CenturyLink Analyst Day

June 24, 2015

Forward-Looking Statements / Non-GAAP Financial Measures

Certain non-historical statements made in this presentation and future oral or written statements or press releases by us or our management are intended to be
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current
expectations only, and are subject to a number of assumptions, risks and uncertainties, many of which are beyond our control. Actual events and results may differ
materially from those anticipated, estimated, projected or implied by us if one or more of these risks or uncertainties materialize, or if our underlying assumptions
prove incorrect. Factors that could affect actual results include but are not limited to: the timing, success and overall effects of competition from a wide variety of
competitive providers; the risks inherent in rapid technological change, including product displacement; the effects of ongoing changes in the regulation of the
communications industry, including the outcome of regulatory or judicial proceedings relating to intercarrier compensation, access charges, universal service,
broadband deployment, data protection and net neutrality; our ability to effectively adjust to changes in the communications industry, and changes in our markets,
product mix and network; our ability to effectively manage our expansion opportunities, including retaining and hiring key personnel; possible changes in the demand
for, or pricing of, our products and services, including our ability to effectively respond to increased demand for high-speed broadband service; our ability to
successfully introduce new product or service offerings on a timely and cost-effective basis; the adverse impact on our business and network from possible
equipment failures, security breaches or similar attacks on our network; our ability to successfully negotiate collective bargaining agreements on reasonable terms
without work stoppages; our ability to use our net operating loss carryovers in projected amounts; our continued access to credit markets on favorable terms; our
ability to collect our receivables from financially troubled companies; our ability to maintain favorable relations with our key business partners, suppliers, vendors,
landlords and financial institutions; any adverse developments in legal or regulatory proceedings involving us; changes in our operating plans, corporate strategies,
dividend payment plans or other capital allocation plans, including those caused by changes in our cash requirements, capital expenditure needs, debt obligations,
pension funding requirements, cash flows, or financial position, or other similar changes; the effects of adverse weather; other risks referenced from time to time in
our filings with the SEC; and the effects of more general factors such as changes in interest rates, in tax laws, in accounting policies or practices, in operating,
medical, pension or administrative costs, in general market, labor or economic conditions, or in legislation, regulation or public policy. These and other uncertainties
related to our business and our recent acquisitions are described in greater detail in our Form 10-Q for the quarter ended March 31, 2015, as updated and
supplemented by our subsequent SEC reports. You should be aware that new factors may emerge from time to time and it is not possible for us to identify all such
factors nor can we predict the impact of each such factor on the business or the extent to which any one or more factors may cause actual results to differ from those
reflected in any forward-looking statements. Given these uncertainties, we caution investors not to unduly rely on our forward-looking statements. We undertake no
obligation to update or revise any forward-looking statements for any reason, whether as a result of new information, future events or developments, changed
circumstances, or otherwise. Furthermore, any information about our intentions contained in any of our forward-looking statements reflects our intentions as of the
date of this release, and is based upon, among other things, the existing regulatory and technological environment, industry and competitive conditions, economic
and market conditions, and our assumptions as of such date. We may change our intentions, strategies or plans at any time and without notice, based upon any
changes in such factors, in our assumptions or otherwise.
Non-GAAP Financial Measures
This presentation includes certain non-GAAP financial measures. These measures are provided and valid only as of the date of this presentation and should not be
relied upon beyond that date. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available on our website at
www.centurylink.com.
2

Strategic Overview
Glen Post
Chief Executive Officer & President

Agenda
Strategic Overview
Product Development & Technology
Global Markets
Global Operations & Shared Services
Finance
Q&A

Company Overview & Transformation

CenturyLink by the Numbers

$18.0B

Total 2014 Annual Operating Revenues

52%

Total Revenue from Strategic services

>60%

Revenue from Business Customers

98%

Fortune 500 Companies served

>550K

Route-mile U.S. and International transport network

6.1M

Broadband customers

58

Data centers globally

Transformation by the Numbers

2008

20141

6,500

45,000

Assets

$8.3 billion

$50.1 billion

Reported Revenue

$2.6 billion

$18.0 billion

Operating Cash Flow2

$1.3 billion

$7.1 billion

Free Cash Flow2

$582 million

$2.7 billion

Employees

1) 2009-2011 acquired Embarq, Qwest & Savvis

2) Excludes special items

Industry Rapidly Redefining Itself

New competitors, partnerships and business
models
Environment of continuous innovation and
automation
Technology advancing rapidly, driving changes in
customer expectations and creating opportunities
Local services less regulated, Internet services now
regulated
CenturyLink is reinventing the way we do business to
take advantage of opportunities resulting from these
changes
8

