Tony Davis - VP, IR Glen F. Post, III - President and CEO R. Stewart Ewing, Jr. - EVP, CFO and Assistant Secretary Karen Puckett - EVP and COO.

David Barden - Bank of America Merrill Lynch Batya Levi - UBS Simon Flannery - Morgan Stanley Mike McCormack - Jefferies & Company, Inc. Phil Cusick - JP Morgan Kevin Smithen - Macquarie Capital Michael Rollins - Citigroup Timothy Horan - Oppenheimer.

Good day ladies and gentlemen and welcome to CenturyLink's Third Quarter 2014 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 conference 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, Saeed and good afternoon everyone and welcome to our call today to discuss CenturyLink's third quarter 2014 results released earlier this afternoon. 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 Q&A. As you move to slide 2, you'll find our Safe Harbor language. We will be making certain forward-looking statements today, particularly as they pertain to guidance for fourth quarter 2014 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 describe factors that could cause our actual results to differ materially from those projected by us in these 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, 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 web site at ir.centurylink.com.

Now as you move to slide 3, your host for 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 portion of today's call will be Karen Puckett, CenturyLink's Chief Operating Officer; Bill Cheek, President of Wholesale; and Jeff Von Deylen, President of Technology Solutions.

Our call today will be available for telephone replay through November 13, 2014 and the web cast replay of our call would be available through November 27, 2014.

Anyone listening to a taped or web cast replay or reading a written transcript of this call should note that all information presented is current only as of November 5, 2014 and should be considered valid only as of this date, regardless of the date heard or viewed. As we move to slide 4, I'll turn the call over to Glen Post.

Glen?.

Thank you, Tony. Good afternoon everyone and thank you for joining us today. I am pleased with our solid financial performance for the third quarter. We continued to effectively execute against our objectives and make investments that we believe will drive increased revenue. Now turning to slide 5, we achieved solid revenue in the third quarter.

Total operating revenues of $4.514 billion were basically flat compared to third quarter of 2013. This revenue performance represented significant improvement from 1.2% decline in year-over-year revenues in third quarter 2013, and 1.3% decline in pro forma growth year-over-year revenues in the third quarter 2012.

Data integration revenues were $22 million higher in third quarter of 2014 than the third quarter of 2013, primarily due to increased CPE or customer premise equipment sales. Our core revenue, which represents strategic and legacy revenues combined, was $4.08 billion for the quarter, a decline of only 0.6% from the year-ago period.

This comparison also represents a strong improvement from the 1% and 1.8% declines in year-over-year core revenues in third quarter of 2013 and 2012 respectively. Now continuing to slide 6, I'd like to highlight the key drivers for this continued strong improvement on our revenue trend.

The improvement in core revenues was driven by the combination of the continued growth in strategic revenue and a lower rate of decline of legacy revenue.

Business at core revenue grew sequentially and year-over-year, driven by demand for high bandwidth data services and our bundled service offerings, combining network, CPE, software applications, and managed services.

We also continued to see good growth in Ethernet services from our fiber-to-the-tower investments in our wholesale business as we meet the growing data transport needs of our wireless carriers.

However, as we mentioned last quarter, wholesale operating revenue continues to be pressured by the migration from low speed data services to fiber-based Ethernet as well as continued network grooming by wireless carriers.

Consumer strategic revenue grew over 6% year-over-year, fueled by continued strength in high speed Internet and Prism TV customer growth, price increases, and improved churn.

Managed-hosting and cloud revenue grew 14% year-over-year, while total occasion revenue grew 4.5%, resulting in total hosting revenue growth of 5.6%, compared to third quarter 2013. Additionally, if you look at our combined business and hosting segment revenues, we've achieved year-over-year revenue growth for the last nine quarters.

Turning to slide 7, we continued to transform our company from a provider of traditional network communications to an integrated provider of IP-enabled network, cloud hosting, and IP services that we are refining our focus and executing on several strategic priorities.

