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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2007

or



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from              to

Commission File No. 001-03040



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QWEST CORPORATION

(Exact name of registrant as specified in its charter)



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|                                                              |  |                                    
|------------------------------------------------------------- |  | -----------------------------------
|Colorado                                                      |  | 84-0273800                         
|(State or other jurisdiction ofincorporation or organization) |  | (I.R.S. EmployerIdentification No.)
|                                                              | 
|1801 California Street, Denver, Colorado                      |  | 80202                              
|(Address of principal executive offices)                      |  | (Zip Code)                         

(303) 992-1400

(Registrants telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)



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THE REGISTRANT, A WHOLLY OWNED
SUBSIDIARY OF QWEST COMMUNICATIONS INTERNATIONAL INC., MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H(1) (a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH REDUCED DISCLOSURE FORMAT.

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days.    Yes x    No ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check One):



|                         |  |                    |  |                        
|------------------------ |  | ------------------ |  | -----------------------
|Large accelerated filer ̈ |  | Accelerated filer ̈ |  | Non-accelerated filer x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).    Yes ̈No x

On April 30, 2007, one share of Qwest Corporation common stock was outstanding.



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QWEST CORPORATION

FORM 10-Q

TABLE OF CONTENTS



|                             |  |                                                                                                        |  |   
|---------------------------- |  | ------------------------------------------------------------------------------------------------------ |  | --
|Glossary of Terms            |  | ii                                                                                                    
|                            
|PART IFINANCIAL INFORMATION
|Item 1.                      |  | Financial Statements                                                                                   |  | 1 
|                             |  |                                                                                                       
|                             |  | Condensed Consolidated Statements of OperationsThree months ended March 31, 2007 and 2006 (unaudited) |  | 1 
|                             |  |                                                                                                       
|                             |  | Condensed Consolidated Balance SheetsMarch 31, 2007 and December 31, 2006 (unaudited)                 |  | 2 
|                             |  |                                                                                                       
|                             |  | Condensed Consolidated Statements of Cash FlowsThree months ended March 31, 2007 and 2006 (unaudited) |  | 3 
|                             |  |                                                                                                       
|                             |  | Notes to Condensed Consolidated Financial Statements (unaudited)                                       |  | 4 
|                             |  |                                                                                                       
|Item 2.                      |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                  |  | 15
|                             |  |                                                                                                       
|Item 3.                      |  | Quantitative and Qualitative Disclosures About Market Risk                                             |  | 25
|                             |  |                                                                                                       
|Item 4.                      |  | Controls and Procedures                                                                                |  | 25
|                            
|PART IIOTHER INFORMATION   
|Item 1.                      |  | Legal Proceedings                                                                                      |  | 27
|                             |  |                                                                                                       
|Item 1A.                     |  | Risk Factors                                                                                           |  | 28
|                             |  |                                                                                                       
|Item 6.                      |  | Exhibits                                                                                               |  | 35
|                             | 
|Signature                    |  | 37                                                                                                    



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GLOSSARY OF TERMS

Our industry uses many terms and acronyms that may not be familiar to you. To assist you in
reading this document and other documents we file with the Securities and Exchange Commission, we have provided below definitions of some of these terms.



| |  |  | Access Lines. Telephone lines reaching from the customers premises to a connection with the public switched telephone network. When we refer to our
access lines we mean all our mass markets, wholesale and business access lines, including those used by us and our affiliates.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Asynchronous Transfer Mode (ATM). A broadband, network transport service utilizing data switches that provides a fast, efficient way to move large quantities
of information.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Competitive Local Exchange Carriers (CLECs). Telecommunications providers that compete with us in providing local voice and other services in our local
service area.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Data Integration. Voice and data telecommunications customer premises equipment and associated professional services. These services include network
management, installation and maintenance of data equipment and building of proprietary fiber-optic broadband networks for our governmental and business customers.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Dedicated Internet Access (DIA). Internet access ranging from 128 kilobits per second to 2.5 gigabits per second.
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | Frame Relay. A high speed data switching technology primarily used to interconnect multiple local networks.
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | High-speed Internet access. Service used to connect to the Internet and private networks. This technology allows existing telephone lines to operate at
higher speeds than dial-up access, thereby giving customers faster connections necessary to access data and video content.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Incumbent Local Exchange Carrier (ILEC). A traditional telecommunications provider that, prior to the Telecommunications Act of 1996, had the exclusive right
and responsibility for providing local telecommunications services in its local service area. Qwest Corporation is an ILEC.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Integrated Services Digital Network (ISDN). A telecommunications standard that uses digital transmission technology to support voice, video and data
communications applications over regular telephone lines.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | InterLATA long-distance services. Telecommunications services, including 800 services, that cross LATA boundaries.
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | Internet Dial Access. Provides ISPs and business customers with a comprehensive, reliable and cost-effective dial-up network infrastructure.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Internet Protocol (IP). Those protocols that facilitate transferring information in packets of data and that enable each packet in a transmission to
tell the data switches it encounters where it is headed and enables the computers on each end to confirm that message has been accurately transmitted and received.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Internet Service Providers (ISPs). Businesses that provide Internet access to retail customers.
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | IntraLATA long-distance services. These services include calls that terminate outside a customers local calling area but within the customers
LATA, including wide area telecommunications service or 800 services for customers with geographically highly concentrated demand.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Local Access Transport Area (LATA). A geographical area associated with the provision of telecommunications services by local exchange and long distance
carriers. There are 163 LATAs in the United States, of which 27 are in our 14 state local service area.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Local Calling Area. A geographical area, usually smaller than a LATA, within which a customer can make telephone calls without incurring long-distance
charges. Multiple local calling areas generally make up a LATA.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Multi-Protocol Label Switching (MPLS). A standards-approved data networking technology, compatible with existing ATM and frame relay networks that can
deliver the quality of service required to support real-time voice and video, as well as service level agreements that guarantee bandwidth. MPLS is deployed by many telecommunications providers and large enterprises for use in their own national
networks.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Private Line. Direct circuit or channel specifically dedicated to the use of an end-user organization for the purpose of directly connecting two or more
sites.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Public Switched Telephone Network (PSTN). The worldwide voice telephone network that is accessible to every person with a telephone equipped with dial tone.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Unbundled Network Elements (UNEs). Discrete elements of our network that are sold or leased to competitive telecommunications providers and that may be
combined to provide their retail telecommunications services.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Virtual Private Network (VPN). A private network that operates securely within a public network (such as the Internet) by means of encrypting transmissions.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Voice over Internet Protocol (VoIP). An application that provides real-time, two-way voice communication similar to our traditional voice that originates in
the Internet protocol over a broadband connection and often terminates on the PSTN.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Web Hosting. The providing of space, power and bandwidth in data centers.
| | - |  | -------------------------------------------------------------------------



| |  |  | Wide Area Network (WAN). A communications network that covers a wide geographic area, such as a state or country. A WAN typically extends a local area
network outside the building, over telephone common carrier lines to link to other local area networks in remote locations, such as branch offices or at-home workers and telecommuters.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

QWEST CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)



|                                                           |  |                             |       |   |      |   |       |  
|---------------------------------------------------------- |  | --------------------------- | ----- | - | ---- | - | ----- | -
|                                                           |  | Three Months EndedMarch 31, |      
|                                                           |  | 2007                        |       |   | 2006 |  
|                                                           |  | (Dollars in millions)       |      
|Operating revenue:                                         |  |                             |       |   |      |   |       |  
|Operating revenue                                          |  | $                           | 2,194 |   |      | $ | 2,241 |  
|Operating revenueaffiliates                               |  |                             | 264   |   |      |   | 237   |  
|                                                           |  |                             |       |   |      |   |       |  
|Total operating revenue                                    |  |                             | 2,458 |   |      |   | 2,478 |  
|                                                           |  |                             |       |   |      |   |       |  
|Operating expenses:                                        |  |                             |       |   |      |   |       |  
|Cost of sales (exclusive of depreciation and amortization) |  |                             | 474   |   |      |   | 518   |  
|Cost of salesaffiliates                                   |  |                             | 58    |   |      |   | 60    |  
|Selling, general and administrative                        |  |                             | 398   |   |      |   | 429   |  
|Selling, general and administrativeaffiliates             |  |                             | 230   |   |      |   | 272   |  
|Depreciation and amortization                              |  |                             | 522   |   |      |   | 596   |  
|                                                           |  |                             |       |   |      |   |       |  
|Total operating expenses                                   |  |                             | 1,682 |   |      |   | 1,875 |  
|                                                           |  |                             |       |   |      |   |       |  
|Other expense (income)net:                                |  |                             |       |   |      |   |       |  
|Interest expensenet                                       |  |                             | 153   |   |      |   | 153   |  
|Othernet                                                  |  |                             | (2    | ) |      |   | (1    | )
|                                                           |  |                             |       |   |      |   |       |  
|Total other expense (income)net                           |  |                             | 151   |   |      |   | 152   |  
|                                                           |  |                             |       |   |      |   |       |  
|Income before income taxes                                 |  |                             | 625   |   |      |   | 451   |  
|Income tax expense                                         |  |                             | 233   |   |      |   | 167   |  
|                                                           |  |                             |       |   |      |   |       |  
|Net income                                                 |  | $                           | 392   |   |      | $ | 284   |  
|                                                           |  |                             |       |   |      |   |       |  

The accompanying notes are an integral part of these condensed consolidated financial statements.