Strategic Vision

Transition from a traditional network

communications provider to a growing
provider of integrated, advanced IP-enabled
network, cloud, hosting and IT services.

Strategic vision aligned with the market

opportunity
$ in billions

Strategic Market Opportunity

14-19
CAGR

Total Market
2014: ~$180B 2019: ~$275B
CAGR = 9%

$147

11%

IT Outsourcing
Hosting, Cloud,
Security & Consulting

$86
$95

$65

$34

$29
2014

10

2015

2016

2017

2018

2019

8%

Strategic Network
Services

3%

Consumer
Broadband & Video

Source: Third party research and CenturyLink analysis.

Notes: Market size and position represents the domestic US market. for Strategic Network Services. IT Infrastructure Outsourcing Services represents the North
America market. Consumer Broadband and Video represent estimated CenturyLink in-territory opportunity. IT Infrastructure Outsourcing Services include
Colocation, Hosting, Cloud, Security Services, IT Consulting Services. SaaS is excluded. Strategic Network includes IP based services such as Ethernet, MPLS,
B-VoIP and Managed Network Services.

Strong Foundation for Success

Great strategic assets for growth

Growing market opportunity for strategic
services
Strong cash flows support
Continued investment
Dividend payouts
Recent organizational realignment
designed to drive increased agility,
productivity and efficiency
11

Strategic Priorities

Strategic Priorities
Business Solutions

13

Grow strategic revenue offerings: MPLS, Ethernet,

Wavelength, VoIP, Hosting, Cloud and Big Data
Invest in fiber/GPON to drive increased network
bandwidth and capacity
Create advanced cloud and hosting capabilities

Strategic Priorities (continued)

Business Solutions (continued)

14

Develop and deliver managed services solutions

across our broad portfolio of network, hosting,
cloud and IT capabilities
Expand and increase efficiency of direct and
indirect sales channels

Strategic Priorities (continued)

Consumer Broadband and Video

Deploy fiber/GPON deeper into network to drive higher

speeds

Expand PrismTM TV footprint and penetration

Develop home automation and security solutions

Operating Efficiency

15

Simplify and rationalize network infrastructure

Automate and improve processes

Continue to integrate and simplify systems

Youll Hear Today About Our

Focus on customers needs and the

customer experience in all we do
Strong foundation of assets that
positions us for growth
Advanced network services and robust,
high-quality network

16

Youll Hear Today About Our (continued)

Managed services solutions designed to

meet customers evolving needs
Automation of systems and streamlining
of processes
Financial strength that supports continued
investment and dividend payouts

17

Product Development & Technology

Aamir Hussain
E x e c u t i v e V i c e P r e s i d e n t & C h i e f Te c h n o l o g y O f f i c e r

Areas of Responsibility
Managed Network Services
Cloud & Hosting Services (XaaS)
Define, Design & Deliver
o New Products & Services
o Network & Cloud
Technologies
o Security Framework
Achieve Profitable Growth

Managed Security Services

Unified Communications
Broadband
Video & Over-the-Top Content Services
Data Analytics and Internet of Things (IOT)
Hybrid IT Services

19

Aligning Organization to CenturyLinks

Business Transformation Objectives
Integration and
Innovation
Platform
Development

Technology
Transformation

Service
Transformation

Product
Development
& Technology

Product &
Platform
Rationalization

Program Management & Metrics

20

Quicker Time to Market

Differentiated Customer Experience

Data
Monetization
Data Analytics
Over-the-Top
Services
(video etc)