We believe these priorities are key to successfully navigating the continued transformation of our company in driving long-term profitable growth and value to our shareholders. The first of these is to grow business network solutions.

We expect to continue to focus on driving growth from high bandwidth data services, including MPLS, Ethernet, Wavelength, business depot, and voice-over-IP services, by providing reliable connectivity to meet the growing bandwidth needs of our business customers.

In the third quarter, we experienced continued strength in sale for high bandwidth data services. We announced expansion of our 1 gig service for business customers to 16 markets in August, which has resulted in strong small and mid-size business sales.

This expansion provides increased addressable market opportunities for our business sales team and ultra-fast Ethernet quality speeds to our customers allowing them to cloud-enable their businesses.

We also believe our targeted marketing approach and a continued expansion of our sales team as well as continued enhancements in our product portfolio positions us well to drive revenue growth.

For example, we are seeing continued strong sales results associated with our launch of Managed Office, a solution that integrates network, voice-over-IP, email, and other key business applications.

And although slowing somewhat from the levels of last few years, we continued our fiber deployment to wireless towers to capture the growing demand from wireless carriers for data backhaul. During the third quarter, we completed fiber to approximately 1,200 towers for a total of near 21,000 fiber builds.

With respect to our cloud and hosting business, we believe we have a strong set of assets to enable us to meet the growing demand we're seeing from businesses ranging from small to global in size for cloud and hosting services.

These assets, coupled with our expansive network capabilities, enable our sales teams to deliver integrated hosting and network solutions that meet the customers’ needs, lower operating costs, enable them to focus on their core businesses.

We continue to believe we are well positioned to compete and win in the hybrid cloud market as we offer the full range of network cloud, managed hosting, hosting co-location , and IP services that we believe our customers want.

During third quarter, we launched CenturyLinks private cloud service, which is available on the same industry recognized platform as our public cloud service, enabling new hybrid IP capabilities.

This new cloud service delivers the agility and innovation of public cloud but with the physical isolation, dedicated hardware, and security standards that many large enterprises require.

I believe CenturyLink is well positioned to capture the future growth of enterprise IT workload that we expect to migrate to the cloud over time whether these workloads end up in multi-tenant or dedicated cloud infrastructures. Additionally during the quarter, we announced the rollout of our global managed hosting services in China.

This expansion along with our Asia Pacific capabilities enable us to better serve multinational corporations inducting business in the world’s second largest economy.

We continue to enhance our ability to compete in the growth of hosting services by building and leveraging our broad IP capabilities to offer enterprise customers a complete portfolio of IP, cloud enablement, and consulting services. Turning now to slide 8. In the consumer segment, we continue to see good results in those markets.

We have deployed higher bandwidth and IPTV services. For example, since our limited gigabit services deployment in Omaha, the results continue to exceed our expectation in the consumer market and we are seeing good results in small and medium business space as well.

Along with our gigabit service expansion for businesses, we also announced the availability of gigabit service to residential customers in selected locations in 10 cities, including some of our larger markets like Minneapolis, St.

Paul, Denver, Seattle, Las Vegas, and Portland and we expect to continue to expand the availability of this service in the months ahead.

We also plan to continue to invest our Prism TV capabilities and we've added more than 240,000 addressable homes year-to-date, on track to reach a total of 300,000 new Prism TV addressable homes for the full year of 2014.

We do anticipate expanding Prism TV service to additional households and markets during 2015, however we're not ready to announce specific markets at this time.

Finally, we are focused on driving improved operating efficiency through a number of methods, including network simplification and rationalization that should improve our NDN provisioning time and help to drive standardization.

We are also focusing on improving process automation through applications and work tools that drive lower operating costs and that we expect to improve our sales efficiency. We continue to modernize our network replacing ATM with IP technology that enables high broadband speeds while also adding network capacity to serve our growing customer base.

