In 2006, 99% of the 176,000 customers of Madison River, a rural carrier, could receive broadband. 30% were already subscribers. It apparently only cost a couple of hundred per home for the broadband. To see whether they had particularly unusual circumstances, I reviewed their IPO filing.

Madison River's territory is no harder to serve than the typical rural carrier. Hinesville, Georgia is typical, where revenues were effected when the 3rd Infantry Division stationed at Fort Stewart and Hunter Army Airfield. Their DSL deployment was not particularly expensive, probably only a couple of hundred dollars per line. I infer the cost because their total capital spending was less than $100/line each year, which included an edge-out expansion, a fiber network, and all the usual costs of running a phone company.

The cost of this actual rural broadband deployment is so low that the numbers cited in the FCC rural broadband report need to be re-examined. The report references rural costs compiled by an organization that lobbies for the telcos asking for subsidies. They are almost certainly too high.

Madison River was sold to CenturyTel for more than 20 times earnings, a remarkable price. The Rural Telephone Finance Cooperative supplied them loans, beyond a prudent level, inspiring me to look at the finances of the RTFC. Here's the acquisition press release, which suggests that the price was off the wall in case the feds cut USF.

CenturyTel to Acquire Madison River for $830 million

MONROE, La. -- CenturyTel, Inc. (NYSE: CTL):

* Acquisition of 176,000 rural access lines with 99% broadband coverage and 30% high speed Internet penetration

* Accretive to free cash flow per share in the first year, before synergies

* Expands CenturyTel's access line base by 8%

* Maintains CenturyTel's operational, financial and strategic flexibility

* Continued commitment to share repurchase plan

CenturyTel, Inc. ("CenturyTel" or the "Company") (NYSE: CTL) announced today that it has entered into a definitive agreement to acquire all of the outstanding stock of Madison River Communications Corp. ("Madison River") for $830 million in a combination of cash and the assumption of debt.

The acquisition is expected to close in the second quarter of 2007, subject to the satisfaction of certain customary conditions, including necessary approvals from federal and state regulators. The final purchase price is subject to certain customary adjustments which are not expected to be material.

CenturyTel intends to finance the acquisition with debt and cash generated from operations. The Company also expects to complete the remainder of its current $1 billion share repurchase program by mid-year 2007.

CenturyTel's balance sheet will remain strong following the transaction, with a pro forma net debt to last twelve months ended September 30, 2006 ("LTM") EBITDA ratio of approximately 2.6x, before anticipated synergies. On a pro forma basis, the Company will have approximately 2.3 million access lines and 390,000 high-speed Internet subscribers.

Strategic Rationale

With this acquisition, CenturyTel adds attractive markets with good demographics and growth prospects in Alabama, Georgia, Illinois and North Carolina. Madison River's high-quality network is 99% broadband-enabled and includes a 2,400 route mile fiber network that is complementary to CenturyTel's existing operations.

Once this acquisition is fully integrated, CenturyTel estimates it will achieve annual cost synergies of approximately $17 million.

"We are pleased to announce the acquisition of Madison River. Under Stephen Vanderwoude's and Paul Sunu's leadership, Madison River has built a great communications company. Through efficient investment in their network and a grass-roots approach to their customer base, they have achieved virtually ubiquitous broadband enablement and strong high-speed Internet penetration," said Glen F. Post, III, chairman and chief executive officer of CenturyTel. "This transaction fits CenturyTel's acquisition strategy and permits us to continue our share repurchase initiative while maintaining operational, financial and strategic flexibility."

Financial Summary

Madison River generated $189 million of revenue, $99 million of EBITDA and $35 million of leveraged free cash flow, before anticipated synergies, in the twelve months ended September 30, 2006. The purchase price represents 9.6x and 7.4x Madison River's LTM free cash flow before and after anticipated synergies, respectively, and 8.4x and 7.2x LTM EBITDA before and after anticipated synergies, respectively.

CenturyTel estimates the transaction will be approximately 4% accretive to free cash flow per share, before synergies. After synergies, the transaction is estimated to be approximately 6% accretive to free cash flow per share.