21

Fiber
Deployment
Copper
Innovations

Cost Savings
Speeds Up
Service Delivery
On Demand
Virtualized
Services

Internet of Things

Hybrid Cloud

Increase
Connectivity

Programmable Service Backbone

Accelerated
Cloud Adoption

Higher Bandwidth

Cloud & Big Data

Focus Areas

Everything is
Connected
Data Explosion
Device & Sensor
Saturation

Cloud & Big Data

Expansion of cloud footprint
Integration of network to cloud
Enhance our cloud offering
Interconnect our network and
platform to all relevant cloud and
data center partners

Enabling hybrid cloud

PaaS for development community
Enabling platform Managed
Services (DRaaS, Big Data Analytics,
ecommerce Apps, ERP/CRM Apps)

22

CenturyLink Cloud Platform

Legacy Application Optimization

Extending On Premise

Extending To AWS, vCloud

Ecosystem
IT Services Managed Application Solutions
Platform Control Portal
Platform Managed Services

Network

23

New Application Agility

Colocation

Hosting

Cloud

Enabling Higher Bandwidth & Applications for Our

Customers
Continue to expand gigabit footprint
Enhance our higher speed
Broadband footprint
Network Modernization
Application Integration
Video
Unified Communications

24

Use vectoring/bonding technology to

provide up to 200 Mbps
Enhance our video offerings
(OTT, Prism)

Enhance Unified Communications

offerings

Programmable Service Backbone

Completed NFV Deployments in 36 data
centers across 7 countries (network based
security)

Simplify Network Infrastructure

Modernize the Network

Fully Distributed & Programmable

Self Healing, Self Learning Network

Our Goal: A Single Network Service Delivery Fabric

Any Service | Any Place | Any Time

25

Internet of Things (IoT) Use Cases

Smart Building

Smart Fleet

Building Floor Space

Utilization

Idling Vehicle
Management

Building Automation

GPS Analytics

Smart Workspace

Maintenance
Management

Conducting Trials

Trials in Progress

Complements Our
Analytics & Cloud offering

Big Data Learning Opportunity

Extensible to Smart Car /
Smart City Use Cases

Smart Car
Safety / Regulation
Over-the-Top
Content to Vehicle

Aligned to Insurance
Opportunities.
Integration with
Smart Home Use Cases

IoT creates Data & Storage opportunities as well as complements our Infrastructure &
Cloud Offerings while enhancing our Managed Services.
26

Two Technology Development Centers

Collaborate

Innovate

Incubate

Technology Center of Excellence

Monroe, LA

Deliver

27

Cloud Development Center

Seattle, WA

Product Development & Technology Review

Velocity of innovation
Transformation of technology & business model
Driving newer product areas to replace legacy
revenue streams
Committed to establishing CenturyLink as a leader in
the new era of IT Services

28

Global Markets

Global Markets Overview

Ross Garrity
Interim President, Global Markets

Global Markets
Business
33,000 Business and
Government customers
Over 6.1M high-speed
Internet subscribers
across our Business and
Consumer Segments
Nearly 250,000 PrismTM
TV customers

31

Small to Large
Businesses both
domestic and
abroad
Local & Federal
Government
Wholesale

Consumer
Single family
homes and multidwelling units
targeting video,
high-speed
Internet, security
products and
voice