Since January, we have added over 3 terabytes to our IP backbone, bringing our total capacity to 19 terabytes per second. Also we continued to manage expenses related to our declining legacy revenue. Lastly, we have laid the foundation to migrate our internal IT operations to our cloud platform as we continue to invest in IT virtualization.

In recent years, we have consolidated our internal IT operations for more than 10 data centers to 4 data centers. We are also using a Cloud First approach to rapidly deploy the same innovative platform, infrastructure and software-as-a-service solutions across to internal IT operations that we are selling through our cloud and IP hosting customers.

We are currently on track and have average to host the vast majority of our new and strategic internal IT applications, the CenturyLink cloud instead of our internal data center. Moving to slide 9. Effective November 1st, we've implemented and refined our organization structure to better serve our customers and drive incremental growth.

We are pleased with the progress we've made toward our goal of reaching long-term growth and we believe this structure will accelerate that progress.

This change combines marketing, sales and services delivery for all of our customers under one leader additional we've created an organization of single leader who is responsible for operational excellence, the NDN engineering, delivery and managing our network and data centers.

We believe that these changes will strengthen our focus on revenue generation and go-to-market strategy and improve our ability of development delivering new technology and solutions by better aligning our cost structure in our revenue stream.

This change in our organization structure are likely to result in some modification of our segment reporting that we'll determine in the coming weeks. Overall, I'm pleased with the solid results for the quarter.

We've remained focused across all operating segments on offering our customers high-value products and service solutions along with high-quality of customer experience we believe creates loyalty, improves customer retention and we continue to invest in to dry growth in our business.

With that, I’ll turn the call over to Stewart Ewing for looking at our financial results and fourth quarter guidance.

Stew?.

Thank you, Glen. I'll spend the next few minutes reviewing the financial highlights from the third quarter and then conclude remarks with an overview of the fourth quarter 2014 guidance we included in our earnings release issued earlier this afternoon. Beginning on the slide 11, I'd like to review some highlights from our solid third quarter results.

I'll be reviewing the results excluding special items as outlined in the earnings release and associated financial schedules. As Glen mentioned earlier, we've generated strong operating revenues and cash flows in the quarter. Operating revenues were $4.51 billion on a consolidated basis, nearly flat from the third quarter of 2013 operating revenues.

Core revenue defined as strategic revenue plus legacy revenue was $4.08 billion from the third quarter, a decline of only 0.6% from the year ago period. Strategic revenues grew 4.4% year-over-year and now represent 51% of our total revenues compared to 49% a year ago.

Strength in strategic products such as high-speed Internet, high-bandwidth data services, Prism TV and managed hosting services continuous to drive this growth. Additionally, we entered approximately 14,000 Prism TV customers and 8,400 high-speed Internet customers during the third quarter.

We generated strong operating cash flow of approximately $1.75 billion for the third quarter and achieved an operating cash flow margin of 38.7%.

The year-over-year decrease in operating cash flow and operating cash flow margin was primarily driven by higher Customer Premise Equipment sales, higher content cost related to the growth of Prism TV and the continued decline in legacy revenues.

Additionally, we generated $780 million of free cash flow during the quarter, which is defined as operating cash flow, less cash taxes paid, interest and capital expenditures and additional adjustments to other income.

Our strong cash flows continue to provide us the financial strength and flexibility to meet our business objectives and drive long-term shareholder value. Adjusted diluted earnings per share for the third quarter was $0.63, the high end of our adjusted diluted EPS guidance for the quarter.

As we've discussed on prior earnings calls, adjusted diluted EPS excludes special items and certain non-cash purchase accounting adjustments as outlined in our press release and associated supplemental financial schedules.

Additionally, under the $1 billion share repurchase program, we have repurchased 1.7 million shares for an investment of $64 million during the third quarter. We expect to set up a program in the next few days to facilitate the purchase of shares through our fourth quarter earnings release date. Now turning to slide 12.

