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Article by DailyStocks_admin    (11-26-08 06:50 AM)

Time Warner Telecom Inc. CEO LARISSA HERDA bought 45000 shares on 11-19-2008 at $6.42

BUSINESS OVERVIEW

Overview

Time Warner Telecom Inc. (the “Company”) is a leading national provider of managed network services, specializing in Ethernet and transport data networking, Internet access, local and long distance voice, voice over Internet protocol (“VoIP”) and network security services to enterprise organizations and communications services companies throughout the U.S. Our customers include, among others, enterprise organizations in the distribution, health care, finance, and manufacturing industries, state, local and federal government entities, and long distance carriers, incumbent local exchange carriers (“ILECs”), competitive local exchange carriers (“CLECs”), wireless communications companies, and Internet service providers (“ISPs”). Through our subsidiaries, we operate in 75 U.S. metropolitan markets. As of December 31, 2007, our fiber networks covered 25,753 route miles, directly connecting 8,355 buildings served entirely by our facilities (“on-net”). We continue to expand our footprint within our existing markets by connecting our network into additional buildings. We substantially expanded our footprint in 2006 through the acquisition of Xspedius Communications, LLC (“Xspedius”), which added network in 31 additional metropolitan markets. We also have continued to expand our Internet Protocol, or “IP”, backbone data networking capability between markets supporting end-to-end Ethernet and Virtual Private Network (“VPN”) connections for customers, and have selectively interconnected existing service areas within regional clusters with fiber optic facilities that we own or lease. In addition, we provide inter-city switched services between our markets that offer our customers a virtual presence in a remote city.

From our formation until September 26, 2006, we had two classes of common stock outstanding, Class A common stock with one vote per share and Class B common stock with ten votes per share. Each share of Class B common stock was convertible, at the option of the holder, into one share of Class A common stock. The Class B common stock was collectively owned directly or indirectly by Time Warner Inc. (“Time Warner”), Advance Telecom Holdings Corporation and Newhouse Telecom Holdings Corporation, (“Advance/Newhouse”) (collectively, the “Class B Stockholders”). On March 29, 2006 and September 26, 2006, the Class B Stockholders completed underwritten offerings of 22.3 million shares and 43.5 million shares, respectively, of our Class A common stock, which were converted from shares of Class B common stock to shares of Class A common stock immediately prior to the offerings. In connection with the closing of the September 26, 2006 offering, Advance/Newhouse converted all of its remaining shares of Class B common stock that were not sold in the offering to shares of Class A common stock. As a result, we have not had shares of Class B common stock outstanding since September 26, 2006. We did not receive any proceeds from the offerings nor did our total shares outstanding change as a result of the offerings. In June 2007, our stockholders approved an amendment to our Restated Certificate of Incorporation, which eliminated references to Class A and Class B common stock. As a result, no shares of Class B common stock were authorized as of December 31, 2007 and Class A common stock authorized and outstanding as of December 31, 2006 is classified as common stock.

We were organized as a Delaware limited liability company in 1998 and converted to a Delaware corporation in 1999. Our principal executive offices are located at 10475 Park Meadows Drive, Littleton, Colorado 80124, and our telephone number is (303) 566-1000. Our Internet address is http://www.twtelecom.com. The information contained on our website is not part of, nor is it incorporated by reference into, this Annual Report on Form 10-K. We make available free of charge through our website our Annual Report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission. In addition, we have posted, and intend to disclose on our website any amendments to or waivers from, our Code of Ethics applicable to our principal executive officer, principal financial officer, chief accounting officer, controller and treasurer and other persons performing similar functions within five business days following the date of such amendment or waiver.

On October 31, 2006, we acquired Xspedius through a merger with our wholly owned subsidiary in which we ultimately paid $211.5 million in cash, after giving effect to resolution of a $4.5 million working capital adjustment, and issued 18.2 million shares of our common stock to the members of Xspedius. Xspedius was a facilities-based provider of integrated communications services primarily to enterprise businesses and carriers. Xspedius provided a comprehensive suite of high quality services, including metro Ethernet, local and long distance voice, data and dedicated Internet access services, in 43 markets (including 12 markets that we already served) across 19 states and the District of Columbia. The acquisition increased the number of markets we serve from 44 to 75, and further expands our network reach and market density for serving multi-city and multi-location enterprise customers. We have and expect to continue to realize cost synergies and efficiencies by integrating Xspedius’ operations with ours. We have made substantial progress toward the integration of the acquired operations with ours as of December 31, 2007. The remaining integration work will consist primarily of network optimization and grooming to reduce the volume and costs of off-network services in the acquired operations, network enhancements and equipment to enable the deployment of our advanced services in certain additional acquired markets, and process refinement to optimize the integrated systems and organization (see Item 1A “Risk Factors — We may not realize all of the anticipated benefits from the Xspedius acquisition”).

Business Strategy

Our primary objective is to be the leading provider of high quality managed data and telecommunications services in each of our service areas, on a national basis, principally utilizing our fiber facilities and our national multipurpose IP backbone network to offer high value voice, data, Internet, and dedicated services to become the carrier of choice for business enterprises, governmental agencies, and other carriers. By delivering to our customers a suite of scalable and integrated network solutions, we can meet the specific network management needs of those customers, location by location across the United States, and create efficiencies for the customer through the management of their disparate networks and services. The key elements of our business strategy include the following:

Leverage Existing Fiber Networks. We have built, licensed or acquired local and regional fiber networks to serve metropolitan geographic locations where management believes there are large numbers of potential customers. Our network architecture reflects a convergence of:


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Private line services — for dedicated high bandwidth metropolitan connectivity scalable to 10 gigabits per second (“Gbps”);


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Traditional circuit switched (primarily using Time Division Multiplexing or “TDM”) technology, as used in the traditional public switched telephone network (“PSTN”);


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IP technology with high availability, quality of service, redundancy and diversity maintained throughout the network; and


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Ethernet technology for scalable metropolitan and inter-city data network connectivity up to 10 Gbps.

We provide multi-site and -city solutions through our fully managed, nationwide IP backbone network with capacity ranging up to 10 Gbps on any particular link, depending on the specific route. We believe that our extensive network expertise and capacity allows us to:


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emphasize our fiber facilities-based services integrated with the IP backbone, which allows us to realize higher gross margins than carriers that do not operate their own fiber facilities;


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focus on metro areas with a national reach, providing multi-locational and multi-city end-to-end solutions;


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provide a truly diverse network and choice to customers seeking further network diversity after the reduction of choice as a result of consolidation among wireline carriers; and


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design and deliver scalable and efficient solutions that allow our customers’ business applications to operate more effectively in their network environment.

Pursue Selected Opportunities to Expand Our Network Reach. As local market opportunities grow, we continue to extend our network in our present markets in order to reach additional office buildings and business parks directly with our fiber facilities. In 2007, we extended our fiber network by approximately 1,100 route miles and into approximately 900 additional buildings in our markets. In addition, we have deployed technologies such as dense wave division multiplexing (“DWDM”) to provide additional bandwidth and higher speed without the need to add additional fiber capacity. We may expand our networks into additional markets beyond the 75 markets in which we already operate if we find attractive opportunities to do so organically or through acquisitions. We also provide services to locations outside our current market areas through our IP backbone and the use of leased facilities.

Focus Our Service Offerings on Meeting the Sophisticated Data Needs of Our Customers. We continue to place significant focus on serving the growing demand for high-speed, high-quality enhanced data networking services such as our Ethernet and IP business-to-business VPN services, our Internet-based services, and converged voice and data bundles. Our suite of Ethernet services are the foundation for customer networks, which provide multipoint connectivity for customers within and between given metropolitan areas. To further expand our multi-site and multi-city capabilities, in 2007, we:


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Enhanced our IP VPN service offering to include Class of Service functionality allowing our customers the ability to prioritize and differentiate various traffic types (e.g. voice vs. Internet), thereby managing mission critical business applications across the network more effectively, and


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Continued to design more flexible and integrated solutions delivering VPN services across the enterprise network, combined with scalable fiber based Ethernet connectivity at high volume locations, including Internet access, for a total solution.

We also provide a broad range of switched voice services throughout our service area. We utilize high-capacity digital end office switches that enable us to offer both local and toll services to our customers. Further, we have deployed digital switching equipment that uses packet access capability to combine Internet access in a bundle with voice and enable a dynamic bandwidth allocation feature which allows the customer to increase its use of voice or Internet bandwidth on demand, based upon its telecommunications usage and needs. Our customers can utilize our carrier grade VoIP network and product suite without costly upgrades to their voice premise equipment. This approach also enables multi-location organizations to experience a consistent user experience regardless of the equipment they maintain at each location and enables a variety of voice applications inside the network.

VoIP network elements are collectively smaller and more cost effective than traditional PSTN end office switches. Our local voice markets are interconnected using a private, VoIP enabled, IP backbone. This network allows us to manage all site-to-site, or “on-net” calls, between customer locations, which reduces our costs. In addition, the distributed voice/VoIP architecture supports complex disaster recovery services for customers with mission critical voice requirements.

Continue to Diversify Our Customer Base. Our sales strategy targets business enterprises and government entities as well as other carriers. We have sought to broaden our revenue base through an increased focus on enterprise customers and government customers, while continuing to focus on select national and regional carriers. To achieve revenue growth from end user customers, we target potential new and existing enterprise customers utilizing both local market and national sales groups. We have expanded our sales force with hires strategically targeted at particular customer segments. We are also expanding the types of services we offer to our carrier customers in order to create new revenue opportunities from that customer base.

Continue Disciplined Expenditure Program. Our approach for adding customers is designed to maximize revenue growth while maintaining attractive rates of return on capital invested to connect customers directly to our networks. Our strategy of primarily using our fiber facilities-based services, rather than reselling network capacity of other providers, requires that we make significant capital investments to reach some new customers.