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QWEST CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)



|                                                                                         |  |                       |        |   |                  |   |        |  
|---------------------------------------------------------------------------------------- |  | --------------------- | ------ | - | ---------------- | - | ------ | -
|                                                                                         |  | March 31,2007         |        |   | December 31,2006 |  
|                                                                                         |  | (Dollars in millions) |       
|ASSETS                                                                                   |  |                       |        |   |                  |   |        |  
|Current assets:                                                                          |  |                       |        |   |                  |   |        |  
|Cash and cash equivalents                                                                |  | $                     | 347    |   |                  | $ | 274    |  
|Short-term investments                                                                   |  |                       | 87     |   |                  |   | 42     |  
|Accounts receivablenet of allowance of $51 and $53, respectively                        |  |                       | 986    |   |                  |   | 1,035  |  
|Accounts receivableaffiliates                                                           |  |                       | 131    |   |                  |   | 147    |  
|Deferred income taxes                                                                    |  |                       | 182    |   |                  |   | 180    |  
|Prepaid expenses and other                                                               |  |                       | 182    |   |                  |   | 177    |  
|                                                                                         |  |                       |        |   |                  |   |        |  
|Total current assets                                                                     |  |                       | 1,915  |   |                  |   | 1,855  |  
|                                                                                         |  |                      
|Property, plant and equipmentnet                                                        |  |                       | 12,698 |   |                  |   | 12,995 |  
|Capitalized softwarenet                                                                 |  |                       | 403    |   |                  |   | 419    |  
|Prepaid pensionaffiliates                                                               |  |                       | 958    |   |                  |   | 962    |  
|Other                                                                                    |  |                       | 231    |   |                  |   | 239    |  
|                                                                                         |  |                       |        |   |                  |   |        |  
|Total assets                                                                             |  | $                     | 16,205 |   |                  | $ | 16,470 |  
|                                                                                         |  |                       |        |   |                  |   |        |  
|                                                                                         |  |                      
|LIABILITIES AND STOCKHOLDERS
EQUITY                                                     |  |                       |        |   |                  |   |        |  
|Current liabilities:                                                                     |  |                       |        |   |                  |   |        |  
|Current borrowings                                                                       |  | $                     | 71     |   |                  | $ | 71     |  
|Accounts payable                                                                         |  |                       | 346    |   |                  |   | 392    |  
|Accounts payableaffiliates                                                              |  |                       | 713    |   |                  |   | 418    |  
|Dividends payableQSC                                                                    |  |                       | 75     |   |                  |   | 200    |  
|Accrued expenses and other                                                               |  |                       | 720    |   |                  |   | 782    |  
|Accrued expenses and other primarily related to employee benefitsaffiliates             |  |                       | 176    |   |                  |   | 176    |  
|Deferred revenue and advance billings                                                    |  |                       | 455    |   |                  |   | 463    |  
|                                                                                         |  |                       |        |   |                  |   |        |  
|Total current liabilities                                                                |  |                       | 2,556  |   |                  |   | 2,502  |  
|                                                                                         |  |                      
|Long-term borrowingsnet of unamortized debt discount of $125 and $126 respectively      |  |                       | 7,611  |   |                  |   | 7,610  |  
|Deferred revenue                                                                         |  |                       | 183    |   |                  |   | 173    |  
|Deferred income taxes                                                                    |  |                       | 1,518  |   |                  |   | 1,673  |  
|Other                                                                                    |  |                       | 264    |   |                  |   | 220    |  
|Other primarily related to post-retirement and other post-employment benefitsaffiliates |  |                       | 2,550  |   |                  |   | 2,562  |  
|                                                                                         |  |                       |        |   |                  |   |        |  
|Total liabilities                                                                        |  |                       | 14,682 |   |                  |   | 14,740 |  
|                                                                                         |  |                       |        |   |                  |   |        |  
|                                                                                         |  |                      
|Commitments and contingencies (Note 5)                                                   |  |                       |        |   |                  |   |        |  
|                                                                                         |  |                      
|Stockholders equity:                                                                    |  |                       |        |   |                  |   |        |  
|Common stockone share without par value, owned by QSC                                   |  |                       | 10,358 |   |                  |   | 10,346 |  
|Accumulated deficit                                                                      |  |                       | (8,835 | ) |                  |   | (8,616 | )
|                                                                                         |  |                       |        |   |                  |   |        |  
|Total stockholders equity                                                               |  |                       | 1,523  |   |                  |   | 1,730  |  
|                                                                                         |  |                       |        |   |                  |   |        |  
|Total liabilities and stockholders equity                                               |  | $                     | 16,205 |   |                  | $ | 16,470 |  
|                                                                                         |  |                       |        |   |                  |   |        |  

The accompanying notes are an integral part of these condensed consolidated financial statements.



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QWEST CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



|                                                                                  |  |                             |       |   |      |   |      |  
|--------------------------------------------------------------------------------- |  | --------------------------- | ----- | - | ---- | - | ---- | -
|                                                                                  |  | Three Months EndedMarch 31, |      
|                                                                                  |  | 2007                        |       |   | 2006 |  
|                                                                                  |  | (Dollars in millions)       |      
|Operating activities:                                                             |  |                             |       |   |      |   |      |  
|Net income                                                                        |  | $                           | 392   |   |      | $ | 284  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                             |       |   |      |   |      |  
|Depreciation and amortization                                                     |  |                             | 522   |   |      |   | 596  |  
|Provision for bad debtsnet                                                       |  |                             | 17    |   |      |   | 20   |  
|Deferred income taxes                                                             |  |                             | (81   | ) |      |   | (90  | )
|Other non-cash chargesnet                                                        |  |                             | 4     |   |      |   | 4    |  
|Changes in operating assets and liabilities:                                      |  |                             |       |   |      |   |      |  
|Accounts receivable                                                               |  |                             | 32    |   |      |   | (20  | )
|Accounts receivableaffiliates                                                    |  |                             | 16    |   |      |   | 19   |  
|Prepaid expenses and other current assets                                         |  |                             | (4    | ) |      |   | 1    |  
|Accounts payable and accrued expenses and other current liabilities               |  |                             | (134  | ) |      |   | (145 | )
|Accounts payable and accrued expenses and other current liabilitiesaffiliates    |  |                             | 281   |   |      |   | 253  |  
|Deferred revenue and advance billings                                             |  |                             | 2     |   |      |   | (12  | )
|Other non-current assets and liabilities including affiliates                     |  |                             | (29   | ) |      |   | (27  | )
|                                                                                  |  |                             |       |   |      |   |      |  
|Cash provided by operating activities                                             |  |                             | 1,018 |   |      |   | 883  |  
|                                                                                  |  |                             |       |   |      |   |      |  
|Investing activities:                                                             |  |                             |       |   |      |   |      |  
|Expenditures for property, plant and equipment and capitalized software           |  |                             | (204  | ) |      |   | (292 | )
|Interest in net purchases of investments managed by QSC                           |  |                             | (46   | ) |      |   | (33  | )
|Proceeds from sale of property and equipment                                      |  |                             |      |   |      |   | 26   |  
|Other                                                                             |  |                             | 4     |   |      |   |     |  
|                                                                                  |  |                             |       |   |      |   |      |  
|Cash used for investing activities                                                |  |                             | (246  | ) |      |   | (299 | )
|                                                                                  |  |                             |       |   |      |   |      |  
|Financing activities:                                                             |  |                             |       |   |      |   |      |  
|Dividends paid to QSC                                                             |  |                             | (725  | ) |      |   | (526 | )
|Other                                                                             |  |                             | 26    |   |      |   |     |  
|                                                                                  |  |                             |       |   |      |   |      |  
|Cash used for financing activities                                                |  |                             | (699  | ) |      |   | (526 | )
|                                                                                  |  |                             |       |   |      |   |      |  
|Cash and cash equivalents:                                                        |  |                             |       |   |      |   |      |  
|Increase in cash and cash equivalents                                             |  |                             | 73    |   |      |   | 58   |  
|Beginning balance                                                                 |  |                             | 274   |   |      |   | 160  |  
|                                                                                  |  |                             |       |   |      |   |      |  
|Ending balance                                                                    |  | $                           | 347   |   |      | $ | 218  |  
|                                                                                  |  |                             |       |   |      |   |      |  

The accompanying notes are an integral part of these condensed consolidated financial statements.



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QWEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2007

(Unaudited)

Unless the context requires otherwise, references in this report to QC refer to Qwest
Corporation, references to Qwest, we, us, the Company and our refer to Qwest Corporation and its consolidated subsidiaries, and references to QCII refer to our ultimate parent
company, Qwest Communications International Inc., and its consolidated subsidiaries.

Note 1: Basis of Presentation

These condensed consolidated interim financial statements are unaudited and are prepared in accordance with the instructions for Form 10-Q. In
compliance with those instructions, certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America
(GAAP) have been condensed or omitted.

In the opinion of management, these statements include all adjustments necessary to
fairly present our condensed consolidated results of operations, financial position and cash flows as of March 31, 2007 and for all periods presented. These condensed consolidated financial statements should be read in conjunction with the
audited consolidated financial statements and the notes thereto included in our annual report on Form 10-K for the year ended December 31, 2006 (the 2006 Form 10-K). The condensed consolidated results of operations and the
condensed consolidated statement of cash flows for the three months ended March 31, 2007 are not necessarily indicative of the results or cash flows expected for the full year or of the results we would have incurred had we operated as a
stand-alone entity during the periods presented.

We have reclassified certain prior period balances to conform to the current period
presentation.

Use of Estimates

Our condensed consolidated financial statements are prepared in accordance with GAAP. These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions made
when accounting for items and matters such as, but not limited to, long-term contracts, customer retention patterns, allowance for bad debts, depreciation, amortization, asset valuations, internal labor capitalization rates, recoverability of
assets, impairment assessments, employee benefits, taxes, reserves and other provisions and contingencies are reasonable, based on information available at the time they are made. These estimates, judgments and assumptions can affect the reported
amounts of assets and liabilities as of the date of the condensed consolidated financial statements, as well as the reported amounts of revenue and expenses during the periods presented. We also assess potential losses in relation to threatened or
pending legal and tax matters. See Note 5Commitments and Contingencies.

For matters not related to income taxes, if a loss is
considered probable and the amount can be reasonably estimated, we recognize an expense for the estimated loss. If we have the potential to recover a portion of the estimated loss from a third party, we make a separate assessment of recoverability
and reduce the estimated loss if recovery is also deemed probable.

Effective January 1, 2007, our policy for accounting for income
taxes changed upon adoption of Financial Accounting Standards Board (FASB) Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). See Note 2Adoption of
FIN 48 for further discussion.

Actual results could differ from our estimates.



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QWEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the
Three Months Ended March 31, 2007

(Unaudited)



USF, Gross Receipts Taxes and Other Surcharges

Our revenue and expenses include taxes and surcharges that we recognize on a gross basis of $50 million and $67 million for the three months ended
March 31, 2007 and 2006, respectively.

Depreciation and Amortization

Property, plant and equipment is shown net of accumulated depreciation on our condensed consolidated balance sheets. Accumulated depreciation was
$30.576 billion and $30.477 billion as of March 31, 2007 and December 31, 2006, respectively.

Capitalized software is
shown net of accumulated amortization on our condensed consolidated balance sheets. Accumulated amortization was $844 million and $830 million as of March 31, 2007 and December 31, 2006, respectively. Effective
January 1, 2007, we changed our estimates of the average economic lives for capitalized software from between four and five years to between four and seven years. For the three months ended March 31, 2007, amortization expense would have
been $23 million higher had we not changed our estimates of the average economic lives.

Recently Adopted Accounting Pronouncements

Effective January 1, 2007, we adopted FIN 48. See Note 2Adoption of FIN 48 for additional information.

Effective January 1, 2007, we adopted FASB Statement of Financial Accounting Standard (SFAS) No. 156, Accounting for
Servicing of Financial Assets (SFAS No. 156). SFAS No. 156 requires us to initially measure all separately recognized servicing assets and liabilities at fair value and permits, but does not require, the subsequent
measurement of servicing assets and liabilities at fair value. The adoption of SFAS No. 156 has not had a material effect on our financial position or results of operations.