Third quarter 2014 operating revenues were flat to third quarter 2013 as the growth in strategic data and integration revenues was offset by lower legacy revenues due to excess live losses and lower minutes of use.

The growth in our strategic revenues was primarily driven by strengthened high-speed Internet, high bandwidth data business services, Prism TV and hosting services. Although legacy revenues continued to decline, the revenue decline in third quarter 2014 was 9% lower than the third quarter revenue decline a year ago.

Now turning to slide 13, I'll discuss each of our operating side with beginning with the Consumer segment. Consumer generated $1.49 billion in total revenues, which represented a decline of eight-tenth of a percent from third quarter a year ago.

Strategic revenues in this segment grew 6.4% year-over-year to $712 million, driven by growth in high-speed Internet and Prism TV customers, price increases and improved churn. Legacy revenues for the segment declined 6.6% from third quarter 2013 as access line and long distance revenue declines were partially offset by select price increases.

The comparable year-over-year decline in third quarter 2013 was 8.7%. Operating expenses increased 1% compared to the same period a year ago, primarily driven by higher Prism TV cost or contact cost.

Moving to slide 14, our business segment generated $1.57 billion in operating revenues during the third quarter, which increased $25 million or 1.6% from the same period a year ago.

Third quarter strategic revenues for the segment increased 6.1% to $677 million from third quarter 2013, driven primarily by strength in high bandwidth services such as MPLS, Ethernet and Wavelength.

We continued to generate solid growth across the enterprise customer base and we see an opportunity for further investment in the small and midsized business space to improve our market share and drive further growth. Legacy revenues for the segment declined 4.8% from third quarter of 2013, due primarily to continuing decline in access lines.

Our data integration revenues grew 13.6% in third quarter 2014 compared to third quarter 2013, driven by higher CPE sales.

Total business segment expenses increased 7%, driven primarily by higher CPE costs and facility costs associated with the MPLS product growth, along with higher employee-related expenses related to additional sales resources brought in to drive future revenue growth.

Our segment margin of 36.5% declined from 39.6% a year ago, this decrease was primarily due to the higher costs I just mentioned, along with continued decline in business segment legacy revenue. Now turning to slide 15. Our wholesale segment generated $843 million in operating revenues, a decrease of 4% from the third quarter of 2013.

Strategic revenues for wholesale were $560 million, down slightly from third quarter 2013 as growth in Ethernet services and wireless bandwidth expansion was offset by declines in low speed data revenues.

Legacy revenues declined to 10.2% to $283 million, reflecting the continued decline in access and long distance minutes of use and the annual implementation of lower access rights, under the KF order.

Operating expenses for the quarter declined $8.1 million or 2.7%, compared to the same period a year ago, driven by lower employee-related and facility costs. Now moving to slide 16 to our hosting segment, which includes all managed hosting, cloud services, collocation and hosting related network services revenue.

This segment generated $361 million in operating revenues, representing an increase of 5.6% from third quarter 2013. Year-over-year managed hosting revenues including cloud grew 14%, but collocation revenue grew 4.5%. Hosting operating expenses increased $9 million or 3.5%, primarily due to higher employee cost related to the revenue growth.

Overtime, we expect long-term improvement in both revenue and margin trends across the hosting segment and we continue to leverage these assets to drive additional revenue through cross selling opportunities in our other segments. Now turning to slide 17 and our fourth quarter 2014 guidance.

For fourth quarter 2014, CenturyLink projects total operating revenues of $4.44 billion to $4.49 billion. Core revenues of $4.04 billion to $4.10 billion and operating cash flow between $1.75 billion and $1.8 billion. Adjusted diluted EPS is expected to range from $0.59 to $0.64.

We expect fourth quarter 2014 operating revenues to be lower than third quarter 2014, primarily due to lower data integration revenues or our CPE revenues. Core revenues are expected to be approximately inline with third quarter as the declines in legacy services are offset by growth in strategic services.

