Embarq (EQ)

Operations

We provide, both directly and through wholesale and sales agency relationships, a suite of communications services, consisting of local and long distance voice, data, high-speed Internet, wireless, satellite video and other communications-related products and services to consumer and business customers in our local service territories in 18 states. We also provide access to our local network and wholesale communications services for other carriers. Through our Logistics segment, we engage in wholesale product distribution, logistics and configuration services.

Our consumer and business strategy is to maximize profitable communications services revenue per customer by providing bundled and integrated voice, data, wireless and video products and services that meet the needs of our consumer and business customers within our local territories. This strategy has four key elements: 1) provide useful products and solutions to attract and retain customers by marketing integrated service offerings, 2) improve the customer experience and perception of service and product offerings, 3) manage our costs and 4) maintain a customer focused culture that promotes high performance and employee satisfaction.

Our wholesale business strategy is structured around increasing the utilization and achieved return of our core network investment by providing a full set of wholesale services to other carriers and wireless providers. Services offered include switched access, special access, intelligent network database, collocation, resale, unbundled network element platforms, high speed data services and billing and collection services. In addition, we offer public pay telephone services along with services to inmates in numerous correctional institutions both inside and outside our traditional local service territories.

For several years, including the current year, we have experienced declines in the number of switched access lines served in our local service territories primarily due to:

For the twelve months ended September 30, 2007, switched access lines declined by 433 thousand, or 6.2%. For the nine months ended September 30, 2007, we have lost 343 thousand access lines compared to 361 thousand access line losses or the same period a year ago.

Growth in high-speed Internet has continued to help offset the impact of traditional access line losses. At September 30, 2007, we had a 30% increase in high-speed Internet subscribers as compared to the same period in 2006. Simplified and more attractive offers, including fixed monthly pricing guaranteed not to increase for as long as the customer has the same service offering, have been successful.

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In the second quarter of 2006, we launched EMBARQ™ branded wireless service. As of September 30, 2007, we had 108 thousand wireless subscribers, compared to 24 thousand a year ago. We provide this service as a mobile virtual network operator via our relationship with Sprint Nextel. We have differentiated and plan to further differentiate our wireless service offering by integrating our wireline voice and data services with the wireless service, which in turn, complements and enhances the value of our core local service offerings. The launch of our wireless service has been and is expected to continue to be dilutive to our results of operations due to up-front customer acquisition costs as well as the absence of a substantial customer base generating a level of recurring revenue sufficient to cover such costs.

Video service is also a key element to our bundled offers. We currently offer video and pay per view service through sales agency relationships. These service offerings round out our lineup of communications and entertainment services. As of September 30, 2007, we had 190 thousand video service subscribers, compared to 146 thousand as of September 30, 2006.

Operations

We provide, both directly and through wholesale and sales agency relationships, a suite of communications services, consisting of local and long distance voice services, data services, high-speed Internet access, wireless services and satellite video services to consumer and business customers in our local service territories in 18 states. Through our Telecommunications segment, we offer regulated local communications services as an incumbent local exchange carrier to roughly 5% of U.S. households, with approximately 6.7 million access lines, as of June 30, 2007. We also provide access to our local network and wholesale communications services for other carriers, communications equipment for business markets and other communications-related services. Through our Logistics segment, we engage in wholesale product distribution, logistics and configuration services.

Our consumer and business strategy is to maximize profitable communications services revenue per customer by providing bundled and integrated voice, data, wireless and video products and services that meet the needs of our consumer and business customers within our local territories. This strategy has four key elements: 1) provide useful products and solutions to attract and retain customers by marketing integrated service offerings, 2) improve the customer experience and perception of service and product offerings, 3) manage our costs and 4) maintain a customer focused culture that promotes high performance and employee satisfaction.

Our wholesale business strategy is structured around increasing the utilization and achieved return of our core network investment by providing a full set of wholesale services to other carriers and wireless providers. Services offered include switched access, special access, intelligent network database, collocation, resale, unbundled network element platforms, high speed data services and billing and collection services. In addition, we offer public pay telephone services along with services to inmates in numerous correctional institutions both inside and outside our traditional local service territories.