Recently Issued Accounting Pronouncements

In February 2007, the FASB issued SFAS
No. 159, Fair Value Option for Financial Assets and Financial Liabilities (SFAS No. 159). Under SFAS No. 159, entities may choose to measure at fair value many financial instruments and certain other items that
are not currently required to be measured at fair value. SFAS No. 159 also establishes recognition, presentation, and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities. SFAS No. 159 does not affect any existing accounting literature that requires certain assets and liabilities to be carried at fair value. SFAS No. 159 is effective for us beginning January 1,
2008. At this time, we do not expect adoption of this standard to have any impact on our financial position or results of operations.

In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which is effective for us beginning January 1, 2008 and provides a definition of fair value, establishes a framework for measuring fair value, and expands
disclosures about fair value measurements for future transactions. We do not expect the adoption of this standard to have a material impact on our financial position or results of operations.

Note 2: Adoption of FIN 48

Effective
January 1, 2007, we adopted FIN 48. The validity of any tax position is a matter of tax law, and generally there is no controversy about recognizing the benefit of a tax position in a companys financial



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QWEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the
Three Months Ended March 31, 2007

(Unaudited)



statements. The tax law is, however, subject to varied interpretations, and whether a tax position will ultimately be sustained may be uncertain. Prior to
January 1, 2007, the impact of an uncertain tax position that did not create a difference between the financial statement basis and the tax basis of an asset or liability and that would have future tax consequences was included in our income
tax provision if it was probable the position would be sustained upon audit. The benefit of any uncertain tax position that created a basis difference in an asset or liability was reflected in our tax provision if it was more likely than not that
the position would be sustained upon audit. Prior to the adoption of FIN 48, we recognized interest expense based on our estimates of the ultimate outcomes of the uncertain tax positions. Under FIN 48, the impact of an uncertain tax position
that is more likely than not of being sustained upon audit by the relevant taxing authority must be recognized at the largest amount that is more likely than not to be sustained. No portion of an uncertain tax position will be recognized if the
position in the aggregate has less than a 50% likelihood of being sustained. Also, under FIN 48, interest expense is recognized on the full amount of deferred benefits for uncertain tax positions.

We are included in the consolidated federal income tax returns and the combined state income tax returns of QCII. QCII treats our consolidated results as
if we were a separate taxpayer. This policy requires us to pay our tax liabilities in cash based upon separate return taxable income.

On
January 1, 2007, we recorded the following FIN 48 transition adjustments:



| |  |  | $67 million increase in our tax liabilities for uncertain tax positions for items previously presented in deferred tax liabilities;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | $19 million increase in interest accrued for uncertain tax positions and a corresponding $8 million increase in deferred tax asset; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $11 million increase in accumulated deficit.
| | - |  | --------------------------------------------

As of January 1, 2007, we had a total liability of $43 million for interest. During the first quarter of 2007, we increased our liability for uncertain tax positions by $3 million as a result of additional interest accruals.
In accordance with our accounting policy, both before and after adoption of FIN 48, interest expense and penalties related to income taxes are included in the othernet line of our condensed consolidated statements of operations. As of
January 1, 2007, we had unrecognized tax benefits of $132 million.

QCII is included in the coordinated industry case program of
the Internal Revenue Service (IRS) and therefore the IRS examines all of QCIIs federal income tax returns. As of March 31, 2007, all of the federal income tax returns QCII has filed since 1998 are still subject to adjustment
upon audit. QCII also files combined income tax returns in many states, and these combined returns remain open for adjustments to its federal income tax returns. In addition, certain combined state income tax returns QCII has filed since 1994 are
still open for state specific adjustments.

QCII has a tentative settlement with the IRS related to audits for the tax years 1998 through
2001. This settlement is subject to final calculation of QCIIs liability, QCIIs acceptance of the calculation and formal approval of the settlement by the IRS and the Joint Committee on Taxation of the U.S. Congress. If the settlement is
effected in accordance with our expectations, our total unrecognized tax benefits may decrease by approximately $75 million by December 31, 2007.



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##### Table of Contents

QWEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the
Three Months Ended March 31, 2007

(Unaudited)



Note 3: Borrowings

As of March 31, 2007 and December 31, 2006, our borrowings, net of discounts and premiums, consisted of the following:



|                                             |  |                       |       |                  |   |      
|-------------------------------------------- |  | --------------------- | ----- | ---------------- | - | -----
|                                             |  | March 31,2007         |       | December 31,2006
|                                             |  | (Dollars in millions)
|Current borrowings:                          |  |                       |       |                  |   |      
|Current portion of long-term borrowings      |  | $                     | 70    |                  | $ | 70   
|Current portion of capital lease obligations |  |                       | 1     |                  |   | 1    
|                                             |  |                       |       |                  |   |      
|Total current borrowings                     |  | $                     | 71    |                  | $ | 71   
|                                             |  |                       |       |                  |   |      
|Long-term borrowings:                        |  |                       |       |                  |   |      
|Long-term notes                              |  | $                     | 7,603 |                  | $ | 7,603
|Long-term capital lease obligations          |  |                       | 8     |                  |   | 7    
|                                             |  |                       |       |                  |   |      
|Total long-term borrowings                   |  | $                     | 7,611 |                  | $ | 7,610
|                                             |  |                       |       |                  |   |      

Note 4: Contribution to QCII Segments

Our operations are integrated into and are part of the segments of the QCII consolidated group. We have the same chief operating decision maker
(CODM) as the consolidated group. The CODM makes resource allocation decisions and assessments of financial performance for the consolidated group based on QCIIs wireline services, wireless services and other services segments. Our
business contributes to QCIIs wireline services and other services segments. QCIIs CODM reviews our financial information only in connection with our quarterly and annual reports that we file with the SEC. Consequently, we do not provide
our discrete financial information to the CODM on a regular basis.

We generate revenue from the provision of voice services, data,
Internet and video services and other services, as well as from the provision of services to our affiliates.



| |  |  | Voice services. Voice services include local voice services, IntraLATA long-distance voice services and access services. Local voice services include basic
local exchange, switching and enhanced voice services. Local voice services also include network transport, billing services and providing access to our local network through our wholesale channel. Access services include fees we charge to other
telecommunications providers to connect their customers and their networks to our network.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Data, Internet and video services. We offer data and Internet services to our mass markets, business and wholesale customers. We also offer high-speed
Internet access and resold satellite digital television to our mass markets customers.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Affiliate and other services. We provide to our affiliates billing and collection, marketing and advertising and other support services. In addition, we
provide to our affiliates local voice, access and data services that we also provide to external customers. Other services include the sublease of space in our office buildings, warehouses and other properties.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

QWEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the
Three Months Ended March 31, 2007

(Unaudited)



Revenue derived from external customers for the three months ended March 31, 2007 and 2006 is
summarized in the following table:



|                                  |  |                             |       |      |   |      
|--------------------------------- |  | --------------------------- | ----- | ---- | - | -----
|                                  |  | Three Months EndedMarch 31,
|                                  |  | 2007                        |       | 2006
|                                  |  | (Dollars in millions)      
|Operating revenue:                |  |                             |       |      |   |      
|Voice services                    |  | $                           | 1,489 |      | $ | 1,620
|Data, Internet and video services |  |                             | 701   |      |   | 616  
|Other services                    |  |                             | 4     |      |   | 5    
|                                  |  |                             |       |      |   |      
|Total operating revenue           |  | $                           | 2,194 |      | $ | 2,241
|                                  |  |                             |       |      |   |      

While revenue from affiliates provided approximately 10% of our total operating revenue, we do not
have any single customer that provides more than 10% of our total revenue derived from external customers. Substantially all of our revenue from external customers comes from customers located in the United States.

Note 5: Commitments and Contingencies

QCII is
involved in several legal proceedings to which we are not a party that, if resolved against QCII, could have a material adverse effect on our business and financial condition. We have included below a discussion of these matters, together with a
discussion of those matters to which we are a party (primarily the matter discussed under the heading Remaining Securities Actions and DOJ InvestigationOther). Only those matters to which we are a party represent contingencies for
which we have recorded, or could reasonably anticipate recording, an accrual if appropriate to do so.

Throughout this note, when we refer
to a class action as putative it is because a class has been alleged, but not certified in that matter. Until and unless a class has been certified by the court, it has not been established that the named plaintiffs represent the class
of plaintiffs they purport to represent. Settlement classes have been certified in connection with the settlements of certain of the putative class actions described below where the courts held that the named plaintiffs represented the settlement
class they purported to represent.

Settlement of Consolidated Securities Action

Twelve putative class actions purportedly brought on behalf of purchasers of QCIIs publicly traded securities between May 24, 1999 and
February 14, 2002 were consolidated into a consolidated securities action pending in federal district court in Colorado against QCII and various other defendants. The first of these actions was filed on July 27, 2001. Plaintiffs alleged,
among other things, that defendants issued false and misleading financial results and made false statements about QCIIs business and investments, including materially false statements in certain of QCIIs registration statements. The most
recent complaint in this matter sought unspecified compensatory damages and other relief. However, counsel for plaintiffs indicated that the putative class would seek damages in the tens of billions of dollars.

In November 2005, QCII, certain other defendants, and the putative class representatives entered into and filed with the federal district court in
Colorado a Stipulation of Partial Settlement that, if implemented, will settle the consolidated securities action against QCII and certain other defendants. No parties admit any wrongdoing as



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##### Table of Contents

QWEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the
Three Months Ended March 31, 2007

(Unaudited)



part of the settlement. Pursuant to the settlement, QCII has deposited approximately $400 million in cash into a settlement fund$200 million of
which was deposited in 2006, and $200 million of which (plus interest) was deposited on January 12, 2007. In connection with the settlement, QCII received $10 million from Arthur Andersen LLP, which is also being released by the class
representatives and the class they represent. If the settlement is not implemented, QCII will be repaid the $400 million, less certain expenses, and QCII will repay the $10 million to Arthur Andersen.

If implemented, the settlement will resolve and release the individual claims of the class representatives and the claims of the settlement class they
represent against QCII and all defendants except Joseph Nacchio, our former chief executive officer, and Robert Woodruff, our former chief financial officer. In September 2006, the federal district court in Colorado issued an order approving the
proposed settlement and certifying a settlement class on behalf of purchasers of QCIIs publicly traded securities between May 24, 1999 and July 28, 2002. Messrs. Nacchio and Woodruff have appealed that order to the United States
Court of Appeals for the Tenth Circuit.