Fourth quarter cash expenses are expected to decrease from third quarter primarily due to the normal seasonality of outside plant maintenance and utility cost and lower CPE sales related to the anticipated decline in data integration revenues.

Based on our revenue outlook for fourth quarter 2014, we expect total revenue results for 2014 to be approximately $40 million to $80 million above the midpoint of our original 2014 guided range, which was $18 billion, primarily driven by higher than anticipated non-recurring CPE sales.

As we look forward to 2015, we continue to expect operating revenues to be approximately the same as these projected 2014 revenues.

However, the increase in the rate of decline in the low speed data services revenues, which is Glen discussed earlier driven by the accelerated pace of network grooming by wholesale customers in the second half of 2014 and the higher than anticipated CPE sales in our projected 2014 revenues as mentioned above has added risk to this comparison.

We also anticipate capital expenditures for full year 2015 to be inline with our expected full year 2014 capital expenditures of approximately $3 billion. We will provide further 2015 guidance in mid-February when we report our fourth quarter and full year 2014 results. That concludes our prepared remarks for today.

So at this time, I'll ask the operator to provide instructions for the Q&A portion of the call. .

Thank you sir. (Operator Instructions). And our first question comes from David Barden from Bank of America. Your line is open. Please go ahead. .

Hey, guys. Thanks for taking the question. So, I guess first question is on the fourth quarter revenue guidance. Stewart, I guess I was looking at the data integration revenue line, and it's been elevated all year.

I think every quarter you've called it out as being surprisingly strong, but it's strong every single quarter and now in fourth quarter is the quarter where you are now expecting it to maybe ease off.

So, are you expecting it to be kind of flat year-over-year growth wise, or really significantly down? And if so, why? And then this kind a goes into my next question which was, I mean, we've been looking at 2015 as the revenue inflection year for probably a couple of years now.

It's been this goal you guys have really set out, you seem to be now hedging a little bit that maybe it is, maybe it isn't because of all these risk factors, one of which is CPE and the other is the narrow band contraction revenues.

So, if you could talk a little bit about the driver of the narrow band issue and what was unexpected about it and kind a how you're planning on managing it to get to revenue growth for next year will be great. Thanks. .

Yeah. So, first of all David, I’ll try to get in the order that you indicated. It is forecast lower in the fourth quarter. We had a larger deal that closed in the third quarter. Fourth quarter of '13 was about $187 million, and we are expecting the fourth quarter of this year to be about $144 million. So, we do expect it to be down.

We just don't have the same number of large deals into pipeline that we expect to close in the fourth quarter.

In terms of 2015 being an inflection year, basically when we started talking about – we still believe first of all when we say, we still believe that we can get to the level of revenue hopefully that we will have this year in 2014, which will be higher than the midpoint of the original guidance that we gave.

So, the original guidance we gave, the midpoint $18 billion. We are going to end up probably $40 million to $80 million higher than that. So, basically that puts some challenge associated with 2015 just right out of the gate plus our CPE revenues, and it really relates to CPE revenues in 2014 being higher than 2013.

So, the low speed, narrow band issue that we have seen basically really started kind of at the end of the second quarter.

So, where we started seeing more disconnects than we saw in actually the first quarter and really second quarter of this year, and what it is basically is related to we're having fewer towers that we are building to because we're just about through the cycle of building fiber to the towers, and we are still seeing disconnects of the low speed circuits and they really seem to relate to; one, a customer that basically shut a network down, and secondly, towers that we were not successful in terms of obtaining the fiber-to-the-tower bills from.

So, we expect this to play out sometime probably during the first half of 2015 in terms of the rate of decline that we are seeing, and just to quantify it for you, it’s probably in the -- and it's really lower than what our expectations were.

It won't necessarily be lower than – it won’t be that much lower than this year’s revenue, but it’s somewhere in the range of $50 million to $100 million or so.