Impact of Information Technology

IT Used to

IT Used to

Enable Existing Industries

Microsoft
Intel
IBM
Dell
Oracle
SAP
DEC

1958 -

MICROCHIP
INVENTED

1960

Disrupt Industries

First Half of the

Chess Board

1975

Second Half of the

Chess Board

2000

2016

MOORES LAW STATES THAT EVERY 18 MONTHS, THE NUMBER OF

TRANSISTORS THAT CAN BE PLACED IN A CHIP DOUBLES.
32

Amazon
Uber
Airbnb
Netflix

2025

Enterprise IT Transformation
Enterprise IT Ecosystem
Transformation

33

Upfront Software
Purchase

Per Seat/Use
Purchase

IT Infrastructure
Purchase/Plan

IaaS capability
included

Maintenance
Plan

Maintenance
Included

Connectivity
Plan

Simplified IP
Connectivity

Old Enterprise Software

Deployment Model

New Enterprise Software

Deployment Model

High upfront costs

Low upfront costs

Slow decision making

Decision making velocity

and innovation

Accelerating Business Innovation really Challenges IT

BUSINESS DEMANDS
Need more of everything, faster

34

IT CHALLENGES

Prioritizing budgets, people, systems

100% Uptime

Cost containment

eCommerce

Shorter implementation cycles

Mobile & Social

Compliance

Increased productivity

Complexity

Profitability

Resource acquisition, retention,

skills, and training

Why CenturyLink Business Solutions

Pure Players

Good toolset, but client

remains effectively DIY shop
Requires individual sourcing of
all components needed to
deliver end-to-end solutions
No accountability for end-toend business outcomes

35

CenturyLink

Solution designs using the right

mix of automation and
customization
Extensive breadth of innovative
standard building blocks (cloud,
automation)
Flexible services and outsourcing
arrangements
Managed Services, Security,
Cloud, and Network on a
foundation of owned assets

System Integrators

Labor and Capital integration in

the classic SI model
Focus on very large, complex
solutions

Business Marketing
Shirish Lal
Chief Marketing Officer

CenturyLink is Well-Positioned
Enterprise

(5K+ Employees)

Mid-Market
(500 5K)

Mid-Tier Sis, Vertical ISVs

SMB

(<500)

Point Platform

Mid-Tier Sis,VARs

VARs
SaaS Providers

VARs

Managed Solutions

Outsourced IT

Cloud disrupts the ITO providers, VAR value proposition,

and business model leaving CenturyLink well positioned in Mid-Market and SMB

Third Party Cloud Survey Results

90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

Differentiated
Very Differentiated

Ease of Use

90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

Differentiated
Very Differentiated

Global Networking

80% of surveyed IT organizations rated CenturyLink Clouds Ease of Use as

differentiated or better compared to the competition
82% of surveyed IT organizations rated CenturyLink Clouds Global Network of use
as differentiated or better compared to the competition
CenturyLink Cloud customers reported saving 25% on average for Capital
Expenditures on IT infrastructure and 22% on average for Operating Expenditures
38

*Third party research of CenturyLink customer base

CenturyLink Managed Solutions

MANAGED OFFICE

Complete Big Data Solutions from

Infrastructure Management to Analytics

MANAGED
VOICE

MANAGED HYBRID CLOUD

Remote Infrastructure Management

MANAGED
SECURITY

IP COMMUNICATIONS

COLO

CLOUD IAAS, SAAS

UNIQUE BREADTH OF
NFRASTRUCTURE

NETWORK

SERVICES
SCALE

OPERATIONAL SCALE MANAGING DATA CENTERS, SERVERS, APPLICATIONS, AND NETWORKS

AND HIGHLY EFFICIENT ON-SHORE AND OFF-SHORE MODEL

MANAGED
SERVICES

MANAGED
DATA

Infrastructure Outsourcing to Desktop for

Small/Mid Sized Businesses

PRE-PACKAGED
SOLUTIONS

BIG DATA AS A SERVICE (Cognilytics)

CenturyLink Managed Hybrid Cloud Solutions

Big Data

eCom

ERP

Practice area-based packaged

solutions. Defined app support
with reference architectures.

BCDR

INFRASTRUCTURE, APPLICATION, OS MANAGEMENT

Complete range of On-shore and Off-shore options

Managed
Hosting

Bare
Metal

Migrate from or add to an

existing customer environment
via optimal mix of scaled public
cloud, scaled private cloud, and
customized Managed Hosting.

Public
Cloud

Customization

Manage /Integrate existing

customer environments into
solutions.

Customer
Infrastructure
40

Reduce costs through scaled,

multi-tenant managed services.

