $60.34 represented 1.2% sequential increase as well as 1.4% increase over the prior year.

The increase was driven by a higher mix of our customer base taking broadband, our existing and new customers’ up-tiering their broadband speeds and the continuing success of the Frontier Secure product suite. Business ARPC was up 1.5% sequentially and up 0.3% from the prior year.

The increase was primarily a result of a declining number of home office business customers that carry a low ARPC and with increased revenue for our small and large business customer. We estimate that our overall share in business was stable in the quarter and increased over the third quarter of 2013.

As shown on Slide 19, our cash operating expenses increased by approximately $29 million sequentially in Q3 and increased by approximately $25 million relative to the third quarter of 2013. This excludes approximately $42 million of acquisition and integration related operating expenses for the Connecticut transaction.

Excluding pension and OPEB costs, cash operating expenses increased by $13 million sequentially, but decreased by approximately $2 million as compared to the third quarter of 2013.

The quarter-over-quarter increase was primarily due to higher storm related overtime costs in the third quarter as we had previously anticipated and communicated in September. Additionally as Dan mentioned, we did increase tech support staff in anticipation of increased revenue streams from our Intuit relationship that we announced earlier today.

Pension and OPEB cash contributions which are funded at various times throughout the year are variable from quarter-to-quarter. We anticipate pension contributions for the full year of 2014 will total approximately $83 million.

The reduction from our prior expectations reflects the revised calculations resulting from the Highway and Transportation Funding Act that was signed in August 2014. Our adjusted EBITDA margin was 42% for the third quarter of 2014. Adjusted EBITDA excluding pension and OPEB entirely was 45% as compared to 46.4% in Q2.

We remain committed to improving our operating efficiency while investing effectively in our network, customer service, and delivery infrastructure to drive our business forward. We are extremely pleased that the day one Connecticut net cost synergies of $150 million that we have achieved were substantially ahead of our expectations.

These synergies are due to replacing the higher allocated cost for AT&T’s provision of various support services to the Connecticut operations with our lower expense structure. To be clear, these savings are not generated from reducing headcount in Connecticut, in fact we’re committed to bringing new jobs to the state.

We are confident that we will be able to exceed the overall $200 million cost synergies target and ahead of our initial three year timetable. We incurred $152.4 million of capital expenditures in the third quarter and an additional $40.7 million related to the Connecticut integration activities.

Further, our CAF funded expenditures in Q3 were $16.4 million. Today, we have expended $78.5 million of the $133 million CAF funds received. Please turn to Slide 20. Frontier’s cash flow remains very healthy. On a trailing four quarter basis, our leverage free cash flow was $848 million for Q3.

The decline relative to last quarter was largely driven by timing related matters including $22 million increase in cash taxes, and $34 million increase in cash pension expenditures. Additionally, we did incur interest expense carrying cost from the debt offering completed in advance of the Connecticut acquisition.

Our trailing four quarter dividend payout ratio was 47%. We continue to focus on our free cash flow generation and maintaining a comfortable dividend payout ratio for our shareholders. Our Connecticut acquisition will further support this. Slide 21 shows our leverage ratio and liquidity relative to prior periods. Frontier’s liquidity remains robust.

We ended the quarter with nearly $1.6 billion in cash and credit availability. Note that our liquidity has consistently remained very strong and our free cash flow generation after dividends has provided for a reduction of more than $350 million in net debt over the last four quarters.

We sold a passive investment in a wireless partnership in the third quarter. This partnership did not contribute to our historically reported revenue expenses or free cash flow, so its sale will have no impact on our future operating results.

Frontier’s capital allocation framework remains unchanged, investing appropriately in our network infrastructure and operations, supporting our current dividend and utilizing excess cash generated to reduce indebtedness and our leverage ratio over time.

We are comfortable with our leverage levels and are committed to maintaining our liquidity along with a prudently managed balance sheet. Slide 22 shows our long-term debt maturity profile, inclusive of our recently completed debt offering for the Connecticut transaction.