But we have overcome that and think we can overcome that with the improvement that we have been able to see in our business, revenue growth, and also the lower decline in our consumer revenue growth that growth that we have seen this year. So, we have offset some of that decline in effect..

So, basically two parts to that.

One is the starting point for the revenue growth kind of inflection is actually higher than what we thought it was going to be when we were talking about it at the beginning of 2014, and then we have got this narrow band issue we can overcome that with the business and consumer initiatives, and the CPE side is probably going to be relatively low margin.

So at the end of the day, it's not that important to revenue stream?.

At the end of the day, it's not that important Dave. We will be right in the range of our 2014 revenue in 2014 plus or minus a little bit, and it may depend on how much CPE we sell.

But again you've got to characterize exactly correct, the jump off point more or less or the base that we set in 2014 was higher than the midpoint when we started talking about revenue stability, and then towards the latter half of this year, we've seen a little bit weakness in the low speed connections on the wholesale side..

Okay, great. Thanks for the clarification..

Thank you. Our next question comes from Batya Levi from UBS. Your line is open please go ahead..

Great, thanks. Could you also provide some color on your outlook for margins? I think you have always said that, once the revenue trends stabilize, EBITDA stability should be 12 to 18 months behind that. So, how should we think about margin outlook for 2015 and beyond? And another question on the CapEx.

You are maintaining your $3 billion guidance would suggest a big ramp in 4Q, what will that mainly be spent on? And looking at 2015, wireless backhaul spending, it probably comes down, what will that be replaced with to maintain a flat level? Thanks..

Yes. So Batya, the margins we think they will continue to come down slightly as we continue to lose the higher margin revenue. But again lose it at a slower rate than we've been losing it in the past.

But we would still expect EBITDA to stabilize 12 to 18 months or so afterwards, assuming we can continue the rate of decline in the legacy revenue and assuming we can continue the rate of growth in our strategic revenue. And I think we haven't really called where the margins will end up but somewhere in probably the mid to upper 30s range.

One thing if you if you look at our business margins, I mean, they were down a pretty good quarter-to-quarter, but if you back CPE out of both of the quarters the third quarter last year third quarter this year, the margins in third quarter last year were 41%, the margin this year is about 39%.

So again outside of the CPE, we're getting good margins in that business. CapEx it is going to be somewhat higher in the fourth quarter. We have some of the network work that we are doing to try to upgrade some of our networks. We also have some data center expenditures that we're going to buy as well in the fourth quarter.

So, we will just kind of catch-up a little bit in the fourth quarter with what we had expected to stand for the year.

In terms of wireless backhaul, we really don’t have the details of 2015 budget laid out at this point, but we probably still have some fiber-to-the-tower builds next year and any monies that we don't spend there will probably go in our funds deployment as we try to build fiber to more business customer and more buildings to allow our customers to be able to sell high-speed data services to our customer..

Great. Thank you..

Thank you. And our next question comes from Simon Flannery from Morgan Stanley. Your line is open. Please go ahead..

Great. Thanks a lot. You are saying on the CapEx, I think you said Prism would cover 300,000 households this year.

You are not ready to choose markets in the next year, but having given forth to accelerating the pace of Prism? I noticed the broadband ads were somewhat light this quarter, perhaps you can sort of just talk to that as there some pressure on DSO outside of your Prism market so, what can you do to get some better growth in that? Thanks..

I'll talk about the first part of your question Simon and then Karen can pursue with the units.

But as we are considering acceleration of the Prism investment, here we have probably mid-year before we actually initiate service in new markets but we do expect to expand and we've identified a number of markets and we're still working with franchise with some of the cities and we are grooming our plan, getting ready for that investment will be also have with that process of bringing Prism cities, but we are expecting more move forward certainly accelerate what we have been this year..

Okay. Good..

Simon, this is Karen. In terms of HS-5, I will first say that, we still have historically low churn and we are very proud of that work we have done. In terms of some of the softness, I would characterize that we have some softness in our ATM market. We have you know really taken out some of the marketing that we will do there for all the right reasons.