As noted below under Remaining Securities Actions, a number of persons, including
certain large pension funds, were excluded from the settlement class at their request. Some of these pension funds have filed individual suits against QCII. QCII will continue to defend against such claims vigorously.

Remaining Securities Actions and DOJ Investigation

The remaining securities actions and the Department of Justice (DOJ) investigation described below present material and significant risks to QCII. The size, scope and nature of the restatements of QCIIs consolidated
financial statements for 2001 and 2000, which are described in QCIIs previously issued consolidated financial statements for the year ended December 31, 2002, or QCIIs 2002 Financial Statements, affect the risks presented by this
investigation and these actions, as these matters involve, among other things, QCIIs prior accounting practices and related disclosures. In addition to their allegations described below, plaintiffs in certain of the remaining securities
actions have alleged QCIIs restatement of items in support of their claims. We can give no assurance as to the impacts on our or QCIIs financial results or financial condition that may ultimately result from these matters.

QCII has reserves recorded in its financial statements for the minimum estimated amount of loss QCII believes is probable with respect to the remaining
securities actions as well as any additional actions that may be brought by parties that, as described below under Remaining Securities Actions, have opted out of the settlement of the consolidated securities action. QCII has recorded
its estimate of the minimum liability for these matters because no estimate of probable loss for these matters is a better estimate than any other amount. If the recorded reserves are insufficient to cover these matters, QCII will need to record
additional charges to its consolidated statement of operations in future periods. The amount QCII has reserved for these matters is its estimate of the lowest end of the possible range of loss. The ultimate outcomes of these matters are still
uncertain and the amount of loss QCII may ultimately incur could be substantially more than the reserves it has provided.

QCII continues
to defend against the remaining securities actions vigorously and is currently unable to provide any estimate as to the timing of the resolution of these actions. Settlements or judgments in several of these actions substantially in excess of
QCIIs recorded reserves could have a significant impact on QCII. The magnitude of such settlements or judgments resulting from these actions could materially and adversely affect QCIIs financial condition and ability to meet its debt
obligations, potentially impacting its credit ratings, its ability to access capital markets and its compliance with debt covenants. In addition, the magnitude of any such



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##### Table of Contents

QWEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the
Three Months Ended March 31, 2007

(Unaudited)



settlements or judgments may cause QCII to draw down significantly on its cash balances, which might force QCII to obtain additional financing or explore
other methods to generate cash. Such methods could include issuing additional securities or selling assets. As a wholly owned subsidiary of QCII, our business operations and financial condition would be similarly affected.

The terms and conditions of applicable bylaws, certificates or articles of incorporation, agreements or applicable law may obligate QCII to indemnify its
former directors, officers and employees with respect to certain liabilities, and QCII has been advancing legal fees and costs to many current and former directors, officers and employees in connection with the securities actions, DOJ investigation
and certain other matters.

Remaining Securities Actions

QCII is a defendant in the securities actions described below. At their request, plaintiffs in these actions were excluded from the settlement class of
the consolidated securities action. As a result, their claims were not released by the district courts order approving the settlement of the consolidated securities action. These plaintiffs have variously alleged, among other things, that QCII
and others violated federal and state securities laws, engaged in fraud, civil conspiracy and negligent misrepresentation, and breached fiduciary duties owed to investors by issuing false and misleading financial reports and statements, falsely
inflating revenue and decreasing expenses, creating false perceptions of revenue and growth prospects and/or employing improper accounting practices. Other defendants in one or more of these actions include former directors, officers and employees
of QCII, Arthur Andersen LLP, certain investment banks and others. Plaintiffs variously seek, among other things, compensatory and punitive damages, restitution, equitable and declaratory relief, pre-judgment interest, costs and attorneys
fees.

Together, the parties to these lawsuits contend that they have incurred losses resulting from their investments in QCIIs
securities in excess of $860 million; they have also asserted claims for punitive damages and interest, in addition to claims to recover their alleged losses.



|                                                                        |  |                                |  |                                                             
|----------------------------------------------------------------------- |  | ------------------------------ |  | ------------------------------------------------------------
|Plaintiff(s)                                                            |  | Date Filed                     |  | Court Where Action Is Pending                               
|State of New Jersey (Treasury Department, Division of Investment)       |  | November 27, 2002              |  | New Jersey Superior Court, Mercer County                    
|State Universities Retirement System of Illinois                        |  | January 10, 2003               |  | Circuit Court of Cook County, Illinois                      
|Shriners Hospitals for Children                                         |  | March 22, 2004October 31, 2006 |  | Federal District Court in Colorado                          
|Teachers Retirement System of Louisiana                                |  | March 30, 2004                 |  | Federal District Court in Colorado                          
|New York State Common Retirement Fund                                   |  | April 18, 2006                 |  | Federal District Court in Colorado                          
|San Francisco Employees Retirement System                               |  | April 18, 2006                 |  | Federal District Court in Colorado                          
|Fire and Police Pension Association of Colorado                         |  | April 18, 2006                 |  | Federal District Court in Colorado                          
|Commonwealth of Pennsylvania Public School Employees Retirement System |  | May 1, 2006                    |  | Federal District Court in Colorado                          
|Merrill Lynch Investment Master Basic Value Trust Fund, et al.          |  | June 21, 2006                  |  | Federal District Court in Colorado                          
|Denver Employees Retirement Plan                                        |  | August 7, 2006                 |  | Federal District Court in Colorado                          
|FTWF Franklin Mutual Beacon Fund, et al.                                |  | October 17, 2006               |  | Superior Court, State of California, County of San Francisco



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##### Table of Contents

QWEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the
Three Months Ended March 31, 2007

(Unaudited)



At their request, other persons (including large pension funds) who have not yet filed suit were also
excluded from the settlement class. As a result, their claims will not be released by the order approving the settlement of the consolidated securities action even if that order is affirmed on appeal. QCII expects that some of these other persons
will file actions against it if it is unable to resolve those matters amicably. In the aggregate, the persons who have requested exclusion from the settlement class, excluding those listed in the table above and those whose claims have been settled,
contend that they have incurred losses resulting from their investments in QCIIs securities of approximately $1.15 billion, which does not include any claims for punitive damages or interest. Due to the fact that many of the persons who
requested exclusion from the settlement class have not filed lawsuits, it is difficult to evaluate the claims that they may assert. Regardless, QCII will vigorously defend against any such claims.

Other

A putative class action
purportedly brought on behalf of purchasers of QCIIs stock between June 28, 2000 and June 27, 2002 and owners of U S WEST, Inc. stock on June 28, 2000 is pending in Colorado in the District Court for the County of
Boulder. We are also a defendant in this action. This action was filed on June 27, 2002. Plaintiffs allege, among other things, that QCII and other defendants issued false and misleading statements and engaged in improper accounting practices
in order to accomplish the U S WEST/Qwest merger, to make QCII appear successful and to inflate the value of QCIIs stock. Plaintiffs seek unspecified monetary damages, disgorgement of illegal gains and other relief.

DOJ Investigation

On July 9,
2002, QCII was informed by the U.S. Attorneys Office for the District of Colorado of a criminal investigation of its business. QCII believes the U.S. Attorneys Office has investigated various matters that include transactions related to
the various adjustments and restatements described in QCIIs 2002 Financial Statements, transactions between QCII and certain of its vendors and certain investments in the securities of those vendors by individuals associated with QCII, and
certain prior disclosures made by QCII. QCII is continuing in its efforts to cooperate fully with the U.S. Attorneys Office in its investigation. However, QCII cannot predict the outcome of this investigation or the timing of its resolution.

KPNQwest Litigation/Investigation

As previously disclosed, QCII entered into a settlement relating to a putative class action filed against it and others on behalf of certain purchasers of publicly traded securities of KPNQwest, N.V. (of which QCII was a major shareholder).
Other defendants entered into a separate settlement involving the claims against them. The most recent complaint alleged that, among other things, defendants engaged in a fraudulent scheme and deceptive course of business in order to inflate
KPNQwests revenue and the value of KPNQwest securities. At their request, certain individuals and entities were excluded from the settlement class. As a result, their claims were not released by the court order approving the settlement. Some
of these individuals and entities have already filed actions against QCII, as described below, and QCII is vigorously defending against these claims. QCII expects that at least some of the other persons who were excluded from the settlement class
will also pursue actions against it if it is unable to resolve their claims amicably. In the aggregate, those who were excluded from the settlement class currently contend that they have incurred losses resulting from their investments in KPNQwest
securities during the settlement class period of at least $76 million, which does not include any claims for punitive damages or interest. The amount of these alleged losses may increase or decrease in the future



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##### Table of Contents

QWEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the
Three Months Ended March 31, 2007

(Unaudited)



as we learn more about the potential claims of those who opted out of the settlement class. Due to the fact that some of them have not filed lawsuits, it is
difficult to evaluate the claims that they may assert. Regardless, QCII will vigorously defend against any such claims.

On
October 31, 2002, Richard and Marcia Grand, co-trustees of the R.M. Grand Revocable Living Trust, dated January 25, 1991, filed a lawsuit in Arizona Superior Court which, as amended, alleges, among other things, that the defendants
violated state and federal securities laws and breached their fiduciary duty in connection with investments by plaintiffs in securities of KPNQwest. QCII is a defendant in this lawsuit along with Qwest B.V. (one of QCIIs subsidiaries), Joseph
Nacchio and John McMaster, the former President and Chief Executive Officer of KPNQwest. Plaintiffs claim to have lost approximately $10 million in their investments in KPNQwest. The superior court granted defendants motion for partial
summary judgment with respect to a substantial portion of plaintiffs claims and the remainder of plaintiffs claims were dismissed without prejudice. Plaintiffs appealed the summary judgment order to the Arizona Court of Appeals, which
affirmed in part and reversed in part the superior courts decision. We are seeking review by the Arizona Supreme Court of that portion of the Court of Appeals decision that reversed the superior courts decision.

On June 25, 2004, the trustees in the Dutch bankruptcy proceeding for KPNQwest filed a lawsuit in the federal district court for the District of New
Jersey alleging violations of the Racketeer Influenced and Corrupt Organizations Act, and breach of fiduciary duty and mismanagement under Dutch law. QCII is a defendant in this lawsuit along with Joseph Nacchio, Robert S. Woodruff and John
McMaster. Plaintiffs allege, among other things, that defendants actions were a cause of the bankruptcy of KPNQwest and they seek damages for the bankruptcy deficit of KPNQwest of approximately $2.4 billion. Plaintiffs also seek treble
damages as well as an award of plaintiffs attorneys fees and costs. On October 17, 2006, the court issued an order granting defendants motion to dismiss the lawsuit, concluding that the dispute should not be adjudicated in the
United States. Plaintiffs have appealed this decision to the United States Court of Appeals for the Third Circuit.