We invest selectively in growth prospects that often require that we install fiber in buildings, purchase electronics, construct fiber distribution rings, and invest in product expansion. We also seek to increase operating efficiencies by investing selectively in strategic enhancements to our back office and network management systems. We have a disciplined approach to capital and operating expenditures. Our capital expenditure program requires that prior to making expenditures on a project, the project must be evaluated against certain financial criteria such as projected minimum recurring revenue, cash flow margins, and rate of return. Capital expenditures in 2007 were $259.5 million, including investment for the integration of Xspedius of $30.1 million, compared to $192.7 million in 2006. Our success-based capital spending increased to $202.8 million in 2007, or 88% of capital expenditures excluding integration spending for the year, from $168 million, or 87%, in 2006, as a result of our growth. Success-based capital spending consists of short-to-medium term capital expenditures made primarily to enable revenue producing activities, including costs to connect to new customer locations with our fiber network and increase capacity to our networks, IP backbone and central office infrastructure to serve growing customer demands. We expect our capital expenditures in 2008 to be approximately $250 million to $274 million, which we expect will be used to primarily fund growth opportunities, and includes $10 million to $14 million for investments related to the integration of the Xspedius operations and our branding initiative (see “Name and Branding Change”).

Services

We provide our customers with a wide range of telecommunications and managed data services, including network, local and long distance voice services, data transmission services, high-speed dedicated Internet access, and intercarrier services.

Our broad portfolio provides solutions to enterprise customers, ranging from small businesses through Fortune 500 companies, city, state and federal government entities, as well as communications service providers. To reduce the risk in bringing new and untested telecommunications services to a dynamically changing market, we introduce our services once market demand develops after a rigorous development process. The primary service offerings are:

Network Services

We provide a complete range of network access services with transmission speeds up to 10 Gbps to satisfy our customers’ needs for voice, data, image, and video transmission. Each uses technologically advanced fiber optics and is available as:


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Special Access. Dedicated telecommunications lines linking the points of presence (“POPs”) of one or more interexchange carriers (“IXC”), or between enterprise customers and the local POPs of IXCs.


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Private Line. Dedicated telecommunications lines connecting various locations of a customer’s operations, suitable for transmitting voice and data traffic among customer locations.


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Metropolitan and Regional Connectivity. Each transport service is available on our metropolitan fiber networks. Most are also available between cities on our inter-city, regional networks.

Transport Arrangements. Dedicated transport between the local exchange carrier (“LEC”) central offices and the IXC POP for voice and data applications.

These services are available in a wide variety of configurations and capacities:


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SONET Services . Full duplex transmission of digital data on Synchronous Optical Network standards allowing multipoint transmission of voice, data, or video over protected fiber networks. Available capacities include DS-1, DS-3, STS-1, OC-3, OC-12, OC-48, and OC-192.


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Private Network Transport Services. A premium quality, fully redundant, and diversely routed SONET service that is dedicated to the private use of individual customers with multiple locations.


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Wavelength or “Lambda” Services. High capacity, point-to-point transmission services allowing customers to have access to multiple full-bandwidth channels of 2.5 Gbps and 10 Gbps.


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Collocation Services. Secure space, climate and power collocation services where customers locate their equipment to connect to our network in facilities adjacent to our central offices.

Voice Services

Our voice services provide business customers with local and long distance calling capabilities. We own, manage, and maintain the switches used to provide the services. Our voice services include the following:


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Business Access Line Service. This service provides customers with quality analog voice grade telephone lines for use at any time.


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Access Trunks. Access trunks provide communication lines between two switching systems. These trunks, typically DS-1, are utilized by private branch exchange (“PBX”) customers that own and operate a switch on their own premises. PBX customers use these trunks to provide access to the local, regional, and long distance telephone networks.


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IP Trunks. IP Trunks converge voice traffic with Internet traffic over a single connection for a more efficient and scalable access network. This service supports new IP PBX devices, and local and long distance calling to the PSTN.


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Local Toll Service. This service provides customers with a competitive alternative to ILEC service for intraLATA toll calls.


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Local Telephone Service. Local telephone calling areas are widely defined to provide ease of use for our customers. Additional features include operator and directory assistance services, and custom calling features such as call waiting and caller ID.


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Long Distance Service. Long distance service provides the capability for a customer to place a voice call from one local calling area to another, including international calling. We offer long distance services bundled with voice and converged solutions as a packaged value to customers. We also offer usage-based rates for 1+, toll-free 800 with routing capabilities, and dedicated service, as well as package plans for various committed levels of usage.


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Bundled Services. Our bundled offerings enable customers to purchase one to three DS-1 facilities that combine lines, trunks, long distance, and Internet services to provide an integrated service offering. This product can dynamically allocate bandwidth for maximum network efficiency, and eliminates the customer’s need for multiple vendors. An Integrated low-speed Ethernet routing feature is available in multi-site and city configurations. The service provides private data networking capabilities for customers to move data between their locations.


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Other Services. Other services we offer include IP Foreign Exchange, on-demand conferencing, telephone numbers, directory listings, customized calling features, voice messaging, hunting, blocking services, and integrated services digital network or “ISDN.”

We offer our customers a broad array of enhanced data and Internet services that enable them to connect their own internal computer networks and access external computer networks and the Internet at very high speeds using the Ethernet protocol.

We offer the following range of Native LAN or “NLAN” services with speeds up to 10 Gbps:


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NLAN (Point-to-Point). The Point-to-Point NLAN service provides dedicated protected Ethernet transport service between two locations in a metropolitan area at speeds of 10, 100, 600, 1000 megabits per second (“Mbps”), and 10 Gbps.


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NLAN (Point-to-Multipoint). This service is a protected multi-location Ethernet data service connecting multiple customer remote locations back to a single customer Ethernet port located at the main customer site. The available speeds are 10, 100, and 600 Mbps and 1 Gbps.


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Multipoint NLAN. The Multipoint NLAN service provides a dedicated ring of Ethernet bandwidth, allowing the customer to share bandwidth between their multiple Ethernet locations over a metropolitan area. The customer can access the network at speeds of 10, 100, and 600 Mbps and 1 Gbps.


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Customer-Direct NLAN. The Customer-Direct NLAN service is a point-to-point, non-network protected, unmanaged and not monitored, stand-alone service for both 100 Mbps and 1000 Mbps Ethernet connections that offers basic Ethernet connectivity at a lower cost of service.


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Switched NLAN. The switched NLAN service incorporates data Ethernet switching technology into the NLAN product suite. This service allows multiple customer locations to interconnect using various bandwidth increments ranging from 10 Mbps to 1 Gbps interfaces over a shared metropolitan Ethernet infrastructure. This service allows us to compete with frame relay and ATM legacy services.


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Extended NLAN. The extended NLAN service provides Ethernet connectivity between distant locations in the markets we serve through our national IP backbone and is available in either point-to-point or multi-point configurations.


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Integrated NLAN. The integrated NLAN service converges voice and Internet service with an optional Ethernet feature to transfer private data between multiple locations locally or nationally.


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Wholesale NLAN. Metro NLAN services are generally available to wholesale customers. The services include a variety of interconnection options and features that are important to carriers and other service providers.


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Storage Transport Solutions. The service provides links offering a variety of industry-standard protocols including Fiber Channel, ESCON, FICON, and Gigabit Ethernet, allowing customers to avoid protocol translation while securely transporting their data to distant storage locations.


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IP VPN Services. Our IP VPN connects multiple customer sites creating a virtual network for the customer within the U.S. utilizing our own national IP backbone and local metropolitan facilities. Class of Service is available on Premium IP VPN. Connection speeds are from 1.5 Mbps to 1 Gbps.

Internet Services


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Internet Services. Dedicated high capacity Internet service enables customers to access the Internet and other external networks. We offer a wide range of Internet services to our business customers with bandwidth speeds ranging from 1.5 Mbps to 10 Gbps and transported via traditional TDM or Ethernet connectivity. Our traditional TDM-based Internet services are available via industry standard transport facilities: DS-1, DS-3, OC-3, OC-12 and OC-48 connectivity. Our Ethernet Internet services are delivered using Ethernet connections with offerings of Ethernet (10 Mbps), Fast Ethernet (100 Mbps), Gigabit Ethernet (1 Gbps), and 10 Gigabit Ethernet (10 Gbps).

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Managed Security Service. This service uses security devices placed within our network to establish a firewall that prevents unauthorized traffic from entering a customer’s network. We also offer a customer premises equipment-based security solution that resides at the customer’s network perimeter. Both solutions offer a fully managed environment, securing customer networks through firewall and encrypted VPN functionality.

Intercarrier Services

Because we are interconnected with other telecommunications carriers, we provide traffic origination and termination services to other carriers. These services consist of the origination and termination of long distance calls and the termination of local calls.


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Switched Access Service. The connection between a long distance carrier’s POP and an end user’s premises that is provided through the switching facilities of a LEC is referred to as switched access service. Switched access service provides long distance carriers with a switched connection to their customers for the origination and termination of long distance telephone calls or provides large end users with dedicated access to their carrier of choice. Under our tariffs or under agreements with certain long distance carriers, we receive per-minute terminating switched access compensation when our network is used for the origination or termination of the carriers’ traffic.


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Local Traffic Termination Services. Pursuant to interconnection agreements with other carriers, we accept traffic that originates on another LEC’s facilities and carry that traffic over our facilities to our customers in order to complete calls. Generally, under applicable regulations, we are entitled to receive compensation — referred to as “reciprocal compensation” — from the originating LECs for those services.

Telecommunications Networks and Facilities

Overview. We use advanced technologies and network architectures to develop a highly reliable infrastructure for delivering high-speed, quality digital transmissions of voice, data and Internet telecommunications services. Our basic transmission platform consists primarily of optical fiber built in diverse rings for high network availability. We use a variety of electronics that meet the requirements of our customers’ network applications, including SONET, DWDM and Ethernet equipment. These optically enabled rings give us the capability of routing customer traffic in both directions around the ring, thereby eliminating the loss of a service in the event of a fiber cut on a part of the ring. We have an advanced IP backbone using redundant core and edge routers to deliver Internet traffic to our customers. We have also added network based Ethernet switches in our markets to enable applications based services incorporated with our soft switches and media gateways. These applications, along with our VoIP services and metropolitan Ethernet switches, deliver Ethernet-based services directly to customer premises. Our networks are designed for remote automated provisioning, allowing us to meet customers’ real time service needs. We extend SONET rings or point-to-point links from our rings to each customer’s premises over our own fiber when financially attractive or use circuits obtained from other local carriers to connect the customer to our network. We also install diverse building entry points if a customer requires such redundancy. We place necessary customer-dedicated or shared electronic equipment at a location near or in the customer’s premises to terminate the link.