For several years, including the current year, we have experienced declines in the number of switched access lines served in our local service territories primarily due to:

Year over year, switched access lines declined 6.0% as compared to the same period in 2006. We lost 146,000 access lines in the second quarter of 2007, which were 5,000 less than in the second quarter 2006. We expect that the total number of line losses in 2007 will be flat to slightly lower than 2006.

Growth in high-speed Internet has continued to help offset the impact of traditional access line losses. At June 30, 2007, we had a 36% increase in high-speed Internet subscribers as compared to the same period in 2006. Simplified and more attractive offers including fixed monthly pricing guaranteed not to increase for as long as the customer has the same service offering, have been successful.

In the second quarter of 2006, we launched EMBARQ™ branded wireless service. As of June 30, 2007, we had 89 thousand wireless subscribers. We provide this service as a mobile virtual network operator via our relationship with Sprint Nextel. We have differentiated and plan to further differentiate our wireless service offering by integrating our wireline voice and data services with the wireless service, which in turn, complements and enhances the value of our core local service offerings. For example, we offer EMBARQ^TM One Voicemail, which allows consumers to access messages with either their home landline phone or wireless phone from a single mailbox from either device. Additionally, EMBARQ^TM Smart Connect^SM

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allows business customers’ calls to move seamlessly between our wireless and wireline networks without interrupting those calls. This service provides business customers with greater accessibility, helps reduce wireless costs and improves coverage and call quality. The launch of our wireless service has been and is expected to continue to be initially dilutive to our results of operations due to up-front customer acquisition costs as well as the absence of a substantial customer base generating a level of recurring revenue sufficient to cover acquisition costs.

Video service is also a key element to our bundled offers. We currently offer video and pay per view service through a sales agency relationship with Echostar. This service offering rounds out our lineup of consumer communications and entertainment services. As of June 30, 2007, we had 178 thousand video service subscribers, compared to 131 thousand as of June 30, 2006.

Operations

We provide, both directly and through wholesale and sales agency relationships, a suite of communications services, consisting of local and long distance voice and data services, high-speed Internet access, wireless services and satellite video services to consumer and business customers in our local service territories in 18 states. Through our Telecommunications segment, we offer regulated local communications services as an incumbent local exchange carrier to roughly 5% of U.S. households, with approximately 6.8 million access lines, as of March 31, 2007. We also provide access to our local network and wholesale communications services for other carriers, communications equipment for business markets and other communications-related services. Through our Logistics segment, we provide wholesale product distribution, logistics and configuration services.

Our consumer and business strategy is to maximize profitable communications services revenue per customer by providing bundled and integrated voice, data, wireless and video products and services that meet the needs of our consumer and business customers within our local territories. This strategy has four key elements: 1) provide useful products and solutions to attract and retain customers by marketing integrated service offerings, 2) improve the customer experience and perception of service and product offerings, 3) manage our costs and 4) maintain a customer focused culture that promotes high performance and employee satisfaction.

Our wholesale business strategy is structured around increasing the utilization and achieved return of our core network investment by providing a full set of wholesale services to other carriers and wireless providers. Services offered include switched access, special access, intelligent network database, collocation, resale, unbundled network element platforms, high speed data services and billing and collection services. In addition, we offer public pay telephone services at some 23,000 locations along with services to inmates in numerous correctional institutions both inside and outside our traditional eighteen state service area.

For several years, including the current year, we have experienced declines in the number of switched access lines served in our local service territories primarily due to:

Switched access lines at March 31, 2007, declined 5.9% compared to the same period in 2006. We lost 71,000 access lines in the first quarter of 2007, which is net of a 7,000 line increase associated with the addition of a large business customer. The decline of 71,000 lines is an improvement of 15,000 lines from a year ago when we lost 86,000 lines and sold an additional 5,000 lines. Looking forward, we expect to experience continued declines. We believe that the percentage of access line losses will accelerate slightly in 2007; however, we expect that the total number of line losses in 2007 compared to 2006 will be flat to slightly lower.

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Growth in high-speed Internet has continued to help offset the impact of traditional access line losses. At March 31, 2007, we had a 42.1% increase in high-speed Internet subscribers as compared to the same period in 2006. Simplified and more attractive offers including fixed monthly pricing guaranteed not to increase for as long as the customer has the same service offering, have been successful.