On June 17, 2005,
Appaloosa Investment Limited Partnership I, Palomino Fund Ltd., and Appaloosa Management L.P. filed a lawsuit in the federal district court for the Southern District of New York against QCII, Joseph Nacchio, John McMaster and Koninklijke KPN
N.V., or KPN. The amended complaint alleges that defendants violated federal securities laws in connection with the purchase by plaintiffs of certain KPNQwest debt securities. Plaintiffs seek compensatory damages, as well as an award of
plaintiffs attorneys fees and costs.

On September 13, 2006, Cargill Financial Markets, Plc and Citibank, N.A. filed a
lawsuit in the District Court of Amsterdam, The Netherlands, against QCII, KPN Telecom B.V., KPN, Joseph Nacchio, John McMaster, and other former employees or supervisory board members of QCII, KPNQwest, or KPN. The lawsuit alleges that defendants
misrepresented KPNQwests financial and business condition in connection with the origination of a credit facility and wrongfully allowed KPNQwest to borrow funds under that facility. Plaintiffs allege damages of approximately
219 million (or $292 million based on the exchange rate on March 31, 2007).

On August 23, 2005, the Dutch
Shareholders Association (Vereniging van Effectenbezitters, or VEB) filed a petition for inquiry with the Enterprise Chamber of the Amsterdam Court of Appeals, located in The Netherlands, with regard to KPNQwest. VEB sought an inquiry into the
policies and course of business at KPNQwest that are alleged to have caused the bankruptcy of KPNQwest in May 2002, and an investigation into alleged mismanagement of KPNQwest by its executive management, supervisory board members, joint
venture entities (QCII and KPN), and KPNQwests outside auditors and accountants. On December 28, 2006, the Enterprise Chamber ordered an inquiry into the management and conduct of affairs of KPNQwest for the period



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QWEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the
Three Months Ended March 31, 2007

(Unaudited)



January 1 through May 23, 2002. Purporting to speak for an unspecified number of shareholders, VEB also sought exclusion from the settlement class
in the settlements of the KPNQwest putative securities class action described above. The information that VEB provided in support of its request for exclusion did not indicate the losses claimed to have been sustained by VEB or the unspecified
shareholders that VEB purports to represent, and thus those claims are not included in the approximately $76 million of losses claimed by those who requested exclusion from the settlement class, as described above. In view of these and other
deficiencies in VEBs request for exclusion, VEB was not excluded from the settlement class. QCII can provide no assurance, however, that its settlement will be enforced against VEB or the shareholders it purports to represent if VEB or such
shareholders were to bring claims against QCII in The Netherlands.

QCII will continue to defend against the pending KPNQwest litigation
matters vigorously.

Other Matters

Several putative class actions relating to the installation of fiber optic cable in certain rights-of-way were filed against QCII on behalf of landowners on various dates and in various courts in California, Colorado, Georgia, Illinois,
Indiana, Kansas, Massachusetts, Mississippi, Missouri, Oregon, South Carolina, Tennessee and Texas. For the most part, the complaints challenge QCIIs right to install its fiber optic cable in railroad rights-of-way. Complaints in Colorado,
Illinois and Texas, also challenge QCIIs right to install fiber optic cable in utility and pipeline rights-of-way. The complaints allege that the railroads, utilities and pipeline companies own the right-of-way as an easement that did not
include the right to permit QCII to install its fiber optic cable in the right-of-way without the plaintiffs consent. Most actions (California, Colorado, Georgia, Kansas, Mississippi, Missouri, Oregon, South Carolina, Tennessee and Texas)
purport to be brought on behalf of state-wide classes in the named plaintiffs respective states. The Massachusetts action purports to be on behalf of state-wide classes in all states (other than Indiana, Louisiana and Tennessee) in which QCII
has fiber optic cable in railroad rights-of-way, and also on behalf of two classes of landowners whose properties adjoin railroad rights-of-way originally derived from federal land grants. Several actions purport to be brought on behalf of
multi-state classes. The Illinois state court action purports to be on behalf of landowners in Illinois, Iowa, Kentucky, Michigan, Minnesota, Nebraska, Ohio and Wisconsin. The Illinois federal court action purports to be on behalf of landowners in
Arkansas, California, Florida, Illinois, Indiana, Missouri, Nevada, New Mexico, Montana and Oregon. The Indiana action purports to be on behalf of a national class of landowners adjacent to railroad rights-of-way over which QCIIs network
passes. The complaints seek damages on theories of trespass and unjust enrichment, as well as punitive damages.

On September 1, 2006,
Ronald A. Katz Technology Licensing, L.P. (Katz) filed a lawsuit in Federal District Court in Delaware against QCII (including a number of its subsidiaries). The lawsuit alleges infringement by QCII of 24 patents. The lawsuit also names
as defendants a number of other entities that are unrelated to QCII. Katz is also involved in approximately 24 other cases against numerous other unrelated entities both in Delaware and in the Eastern District of Texas. On March 20, 2007, the
Delaware and Texas cases were consolidated before the United States District Court for the Central District of California for consolidated or coordinated pretrial proceedings. Although the complaint against QCII is vague, it generally alleges
infringement based on QCIIs use of interactive voice response systems to automate processing of customer calls to it. Katz seeks unspecified damages, trebling of damages based on alleged willful infringement, attorneys fees and
injunctive relief. QCII will vigorously defend against this action.

A putative class action purportedly filed on behalf of certain of
QCIIs retirees was brought against QCII and certain other defendants in Federal District Court in Colorado in connection with QCIIs decision to reduce



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##### Table of Contents

QWEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the
Three Months Ended March 31, 2007

(Unaudited)



life insurance benefits for these retirees to a flat $10,000 benefit. The action was filed on March 30, 2007. The plaintiffs allege, among other things,
that QCII and other defendants were obligated to continue their life insurance benefits at the levels in place before QCII decided to reduce them. Plaintiffs seek restoration of life insurance benefits to previous levels and certain equitable
relief. QCII believes that its reduction of life insurance benefits was permissible under applicable law and plan documents and will vigorously defend against this action.

QCII has tax related matters pending against it, certain of which are before the Appeals Office of the IRS. In addition, tax sharing agreements have been
executed between QCII and previous affiliates, and QCII believes the liabilities, if any, arising from adjustments to previously filed returns would be borne by the affiliated group member determined to have a deficiency under the terms and
conditions of such agreements and applicable tax law. Generally, QCII has not provided for liabilities of former affiliated members or for claims they have asserted or may assert against QCII. QCII believes it has adequately provided for these
tax-related matters. If the recorded reserves for these tax-related matters are insufficient, QCII may need to record additional amounts in future periods.

Note 6: Dividends

During the three months ended March 31, 2007, we declared a dividend of $600 million to our
parent, Qwest Services Corporation (QSC). We declared an additional dividend of $600 million on April 18, 2007 and paid a dividend of $250 million on April 30, 2007.



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##### Table of Contents

|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

Unless the context requires otherwise, references in this report to QC refer to Qwest Corporation, references to Qwest,
we, us, the Company and our refer to Qwest Corporation and its consolidated subsidiaries, and references to QCII refer to our ultimate parent company, Qwest Communications
International Inc., and its consolidated subsidiaries.

Certain statements set forth below under this caption constitute
forward-looking statements. See Special Note Regarding Forward-Looking Statements at the end of this Item 2 for additional factors relating to such statements, and see Risk Factors in Item 1A of Part II of this
report for a discussion of certain risk factors applicable to our business, financial condition and results of operations.

Business Overview and
Presentation

We provide voice, data and video services within our local service area, which consists of the 14-state region of Arizona,
Colorado, Idaho, Iowa, Minnesota, Montana, Nebraska, New Mexico, North Dakota, Oregon, South Dakota, Utah, Washington and Wyoming. Through joint marketing relationships with our affiliates, we are able to bundle our services with additional services
offered by our affiliates.

Our operations are included in the consolidated operations of our ultimate parent, QCII, and generally account
for the majority of QCIIs consolidated revenue. In addition to our operations, QCII maintains a wireless business and a national fiber optic network. Through its fiber optic network, QCII provides the following wireline products and services
that we do not provide:



| |  |  | InterLATA long-distance services;
| | - |  | ---------------------------------



| |  |  | Dedicated Internet access;
| | - |  | --------------------------



| |  |  | Virtual private network;
| | - |  | ------------------------



| |  |  | Web hosting;
| | - |  | ------------



| |  |  | Data integration;
| | - |  | -----------------



| |  |  | VoIP;
| | - |  | -----



| |  |  | MPLS-based services sold as iQ Networking; and
| | - |  | -----------------------------------------------



| |  |  | Cable-based video.
| | - |  | ------------------

For certain
products and services we provide and for a variety of internal communications functions, we use parts of QCIIs network to transport voice and data traffic. Through its network, QCII also provides nationally and globally some data and Internet
access services, including private line, ATM and frame relay, that are similar to services we provide within our local service area.

Our
analysis presented below is organized to provide the information we believe will be useful for understanding the relevant trends going forward. However, this discussion should be read in conjunction with our condensed consolidated financial
statements and the notes thereto in Item 1 of Part I of this report.

Our operations are integrated into and are part of the segments
of the QCII consolidated group. We have the same chief operating decision maker, or CODM, as the consolidated group. The CODM makes resource allocation decisions and assessments of financial performance for the consolidated group based on
QCIIs wireline services, wireless services and other services segments. For more information about QCIIs reporting segments, see QCIIs Annual Report on Form 10-K for the year ended December 31, 2006. Our business
contributes to QCIIs wireline services and other services segments. However, the QCII CODM reviews our



15



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##### Table of Contents

financial information only in connection with our quarterly and annual reports that we file with the Securities and Exchange Commission, or SEC.
Consequently, we do not provide our discrete financial information to the CODM on a regular basis. See further discussion in Note 4Contribution to QCII Segments to our condensed consolidated financial statements in Item 1 of Part I
of this report.

We have reclassified certain prior period revenue, expense and access line amounts to conform to the current period
presentation.