We serve our customers from one or more central offices strategically positioned throughout our networks. The central offices house the transmission, switching, and Internet equipment needed to interconnect customers with each other, the long distance carriers, and other local exchange and Internet networks. Redundant electronics and power supplies, with automatic switching to the backup equipment in the event of failure, protects against signal deterioration or outages. We continuously monitor system components from our network operations center and seek to focus proactively on avoiding problems.

We add switched and dedicated data services to our basic fiber transmission platform by installing sophisticated routers, soft switches, and digital electronics at our central offices and nodes at customer locations.

Our advanced digital telephone and packet voice gateways are connected to multiple ILECs and long distance carrier switches to provide our customers ubiquitous access to the PSTN. We also provide high-speed routers and switches for our Internet backbone, and Ethernet switches at our customers’ premises and in our central offices to supply LAN interconnection services. Our Internet backbone is connected to multiple networks around the nation at multiple connection points. Our newest offerings connect customer LANs together in a metropolitan area, and connect LANs in geographically dispersed areas across our Internet backbone.

To serve a new customer initially, we may use various transitional links, such as leased circuits from another LEC. When a customer’s communication volumes increase, we may build our own fiber connection between the customer’s premises and our network to accommodate the customer’s needs and increase our operating margins.

Infrastructure Migration. We continually evaluate new technologies and suppliers in order to achieve a balance between utilizing best of breed technologies at the best available price. We continue to expand IP capabilities throughout our network through the deployment of packet telephony systems such as media gateways and soft switches. In order to prepare to deliver the next generation voice and data services, we are using these new technologies to augment traditional circuit switched systems. We also have the capability to provide TDM services over our IP backbone and plan to further converge TDM and IP services by utilizing MPLS, a protocol that allows us to differentiate the multiple services traversing our IP backbone.

Capacity License Agreements . We currently license fiber capacity from Time Warner Cable in sixteen markets, Comcast Corporation as successor to Time Warner Cable in three markets, and Bright House Networks, LLC (“Bright House”), an affiliate of Advance/Newhouse, in four markets. Each of our local operations in those markets is party to a Capacity License Agreement with one of the local cable television operations of Time Warner Cable, Comcast Corporation or Bright House (collectively the “Cable Operations”) providing us with an exclusive right to use all of the capacity of specified fiber-optic cable owned by the Cable Operations. The Capacity License Agreements expire in 2028. The Class B Stockholders’ sale of their shares of our common stock in October 2006 did not affect the terms of the Capacity License Agreements. The Capacity License Agreements for networks that existed as of July 1998 have been fully paid and do not require additional license fees. However, we must pay maintenance fees and fees for splicing and similar services. We may request that the Cable Operations construct and provide additional fiber-optic cable capacity to meet our needs. The Cable Operations are not obligated to provide such fiber capacity and we are not obligated to take fiber capacity from them. If the Cable Operations provide additional capacity, we pay an allocable share of the cost of construction of the fiber upon which capacity is to be provided, plus permitting and other fees. We are permitted to use the capacity for telecommunications services and any other lawful purpose, but not for the provision of residential services and content services. If we violate the limitations on our business activities, the Cable Operations may terminate the Capacity License Agreements.

The Capacity License Agreements do not restrict us from licensing fiber-optic capacity from parties other than the Cable Operations. Although the Cable Operations have agreed to negotiate renewal or alternative provisions in good faith upon expiration of the Capacity License Agreements, we cannot assure that the parties will agree on the terms of any renewal or alternative provisions or that the terms of any renewal or alternative provisions will be favorable to us. If the Capacity License Agreements are not renewed in 2028, we will have no further interest in the fiber capacity covered by those agreements and may need to build, lease, or otherwise obtain transmission capacity to replace the capacity previously licensed under the Capacity License Agreements. The terms of such arrangements may be materially less favorable to us than the terms of the Capacity License Agreements. We have the right to terminate a Capacity License Agreement in whole or in part at any time upon 180 days notice. The Cable Operations have the right to terminate the Capacity License Agreements prior to their expiration under certain circumstances (see Item 1A Risk Factors “We must obtain access to rights-of-way and pole attachments on reasonable terms and conditions”).


CEO BACKGROUND

Larissa L. Herda (49) July 1998 Chairman of the Company since June 2001. President and Chief Executive Officer of the Company since June 1998.
Senior Vice President Sales of the Company from March 1997 to June 1998.


Gregory J. Attorri (49) April 2006 President and Chief Operating Officer of Waller Capital Corporation, a media, communications and information focused investment bank, since July 2006.
Chairman of Nominating and Governance
Committee; member of Audit Committee Senior Managing Director and Managing Partner of Waller Capital Corporation, from February 2006 to July 2006.

Managing Director in media and communications investment banking for Wachovia Securities LLC from 2002 to February 2006.



Spencer B. Hays (63) April 2007; Retired. Formerly Senior Vice President and Deputy General Counsel of Time Warner Inc., from January 2001 to March 2006. Prior to that time, Vice President and Deputy General Counsel of Time Warner Inc., since its formation in 1990.
Member of Nominating and also October
Governance Committee 1999 to September 2006

Kevin W. Mooney (50) August 2005 Chief Commercial Officer of Travelport GDS, a privately held provider of IT infrastructure and distribution services to the travel industry, since August 2007.
Chairman of Audit Committee;
member of Compensation Committee Chief Financial Officer of Worldspan, L.P., a privately held transaction processing firm, from March 2005 to July 2007.

Communications consultant from August 2003 to March 2005.

Chief Executive Officer, Chief Operating Officer, Chief Financial Officer and Controller of Cincinnati Bell Inc. from April 1996 to July 2003.


Kirby G. Pickle (51) January 2007 Chief Executive Officer of Dental Holding Corporation, a privately held international network of full service dental laboratories that provides oral restoration products to dentists, since February 2008.
Member of Compensation Committee
Managing Partner, Bridge Creek Partners, LLP, a privately held consulting firm, from July 2006 to January 2008.

Chairman of KMC Telecom Holdings, a provider of telecommunications infrastructure and services, from June 2005 to July 2006.

Vice Chairman of KMC Telecom Holdings from January 2005 to June 2005.

Chief Executive Officer of DSL.net, Inc., a broadband and VOIP service provider, from January 2004 to January 2005.

Chief Executive Officer of Velocita Corp., a telecommunications construction company, from October 2000 to January 2004.




Roscoe C. Young, II (57) May 2005 Managing Partner, Laurelwood Partners, a telecommunications consulting and restructuring company, since January 2007.
Chairman of Compensation Committee;
member of Audit Committee Chief Executive Officer and Chief Operating Officer of KMC Telecom Holdings, a provider of telecommunications infrastructure and services, from June 2001 to December 2006.

Vote Required

Election of the nominees to the Board requires a plurality of the votes cast at the meeting of stockholders by the holders of shares of our common stock.


Larissa L. Herda (49) Chairman since June 2001. President and Chief Executive Officer since June 1998.

Senior Vice President Sales from March 1997 to June 1998.

Mark A. Peters (47) Executive Vice President and Chief Financial Officer since January 2007.

Senior Vice President and Chief Financial Officer from April 2005 to January 2007.

Senior Vice President, Treasurer and Acting Chief Financial Officer from November 2004 to April 2005.

Vice President, Treasurer from July 1998 to November 2004.


Paul B. Jones (61) Executive Vice President, General Counsel and Regulatory Policy and Secretary since January 2007.

Senior Vice President, General Counsel and Regulatory Policy and Secretary from August 1998 to January 2007.




John T. Blount (49) Chief Operating Officer since June 2005.

Executive Vice President, Field Operations from October 2000 to June 2005.

Senior Vice President, Sales from June 1998 to October 2000.



Jill R. Stuart (53) Senior Vice President, Accounting and Finance and Chief Accounting Officer since November 2004.
Vice President, Accounting and Finance and Chief Accounting Officer from July 1998 to November 2004.



MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

We are a leading national provider of managed network services, specializing in Ethernet and transport data networking, Internet access, local and long distance voice, VoIP and network security services to enterprise organizations and communications services companies throughout the U.S. Our customers include, among others, enterprise organizations in the distribution, health care, finance, and manufacturing industries, state, local and federal government entities and long distance carriers, ILECs, CLECs, wireless communications companies, and ISPs.

Through our subsidiaries, we operate in 75 U.S. metropolitan markets. As of December 31, 2007, our fiber networks spanned 25,753 route miles directly connecting 8,355 buildings served entirely by our facilities (on-net). We continue to expand our footprint within our existing markets by connecting our network into additional buildings. We have also continued to expand our IP backbone data networking capability between markets supporting end-to-end Ethernet and VPN connections for customers, and have also selectively interconnected existing service areas within regional clusters with fiber optic facilities that we own or lease. In addition, we provide on-net inter-city switched services between our markets that offer customers a virtual presence in a remote city.

On October 31, 2006, we acquired Xspedius, thereby expanding our markets served from 44 to 75 and increasing our market density in 12 markets that we already served. This acquisition provided us additional opportunities to serve multi-city and multi-location customers and provide our full product portfolio in additional markets. Our consolidated results of operations, cash flows and financial position include those of Xspedius since the acquisition date.