We have to some softness in some alternative channels that we have and then this quarter we are very focused on just improving our inward ARPU and we accomplished that cost on the unit, but we are still very optimistic we have fiber-to-the-node and where we have fiber-to-the-prem.

We're very competitive and can compete with cable in ATM market you know so that's a bit more challenging..

Okay. Thank you..

Thank you. Our next question comes from Mike McCormack from Jefferies. Your line is open. Please go ahead..

Hey, guys thanks.

I guess just thinking about the couple of comments regarding prices and Karen just mentioned inwards, but how price sensitive are you finding consumers right now with respect to whether you know it's broadband or traditional telecom services? And then secondly just as thought on Prism TV I mean hearing a lot of over the top chatter and TV moving in different directions, does that changed your view on sort of longer-term where you want to take Prism TV? Thanks..

In terms of the pricing, how concern consumers are, I would say the market hasn't changed a lot. It really is around the promotional that ad flows in terms of the amount sometimes per quarter.

There is a lot more chatter around speed as you get especially cable where they have up their speed on their entry level programs that 60 gigs in many of our markets. On Prism, I think we are very still very optimistic about Prism over the top there is an opportunity. We continue to follow what's happening.

We have the capability given our Prism foundation and content capability there and it's a matter of getting the economics right. So, we continue to be focused and look at plans to have some type of over the top offering in the future..

Karen just I guess sticking on the economics on the consumer market, the 1 gig product you're rolling out obviously it's relatively limited.

But how do you think about the economic sort of on a permanent basis if you would?.

So, the announcement that we made actually last earnings call, we look at the opportunity. We're focused on the fiber deployment getting that cost per households deployed down, and so that range needs to be under 1,000 per households.

We have the GPON that were currently rolling out that were constructing as we speak fit into those metrics very easily because it was aerial fiber and short leaves. So, that works. The bigger next step that we got to continue to get that fiber deployment done.

We've been working on a couple of different approaches and we're making progress there so that's important for our ability to rollout fiber in a bigger way. The other thing I would just mention on the fiber to the business, GPON to business really very optimistic.

The sales team there is very excited, the early indicators and we just started marketing that are positive and we think that will put us in a very competitive position here in the next couple of quarters..

Great. Thank you..

Thank you. Our next question Phil Cusick with JP Morgan. Your line is open. Please go ahead..

Hey guys. Thanks. Given what sounds like a potential revenue decline in 2015, should we still think about EBITDA stability a couple of years beyond revenue or with CPE being the difference or good chunk of difference in 2015 could that time frame tighten a bit? Thanks..

Yeah. Phil, we still believe we can hit hopefully 2014 revenue and 2015 into where it will be the planned. We're just saying that there is some challenges and risks getting there with what we're seeing, but we still should be able to see EBITDA stability.

We think again within the periods that we've talked about of 12 to 18 months after we get revenue stability. So, hopefully after 2015..

Thanks, guys..

Thank you. And our next question comes from Kevin Smithen from Macquarie Capital. Your line is open please go ahead..

Yeah. How should we think about cash taxes in 2015, and assuming difference in scenarios on bonus appreciation? I know you have some amortization that's not deductible. Can you talk a little bit about the difference scenarios for cash taxes? And then as follow up to that can we talk a little bit about priorities for use of cash next year.

I think your share repurchase is a little bit lower this quarter despite the strong free cash flow.

How should we think about use of cash in 2015?.

So basically in terms of cash taxes, we'll pay $50 million to $100 million of cash taxes in 2014 and really that represents virtually no federal taxes. In 2015, we would expect our cash taxes to increase somewhere in the $600 million to $700 million range on incremental basis. So $700 to $800 million or so of cash taxes in 2015.

Should almost depreciation get implemented and extended basically for 2014 and 2015? We would expect our 2015 cash taxes to be maybe $50 million to $150 million higher than they are in 2014. So, maybe $150 million to $175 million next year..