As we’ve indicated based upon how management sees the trajectory of the business we’re confident with our ability to generate cash flow from our current business to fund our scheduled debt repayments at least through 2016 without a refinancing need. The addition of the cash flow from the Connecticut business will further bolster our cash generation.

We intent to update our guidance for 2014 later in the quarter to reflect the Connecticut acquisition, our 2014 expectations for the core Frontier business itself have not changed from what we outlined in previous quarters.

In summary, Frontier’s Q3 2014 operating results are prudent capital investments and expense management all provide a strong cash flow base and a solid financial platform for supporting and investing in the business. We have ample capital to service our debt and comfortably sustain our dividend.

With that, let me pass the call back to the operator and open up the line for questions..

Yes thank you. (Operator Instructions) And we’ll go first to Batya Levi with UBS..

Great thank you.

First one question on the acquisition, you had previously expected that it will contribute about $400 million in EBITDA, with higher than expected synergies and elimination of allocated cost, what do you think is a good run rate to think about for 2014 and on your core operations the sequential growth that we saw in the customer revenue growth in very encouraging, should we expect that trend to continue into fourth quarter? Thank you..

So Batya, let me first handle the question with respect to Connecticut. We will be updating our guidance probably at the beginning of December that will be inclusive of the Connecticut operations and then providing guidance in February 2015, for the entire year 2015.

So we’ll have more news for you at that time, but we are encouraged certainly with the incremental $75 million over and above the $75 million that we have initially had indicated. So I think that that could be helpful for you when you’re thinking.

In terms of the core operations with respect to customer revenue, I think, we continue to – we continue to like the trajectory of our residential revenue performance, our broadband net adds continue to be very strong momentum into the fourth quarter, and in particular, as Dan talked about we’ve made some really good progress in our small-medium and enterprise business segment..

Batya, at this point, we feel very comfortable on that segment. We’ve seen some good stability and some areas actual solid growth and we continue to see that as we introduced new distribution channels. So we feel very comfortable about that. The area where we’ve seen some weakness in customer losses is really on the very small customers.

And most of that is really businesses that have gone out of ahead of operation in our markets. So, we think that at this point we’ve reached stability on our market share..

Yes, Batya, hi. It’s Maggie. So one thing I would add to what both John and Dan have said is we do feel positive with the revenue trajectory for customer revenue. I think we’ve looked at the residential side. We’ve now had two quarters where we’ve had growth in data and other services exceed the growth, the declines in the voice revenue.

So we feel good about that trajectory. And this is sort of the first time we’ve seen small-medium and enterprise cross that threshold, so we remain cautiously optimistic that we’ll see that again next quarter.

One of the wildcards of course is always what happens with wireless backhaul, and we have said and we’ll continue to say that we see that headwind will continue into probably the second quarter of 2015, but the flip side is we’ve had very strong CPE sales and we have a very strong pipeline for Q4, a lot of customers try to get things closed out by the end of the year.

So, again, we remain optimistic that we will see that trend continue..

Great, sounds good. Thank you..

And our next question comes from Simon Flannery with Morgan Stanley..

Hi, this is Spencer for Simon. So, another quick question on Connecticut. There have been some reports on service reps in Connecticut and I guess it sounds like this has mostly been resolved.

But anything beyond what you were expecting or do you anticipate any lingering issues? And then separately, broadband, any change in the competitive dynamic with cable or just more of the same? And is there any margin impact from adds coming direct versus alternative channels? Thanks..

So, let me take the first question on Connecticut. Yes, we do experience some service issues right out of the gate and others are really principally around the U-verse product set. And that product set, we feel we rectified those issues and largely that’s in our past. So, we feel pretty good about that going forward.

As far as broadband sales, we’re very happy with the mix that we have right now. We’re seeing continued strong performance from the distribution channel partners. And we don’t see the current mix levels as really having a problem on changing margin profiles..