Business Trends

Our
financial results continue to be impacted by several significant trends, which are described below:



| |  |  | Data, Internet and video growth.Revenue from data, Internet and video services currently represents 29% of our total revenue and continues to grow. We
continue to focus on high-growth products including high-speed Internet access, private line and video. The revenue from our growth products has more than offset declines in revenue from traditional services such as ATM and frame relay. Revenue from
our traditional products and services continues to decline as customers shift to more advanced technologies.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We continue
to focus our efforts on improving penetration of our high-speed Internet access services, and subscribers continue to grow as customers migrate their Internet service from dial-up connections. We reached 2.2 million subscribers as of
March 31, 2007 compared to 1.6 million as of the same date in 2006. We expect growth in high-speed Internet subscribers to continue, even though we expect to face continuing competition for these subscribers. In addition, we believe the
ability to continually increase connection speeds is competitively important. As such, we continue to increase our available connection speeds in order to meet customer demand.



| |  |  | Access line losses. Our revenue has been, and we expect it will continue to be, adversely affected by access line losses. Increased competition, including
product substitution, continues to be the primary reason for our access line losses. For example, consumers are substituting cable, wireless and VoIP for traditional telecommunications services, which has increased the number and type of competitors
within our industry and has decreased our market share. In addition, consolidation in the telecommunications industry continues to impact our revenue. Product bundling, as described below, has been one of our responses to access line losses.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Product bundling. We believe customers value the convenience and price discounts associated with receiving multiple services from a single provider.
Accordingly, QCII and we promote product bundles through joint marketing and advertising efforts with our affiliates. Product bundles represent combinations of products and services offered by us or our affiliates, such as local and long distance
(marketed as digital voice), high-speed Internet access, video and wireless for our mass markets customers. As a result of these offerings, our sales of bundled products have increased. While bundle discounts resulted in lower average
revenue for our products, we believe product bundles have increased customer retention.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Operational efficiencies. We have continued to evaluate our operating structure and focus, and we continue to adjust our workforce and our relationships with
our affiliates in response to changes in the telecommunications industry, regulatory changes and productivity improvements. Through targeted restructuring plans in prior years, focused improvements in operational efficiency, process improvements
through automation and normal employee attrition, we have reduced our workforce and employee-related costs while achieving operational goals.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

While these trends are important to understanding and evaluating our financial results, the other transactions, events and trends discussed in Risk Factors in Item 1A of Part II of this report may
also materially impact our business operations and financial results.



16



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##### Table of Contents

Results of Operations

Overview

We generate revenue from the provision of voice services, data, Internet and video services and other
services, as well as from the provision of services to our affiliates.



| |  |  | Voice services. Voice services include local voice services, IntraLATA long-distance voice services and access services. Local voice services include basic
local exchange, switching and enhanced voice services. Local voice services also include network transport, billing services and providing access to our local network through our wholesale channel. Access services include fees charged to other
telecommunications providers to connect their customers and their networks to our network.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Data, Internet and video services. Historically, data, Internet and video services have represented our fastest growing source of revenue. We offer data and
Internet services to our mass markets, business and wholesale customers. We also offer high-speed Internet access and resold satellite digital television to our mass markets customers.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Affiliate and other services. We provide to our affiliates billing and collection, marketing and advertising and other support services. In addition, we
provide to our affiliates local voice, access and data services that we also provide to external customers. Other services include the sublease of space in our office buildings, warehouses and other properties.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Depending on the products or services purchased, a customer may pay an up-front or monthly fee, a usage charge or a combination of these.

The following table summarizes our results of operations for the three months ended March 31, 2007 and 2006 and the number of employees as of
March 31, 2007 and 2006:



|                           |  |                                       |        |      |   |                     |  |   |         |   |  |     |   
|-------------------------- |  | ------------------------------------- | ------ | ---- | - | ------------------- |  | - | ------- | - |  | --- | --
|                           |  | Three Months Ended March 31,          |       
|                           |  | 2007                                  |        | 2006 |   | Increase/(Decrease) |  |   | %Change |  
|                           |  | (Dollars in millionsexcept employees) |        |      |   |                    
|Operating revenue          |  | $                                     | 2,458  |      | $ | 2,478               |  | $ | (20     | ) |  | (1  | %)
|Operating expenses         |  |                                       | 1,682  |      |   | 1,875               |  |   | (193    | ) |  | (10 | %)
|Other expensenet          |  |                                       | 151    |      |   | 152                 |  |   | (1      | ) |  | (1  | %)
|                           |  |                                       |        |      |   |                     |  |   |         |   |  |     |   
|Income before income taxes |  |                                       | 625    |      |   | 451                 |  |   | 174     |   |  | 39  | % 
|Income tax expense         |  |                                       | 233    |      |   | 167                 |  |   | 66      |   |  | 40  | % 
|                           |  |                                       |        |      |   |                     |  |   |         |   |  |     |   
|Net income                 |  | $                                     | 392    |      | $ | 284                 |  | $ | 108     |   |  | 38  | % 
|                           |  |                                       |        |      |   |                     |  |   |         |   |  |     |   
|Employees                  |  |                                       | 25,779 |      |   | 26,990              |  |   | (1,211  | ) |  | (4  | %)

Operating Revenue

The following table compares our operating revenue for the three months ended March 31, 2007 and 2006:



|                                  |  |                              |       |      |   |                     |  |   |         |   |  |    |   
|--------------------------------- |  | ---------------------------- | ----- | ---- | - | ------------------- |  | - | ------- | - |  | -- | --
|                                  |  | Three Months Ended March 31, |      
|                                  |  | 2007                         |       | 2006 |   | Increase/(Decrease) |  |   | %Change |  
|                                  |  | (Dollars in millions)        |       |      |   |                    
|Operating Revenue:                |  |                              |       |      |   |                     |  |   |         |   |  |    |   
|Voice services                    |  | $                            | 1,489 |      | $ | 1,620               |  | $ | (131    | ) |  | (8 | %)
|Data, Internet and video services |  |                              | 701   |      |   | 616                 |  |   | 85      |   |  | 14 | % 
|Affiliate and other services      |  |                              | 268   |      |   | 242                 |  |   | 26      |   |  | 11 | % 
|                                  |  |                              |       |      |   |                     |  |   |         |   |  |    |   
|Total operating revenue           |  | $                            | 2,458 |      | $ | 2,478               |  | $ | (20     | ) |  | (1 | %)
|                                  |  |                              |       |      |   |                     |  |   |         |   |  |    |   



17



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##### Table of Contents

Voice Services

Local voice services revenue decreased primarily due to access line losses as a result of the competitive pressures described in Business Trends above. Mass markets and business local voice services
revenue were impacted by these competitive pressures as customers disconnected primary and additional lines. Additionally, mass markets and business local voice services revenue declined by $18 million due to lower Universal Service Fund, or USF,
revenue primarily related to the elimination of the USF assessment on certain products in late 2006. Wholesale local services revenue continued to be affected by a declining demand for UNEs. In addition, access services revenue decreased primarily
due to a 7% decline in volumes.

The following table summarizes our access lines by customer channel as of March 31, 2007 and
2006:



|                   |  |                 |  |        |  |                     |   |  |         |   
|------------------ |  | --------------- |  | ------ |  | ------------------- | - |  | ------- | --
|                   |  | As of March 31, | 
|                   |  | 2007            |  | 2006   |  | Increase/(Decrease) |   |  | %Change |   
|                   |  | (in thousands)  |  |        |  |                    
|Mass markets       |  | 9,276           |  | 9,921  |  | (645                | ) |  | (7      | %)
|Business           |  | 2,842           |  | 2,958  |  | (116                | ) |  | (4      | %)
|Wholesale          |  | 1,433           |  | 1,667  |  | (234                | ) |  | (14     | %)
|                   |  |                 |  |        |  |                     |   |  |         |   
|Total access lines |  | 13,551          |  | 14,546 |  | (995                | ) |  | (7      | %)
|                   |  |                 |  |        |  |                     |   |  |         |   

Data, Internet and Video Services

The increase in data, Internet and video services revenue in our mass markets channel was primarily due to an increase in high-speed Internet subscribers
of approximately 40% and, to a lesser extent, increases in satellite video subscribers. The growth in high-speed Internet revenue resulted from continued increased penetration as customers migrated from dial-up connections and from customers
upgrading to higher speed plans. The increase in data and Internet services revenue in our wholesale channel was primarily due to growth in private line volumes.

Affiliate and Other Services

The increase in affiliate and other services revenue was primarily due
to growth in private line and other services we provide to support our affiliates data, Internet and video businesses.



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##### Table of Contents

Operating Expenses

The following table provides further detail regarding our operating expenses:



|                                          |  |                              |       |   |      |   |                     |  |   |         |   |  |     |   
|----------------------------------------- |  | ---------------------------- | ----- | - | ---- | - | ------------------- |  | - | ------- | - |  | --- | --
|                                          |  | Three Months Ended March 31, |      
|                                          |  | 2007                         |       |   | 2006 |   | Increase/(Decrease) |  |   | %Change |  
|                                          |  | (Dollars in millions)        |      
|Cost of sales:                            |  |                              |       |   |      |   |                     |  |   |         |   |  |     |   
|Employee-related costs                    |  | $                            | 329   |   |      | $ | 346                 |  | $ | (17     | ) |  | (5  | %)
|Network expenses                          |  |                              | 33    |   |      |   | 41                  |  |   | (8      | ) |  | (20 | %)
|Other non-employee related costs          |  |                              | 112   |   |      |   | 131                 |  |   | (19     | ) |  | (15 | %)
|Affiliate costs                           |  |                              | 58    |   |      |   | 60                  |  |   | (2      | ) |  | (3  | %)
|                                          |  |                              |       |   |      |   |                     |  |   |         |   |  |     |   
|Total cost of sales                       |  |                              | 532   |   |      |   | 578                 |  |   | (46     | ) |  | (8  | %)
|                                          |  |                              |       |   |      |   |                     |  |   |         |   |  |     |   
|Selling, general and administrative:      |  |                              |       |   |      |   |                     |  |   |         |   |  |     |   
|Employee-related costs                    |  |                              | 134   |   |      |   | 139                 |  |   | (5      | ) |  | (4  | %)
|Bad debt                                  |  |                              | 17    |   |      |   | 20                  |  |   | (3      | ) |  | (15 | %)
|Property and other taxes                  |  |                              | 80    |   |      |   | 78                  |  |   | 2       |   |  | 3   | % 
|Restructuring, realignment and severance  |  |                              | (2    | ) |      |   | 4                   |  |   | (6      | ) |  | nm  |   
|Other non-employee related costs          |  |                              | 169   |   |      |   | 188                 |  |   | (19     | ) |  | (10 | %)
|Affiliate costs                           |  |                              | 230   |   |      |   | 272                 |  |   | (42     | ) |  | (15 | %)
|                                          |  |                              |       |   |      |   |                     |  |   |         |   |  |     |   
|Total selling, general and administrative |  |                              | 628   |   |      |   | 701                 |  |   | (73     | ) |  | (10 | %)
|                                          |  |                              |       |   |      |   |                     |  |   |         |   |  |     |   
|Depreciation and amortization             |  |                              | 522   |   |      |   | 596                 |  |   | (74     | ) |  | (12 | %)
|                                          |  |                              |       |   |      |   |                     |  |   |         |   |  |     |   
|Total operating expenses                  |  | $                            | 1,682 |   |      | $ | 1,875               |  | $ | (193    | ) |  | (10 | %)
|                                          |  |                              |       |   |      |   |                     |  |   |         |   |  |     |   

---

nmPercentages greater than 200% and comparisons
between positive and negative values or to/from zero values are considered not meaningful.