From our formation until September 26, 2006, we had two classes of common stock outstanding, Class A common stock with one vote per share and Class B common stock with ten votes per share. Each share of Class B common stock was convertible, at the option of the holder, into one share of Class A common stock. The Class B common stock was collectively owned directly or indirectly by the Class B Stockholders. On March 29, 2006 and September 26, 2006, the Class B Stockholders completed underwritten offerings of 22.3 million shares and 43.5 million shares, respectively, of our Class A common stock, which were converted from shares of Class B common stock to shares of Class A common stock immediately prior to the offerings. As a result, we have not had shares of Class B common stock outstanding since September 26, 2006. We did not receive any proceeds from the offerings nor did our total shares outstanding change as a result of the offerings. In June 2007, our stockholders approved an amendment to our Restated Certificate of Incorporation, which eliminated references to Class A and Class B common stock. As a result, no shares of Class B common stock were authorized as of December 31, 2007 and Class A common stock authorized and outstanding as of December 31, 2006 is classified as common stock.

Our revenue is derived primarily from business communications services, including network, voice, data, and high-speed Internet access services.

(1) Our former Class B Stockholders were no longer related parties as of September 26, 2006 and as such we have reclassified revenue from these customers into their respective enterprise and carrier categories.

Our primary objective is to be the leading provider of high quality managed data and telecommunications services in each of our service areas, on a national basis, principally utilizing our fiber facilities and our national multipurpose IP backbone network to offer high value voice, data, Internet, and dedicated services to become the carrier of choice for business enterprises, governmental agencies, and other carriers. The key elements of our business strategy include:


• Leveraging our extensive local and regional fiber networks, including those acquired through the Xspedius acquisition, and IP backbone networks to increase customer and building penetration in our existing markets;


• Increasing revenue growth by focusing on service offerings that meet the sophisticated data needs of our customers, such as our Ethernet and IP business-to-business VPN services, Internet-based services and converged voice and data bundled services, and developing future service applications to enhance our customers' voice and data networking ability;


• Continuing to diversify our customer base and increasing revenue from enterprise customers, including businesses and local and federal governments;


• Pursuing selected opportunities to expand our network reach to serve new customers and additional locations for existing customers, as evidenced by our acquisition of Xspedius; and


• Continuing our disciplined approach to capital and operating expenditures in order to increase operational efficiencies, preserve our liquidity and drive us towards profitability.

Our annual revenue increased by 33% in 2007 compared to the prior year primarily as a result of the contribution from the acquired Xspedius operations for the full year in 2007 as well as organic growth. Annual revenue increased by 15% in 2006 and by 9% in 2005, each as compared to the prior year, due to revenue growth from our enterprise customer base across all lines of business in each of those years as well as the contribution from our acquired Xspedius operations of two months in 2006. Our revenue declined by 2% in 2004 and 4% in 2003, in each case compared to the prior years as a result of general economic conditions and the downturn in the telecommunication sector. The bankruptcy of MCI, which was our then largest customer, and the decline in intercarrier compensation as a result of mandated rate reductions were the largest contributors to our decline in revenue.

Increasing consolidation in the telecommunications industry has occurred in recent years, and in some cases has reduced our revenue from the customers involved. If any of our other customers are acquired or merge, we may lose a portion of their business, which could have a significant impact on our revenue. Consolidation could also result in other companies becoming more formidable competitors, which could result in pressure on our revenue growth. The consolidations involving AT&T over the past several years has and may continue to result in the combined company buying less local transport service from us in SBC’s and BellSouth’s former local service areas. In addition, revenue from what was formerly Cingular (now AT&T’s wireless unit), which became a wholly owned subsidiary of AT&T, has been declining since Cingular’s acquisition of AT&T Wireless in 2004 and Cingular’s acquisition by AT&T in 2006 and is expected to further decline. Revenue from AT&T’s wireless unit represented less than 2% of total revenue for the year ended December 31, 2007 compared with approximately 4% for the year ended December 31, 2006. AT&T’s total purchases from us, including AT&T’s wireless unit, represented approximately 8% and 11% of our total revenue for the years ended December 31, 2007 and 2006, respectively. The revenue impact of AT&T’s acquisitions of SBC and BellSouth may be mitigated by revenue commitments in our agreement with AT&T. As a result, we do not expect that the impact of these consolidations will materially affect our total revenue over the next several years.

We have and expect to continue to experience fluctuations in our revenue in the normal course of business from customer and service disconnects, the timing of sales and installations, seasonality, customer disputes and dispute resolutions and repricing of services upon contract renewals. However, we cannot predict the total impact on revenue from these items or their timing. Customer and service disconnects are primarily associated with industry consolidation, customer network optimization, cost cutting, business contractions, customer financial difficulties, or price competition from other providers. Monthly revenue loss from disconnects averaged 1.2%, 1.2%, and 1.0% of monthly revenue in 2005, 2006 and 2007, respectively. In 2007, our revenue growth was impacted by disconnects from customers that were negatively affected by the subprime mortgage downturn. We cannot predict whether we will experience further customer disconnects as a result of the subprime mortgage downturn.

Our revenue and margins may also be reduced as a result of price-cutting by other telecommunications service providers or by pricing pressure on certain more mature products such as long distance service, POP to POP dedicated services and inter-city point to point transport services, especially as existing contracts expire and we negotiate renewals. Furthermore, we expect to spend $6 to $7 million in 2008, which includes $2 million in capital expenditures, for branding related costs associated with our name change. We anticipate that these additional costs will depress our margins.

To increase our operating margins, we have undertaken several cost reduction measures including network grooming and pricing optimization to reduce as a percentage of revenue the overall access costs paid to carriers and enhancing back office support systems to improve operating efficiencies. If our revenue declines in the future, we cannot predict whether continued cost management will be sufficient to maintain current operating margins.

Due to successful collection efforts aided by system enhancements, internal controls and our revenue recognition policies, our bad debt expense remains low and represents less than 1% of our total revenue for 2007. There is no assurance that this trend will continue.

Enterprise Customer Revenue

Revenue from enterprise customers has increased for the past 22 consecutive quarters through December 31, 2007 primarily through sales of our data and Internet products such as Ethernet. Revenue from our enterprise customers represented 69% of our total revenue for the year ended December 31, 2007 as compared to 62% for the same period in 2006. We expect a growing percentage of our revenue will come from our enterprise customer base as we expand the customer base for our existing products and expand our data and Internet product offerings to existing customers. Our expanded market footprint resulting from the acquired operations provides for new growth opportunities for us to extend our customer reach and product portfolio into new markets. The success of initiatives we have implemented to improve customer retention, the success of product offerings targeted at enterprise customers, and our ability to compete for multi-location customers and the success of extending our product portfolio into our newly acquired markets will influence our future growth rates. We may experience fluctuations in revenue due to the timing of installations, seasonality, customer disputes, disconnections and other factors. In addition, in the normal course of business we are re-pricing certain services to current market pricing under existing enterprise contracts in order to obtain contract renewals. This could create downward pressure on revenue growth from this customer base.

Carrier Customer Revenue

Revenue from carrier customers increased 7% for the year ended December 31, 2007 as compared to the same period in 2006 due to the acquired operations. However, carrier revenue represented a smaller percentage of our total revenue at 27% for the year ended December 31, 2007 as compared to 33% for the same period in 2006 partly due to the lower proportion of carrier revenue from the acquired business, growth in revenue from enterprise customers, re-pricing of certain services under existing contracts, and disconnections resulting from industry consolidations. We experienced quarterly declines in carrier revenue throughout 2007 and we expect this trend may continue.

Intercarrier Compensation Revenue

Intercarrier compensation revenue consists of switched access and reciprocal compensation and represented 4% and 5% of our total revenue for the years ended December 31, 2007 and 2006, respectively. Intercarrier compensation revenue increased 17% for the year ended December 31, 2007 over the same period last year due to the acquired operations but is declining as a percentage of total revenue because of the growth in revenue from enterprise customers and a decline in switched access revenue. Switched access revenue is compensation we receive from other carriers for the delivery of traffic between a long distance carrier’s point of presence and an end user’s premises provided through our switching facilities. Switched access is regulated by the FCC and state public utility commissions. During the three month period ended December 31, 2007, we experienced a sequential decline of 11% as compared to the three month period ended September 30, 2007 in switched access revenue as a result of discontinuance of certain products from the acquired business and of regulatory and contractual rate reductions. We expect further rate reductions in intercarrier compensation in the first quarter of 2008 and we expect this trend to continue.

Pricing of Special Access Services

We provide special access services over our own fiber facilities in competition with ILECs, and we also purchase special access and other services from ILECs to extend the reach of our network. The ILECs have argued before the FCC that the broadband services that they sell, including special access services we buy from them, should no longer be subject to regulation governing price and quality of service. If the special access services we buy from the ILECs were to be deregulated, in whole or in part, the ILECs would have a greater ability to increase the price and reduce the service quality of special access services they sell to us.

We have advocated before the FCC that it should modify its special access pricing flexibility rules so that these services return to price-cap regulation to protect against unreasonable price increases. The FCC is reviewing its regulation of special access pricing in a pending proceeding. In addition, the ILECs have filed numerous petitions for forbearance from regulation of their broadband special access services, including Ethernet services offered as special access. The FCC has granted several of these petitions with the result that the Ethernet and OC-n high capacity data services of the petitioning carriers are no longer regulated. We and several of our competitors have appealed these FCC rulings. These FCC actions did not impact the availability of the tariffed TDM special access circuits that we use for off-net building access. We expect that the ILECs will continue to advocate deregulation of all forms of special access services, and we cannot predict the outcome of the FCC’s proceedings in this regard or the impact of that outcome on our business.

In 2005, we negotiated a five-year wholesale service agreement with AT&T Inc. (formerly SBC Communications Inc.) under which AT&T will supply us with special access and other services for end user access and transport with certain service level commitments through 2010 in SBC’s former 13 state local service territories. We have agreed to maintain certain volume levels in order to receive specified discounts and other terms and conditions, and are subject to certain penalties for early termination of the contract. We have a similar three year agreement with AT&T for the former BellSouth service area that commenced in 2005. However, we do not have similar agreements with the other ILECs and could be subject to significant price increases in the special access services we buy from these carriers.