So, Spencer, this is Maggie. Just a couple of things. On the competitive onslaught, we haven’t really seen any material changes in the activities of our large cable competitors in the marketplace.

And one of the things that we worked very closely also with AT&T in Connecticut, was to make sure that we kept marketing in the marketplace while we were waiting to close and AT&T did a very good job of that. We were also very visible over these last several months in the state.

Talking about the company, about our products, about our services, meeting with employees upfront before we closed and really keeping our name and brand out there. I think as Dan said, we did have some service disruptions. It was minimal. It affected a very small number of customers.

But as you all know, no matter who is affected you want to make sure you get them back in service as fast as possible. And our teams have done a very good job of solving and resolving those issues, course correcting and making sure we are in a good place.

The last thing I would say is, as a philosophy we wanted to make sure we balanced the equation on alternate channels versus direct, as we started to see several years ago the shift in customer behavior, to go to different places, to source where they would buy these services that we offer.

And that source, a lot of it is digital, a lot of it is door-to-door, a lot of it is in the local environment. So, we really built pretty robust channels and partnerships to make sure that we were aware the customer would go. As Dan mentioned that’s about 40% now of our total adds coming through those channels. And the margins are very strong.

We don’t see material differences in our cost per ad or payback, as compared to our direct channels..

Great, thank you..

And our next question comes from David Barden with Bank of America Merrill Lynch..

Hi, thanks for taking the questions. This is Stephen Douglas for David. Maybe just a follow-up to the previous question.

Can you maybe comment on what your game plan is from a commercial standpoint ahead of the Comcast Time Warner Cable deal? And then second, in terms of the guidance for the legacy Frontier business, I realize that you reiterated that the outlook, but within the outlook, CapEx and cash tax is coming on a little lighter than expected.

I wonder if there are any changes to the assumptions for those two pieces. Thanks..

Stephen I’ll take the first part of the question. We have built our distribution strategy and our marketing efforts on really simplicity, choice, and really letting customers take what products they need and not really forcing them to different levels of products.

And when you look at those things, there’s no real difference in how we’re going to change things in a Comcast market versus anywhere else around the country. We’re going to stick to our plan and it has been working extremely well and we have all the channels firing on it.

So, I don’t think you’ll see us do anything very different from what’s working today..

Yes, Stephen, I would just add that. We complete with both of those companies today, right. We compete very effectively. As both Maggie and Dan have said, for the first nine months, we’ve taken share in 81% of the markets. And those are markets where Comcast, Time Warner, and Charter have a big presence.

So we’re going to continue with a strategy that we have and we think has been very effective today. As to guidance, again, we will update on sort of entire guidance for the year probably in early December and we’ll try to give you some more visibility at that time..

I think the only thing I would add on your question on CapEx and cash taxes is – Stephen is when you think about our CapEx, we’re basically sticking to what we said we were going to spend. There is seasonality in terms of how we spend our dollars, so some quarters seem a little lower but we catch up the following quarter.

And we don’t see any change to what we said we were going to spend this year. So we’re basically right in our guidance. And if there’s been a little less spending over the last couple of quarters, we will probably catch that up in the fourth quarter..

I would say Stephen too, when you think about CapEx for the additional piece of our Connecticut business, you’ll see numbers that are broadly in line with what we had estimated at the outside..

Okay, that’s helpful. I appreciate it..

And we’ll go next to Scott Goldman with Jefferies..

Hi, good afternoon. I guess maybe a question on the synergy side, obviously very strong coming out at the $150 million. Maybe you could just dig in a little bit.

Was this entirely all the allocated costs from AT&T that drove you to beat the initial targets, or were you able to extract some synergies right away in response to the cut over? And I guess, on the same topic, how do we think about, now that you’ve sort of achieved three-quarters of the earlier anticipated target, what the run rate would be from here into 2015? And then secondly, one for John.

Just on the margin side, maybe you could give us an idea for how much of the 3Q costs were storm-related or items that may not be recurring in your view to give us a sense for what the margin run rate might be on the legacy business from here? Thanks..