Kevin, this is Glen. I'll talk about the use of cash. As far as the stock buyback is concerned, we did very much progress this past quarter. We expect to be back on track in the coming quarter. As we said from the beginning we'll buy optimistically and we look each quarter but we are committed to stock buybacks. We think they are good.

The money we spent on our own in the last couple a years has really been a good investment for us. So, we're pleased with that. We also are committed to our dividend. We think is well protected by our free cash flow and our dividend payout ratio this year we expect to be about 45% as we feel good about dividend.

In addition to dividend and stock buyback, we're continually waiting to make best utilize our cash. We look at additional capital expenditure opportunities we're drive growth in the business. We looking to possible debt reduction and then acquisition opportunities inorganic opportunities that can drive growth for us.

But our continued focus is really on the best way is to utilize our cash to drive long-term shareholder value and that's where it’s been for years and we're continue that focus. .

And any from further development on sort of your REIT exploration process if you will?.

No, Kevin. We're basically going watch which streams go to their process and just see how that goes and then we'll make a decision at some point after that. .

Thank you. Our next question comes from Michael Rollins from Citigroup..

Hi. Good afternoon. Thanks for taking the question.

Two if I could, first is, should we be thinking about the revenue impact of the inter-carrier compensation reform during the quarter in terms of moving some revenue from regulatory to retail and how much that might be in the Consumer and Business segment? And then second question I have is, if you look at the slowdown in legacy revenue erosion, are you look by market, are you look by product? Is there a certain secret sauce that you're finding in some markets where you really start to see that slow? Is that the maybe the voice customers get to a certain level of market share or broadband capabilities get above a certain level.

If you can maybe give us your sense of what's happening underneath there, that would be great. .

So, Mike the revenue impact of the inter-carrier comp or reform is really is not that significant.

It does reflect or result and a decline in our wholesale segment revenue, but that decline in the wholesale revenue segment is really pretty much offset as you'd indicated by many increases that we're able to do in the charge to our consumer and our business customers.

They are charged which really virtually offsets the access to charge reductions that we're implementing. .

And how much is that that moves from wholesale to retail in terms of dollars?.

Yeah. About $5 million a quarter or so. .

Okay. .

And concerning the secret sauce, we don't know if there is really a secret sauce. We look at every market individually as far as at the capabilities and that we've provided in the marketplace.

We've look at bundles of services kind of price it comparatively, but we have found a level of voice customers, a level of broadband and really said it's going to slow at any point in time. We think that will happen we just don't know where that is yet.

But absolutely new product and services as a bundle services where we believe it helps a lot for us in recent quarters. .

Thank you. .

Thank you, and our final question comes from Tim Horan from Oppenheimer. Your line is open. Please go ahead..

Thanks. Can you talk a little bit about the cost trends in the network where you kind of seen both of deploying fibers more to the nodes and fiber to the home over the last couple of years? Thanks. .

Yeah. I think the cost trends I would say continued to improve and a lot of it is just around like I said the work that we've been doing. And we do need to continue to drive improvement in those each year, so that we can get fiber further out.

But it's everything from the approach to the process and also anything around the install improvements that we can get there. So it's really an improved. .

Have you seen material improvements though or can you talk about the trends a little bit on the technology that you've seeing over the last two or three years?.

I can't say that there has been a large increase in technology over the last couple of years. The biggest thing that helped us is really more on the Prism side the wireless set-top box. That really has changed the game for us. It improved significantly our ability on the time of install as well as the customers love it.

But, I think there is one thing that you would ask us to the team that would be the number one thing..

Thank you..

Thank you. This concludes 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, Steve. Overall, we are well pleased with our solid third quarter operating and financial results. We are pleased with a continued improvement in our revenue trend.

We are confident that the investments in our business continue to position us to effectively compete in the marketplace to drive revenue growth from our strategic products and services in the months and years ahead. 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..