Former Related Party Revenue and Expense

As a result of the secondary offering completed on September 26, 2006, the Class B Stockholders are no longer related parties. In the normal course of business, we have engaged in various transactions with affiliates of our former Class B Stockholders, generally on negotiated terms that, in management’s view, result in reasonable arms-length terms. We provide network, data and Internet and voice services to affiliates of our former Class B Stockholders including Time Warner Cable, Time Warner Inc. and Bright House Networks, LLC. We do not expect the revenue generated from these entities to change materially because they are no longer related parties.

Since 1998, we have been party to capacity license agreements with Time Warner Cable that provides us fiber capacity access to local rights-of-way and construction cost sharing until 2028. We have similar arrangements with Bright House and with Comcast Corporation, as successor to Time Warner Cable’s cable systems in three markets. These arrangements were not impacted by the Class B Stockholders’ sale of their shares of our common stock. We pay these providers negotiated fees for facility maintenance and reimburse them for our allocable share of pole rental costs on an ongoing basis. These maintenance and pole rental costs are included in our operating expenses.


MANAGEMENT DISCUSSION FOR LATEST QUARTER

Cautions Concerning Forward Looking Statements

This document contains certain “forward-looking statements,” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding, among other items, our expected financial position, expected capital expenditures, expected revenue mix, expected margins, expected branding expenditures, growth or stability from particular customer segments, the effects of consolidation in the telecommunications industry, anticipated customer disconnections, Modified EBITDA trends, expected network expansion, and business plans. These forward-looking statements are based on management’s current expectations and are naturally subject to risks, uncertainties, and changes in circumstances, certain of which are beyond our control. Actual results may differ materially from those expressed or implied by such forward-looking statements.

The words “believe,” “plan,” “target,” “expect,” “intend,” and “anticipate,” and expressions of similar substance identify forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that those expectations will prove to be correct. Important factors that could cause actual results to differ materially from the expectations described in this report are set forth under “Risk Factors” in Item 1A and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2007, and elsewhere in this report. In addition, actual results may differ from our expectations due to increased customer disconnects, increased competition, inability to obtain rights to build networks into commercial buildings, the current or a future economic downturn, delays in launching new products, decreased demand for our existing products, further declines in the prices of and revenue from our services due to competitive pressures, industry consolidation and other industry conditions, increases in the price we pay for use of facilities of Incumbent Local Exchange Carriers, or “ILECs”, due to consolidation in the industry or further deregulation and adverse regulatory rulings or legislative developments, and our failure to achieve all of the expected benefits of our acquisition of Xspedius Communications, LLC (“Xspedius”). Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Overview

We amended our Restated Certificate of Incorporation to change our corporate name to tw telecom inc. on March 12, 2008. Our stockholders approved the name change by written consent on September 26, 2006. On July 1, 2008, we began using tw telecom inc. as our name and tw telecom as our brand.

We are a leading national provider of managed network services, specializing in Ethernet and data networking, Internet access, local and long distance voice, VPN, VoIP and network security services to enterprise organizations and communications services companies throughout the U.S. Our customers include, among others, enterprise organizations in the distribution, health care, finance, service and manufacturing industries, state, local and federal government entities and long distance carriers, ILECs, competitive local exchange carriers (“CLECs”), wireless communications companies, and Internet service providers (“ISPs”).


Through our subsidiaries, we operate in 75 U.S. metropolitan markets. As of September 30, 2008, our fiber networks spanned approximately 26,000 route miles directly connecting approximately 9,100 buildings served by our fiber facilities (on-net). We continue to expand our footprint within our existing markets by connecting our network into additional buildings. We have continued to expand our IP backbone data networking capability between markets supporting end-to-end Ethernet connections and VPN connections for customers, and have also selectively interconnected existing service areas within regional clusters with fiber optic facilities that we own or lease. In addition, we provide on-net inter-city switched services between our markets that offer customers a virtual presence in a remote city.

On October 31, 2006, we acquired Xspedius, which expanded our markets served from 44 to 75 and increased our market density in 12 markets that we already served. This acquisition provided us additional opportunities to serve multi-city and multi-location customers and provide our full product portfolio in additional markets.

The key elements of our business strategy include:


•

Leveraging our extensive local and regional fiber networks and IP backbone networks to increase customer and building penetration in our existing markets;


•

Increasing revenue by focusing on service offerings that meet the sophisticated data needs of our customers, such as our Ethernet and IP business-to-business VPN services, Internet-based services and converged voice and data bundled services, and developing future services to enhance our customers’ voice and data networking ability;


•

Continuing to diversify our customer base and increasing revenue from enterprise customers, including businesses and local and federal government entities;


•

Pursuing selected opportunities to expand our network reach to serve new customers and additional locations for existing customers;


•

Continuing our disciplined approach to capital and operating expenditures in order to increase operational efficiencies, preserve our liquidity and drive us towards greater profitability; and


•

Delivering a proactive and comprehensive customer care strategy that differentiates us from our competitors.

Enterprise Customer Revenue

Revenue from enterprise customers has increased for the past 25 consecutive quarters through the three months ended September 30, 2008 primarily through sales of our data and Internet products such as Internet and Ethernet. Revenue from our enterprise customers represented 73% of our total revenue in the three months ended

September 30, 2008 as compared to 69% for the full year 2007 and 62% for the full year 2006. We expect a growing percentage of our revenue will come from the enterprise customer base. Our expanded market footprint resulting from the Xspedius acquisition provides for new growth opportunities for us to extend our customer reach and product portfolio into new markets. While we continued to experience growth from this customer base in the three months ended September 30, 2008, our enterprise revenue growth was impacted for the past several quarters by disconnects primarily from customers in our acquired customer base that buys less complex services, especially smaller customers, as well as mortgage related businesses. Revenue churn has increased since the end of 2007 and has caused downward pressure on revenue growth.

We expect that the success of initiatives we have implemented to improve customer retention, the success of product offerings targeted at enterprise customers, our ability to compete for multi-location customers, the success of extending our product portfolio into our acquired markets, our extensive fiber network and our strong liquidity which provides us the ability to invest in the right opportunities to capture additional market share will influence our future growth rates; however, we can not predict whether these initiatives or other factors will offset pressure to the enterprise customer base caused by the current economic conditions.

Carrier Customer Revenue

Revenue from carrier customers declined 2% for the three months ended September 30, 2008 as compared to the same period in 2007. Carrier revenue represented a smaller percentage of our total revenue at 24% in the three months ended September 30, 2008 and continues to decline as a percentage of total revenue due to growth in revenue from enterprise customers, re-pricing of certain services in connection with contract renewals, and disconnections primarily resulting from industry consolidations. We expect continued disconnects from carriers and ISPs related to these and other factors, as discussed below under “Customer Disconnections and Pricing Trends”.

Intercarrier Compensation Revenue

Intercarrier compensation revenue consists of switched access and reciprocal compensation and represented 3% of our total revenue for the three months ended September 30, 2008 and continues to decline as a percentage of total revenue due to growth in revenue from enterprise customers and federal and state mandated rate reductions. Intercarrier compensation revenue may fluctuate from quarter to quarter based on variations in minutes of use terminating on our network and the resolution of disputes. We believe intercarrier compensation revenue will continue to decline as a result of expected further federally and state mandated rate reductions. Switched access revenue is compensation we receive from other carriers for the delivery of traffic between a long distance carrier’s point of presence and an end user’s premises provided through our switching facilities. Switched access rates are regulated by the Federal Communications Commission (“FCC”) and state public utility commissions. Reciprocal compensation represents compensation from a local exchange carrier (“LEC”) for local exchange traffic originated on their facilities and terminated on our facilities. Reciprocal compensation rates are established by interconnection agreements between the parties based on federal and state regulatory and judicial rulings.

In response to an August 2008 federal court order, the FCC Chairman announced that he was prepared to adopt comprehensive intercarrier compensation and Universal Service reform in November 2008. The Chairman subsequently announced that he had circulated a draft order to the other Commissioners, and broadly outlined the actions proposed in the draft order. We believe the proposed order would require the states to establish a unified rate for intrastate switched access, interstate switched access, and reciprocal compensation over a ten-year transition period. The proposal also establishes a new cost methodology the states would be required to follow, which would produce significantly lower rates. Lost revenue from rate reductions would be recovered from increased end-user subscriber line charges and a replacement mechanism similar to the Universal Service Fund for small rural carriers only. The draft order also would establish a new Universal Service Fund contribution method based on telephone numbers, rather than the current revenue-based method, classify VoIP calls terminating on the public switched telephone network as an Information Service and preempt states from regulation of VoIP services.

Numerous sectors, including state commissions, consumer groups, some members of Congress, CLECs, and rural ILECs have expressed strong concern that the public has not been fully informed, nor given the opportunity to comment, as to the specifics of the proposals. On November 3, 2008, the FCC Chairman pulled the intercarrier compensation and Universal Service reform items from the agenda. The other Commissioners have urged the Chairman to put specific proposals out for public comment, with the intent to act on the proposals in December. At this time we do not know what specific actions the FCC will take, nor do we know what financial impact it would have on us.

Customer Disconnections and Pricing Trends

Increasing consolidation in the telecommunications industry has occurred in recent years, and in some cases has reduced our revenue from the customers involved. If any of our other carrier customers are acquired or merge, we may lose a portion of their business, which could have a significant impact on our revenue. Consolidation could also result in other communications companies becoming more formidable competitors, which could result in pressure on our revenue growth. The consolidations involving AT&T over the past several years have and may continue to result in the combined company buying less local transport service from us in SBC’s and BellSouth’s former local service areas. In addition, our revenue from AT&T’s wireless unit (formerly Cingular Wireless) has been declining over the past 11 quarters due to Cingular’s acquisition of AT&T Wireless in 2004 and Cingular’s acquisition by AT&T in 2006 and is expected to further decline. In the three months ended September 30, 2008 compared to the same period last year, total revenue declined $1.9 million as a result of disconnects from this customer. Revenue from AT&T’s wireless unit represented less than 1% of our total revenue for the three months ended September 30, 2008 compared with less than 2% of our total revenue for the three months ended September 30, 2007. The revenue impact of AT&T’s acquisitions of SBC and BellSouth may be mitigated by revenue commitments in our agreement with AT&T. As a result, we do not expect that the impact of these consolidations will materially affect our total revenue through the end of 2010. Revenue from AT&T, including AT&T’s wireless unit, represented 5% and 7% of our total revenue for the three months ended September 30, 2008 and 2007, respectively.