I’ll do just a highlight on the synergies. I really want Dan to sort of take you through more of the puts and takes.

But I think as you know, we’re a company that – part of our competitive advantage in the marketplace is we can move very quickly because we put everybody on the same products, services, systems and processes in Frontier in order to serve customers.

And that also allows us to have huge flexibility to move employees around and resources around where we need them. And that drives huge cost effectiveness in terms of how we run the business. And so it’s not just about the administrative cost, it’s really sort of the total cost of doing business.

But Dan, do you might want to deep dive a little bit on what we’ve seen with Connecticut?.

Scott, this is Dan. When you look at the synergies, the best way to describe would be that as we entered into the transaction and we did our diligence came up with the original estimates.

As we went through the detailed integration process, we developed plans that would take our cost structure and then in some cases increase the amount of cost in a certain area, but when the day was done, we saw significant savings in the network side of engineering, on the IT areas, on all the corporate overheads.

And as we put together our cost structure, we developed very good line of sight. And the synergies that we have today are really about replacing our cost structure for the allocated cost structure from AT&T.

The remainder of the synergies will be where we do more traditional work that takes a little bit more time, but we have very good plans on developing and hitting and exceeding the original target. But it will take a little bit quicker, all of the original synergies really occurred because of our substitution of our new cost structure for AT&T’s..

Scott as to your margin question, you’ll see in the earnings release that we put out – when you dig into, of the $29 million or so of sequential cost increase from Q2 to Q3 about $16 million of that was due to higher cash pension and OPEB contribution. So there is about $13 million of other expense increase.

The majority of that – there were various puts and takes, but the majority of that was over time related costs with respect to storm activity. That’s helpful. And that’s exactly what we had called out a couple of different times in September at various points at a couple difference conferences.

So where we ended up in the quarter was exactly in line with our expectations..

Okay, so the incremental headcount added in the quarter was just it sounds like a few million maybe or something like that would continue on and obviously we can never predict what storms are going to be like.

But is that sort of the right way to think about it?.

That’s correct. That’s to think about it. And that headcount is there in support of the new revenue streams really around our Intuit relationships and then as we start to gear up in our support centers for new Connecticut business..

Yes, I think Scott one of the things that we did do is we did hire upfront for some of the new Intuit business to get people trained and in the chair so to speak, but that was a nominal amount of money compared to the others that John outlined..

Great, that’s helpful. Thanks, guys..

Thanks, John..

We’ll go next to Frank Louthan with Raymond James..

Great, thank you. Just looking at a couple of things.

Can you give me an idea of how many households will be left as you – that you will pass with the rest of the CAF money that you already have? And what is the IT systems conversion timeline with the Connecticut properties? When will that be finished? When will you start to see some synergies from that?.

Frank, let me take the second one. The IT conversions are essentially complete, even as we speak now. We did a flash cut conversion. And all the cost structures associated with – ramping was incurred during the integration process.

There certainly is some incremental cost associated with expanded licensing for more seeds or more subs, but those costs are in our projections and are already taken into account – are taken into account with the substitution of our cost structure. So you shouldn’t see any heavy lift on additional IT integration going forward. .

Yes, just the one fine point I put on that Frank, as Dan said, we’re done with actually the system conversion. But this week, we will start to send out new bills to customers. And we have 29 cycles. So customers will see a new bill from their AT&T bill starting on Wednesday of this week.

And so, there will be, we know, some increased activities based upon customers getting – used to seeing a new format and the charges coming over in a different way from Frontier.

So we’re staffed for that and we know that we will go through the next several weeks of customers getting comfortable with their new online bill pay or with their bills go out in paper form..

Frank on the cap side, we can get you the numbers of the remaining, but of the money that we spent I think it’s interesting to note that we touched about a 149,000 households with the cap money that we spent today, about 89,000 of those had been previously unserved and about 50,000 of those were underserved markets.