In the 2006 second quarter, we launched EMBARQ™ branded wireless service. We provide this service as a mobile virtual network operator via our relationship with Sprint Nextel. We have differentiated and plan to further differentiate our wireless service offering by integrating our wireline voice and data services with the wireless service, which in turn, complements and enhances the value of our core local service offerings. For example, we offer EMBARQ^TM One Voicemail, which allows consumers to access messages with either their home landline phone or wireless phone from a single mailbox from either device. Additionally, EMBARQ^TM Smart Connect^SM allows business customers’ calls to move seamlessly between our wireless and wireline networks without interrupting those calls. This service provides business customers with greater accessibility, helps reduce wireless costs and improves coverage and call quality. The launch of our wireless service has been and is expected to continue to be initially dilutive to our results of operations due to up-front customer acquisition costs as well as the absence of a substantial customer base generating a level of recurring revenue sufficient to cover acquisition costs. As of March 31, 2007, we had 71 thousand wireless subscribers.

Video service is also a key element to our bundled offers. We currently offer video and pay per view service through a sales agency relationship with Echostar. This service offering rounds out our lineup of communications and entertainment services, all of which is billed by us to the customer on a single bill. As of March 31, 2007, we had 170 thousand video service subscribers, compared to 109 thousand as of March 31, 2006.

Operations

We provide, both directly and through wholesale and sales agency relationships, a suite of communications services, consisting of local and long distance voice and data services, high-speed Internet access, CDMA-based wireless and satellite video services to consumer and business customers in our local service territories in 18 states. Through our Telecommunications segment, we offer regulated local communications services as an ILEC to roughly 5% of U.S. households, with approximately 6.9 million access lines, as of December 31, 2006. We also provide access to our local network and wholesale communications services for other carriers, communications equipment for business markets and other communications-related services. Through our Logistics segment, we provide wholesale product distribution, logistics and configuration services.

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Our core business strategy is to maximize profitable communications services revenue per customer by providing bundled and integrated voice, data, wireless and video products and services that meet the needs of our consumer and business customers within our local territories. This strategy has four key elements: 1) Provide useful products and solutions to attract and retain customers by marketing integrated service offerings, 2) Improve the customer experience and perception of service and product offerings, 3) Manage our costs and 4) Maintain a customer focused culture that promotes high performance and employee satisfaction.

For several years, including the current year, we have experienced declines in the number of switched access lines served in our local service territories primarily due to:

Switched access lines declined 6.1% in 2006 and looking forward, we expect to experience continued declines. We believe that the percentage of access line losses will accelerate slightly in 2007 as competing VoIP carriers continue to add coverage in our territories.

Growth in high-speed Internet has continued to help offset the impact of traditional access line losses. We reached the milestone of over one million subscribers as of December 31, 2006, a 47% increase from the year end 2005. Simplified and more attractive offers including fixed pricing guaranteed never to increase for as long as the customer has the service have been very successful.

In the 2006 second quarter, we launched our own company-branded wireless service. We provide this service as a MVNO via our relationship with Sprint Nextel. We have differentiated and plan to further differentiate our wireless service offering by integrating our wireline voice and data services with the wireless service, which in turn, complements and enhances the value of our core local service offerings. For example, we offer integrated voicemail, which allows consumers to access messages with either their home landline phone or wireless phone from a single mailbox from either device. Additionally, EMBARQ^™ Smart Connect^SM allows businesses to move calls seamlessly between their wireless and wireline networks, all without interrupting a call. This service enables businesses to be more accessible, helps reduce wireless costs and improves coverage and call quality. The launch of our wireless service is expected to be initially dilutive to our results of operations due to up-front customer acquisition costs as well as the absence of a substantial customer base generating a level of recurring revenue sufficient to cover acquisition costs. We ended 2006 with 48 thousand wireless subscribers.

Video service is also a key element to our bundled offers. We currently offer video and pay per view service through a sales agency relationship with Echostar. This service offering rounds out our complete lineup of communications and entertainment services, all of which is billed by us to the customer on a single bill. Video service subscribers nearly doubled in 2006, increasing from 87 thousand to 162 thousand subscribers.