Monthly revenue loss from disconnects averaged 1.2% of monthly revenue for the three months ended September 30, 2008, which is consistent with an average of 1.2% for the full year 2006 and up from an average of 1.1% for the full year 2007. Customer and service disconnects occur as part of the normal course of business and are primarily associated with industry consolidation, customer network optimization, cost cutting, business contractions, customer financial difficulties, the impact of the economic downturn, discontinuance of certain acquired products or price competition from other providers. We have experienced a concentration of churn from the acquired customer base that buys less complex services, especially smaller customers, as well as mortgage related businesses and carriers over the past year. We expect to continue to experience customer and service disconnects for these reasons and expect that higher revenue churn may continue.

Average monthly customer churn was 1.5% and 1.0% for the three months ended September 30, 2008 and 2007, respectively. Most of this churn came from our small acquired customers that are below our desired service profile, which we expect to continue.

Our revenue and margins may also be reduced as a result of price-cutting by other telecommunications service providers or by pricing pressure on certain more mature products such as point of presence to point of presence dedicated services and inter-city point to point transport services, especially as existing contracts expire and we negotiate renewals.

We provide special access services over our own fiber facilities in competition with ILECs, and we also purchase special access and other services from ILECs to extend the reach of our network. The ILECs have argued before the FCC that the broadband services that they sell, including special access services we buy from them, should no longer be subject to regulation governing price and quality of service. If the special access services we buy from the ILECs were to be further deregulated, ILECs would have a greater ability to increase the price and reduce the service quality of special access services they sell to us.

We have advocated before the FCC that it should modify its special access pricing flexibility rules so that these services return to price-cap regulation to protect against unreasonable price increases. The FCC is reviewing its regulation of special access pricing in a pending proceeding. In addition, the ILECs have filed numerous petitions for forbearance from regulation of their broadband special access services, including Ethernet services offered as special access. The FCC has granted several of these petitions with the result that prices for the Ethernet and OC-n high capacity data services of the petitioning carriers are no longer regulated. We and several of our competitors have appealed these FCC rulings. These FCC actions did not impact the availability of the tariffed time division multiplexed special access circuits that we use for access to buildings that are not connected to our network with our fiber. We expect that the ILECs will continue to advocate deregulation of all forms of special access services, and we cannot predict the outcome of the FCC’s proceedings in this regard or the impact of that outcome on our business.

In 2005, we negotiated a five-year wholesale service agreement with AT&T Inc. (formerly SBC Communications Inc.) under which AT&T supplies us with special access and other services for end user access and transport with certain service level commitments through 2010 in SBC’s former 13 state local service territories. We have agreed to maintain certain volume levels in order to receive specified discounts and other terms and conditions, and are subject to certain penalties for early termination of the contract. We have a similar three year agreement with AT&T for the former BellSouth service area that expired in October 2008 and is being renegotiated. After expiration of the agreement, AT&T’s ability to increase its special access prices is limited by FCC imposed conditions on its merger with BellSouth until 2010. We have agreements or tariffed term and volume plans with the other ILECs, which in some cases do not preclude prospective price increases. However, the ability of the ILECs to increase their special access prices is in some cases subject to regulatory constraints.

Name and Branding Change

As discussed above, we have changed our corporate name to tw telecom inc. and began using tw telecom as our brand name effective July 1, 2008. In connection with our name and branding change, we incurred approximately $2.9 million in branding expense and $0.3 million in capital expenditures for branding for the nine months ended September 30, 2008 and expect to spend less than $1 million in capital and operating expenditures for the remainder of 2008 associated with the name change.

Other Financial Trends

Our acquisition of Xspedius resulted in lower consolidated margins as a result of higher operating costs, especially network costs, in relationship to revenue in the acquired operations. Historically the acquired operations sold a higher proportion of services utilizing the facilities of other carriers than our previously existing operations, resulting in lower gross margins and Modified EBITDA margins (Modified EBITDA as a percentage of revenue) than we experienced prior to the acquisition. We have integrated the acquired operations with our operations and achieved synergies through cost reductions that have been reflected in expanding Modified EBITDA margins over the past five quarters. Our Modified EBITDA margin, which declined to 29% following our acquisition of Xspedius, has improved to our pre-acquisition margin of 35% for the three months ended September 30, 2008 reflecting revenue growth and cost synergies.

We have historically experienced and expect to continue to experience fluctuations in our revenue, margins, and cash flows in the normal course of business from customer and service disconnects, the timing of sales and installations, seasonality of sales and usage, customer disputes and dispute resolutions and repricing of services upon contract renewals. However, we cannot predict the total impact on revenue, margins, and cash flows from these items or their timing.

We have undertaken several initiatives to increase revenue growth, margins and cash flows including revenue assurance and retention initiatives, cost reduction measures such as network grooming and pricing optimization intended to reduce the overall access costs paid to carriers, enhancing back office support systems to improve operating efficiencies, and network investment initiatives to reduce the cost of equipment to increase overall capital efficiency. If our revenue growth, margins and cash flows decline in the future, we cannot predict whether continued initiatives will be sufficient to maintain current financial performance.

Critical Accounting Policies and Estimates

We prepare our financial statements in accordance with accounting principles generally accepted in the United States, which require us to make estimates and assumptions that affect reported amounts and related disclosures. We consider an accounting estimate to be critical if:


• it requires assumptions to be made that were uncertain at the time the estimate was made; and


• changes in the estimate or different estimates that could have been selected could have a material impact on our consolidated results of operations or financial condition.

Goodwill

We perform impairment tests at least annually on all goodwill and indefinite-lived intangible assets as required by Financial Accounting Standards Board (“FASB”) Statement No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). Our goodwill and indefinite-lived intangible assets have grown significantly due to our acquisition of Xspedius and the related purchase price allocation. SFAS 142 requires goodwill to be assigned to a reporting unit and tested using a consistent measurement date, which for us is the fourth quarter of each year or more frequently if impairment indicators arise. For purposes of testing goodwill for impairment, our goodwill has been assigned to our one consolidated reporting unit. Potential impairment is indicated when the book value of a reporting unit, including goodwill, exceeds its fair value. If a potential impairment exists, the fair value of the reporting unit is compared to the fair value of its assets and liabilities, excluding goodwill, to estimate the implied value of the reporting unit’s goodwill. If an impairment charge is deemed necessary, a charge is recognized for any excess of the book value over the implied fair value. We determine fair value by performing internal valuation analyses using discounted cash flow, which is a widely accepted valuation technique. Considerable management judgment is necessary to estimate the fair value of assets using inputs such as discount rate and terminal value, among others; accordingly, actual results could vary significantly from estimates.

Impairment of Long-lived Assets

We periodically assess our ability to recover the carrying amount of property, plant and equipment and intangible assets, which requires an assessment of risk associated with our ability to generate sufficient future cash flows from these assets. If we determine that the future cash flows expected to be generated by a particular asset do not exceed the carrying value of that asset, we recognize a charge to write down the value of the asset to its fair value.

Estimates are used to determine whether sufficient cash flows will be generated to recover the carrying amount of our investments in long term assets. The estimates are made for each of our eight regions. Expected future cash flows are based on historic experience and management’s expectations of future performance. The assumptions used represent our best estimates including market growth rates, future pricing, market acceptance of our products and services and the future capital investments necessary.

Regulatory and Other Contingencies

We are subject to significant government regulation, some of which is uncertain due to legal challenges of existing rules. Such regulation is subject to different interpretations and inconsistent application, and has historically given rise to disputes with other carriers and municipalities regarding the classification of traffic, rights-of-way, rates and minutes of use.

Management estimates and reserves for the risk associated with regulatory and other carrier contingencies. These estimates are based on assumptions and other considerations including expectations regarding regulatory rulings, historic experience and ongoing negotiations. We evaluate these reserves on an ongoing basis and make adjustments as necessary.

Deferred Tax Accounting

We have a history of net operating losses (NOLs) for tax purposes. As a result, our balance sheet reflects a net deferred tax asset that represents the tax benefit of net operating loss carryforwards and timing differences between book and tax recognition of certain revenue and expense items, net of a valuation allowance. When it is more likely than not that all or some portion of deferred tax assets may not be realized, we establish a valuation allowance for the amount that may not be realized. At September 30, 2008, our net deferred tax asset after a valuation allowance of $329.5 million was $58.8 million.

We have concluded that it is more likely than not that the net deferred tax asset will be realized through the utilization of tax-planning strategies including the sale and leaseback of certain of our high-value, low-basis assets to generate gains to which the NOLs can be applied. We base our analysis on discounted expected future cash flows and our expectations regarding the size of transaction that would be allowable under financing agreements that may be in place at the time we implement strategies to utilize the benefit of the NOLs. The assumptions approximate our best estimates including market growth rates, future pricing, market acceptance of our products and services, future expected capital investments and discount rates. No material changes have been made to our estimates since December 31, 2007.

At September 30, 2008, we had net operating loss carryforwards for federal income tax purposes of approximately $1.1 billion. These net operating loss carryforwards, if not utilized to reduce taxable income in future periods, will expire in various amounts beginning in 2019 and ending in 2026.

Revenue and Receivables

Our services are complex and our tariffs and contracts may be correspondingly complex and subject to interpretations that cause disputes over billing. In addition, changes in and interpretations of regulatory rulings create uncertainty and may cause disputes over minutes of use, rates or other provisions of our service. As such, we defer recognition of revenue until cash is collected on certain of our components of revenue, such as contract termination charges. We also reserve for customer billing disputes until they are resolved even if the customer has already paid the disputed amount.

We estimate the ability to collect our receivables by performing ongoing credit evaluations of our customers’ financial condition, and provide an allowance for doubtful accounts based on expected collection of our receivables. Our estimates are based on assumptions and other considerations, including payment history, credit ratings, customer financial performance, industry financial performance and aging analysis. As a result of, among other things, our overall receivables management, our bad debt expense historically has trended below 1% as a percentage of our total revenue. For the three months ended September 30, 2008, bad debt expense increased to 1% of our total revenue as a result of the current economic environment.