Cost of Sales (exclusive of depreciation and
amortization)

Cost of sales includes employee-related costs (such as salaries, wages and benefits directly attributable to products or
services), network expenses and other non-employee related costs (such as real estate, USF charges, call termination fees, materials and supplies, contracted engineering services and computer system support), which are incurred by us or on our
behalf by our affiliates.

Cost of sales as a percentage of revenue decreased to 22% from 23%.

The decrease in network expense was primarily related to lower costs for materials and outsourced services due to less construction activity in 2007.

Employee-related costs decreased due to employee reductions and lower employee benefit costs primarily as a result of benefit plan changes
in 2007 and net reduced costs associated with the recognition of actuarial losses from prior years. These decreases were partially offset by increased maintenance work.

Other non-employee related costs decreased primarily due to lower USF charges largely related to the elimination of the USF assessment on certain products and lower access costs.

Selling, General and Administrative Expenses

Selling, general and administrative, or SG&A, expenses include employee-related costs (such as salaries, wages and benefits not directly attributable to products or services and sales commissions), restructuring, realignment and
severance, bad debt, property and other taxes and other non-employee related costs (such as real



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estate, marketing and advertising, professional service fees, computer systems support and litigation related charges), which are incurred by us or on our
behalf by our affiliates.

SG&A expenses as a percentage of revenue decreased to 26% from 28%.

Other non-employee related costs decreased primarily due to lower marketing and advertising costs.

SG&A affiliate costs include services for corporate administration, information technology, sales, marketing and advertising and technical support.
These affiliate costs decreased primarily due to employee-related cost reductions, decreased affiliate spending on marketing and advertising and lower sales costs.

Pension and Post-Retirement Benefits

QCII allocated to us combined costs of $6 million and
$40 million for the three months ended March 31, 2007 and 2006, respectively. The expense decreased primarily as a result of benefit plan changes and net reduced costs associated with the recognition of actuarial losses from
prior years. Effective January 1, 2007, changes to our benefit plans capped our levels of contributions for certain post-retirement healthcare benefits and reduced the post-retirement benefit under the life insurance plan, which decreased our
liability substantially. Actuarial gains or losses reflect the differences between our actuarial assumptions and what actually occurred. The amortization of actuarial losses for this period was reduced primarily due to higher discount rates and
higher than expected actual returns on pension assets.

Depreciation and Amortization

Depreciation expense decreased due to lower capital expenditures and the changing mix of our investment in property, plant and equipment since 2002. If
our capital investment program remains approximately the same and we do not significantly decrease our estimates of the useful lives of our assets, we expect that our depreciation expense will continue to decrease.

Amortization expense decreased due to the change in our estimate of average economic lives in January 2007 and lower capital spending on software related
assets since 2001. Amortization expense would have been $23 million higher in the first quarter of 2007 had we not changed our estimates of the average economic lives to better reflect the expected future use of the software.

Other Consolidated Results

The following
table provides detail regarding other expense (income)net and income tax expense:



|                                 |  |                              |     |   |      |   |     |                     |  |   |         |   |  |     |   
|-------------------------------- |  | ---------------------------- | --- | - | ---- | - | --- | ------------------- |  | - | ------- | - |  | --- | --
|                                 |  | Three Months Ended March 31, |    
|                                 |  | 2007                         |     |   | 2006 |   |     | Increase/(Decrease) |  |   | %Change |  
|                                 |  | (Dollars in millions)        |     |   |      |  
|Other expense (income)net:      |  |                              |     |   |      |   |     |                     |  |   |         |   |  |     |   
|Interest expensenet             |  | $                            | 153 |   |      | $ | 153 |                     |  | $ |        |   |  |    | % 
|Othernet                        |  |                              | (2  | ) |      |   | (1  | )                   |  |   | (1      | ) |  | 100 | % 
|                                 |  |                              |     |   |      |   |     |                     |  |   |         |   |  |     |   
|Total other expense (income)net |  | $                            | 151 |   |      | $ | 152 |                     |  | $ | (1      | ) |  | (1  | )%
|                                 |  |                              |     |   |      |   |     |                     |  |   |         |   |  |     |   
|Income tax expense               |  | $                            | 233 |   |      | $ | 167 |                     |  | $ | 66      |   |  | 40  | % 

The effective income tax rate is the provision for income taxes as a percentage of income before
income taxes. The effective income tax rate was 37% for the three months ended March 31, 2007 and March 31, 2006.



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Liquidity and Capital Resources

We are a wholly owned subsidiary of Qwest Services Corporation, or QSC, which is wholly owned by QCII. As such, factors relating to, or affecting, QCIIs liquidity and capital resources could have material
impacts on us, including changes in the markets perception of us and impacts on our credit ratings and on our access to capital markets. QCII and its consolidated subsidiaries had total borrowings of $14.9 billion at March 31, 2007
and December 31, 2006.

QCII has cash management arrangements between certain of its subsidiaries that include lines of credit,
inter-company obligations, capital contributions and dividends. As part of these cash management arrangements, affiliates provide lines of credit to certain other affiliates. Amounts outstanding under these lines of credit and inter-company
obligations vary from time to time and are classified as short-term borrowings.

Near-Term View

We had $347 million in cash and cash equivalents and $87 million of short-term investments available at March 31, 2007. For the three
months ended March 31, 2007, our cash was provided by operating activities. During 2007, we expect to use our available excess cash primarily to pay dividends to QSC and to make additional investment in our network. For the three months ended
March 31, 2007, we declared a dividend of $600 million to QSC. We declared an additional dividend of $600 million on April 18, 2007 and paid $250 million on April 30, 2007.

Our working capital deficit, or the amount by which our current liabilities exceed our current assets, was $641 million and $647 million as of
March 31, 2007 and December 31, 2006, respectively. Our working capital deficit decreased $6 million primarily due to cash generated by operating activities partially offset by capital expenditures and dividends declared to QSC.

Our working capital deficit is primarily caused by dividends that we pay to QSC. The timing of cash payments for declared dividends to QSC
is at our discretion in consultation with QSC. We continue to produce significant cash from operating activities, and we believe that our cash on hand together with our short term investments and our cash flows from operations should be sufficient
to meet our cash needs through the next 12 months. However, if we or QCII become subject to significant judgments, settlements and/or tax payments, as further discussed in Note 5Commitments and Contingencies to our condensed consolidated
financial statements in Item 1 of Part I of this report, we or QCII could be required to make significant payments that may cause us to draw down significantly on our cash balances. The magnitude of any settlements or judgments resulting from
these actions could materially and adversely affect QCIIs financial condition and ability to meet its debt obligations, potentially impacting its credit ratings, its ability to access capital markets and its compliance with debt covenants. As
a wholly owned subsidiary of QCII, our business operations and financial condition could be similarly affected.

To the extent that
QCIIs EBITDA (as defined in QCIIs debt covenants) is reduced by cash judgments, settlements and/or tax payments, its debt to consolidated EBITDA ratios under certain debt agreements will be adversely affected. This could reduce
QCIIs liquidity and flexibility due to potential restrictions on drawing on its line of credit and potential restrictions on incurring additional debt under certain provisions of its debt agreements. As a wholly owned subsidiary of QCII, our
business operations and financial condition could be similarly affected, potentially impacting our credit ratings and access to capital markets.

QCII has $850 million available to it under a revolving credit facility (referred to as the Credit Facility), which is currently undrawn and which expires in October 2010. The Credit Facility contains various limitations, including a
restriction on using any proceeds from the facility to pay settlements or judgments relating to the investigation and securities actions discussed in Note 5Commitments and Contingencies to our condensed consolidated financial statements in
Item 1 of Part I of this report. The Credit Facility is guaranteed by QSC and is secured by a senior lien on our stock.

We expect our
2007 capital expenditures to approximate our 2006 level.



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On October 4, 2006, QCIIs Board of Directors approved a stock repurchase program for up to $2
billion of QCIIs common stock over two years. It is QCIIs intention to fully achieve this plan over this period, while reviewing, on a regular basis, opportunities to enhance shareholder returns. For the three months ended March 31,
2007, QCII repurchased 49 million shares of its common stock under this program at a weighted average price per share of $8.30. As of March 31, 2007, QCII had repurchased a total of $615 million of common stock under this program;
thus $1.385 billion remained available for stock repurchases.

We continue to look for opportunities to improve our liquidity and capital
structure by reducing debt and interest expense. We expect that at any time we deem conditions favorable we will attempt to improve our capital structure by accessing debt or other markets in a manner designed to create positive economic value.

Long-Term View

We have
historically operated with a working capital deficit due to our practice of declaring and paying regular cash dividends and it is likely that we will operate with a working capital deficit in the future. As discussed below, we continue to generate
substantial cash from operations. We believe that cash provided by operations, combined with our current cash position and continued access to capital markets to refinance our current portion of debt, should allow us to meet our cash requirements
for the foreseeable future.

We may periodically need to obtain financing in order to meet our debt obligations as they come due. We may
also need to obtain additional financing or investigate other methods to generate cash (such as further cost reductions or the sale of assets) if revenue and cash provided by operations decline, if economic conditions weaken, if competitive
pressures increase or if we or QCII become subject to significant judgments, settlements and/or tax payments as further discussed in Note 5Commitments and Contingencies to our condensed consolidated financial statements in Item 1 of Part
I of this report. In the event of an adverse outcome in one or more of these matters, we or QCII could be required to make significant payments that may cause us to draw down significantly on our cash balances. The magnitude of any settlements or
judgments resulting from these actions could materially and adversely affect QCIIs financial condition and ability to meet its debt obligations, potentially impacting its credit ratings, its ability to access capital markets and its compliance
with debt covenants. As a wholly owned subsidiary of QCII, our business operations and financial condition could be similarly affected, potentially impacting our credit ratings and access to capital markets.