Customer

CenturyLink

Business Solutions Focus by Segment

SMB
(<500 employees)

Mid-Market
(500 5K employees)

Global
(5K+ employees)

Low

High

Med/High

Competitive Intensity

High in Telecom
Low/Med in IT

Medium

Very High

CenturyLink Solutions

GPON/MTU
Managed Office

MPLS
Hybrid IT
Managed Services

MPLS
Hybrid IT
Managed Services

Grow distribution and

leverage speed and
functionality advantage of
GPON & Managed Office

Aggressively target less

competitive Mid-Market
with Hybrid IT solutions
and Managed Services

Win our fair share of

opportunities leveraging
disruption of ITO business

IT Spend per Employee

How CenturyLink
Will Win

41

Business Solutions
Kenny Wyatt
Senior Vice President, Business Solutions

Enhancing Our Go-To-Market to Better Serve

Customers
FROM

TO

Customer
Segments

Multiple
Approaches

Aligned by Buyer Behavior

Highly targeted value propositions
Focused verticals

Channel
Alignment

Aligned
By Product

Aligned by Customer Segment

Single Sales Pro to Customer
Solution Specialists to cross portfolio

Sales
Posture
Arming
Sales Pros

Retention Centric
Limited Hunting
Ad-Hoc Tools /
Training

Prospecting
CXO level selling challenger
Selling through alliances
Tools to enable single call close
University-style certifications
Strong coaching culture

Appealing to Changing Buyer Behaviors

Provider B

Colo /
Infrastructure

Provider C

Colo /
Infrastructure

Network

Provider D

Network

Customer
Assembles/
Manages
Environment

Cloud/
Managed

Managed Office

Cloud/
Managed

IT
Services

Application Development /
Deployment

Provider A

Big Data

IT
Services

Traditional Posture on Capital Purchase

Customer accountable for coordinating
End-to-End Service delivery
Agility limited to internal processes
44

Hybrid IT
Security / Business Continuity
& Disaster Recovery

Selective Outsourcing

Optimized by Segment
Provider accountability for End-to-End Service
Level Agreement
Agile / Tech refresh at scale

Businesses of all Sizes Trust CenturyLink to

Manage IT needs
Customer

45

Business Problem

Service(s) Provided by CenturyLink

G500 Beverage
Company

Need a more competitive

cost structure for maintaining
global eCommerce Platform

Aerospace
Manufacturer

Need a quicker path to

market for my commercial
maintenance applications

Network

Financial
Services

As I spin off, need to rethink

my internal IT

IT
Services

<50 Person
Law Firm

I run a law firm and dont

want to even think about my
IT infrastructure

IT Services

Global
Colocation

Cloud

Network

Managed
Infrastructure

Security /
Disaster
Recovery

Managed
Compute
/ Storage

Now
Bidding
Big Data

DB and
Middleware
Apps

Managed Office: Applications, Storage,

Security, Network, Voice priced per seat

CenturyLink Business Value Proposition

With a comprehensive services approach

from access to applications and the ability
to orchestrate across public, private and
remote infrastructures, CenturyLink is
uniquely positioned to support an enterprise's
migration to Hybrid IT.

46

Consumer Marketing
Shirish Lal
Chief Marketing Officer

Consumer Strategy
High Value
Focus
Set up Future
Growth

Invest in HSI speeds through bonding, vectoring, FTTP, smart build

approach

Marcom
Optimization

Differentiate CenturyLink messaging through focus on simplicity

Customer
Focus

48

Optimize investment and marketing mix based for highest value

customers

Leverage PRISM and Value Added Products to drive ARPU growth

Shift focus to more efficient digital advertising/channels

Apply differentiated product design, service delivery and customer

experience by customer behavioral segment

Network and Prism Investment Drives Penetration

and Revenue Growth
Sales per 1000 HHs

ARPU

Sales

1.5x

DSL

1.5x

FTTN

FTTP

Incremental 10% Bump From Fiber Halo

160
140
120
100
80
60
40
20
0

Consumer
Average

PRISM Consumer

Optimization of Approach
Direct Response

Mass Media
Clear message delivered in a warm/friendly tone

Maintain aggressive price driven narrative

Digital Advertising
Shifting focus and spend to online opportunities

50

Aligning Offerings
SubSegment
Millennial/
MDU

51

Product Offering

CenturyLink On
and OTT

Customer Experience

Key Differentiation

Online ordering and

customer service

Products they want

offered in the
environment where
they want to interact
and purchase
Business optimized
product suite and
service level for their
home office