So we’ll continue probably in somewhat of that proportion as we go forward. We can provide you with some more of the detail around that..

Okay, great.

And any issues with the IT conversion at this point? Everything – anything to be redone or any concerns at this point?.

No. As Maggie pointed out, we are just in the throes of sending out the first bill. So the conversion went extremely well. The team did a great job doing a series of mock conversions. And I think we’re in a very good place right now..

This was actually the cleanest billing and management information systems conversion we’ve done from a mock perspective to the live perspective. And AT&T was very cooperative and actually worked with us to free some of their changes to make sure from the last mock to the conversion there were no puts and takes that took place in the interim.

I will say this, the other part of this conversion was the network systems conversion, which includes all of the network elements as well as video and U-verse. This was our first time converting onto the U-verse platform which is a very complex platform.

And when Dan mentioned we had some customers that we had service issues, it was really more around the video service platform for U-verse, or customers that had both Internet and video with U-verse.

But we have worked through those issues and gotten customers back into service and we have stabilized all of those platforms after we did the conversion..

Okay, great thank you. .

And why don’t we take one last question..

We’ll go to Jonathan Epstein with Goldman Sachs..

Thanks for taking the question.

First, post the Connecticut deal, how do you think about prioritizing uses of cash among de-levering network investment, the dividend, and potential new acquisitions? And when you talk about maintaining a comfortable dividend payout ratio, are you targeting any particular level? And then second on Connect America Fund Phase II, I believe you recently changed your position on minimum speeds to support 10 megabits.

So, I’m curious if there was a change in the incentives offered by the FCC and whether this required minimum speed, if it became effective, would translate across the entire footprint in terms of increasing CapEx to address that 16% that now have only six megabit capability..

So, I’ll take the first one on prioritization. I think, Jonathan, you should rest assured that our board looks at this constantly in terms of what the right priorities are for our users of cash.

As John mentioned in his formal remarks, it’s really supporting the business operations as the priority, followed by paying our dividend and third is reducing our leverage.

And we look at all three of those elements when we would overlay any M&A activity that we would pursue as a company, they have to really support the dividend that we have in place today, they have to support being accretive to the business and providing us with greater value for our shareholders or we wouldn’t do it.

So we continue to look at that, we haven’t changed that focus of what we do today and after we absorb Connecticut and that settles down, we’ll take a look again. I would say on the dividend payout ratio we’ve always talked about 60% or less and staying in that average area. That’s a very comfortable area for us.

If we have to go higher than that, it would be for a specific reason for a certain small period of time, but I think as you’ve seen our dividend payout ratio is low, we’re keeping it around that 50% mark today. And as John mentioned Connecticut will only improve that..

As far as CAF II goes, I think, we are still waiting to see the final rules, obviously they don’t come out. But when you look at where we are today from network perspective, we have about 75%, a little over 75% of our network actually is at 12 megabits or higher today. Our view is the 10-1 profile is actually a good profile for us, even where we are.

It’s in alignment with where we want to drive our markets and we’re spending our CapEx today on speeding capacity. And this will be very complementary and enable us to really accelerate our current efforts. So we’re very excited about CAF II.

Do you add something?.

That’s great. So I just wanted to say as a wrap up to thank everyone for joining the call I think you can see we continue to make very strong progress on our priorities which is revenue growth, as well as broadband growth.

In addition to that we are managing our cost environment and we’ve added Connecticut to the Frontier family in a timely way and a very efficient way. I want to give a give shout out to employees across the country because they’ve continued to deliver for the business even with a lot of us focused on making sure Connecticut went well.

And again, to welcome into Connecticut our new employees and our new customers. And I especially want to give a shout out also to the CWA the Communication Workers of America they’ve worked very closely with us through this whole process and have been very supportive in the market. And we look forward to having Connecticut as part of Frontier.

We’ll also look forward to updating you on our full year and fourth quarter results in early February. So thanks very much for the time..

This concludes today’s call. Have a wonderful day..