Stock-Based Compensation

We apply the fair value method of accounting for stock-based compensation using the modified prospective method of transition as outlined in Financial Accounting Standards Board Statement No. 123R, Share-Based Payment (“SFAS 123R”). Under SFAS 123R, the estimated fair value of stock-based compensation is recognized as compensation expense. The estimated fair value of stock options is expensed on a straight-line basis over the expected term of the grant. We use the Black-Scholes pricing model to estimate the fair value of the stock-based compensation as of the grant date. The Black-Scholes model by its design is dependent upon key data inputs estimated by management such as expected volatility, expected term and expected dividend yield. See Note 1 to our condensed consolidated financial statements for further discussion of stock-based compensation.

Other Estimates

Our condensed consolidated financial statements reflect other accounting estimates, including reserves for certain losses, compensation accruals, unpaid claims for medical and other self-insured plans and property and other tax exposures that require judgment but are not deemed critical in nature.

During the three and nine months ended September 30, 2008, we recognized losses of $3.7 million and $7.8 million, respectively, on commercial paper with exposure to sub-prime mortgages that is past its maturity date resulting from impairment losses and upon liquidation of one of these securities. The carrying value of the remaining securities after recognition of the impairment loss is $3.0 million at September 30, 2008. These securities are classified as long term investments in the condensed consolidated balance sheet. The carrying value of these securities represents an estimate of the fair value of the investments based principally on data from financial advisors for the commercial paper holders. The valuation considered a combination of (i) the present value of future principal and interest payments discounted at rates considered to reflect current market conditions; (ii) individual valuation estimates of the securities underlying the commercial paper using multiple indicators of value; and (iii) the probabilities of repayment of the underlying securities under various liquidation scenarios. At September 30, 2008, investments included in cash and cash equivalents were measured at fair value and comprised of U.S. treasury money market funds that were traded in an active market and for which prices are readily available.

We believe the current assumptions and other considerations used to estimate amounts reflected in the condensed consolidated financial statements are appropriate. However, if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in the condensed consolidated financial statements, the resulting changes could have a material adverse effect on our results of operations and, in certain situations, on our financial condition.

New Accounting Pronouncements

See Note 1 to the condensed consolidated financial statements for the impact of new accounting pronouncements on our condensed consolidated financial statements.

Results of Operations
The following table sets forth certain data from our unaudited condensed consolidated financial statements and expressed as a percentage of total revenue.


CONF CALL

Carole Curtain - Vice President of Investor Relations

Good morning everyone and apologies for keeping you waiting. Our third party conference company is having a bit of technical problems, but let me start by directing you to our website at twtelecom.com where you can find our press release and our supplemental information.

Before we begin, I want to read our safe harbor statement. Issues discussed on today's conference call include certain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are naturally subject to uncertainty and changes in circumstances.

Actual results may vary materially from the expectations contained herein due to the risk in the company's annual and quarterly filings with the SEC, especially the section titled Risk Factors in our annual report on Form 10-K for the year ended December 31, 2007 and our supplemental materials posted on our website.

TW Telecom is under no obligation to expressly disclaim any obligations to update or alter its forward-looking statements whether as a result of new information, future events, or otherwise. In conjunction with SEC regulation G, I want to point out that we report several financial measures that are non-GAAP including modified EBITDA.

Our non-GAAP measures are not intended to replace our GAAP disclosures, but rather are merely presented to provide additional insight into our performance. Please see our press release and other information posted on our website for more details on these and other matters.

Now I'm pleased to introduce TW Telecom's Chairman, CEO and President, Larissa Herda.

Larissa L. Herda - Chairman, Chief Executive Officer and President

Thanks Carole. Hello everyone and thank you for joining us today. We delivered strong cash flow, expanded our margins and grew our earnings per share this quarter which we are very pleased with particularly in this economy. Additionally, we posted our 25th consecutive quarter for enterprise revenue growth and as a result we have a highly diversified revenue stream.

As we projected in September, this is a soft revenue quarter, however we continued to see steady demand across both our enterprise and carrier segments. We remain in a strong liquidity position, which provides us with a great deal of flexibility for navigating and capitalizing on market dynamics. We look at the marketplace balancing two priorities.

One priority includes managing costs and capital expenditures to generate cash flow through a slower economic cycle. And the other priority includes leveraging our market position and strong liquidity to go after customer sales that others may not be able to pursue, which is a great opportunity for us to take market share. Clearly, in this economy businesses are trying to reduce costs and become ever more efficient. So are we.

However efficiency cannot be a singular focus. Rather we believe that those companies who will emerge in a very strong position when the economy recovers will continue to innovate and invest in the future to position themselves for strength. We did this during the last economic slowdown and we emerged in a stronger position relative to our peers as we came out of that period leading to the past four years of consistent growth.

So, we are balancing our investments and executing on our strategy with both priorities in mind. Although, we would obviously prefer to operate with the tailwinds of a robust economy, this economic cycle is providing us with interesting opportunities as we enable our customers to improve their operating costs while upgrading their networks. I will spend more time on operating in this environment in a moment, but first Mark will take you through an overview of this quarter's results. Mark?

Mark A. Peters - Chief Financial Officer and Executive Vice President

Thanks Larissa, and hello everyone. Let me direct you to the press release for all the detailed results, as I turn to an overview on the quarter. First, we continue to grow enterprise revenue for the 25th consecutive quarter reaching all the way back to 2002. Our total revenue growth was impacted by the timing of revenue churn and customer installations, as well as an unfavorable impact from disputes together which had a significant impact on growth.

Second, we continue to eliminate costs and scale the business. Yielding us a strong 35.2% modified EBITDA margin for the quarter. Next on the CapEx front, we continue to invest in customer opportunities as well as infrastructure investments, which culminated in a higher investment quarter compared to the prior quarter. Finally, we delivered strong levered free cash flow, grew earnings per share, and very importantly in this environment we maintained strong liquidity.

Let me touch on each of those. Let's start with revenue, we had 6% year-over-year growth and 1.5% growth sequentially. This quarter highlights the impact we can experience in a given quarter due to the timing of installs and disconnects. For instance, revenue churn of 1.2% was identical this quarter to last quarter. However, due to the fact that we experienced higher churn earlier in the quarter, the impact to revenue was greater in this quarter.

Remember our revenue churn is a metric that measures lost monthly revenue or run rate over the entire quarter compared to total reported revenue. Similar to churn installation timing also impacted revenue growth this quarter. The trend for our revenue churn has grown from 1% in the last half of last year to 1.2% for the past two quarters, which reflects both the impact of the economy and acquired customers. We continue to see a concentration of churn in acquired customers with less complex products, as well as mortgage related businesses and carriers and we expect the higher churn may continue.

Also in this economic environment, we expect that we may see further fluctuations and disputes. Now, let me touch on sales installations and revenue for a moment. Our sales remain steady. Sales increased sequentially and year-over-year and also grew on a year to date basis over the same period last year. While we would expect higher sales in a better economy, the consistency and stability of sales and demand is encouraging in this environment.

Remember the timing of installing those sales is what drives the revenue recognition and it can take three to six months or even longer to fully install larger deals. In fact, we have some deals that won't install until next summer. Now, let me touch briefly on our enterprise revenue, which grew 11% year-over-year and 2% sequentially. This revenue segments continues to be primarily driven by our ongoing strength in data and Internet services, as well as contribution from our other lines of business.

For the current quarter, enterprise revenue represented 93% of our data and Internet services, 96% of our voice services and 38% of our network services with carriers contributing the balance of the revenues. Turning to the carrier segment, we experience we experienced a 3% revenue decline sequentially due to fluctuation and disputes disconnects and repricing of contracts.

Year-over-year, carrier revenue decreased 2% or $1.8 million, which approximates the loss revenue from the singular churn. Excluding that impact carrier revenue would have been flat year-over-year. If you recall our carrier revenue primarily represents local connectivity to our carrier's customers as well as services for their local infrastructure and does not include any inter carrier compensation which we break out separately.

Next let me touch on our margins and cost management. Modified EBITDA grew 4% sequentially and an impressive 19% year-over-year and modified EBITDA margin grew to 35.2% this quarter from 31.5% the same period last year. This growth in our margins started prior to the economic downturn and is a result of our deliberate operational planning, which was facilitated by our integration efforts.

Initiatives, like streamlining our customer service, centralizing our ordering functions, enabling customers to utilize our enhanced self service portal, trouble ticket automation and ongoing network grooming have all contributed to our scale and efficiencies. In addition, by keeping our eye on the possible impact of an economic downturn earlier this year we started tightening our head counts through normal attrition, reorganizing functions and asking our employees to take on additional responsibilities.

Our success from those these efforts is showing as our head count is less than a year ago and that's against a back drop of growing revenue. Together these efforts contributed to us achieving a 370 basis point expansion and modified EBITDA margin year-over-year. Turning to CapEx, for the quarter we invested in customer sales and expanded network reaching capacity.

Of our $204 million of year-to-date capital spending, we have invested nearly $60 million to fund the expansion of our markets co-location facilities, national IP backbone, regional fiber networks and other infrastructure, all primarily driven by near and longer term sales opportunities. As we move into 2009, we will carefully manage the timing of similar investments against the overall environment, but we will not shy away from investing in direct customer opportunities that meet our strict return criteria.

For the full year 2008, we expect our CapEx to be approximately $275 million, which may be a bit higher or lower based on the timing of customer opportunities and other project and progress at year end. Finally, both our levered free cash flow and earnings per share were solid for the quarter with EPS moving up to $0.03 per share. Year-to-date levered free cash flow has increased $41 million from last year. Reflecting cash creation from a successful acquisitions, revenue contribution and our ability to scale the business.