Home
Office

Managed Home
Office

High tech product suite

with business support

High
Income
Family

GPON/Prism/
Smart Home
Bundle

Best in class technology

configured to meet their
needs

Bundles configured to
deliver the products
they want and the
service they expect

Low
Tenure

Pure Broadband

Low touch engagement

with online ordering

Internet delivered without

hassle

Global Operations & Shared Services

Maxine Moreau
Executive Vice President, Global Operations & Shared Services

Areas of Responsibility
End-to-end post-sales operational support

End-to-end planning,
engineering, construction and
management of global network
and hosting data centers

Global network and data center

operations, service delivery and
service assurance

Managed services: office,

network (data/voice), hosting,
remote infrastructure
management and security

53

Shared services support of real

estate, fleet, environmental
health & safety and disaster
recovery

Enable world-class network and data centers

to support revenue growth
Support customer sales of solutions that rely
on the quality, reliability and security of our
network and data center platforms
Support product roadmap and operationalize
evolving technology
Provide local and national field technician
expertise

CenturyLink Offers
A comprehensive data networking portfolio
including MPLS, Ethernet, Wavelength and
VoIP services that delivers
Best-in-class connectivity across our owned
and operated Tier 1 global network that is
Seamlessly integrated with our industryleading cloud and hosting infrastructure
Backed by our award-winning commitment to
working with our customers.
54

CenturyLinks Global Network

250,000+ miles of owned and operated fiber across U.S. plus 300,000+
miles of owned or leased international transport network

Enterprise network services in 85 countries

Connected into our 58 global data centers plus another 200+ third-party U.S.
data centers

21,500+ fiber-fed buildings domestically

Scalable bandwidth of up to 100 Gbps with 99.999% documented uptime
transporting more than 100 trillion bits of data per second
Among top three North American telecom providers and leading
MPLS/Ethernet provider

55

CenturyLink Network + Data Centers International

Own or lease over 300,000 international transport miles
Connected to 11 international data centers (EMEA and Asia)

DATA CENTERS
56

Network Enablement
1st Quarter 2013

57

1st Quarter 2015

<5K

Fiber to the Premise Addressable businesses

390K

<50K

Fiber to the Premise Addressable homes

360K

33%

Addressable units capable of 20 Mbps+

56%

15%

Addressable units capable of 40 Mbps+

27%

1.2M

PrismTM TV Addressable homes

2.4M

16K

Fiber Enabled Wireless Towers

22K

Integrated Platform Enablement

Data Centers
#2 North American data center provider1
58 data centers globally
1.5+ million square feet sellable floor space
24/7 operations, security and support
100% uptime SLA

Managed Hosting
#5 North American managed hosting provider2
End to end management of IT security, infrastructure, applications
More than 30,000 servers under management
26 PB (petabytes) of storage
Highly efficient on-shore and off-shore model

Cloud
Recognized leader in key industry reports
Public | Private | Hybrid
58

1
2

Source: 451 Research

Source: Synergy Research

12 global deployments

Operational Excellence
Increase capacity at reduced cost per bit

Focus on operational efficiency

Improve customer experience
Align costs with revenue

Continued investment in automation and

customer self-service
Continued investment in system
consolidation
Improve service delivery
Meet/exceed network/platform availability
targets
Evolve network infrastructure to work
seamlessly with cloud infrastructure

59

Network Quality/Reliability
99.999% Availability
Recipient of the 2015 FTTXcellence Award
Recipient of five Wholesale Provider Excellence Awards
from Atlantic-ACM
TL 9000 certification
#1 provider of Managed Trusted Internet Protocol Service
(MTIPS)

60

Data Center/Hosting Quality

Brill Award for Efficient IT
Industry-recognized practices (ITIL - Information
Technology Infrastructure Library)
Uptime Tier III certification

61

Global Operations & Shared Services Review

Robust domestic and international network
Extensive global data center footprint
Focus on operational excellence in service delivery
and support
Align cost structure with revenue