Operations

Our operations consist primarily of regulated local phone companies operating in 18 states. We provide, both directly and through wholesale and sales agency relationships, local voice and data services, high-speed Internet, nationwide long-distance, satellite video services and wireless services to customers within our local service territories. We also provide access to our local network, other wholesale communications services to other carriers and sell communications equipment and other services to residential and business customers. Through our Logistics segment we engage in wholesale distribution of communications products and other services.

For several years, including the current quarter and year to date periods, we have experienced declines in the number of switched access lines served in our local service territories primarily due to:

We expect to experience continued declines in the number of switched access lines.

Our strategy to address these challenges is to maximize profitable communications services revenue per customer by providing bundled and integrated voice, data, wireless and video products and services that meet the needs of our consumer and business customers within our local territories. Our strategy also includes the sale of excess network capacity on a wholesale basis to carriers operating within our local territories to maximize our return on invested capital.

Our strategy also includes the launch of our company-branded wireless service as a mobile virtual network operator (MVNO) via our resale relationship with Sprint Nextel, which we began offering in the 2006 second quarter. We intend to integrate our wireline voice and data services with the wireless service in order to complement and enhance the value of our core offerings. The launch of wireless service is expected to be initially dilutive to our results of operations due to up-front customer acquisition costs as well as the absence of a substantial customer base generating a level of recurring revenue sufficient to cover acquisition costs.

Operations

Our operations consist mainly of regulated local phone companies operating in 18 states. We provide, both directly and through sales agency relationships, local voice and data services, including high-speed Internet services and nationwide long distance, satellite video services and wireless services to customers within our local service territories. We also provide access to our local network and other wholesale communications services to other carriers, sales of communications equipment and other services to residential and business customers. Through our Product Distribution segment we engage in wholesale distribution of communications products and other services.

For several years, including the current quarter and year to date periods, we have experienced declines in the number of access lines served in our local service territories primarily due to:

We expect to experience increased levels of access line losses in 2006.

Our strategy to address these challenges is to maximize profitable communications services revenue per customer by providing bundled and integrated voice, data, wireless and video products and services that meet the needs of our consumer and business customers within our local territories. Our strategy also includes the sale of excess network capacity on a wholesale basis to carriers operating within our local territories to maximize our return on invested capital.

Our strategy also includes the launch of our company-branded wireless service as a mobile virtual network operator (MVNO) via our resale relationship with Sprint Nextel, which we began offering in the 2006 second quarter. We intend to integrate our wireline voice and data services with the wireless service in order to complement and enhance the value of our core offerings. The launch of wireless service is expected to be initially dilutive to our results of operations due to up-front customer acquisition costs as well as the absence of a substantial customer base generating a level of recurring revenue sufficient to cover acquisition costs.

Operations

Our operations consist mainly of regulated local phone companies operating in 18 states. We provide local voice and data services, including high-speed Internet services, to customers within our local service territories. We also provide access to our local network and other wholesale communications services for other carriers, sales of communications equipment and other services to residential and business customers.

For several years, we have experienced declines in the number of access lines served in our local service territories due to:

We expect to experience increased levels of access line losses in 2006.

The local communications business experiences a degree of seasonality in access line losses with declines typically lower in the first quarter of each year and higher during the second quarter. These trends are largely attributable to customer movement to and from our Florida territories.

Our strategy to overcome these challenges is to maximize profitable communications services revenue per customer by providing bundled and integrated products and services that meet the needs of our consumers and business and wholesale customers within our local territories. We believe that our strengths, which included our customer relationships, our reliable network, our product and service expertise and our ability to offer customers a wide array of bundled products and services, will enable us to achieve our goals.

Our strategy also includes the launch in June 2006 of our company branded wireless service as a mobile virtual network operator (MVNO), via our relationship with Sprint Nextel. We intend to integrate our wireline voice and data services with the new wireless service, in order to complement and enhance the value of our core offerings.

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The launch of wireless service is expected to be initially dilutive to our results of operations due to up-front customer acquisition costs as well as the absence of a substantial customer base that would provide economies of scale.