With all the attention on the economy, I would like to pause here and level set our position in the marketplace by reviewing our strong fundamentals. First is the fact that we provide our customers mission critical network services to run their business by connecting to their branch locations, networking with their corporate headquarters and reaching their data center sites and the more complex and intertwined our services are with the customers, the less likely they are to churn.

Next we have the recurring revenue business and therefore we do not have to regenerate our entire revenue stream each quarter. Our customers sign long-term contracts providing revenue continuity. Currently 64% of our revenue is on three to five year contracts. Also important is our on net revenue, which contributes to our high margin and allows us control of our network operation.

This quarter nearly 64% of our revenue is fully on our own fiber network, end-to-end with the remaining revenue on our fiber network as well, but with some elements provided by another carrier. Looking at other metrics in our business, they remain strong including industry leading day's sales outstanding, continued low bad debt expense and most importantly today strong liquidity. Our debt structure and liquidity places us in a very favorable position. As of September 30th included the following.

First, we have $334 million in cash and equivalents. Second, we have strong leverage ratios including our net debt to annualized modified EBITDA, which is less than three to one. Third, we have no significant debt maturities before 2013. Next for the quarter, we had a relatively attractive 5.5% average effective rate on our debt. Also we have an underarm revolver which we do not need for daily operations, but rather view as dry powder. And finally, we have no debt financial maintenance covenants.

Having a strong liquidity position allows us to continue to pursue profitable growth opportunities. Additionally, we are in the enviable position of having no need to return to the capital market. Finally, let me share our thinking with regard to our available cash, we believe that in this environment cash is king. Especially as the economy continues to work through the current volatile environment.

Our priorities include maintaining maximum flexibility and security and to invest in growing our business subject to our consistent return criteria. Opportunistically, we could also consider debt or equity repurchases, but they are less of a priority. Let me leave you with one final thought and that is on our levered free cash flow. We feel comfortable that we will continue to produce levered free cash flow for 2009 even in a soft economy and here is why.

We have a predictable and stable recurring revenue business. We have demonstrated the ability to control costs and finally the majority of our capital spending is tied directly to new sales, which acts as a natural governor to spending given our ongoing return threshold.

Let me sum up the quarter by saying, we are pleased with the strength of our margins, cash flow and earnings per share as well as our strong liquidity. We will continue to focus on balancing all the important aspects of generating cash, investing in the business streamlining our operations, while pursuing strong customer opportunities which meets our return threshold.

With that I will turn it over to you Larissa.

Larissa L. Herda - Chairman, Chief Executive Officer and President

Thanks Mark. I think Mark did a good job outlining the strength of our liquidity, our solid fundamentals and our effective cost control efforts. I would like to build on that by taking some time to talk about what we are doing to grow and manage our profitability. We have been in this business a long time and we know how to successfully navigate in a volatile market environment. To give you some historical perspective let's compare our market position performance and strength today to the last economic downturn, which was in the 2001 to 2003 time frame.

Let me paint a picture for those who are not familiar with us in 2001. First let's talk about the mix of our business, which was heavily weighted to the carrier business. At that time carriers were financially stressed. Many were going bankrupt and many engaging in irrational pricing. These carriers not only made up the majority of our revenue, but they had purchased a lot of network services in advance of their own customer demand and that led to a lot of unused capacity that was quickly disconnected when the economy changed.

Also in 2001, we had a very new enterprise business in its nascent stage. Our enterprise products were in their infancy and represented much more of a commoditized product set. As a result, we had many competitors. In addition, our back office systems and processes were not yet robust or streamlined or ready to handle complex solutions. Finally, we were in a position of having restricted debt covenants that caused us to be unable to invest in our business at the levels we would have like as quickly as we would have liked which resulted in a longer road to top line revenue growth once the economy turned.

So, there are things that we did since 2001 to address our market position. First and foremost, we decided to decrease our risk profile by heavily shifting our focus to enterprise customers and intentionally reducing our exposure to any single customer as well as to risky carrier customers. Next we deliberately expanded our product portfolio to increase our target market and to create stickier customer relationships.

Additionally, although our capital spending was restrained, we continued to grow our fiber footprint, to select network investments and we scaled our strongest markets by investing in infrastructure for customer opportunities. We also put in place programs to retain and up sell existing customers to reduce our growing churn. This included creating a new team of farmer type sales people who worked to up sell and renew existing customers.

Finally, we worked diligently over several years to optimize our capital structure to yield us the flexibility that we enjoy today. Together these efforts were very successful and we're all instrumental in building the foundation for a strong growth that we have enjoyed over the last four years.

Next let's look at today and see how things have changed from 2001. First, we have greatly diversified our business. We have shifted from a carrier centric business to one that serves a broad array of enterprise customers as well as carriers. Today our largest customer is only 5% of our revenue and represents a very strong and financially sound customer versus the last downturn when our largest customer was 12% of our revenue and by the way that customer went bankrupt. Our carrier business represents a quarter of our revenue today versus a majority of our revenue in 2001.

Our strategic focus for our carrier segment today includes targeted growth opportunities. This includes those opportunities, which we believe are the best fit for our business both from a risk profile and future business possibilities, and includes serving customers like wireless carriers and out of reach [inaudible] needs.

As for our enterprise segment, it has grown dramatically since 2001 and continues to grow as enterprise customers represent 73% of our revenue today versus 33% in the fourth quarter of 2001. Additionally we have grown from 29 markets at the beginning of 2001 to 75 markets today, likewise growing from serving less than 6500 customers in 2001 to over 30,000 customers today.

Also since 2001, the middle of our enterprise sweet spot has grown and evolved from serving primarily single site medium size customers with basic services that compares to today where we are serving complex mission critical fiber based solutions to a broad range of medium and large size customers including 30% of the Fortune 1000. Back in 2001, we wouldn't have dreamed of being able to serve a single customer in hundreds of locations as we can today.

Actually, I guess we did dream about it, and then we turned that dream into a reality. The solutions we have today not only increased the stickiness of our customer relationships, but also help us to gain an increase share of wallet from them. And a significant part of the solution, we offer is directly tied to our consistent investment in our IT backbone, which continues to grow at impressive rates with our IP traffic growing by 12% in the third quarter alone.

With regards to competition there are only a fraction of the players that remain from 2001. Today given our targeted customers and their complex fiber solutions there are only a few competitors within most of our markets who can do what we do. Similar to our earlier acquisition in 2001, our most recent acquisition has provided us tremendous fiber networks increasing our national reach. During the last telecom downturn, we were constrained from investing in those markets as quickly as we would have liked.

However, after we did they became some of our strongest and fastest growing markets that we have today. Likewise, we look to our most recently acquired markets as our growth engine of the future and we are starting to see nice traction in those markets. Since, we are benefiting today from our strong cash flow and liquidity, this enables us to continue to invest in such market opportunities, which will provide us with a great launching pad as the economy turns.

So over the course of 2001 to 2003, we managed through dramatically higher churn, restricted bank covenants and restrained capital spending, yet from that we positioned ourselves for 25 consecutive quarters of enterprise growth, which began in 2002 and continued today. That is a pretty nice track record. So, as we sit here today, we are much stronger in all aspects of our business and in a better position than we have ever been before.

Therefore, when we think about how we will grow and manage profitability in the future we will continue to do what we have already done including investing in the right market opportunities, controlling our costs, and focusing on the customer experience. But that is not enough. We also believe to be positioned for the future we need to continue to innovate. Therefore, we expect to further expand our product portfolio, as well as continually improve our customer experience.

In this market just as it was in the last downturn, one of the most critical success factors is efficient and innovative solutions for the customers. With customers shopping for the best value, which includes product innovation, lower cost of ownership and often greater capacity, this is causing greater opportunities for our business. And here are a few customer wins that demonstrate our ability to deliver just that including Travis County Texas in Austin.

We won this business for all county locations including an upgrade from the customers current frame relay to our VPN service at 17 locations plus transport and bundled waste products. The bottom line on this multisite win is that we won it from an incumbent, we constructed fiber to where the customer wanted us to be which not all competitors were willing to do. We provided a solution that could scale as the customer grows and the customers expecting a cost saving exceeding $500,000 over the life of the contract.

Liebert Corporation was another recent customer win. Liebert a subsidiary of Emerson Corporation is a multisite customer who is currently expanding in Columbus Ohio. As a current provider already for a portion of their services, we proposed and won a comprehensive multisite Ethernet offer, transport and voice network solution, which displaced the incumbent solution.

The bottom line of this multi site win was the fact that we were able to address scalability and resiliency which were key issues for our customers with our premium reliability through our SONET-based service. We leveraged an existing relationship with the customer and we won this business from the incumbent. Trustco is another recent win of ours. They are based in Albany, New York and operate over 110 bank offices in five states. Our solution, which encompass their needs at 13 sites was a VPN network with class of service capability, which enabled the bank to deploy emerging banking applications, voice over IP and video services.

The bottom line on this multisite win was providing an innovative solution to improve their infrastructure in order to enhance their own customer's experience, as well as their competitive position. Finally in Birmingham one of our new investment markets, we won Ethernet, Internet and transport services with the University of Alabama Medical Center which has been a nationally ranked facility for the past 17 consecutive years and one of Alabama's largest employers. Bottom line on this customer win was that we won this business away from the incumbent due to our local leadership sales team and service support.

This is one area that continues to differentiate us from the competition. Now those are just a few of our recent wins, but they speak of our ability to innovate lower a customers operating cost and good old fashioned customer service.

In closing, let me say that we believe no Company is immune to this economy and neither are we. As we said previously, we have been seeing longer sale cycle times for larger customers and while our stats aren't telling us the cycles are lengthening across our base, we believe that they are lengthening in some areas.

As Mark discussed, churn has also gradually increased over the past year, which we believe a portion is related to the economy. However, let me point out some of the things that position us not only move through these issues and this economic cycle successfully, but to build market share and position ourselves for another long-term of cycle growth, including our relentless attention to customer care and product innovation, our customer diversification by types of customers, vertical markets, geographic regions and services, our ongoing investments in systems, process and people and our track record to execute perform and generate consistent long-term results.

We believe these differentiating factors will allow us to continue to win new business and grow. We will now take your questions.

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