62

Finance
Stewart Ewing
Executive Vice President & Chief Financial Officer

Key Financial Objectives

Top-line revenue stabilization/growth
Cost alignment with revenue trends
Capital investment with return-based and
disciplined approach
Long-term shareholder value

64

Revenue Trend
Revenue declined 0.4% for full-year 2014 versus 5.6% for
pro-forma full-year 2010
Strategic growth initiatives and reducing the rate of legacy
revenue decline have driven improved trend

Annual Revenue Decline

Pro forma Pro forma Pro forma
2009-2010 2010-2011 2011-2012 2012-2013 2013-2014

Analyst
Average
2014-2015

0.0%
(0.4%)

-1.0%

(0.9%)

-2.0%

(1.7%)

-3.0%
-4.0%

(3.8%)

-5.0%

65

-6.0%

(5.6%)

(1.5%)

Uses of Operating Cash Flow1

$1.5
$3.0
$1.3
$1.2

Capital expenditures
Dividends
Cash Interest
Other

Capital expenditures

66

2014 figures

Dividends

Cash Interest

Other

Share repurchase
Cash taxes
Reduce debt

Capital Expenditures1

18%

$3.0 B

54%

24%

67

Revenue Enablement & Success-based

Maintenance

Capacity Investment

All other

2014 figures

Bottoms-up capital
allocation process
Sufficient capital budget to
meet growing demands
Expect similar capital
expenditure level in 2015

5%

Analyst Projected Dividend Coverage

100%

Estimated FCF (Column)

$2,500

80%

$2,000

60%

$1,500
40%

$1,000

20%

$500
$-

2015

Analyst Estimates 1
($ millions)
Free Cash Flow 2

2017

2015

2018

2016

0%

2017

2018

$2,559

$1,365

$1,727

$1,738

1,207

1,190

1,182

1,181

Dividend Payout Ratio (with deferral) 4

47%

87%

68%

68%

Dividend Payout Ratio (without deferral) 5

53%

71%

68%

68%

Cash Dividends Paid 3

Analyst estimates derived from financial models received from 12 sell-side analysts as of June 1, 2015
cash flow is defined as operating cash flow less cash paid for taxes, interest, and capital expenditures, along with other income (CTL-defined)
3 Cash dividends calculated as weighted average shares outstanding from analyst models multiplied by $2.16 per share current annual dividend rate
4 Dividend payout ratio calculated as projected cash dividends (assuming current rates) divided by projected free cash flow including deferral of $300 million from
2015 to 2016.
5 Dividend payout ratio calculated as projected cash dividends (assuming current rates) divided by projected free cash flow excluding deferral of $300 million from
2015 to 2016.
1

2 Free

68

2016

Dividend Payout Ratio (Line)

$3,000

Liability Management
Debt Maturities

Qwest Corp

1,600

All Other

1,400

$ millions

1,200

3.50x
3.00x

1,000

Leverage1
2.91x

2.90x

2014

1Q15

2.50x

800
600

2.00x

400
1.50x

200
-

2015

2016

2017

2018

2019

2020

1.00x

Upcoming debt maturities are manageable

Actions over the past few years have extended our weighted average maturity curve to
approximately 15 years with average coupon of 6.658%
$7.4 billion, or 36% of total debt, held at Qwest Corporation level which currently holds
Investment Grade rating; $3.4 billion in long-dated retail bonds with maturity of 2051 and beyond
1

69

Leverage ratio calculated as net debt divided by trailing twelve months operating cash flow.

Summary of CAF II
Eligible to receive up to $514 million of annual pre-tax
funding
Build-out requirements include:
Target build-out speed of 10 Mbps downstream / 1 Mbps upstream
No less than 7 years of funding
Designed to reach approximately 1.2 million living units

Currently analyzing our cost to build to these rural high-cost

markets
Continue to evaluate accounting treatment for funds
Plan to announce participation level in third quarter
70

Financial Review1
Investing to drive long-term growth and
shareholder value
Maintaining strong balance sheet
Continuing to support dividend payouts and
current share repurchase program

71

For additional information, see our periodic reports filed with the U.S. Securities and Exchange Commission

Q&A

Closing Remarks
Glen Post
Chief Executive Officer & President