The Credit Facility makes available to QCII $850 million of additional credit subject to certain restrictions as described below and is currently
undrawn. This facility has a cross payment default provision, and this facility and certain other debt issues of QCII and its other subsidiaries also have cross acceleration provisions. When present, such provisions could have a wider impact on
liquidity than might otherwise arise from a default or acceleration of a single debt instrument. These provisions generally provide that a cross default under these debt instruments could occur if:



| |  |  | QCII fails to pay any indebtedness when due in an aggregate principal amount greater than $100 million;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | any indebtedness is accelerated in an aggregate principal amount greater than $100 million ($25 million in the case of one of the debt instruments); or
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | judicial proceedings are commenced to foreclose on any of QCIIs assets that secure indebtedness in an aggregate principal amount greater than
$100 million.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------

Upon such a cross default, the creditors of a material amount of QCIIs debt may elect to
declare that a default has occurred under their debt instruments and to accelerate the principal amounts due such creditors. Cross acceleration provisions are similar to cross default provisions, but permit a default in a second debt instrument to
be declared only if in addition to a default occurring under the first debt instrument, the indebtedness due under the first debt instrument is actually accelerated. As a wholly owned subsidiary of QCII,



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in the event of such a cross-default or cross-acceleration, our business operations and financial condition could be affected, potentially impacting our
credit ratings and access to the capital markets. In addition, the Credit Facility contains various limitations, including a restriction on using any proceeds from the facility to pay settlements or judgments relating to the investigation and
securities actions discussed in Note 5Commitments and Contingencies to our condensed consolidated financial statements in Item 1 of Part I of this report.

Historical View

The following table summarizes cash flow activities for the three months
ended March 31, 2007 and 2006:



|                                 |  |                              |       |      |   |                     |  |   |         |   |  |     |   
|-------------------------------- |  | ---------------------------- | ----- | ---- | - | ------------------- |  | - | ------- | - |  | --- | --
|                                 |  | Three Months Ended March 31, |      
|                                 |  | 2007                         |       | 2006 |   | Increase/(Decrease) |  |   | %Change |  
|                                 |  | (Dollars in millions)        |       |      |   |                    
|Cash flows:                      |  |                              |       |      |   |                     |  |   |         |   |  |     |   
|Provided by operating activities |  | $                            | 1,018 |      | $ | 883                 |  | $ | 135     |   |  | 15  | % 
|Used for investing activities    |  |                              | 246   |      |   | 299                 |  |   | (53     | ) |  | (18 | %)
|Used for financing activities    |  |                              | 699   |      |   | 526                 |  |   | 173     |   |  | 33  | % 

Operating Activities

Cash provided by operating activities increased primarily due to lower income taxes paid to QSC and timing of interest payments associated with the debt
financing activities in the third quarter of 2006.

Investing Activities

Cash used for investing activities decreased primarily due to lower capital expenditures resulting from delayed capital spending initiatives. However, as
discussed above under the heading Near-Term View, we expect our 2007 capital expenditures to approximate our 2006 level.

Financing Activities

Cash used for financing activities increased due to higher dividend payments to QSC.

Credit Ratings

The table below summarizes our
long-term debt ratings as of March 31, 2007 and December 31, 2006:



|        |  |     
|------- |  | ----
|Moodys |  | Ba1 
|S&P     |  | BB+ 
|Fitch   |  | BBB-

Debt ratings by the various rating agencies reflect each agencys opinion of the ability of
the issuers to repay debt obligations as they come due. In general, lower ratings result in higher borrowing costs and/or impaired ability to borrow. A security rating is not a recommendation to buy, sell, or hold securities and may be subject to
revision or withdrawal at any time by the assigning rating organization.

Given our current credit ratings, as noted above, our ability to
raise additional capital under acceptable terms and conditions may be negatively impacted.

Risk Management

We are exposed to market risks arising from changes in interest rates. The objective of our interest rate risk management program is to manage the level
and volatility of our interest expense. We may employ derivative financial instruments to manage our interest rate risk exposure.



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Approximately $750 million of floating-rate debt was exposed to changes in interest rates as of
March 31, 2007 and December 31, 2006. This exposure is linked to LIBOR. A hypothetical increase of 100 basis points in LIBOR would not have had a material effect on pre-tax interest expense for the three months ended
March 31, 2007. As of March 31, 2007 and December 31, 2006, we had approximately $70 million of long-term fixed rate debt obligations maturing in the subsequent 12 months. We are exposed to changes in interest rates at
any time that we choose to refinance this debt. A hypothetical increase of 100 or 200 basis points in the interest rates on any refinancing of the current portion of long-term debt would not have a material effect on our earnings.

As of March 31, 2007, our cash and investments managed by QSC included $289 million of highly liquid instruments and $87 million of
auction rate securities. As interest rates change, so will the interest income derived from these instruments. Assuming that these investment balances were to remain constant, a hypothetical decrease of 100 basis points in interest rates would not
have a material effect on our earnings.

Off-Balance Sheet Arrangements

There were no substantial changes to our off-balance sheet arrangements or contractual commitments in the three months ended March 31, 2007,
when compared to the disclosures provided in our Annual Report on Form 10-K for the year ended December 31, 2006.

Critical Accounting
Policies and Estimates

We previously identified certain policies and estimates as critical to our business operations and the
understanding of our past or present results of operations. These policies and estimates are considered critical because they had a material impact, or they have the potential to have a material impact, on our financial statements and because they
require significant judgments, assumptions or estimates. Our preparation of financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities
at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period.

In adopting
Financial Accounting Standards Board (FASB) Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), effective January 1, 2007, we changed our methodology for
estimating our potential liability for income tax positions for which we are uncertain regardless of whether taxing authorities will challenge our interpretation of the income tax laws. Previously, we recorded a liability computed at the
statutory income tax rate if we determined that (i) we did not believe that we are more-likely-than-not to prevail on an uncertainty related to the timing of recognition for an item, or (ii) we did not believe that it is probable that we
will prevail and the uncertainty is not related to the timing of recognition. However, under FIN 48 we do not recognize any benefit in our financial statements for any uncertain income tax position if we believe the position in the
aggregate has less than a 50% likelihood of being sustained. If we believe that there is greater than 50% likelihood that the position will be sustained, we recognize a benefit in our financial statements equal to the largest amount that we believe
is more likely than not to be sustained upon audit.

The tax law is subject to varied interpretations, and we have taken positions related
to certain matters where the law is subject to interpretation and where substantial amounts of income tax benefits have been recorded in our financial statements. As new interpretations of the relevant tax laws are promulgated and as we discuss
our interpretations with taxing authorities, we may in the future change our assessments of the likelihood of sustainability or of the amounts that may or may not be sustained upon audit. And as our assessments change, the impact to our
financial statements could be material. We believe that the estimates, judgments and assumptions made when accounting for these matters are reasonable, based on information available at the time they are made. However, there can be no assurance
that actual results will not differ from those estimates.



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Special Note Regarding Forward-Looking Statements

This Form 10-Q contains or incorporates by reference forward-looking statements about our financial condition, results of operations and business.
These statements include, among others:



| |  |  | statements concerning the benefits that we expect will result from our business activities and certain transactions we have completed, such as increased revenue,
decreased expenses and avoided expenses and expenditures; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | statements of our expectations, beliefs, future plans and strategies, anticipated developments and other matters that are not historical facts.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------

These statements may be made expressly in this document or may be incorporated by reference to other documents we have
filed or will file with the SEC. You can find many of these statements by looking for words such as may, would, could, should, plan, believes, expects,
anticipates, estimates, or similar expressions used in this document or in documents incorporated by reference in this document.

These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause our actual results to be materially different from any future results expressed or implied by us in those
statements. Some of these risks are described in Risk Factors in Item 1A of Part II of this report. These risk factors should be considered in connection with any written or oral forward-looking statements that we or persons acting
on our behalf may issue. Given these uncertainties, we caution investors not to unduly rely on our forward-looking statements. We do not undertake any obligation to review or confirm analysts expectations or estimates or to release publicly
any revisions to any forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events. Further, the information about our intentions contained in this document is a
statement of our intentions as of the date of this document and is based upon, among other things, the existing regulatory environment, industry conditions, market conditions and prices, the economy in general and our assumptions as of such date. We
may change our intentions, at any time and without notice, based upon any changes in such factors, in our assumptions or otherwise.



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

The information under the caption Risk Management in Managements Discussion and Analysis of Financial Condition and Results of Operations in Item 2 of Part I of this report is incorporated herein by
reference.



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

The effectiveness of our
or any system of disclosure controls and procedures is subject to certain limitations, including the exercise of judgment in designing, implementing and evaluating the controls and procedures, the assumptions used in identifying the likelihood of
future events, and the inability to eliminate misconduct completely. As a result, there can be no assurance that our disclosure controls and procedures will detect all errors or fraud. By their nature, our or any system of disclosure controls and
procedures can provide only reasonable assurance regarding managements control objectives.

Under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934, or the Exchange Act) as of March 31, 2007. On the basis of this review, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and
procedures are designed, and are effective, to give reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in the rules and



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forms of the SEC and to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is accumulated and
communicated to our management, including our Chief Executive Officer and Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting that occurred in the first quarter of 2007 that materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.



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PART IIOTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

The information contained in
Note 5Commitments and Contingencies to our condensed consolidated financial statements in Item 1 of Part I of this report is incorporated herein by reference.

Matters Resolved in the First Quarter of 2007

Regulatory Matter

On July 15, 2004, the New Mexico state regulatory commission opened a proceeding to investigate whether we were in compliance with or were likely to
meet a commitment that we made in 2001 to invest $788 million in communications infrastructure in New Mexico through March 2006 pursuant to an Alternative Form of Regulation plan, or AFOR. Multiple parties filed comments in that proceeding and
variously argued that we should be subject to a range of requirements including an escrow account for capital spending, new investment obligations, and customer credits or price reductions.

On July 26, 2006, we entered into a settlement with the New Mexico General Services Department and the New Mexico Attorney General that would have
resolved the disputes described above. This settlement was subject to approval by the Commission. The Commission conducted hearings on this settlement and then an amended settlement. The amended settlement included the Commission Staff as a party.
On December 28, 2006, the Commission conditionally approved the settlement subject to certain modifications and a compliance filing. On January 18, 2007, the settling parties submitted a compliance filing, and during an open meeting on
January 30, 2007, the Commission indicated its acceptance of that filing. The effective date of the settlement was February 1, 2007. Under the settlement, we were to contribute $5 million to the Students and Teachers Reaching Optimal New
Goals Project, a program established and operated under the auspices of the New Mexico Department of Education. This $5 million contribution was subject to approval by the New Mexico Legislature; however, it was not approved, and thus this $5
million has been converted to customer credits payable within 120 days of the close of the legislative session, which was March 17, 2007. The settlement also obligates us to issue other credits in the total amount of $10 million to New Mexico
customers within 120 days of the effective date of the settlement. In addition, the settlement obligates us to invest in our New Mexico network a total of $255 million in five specific categories of telecommunications infrastructure projects. These
projects include, among other things, expanding the availability of high speed Internet access and providing various network and asset improvements. The settlement requires us to complete the high speed Internet access project within 36 months of
the effective date and the other projects within 42 months of the effective date.

Settlement of KPNQwest Securities Class Action

A putative class action was brought in the federal district court for the Southern District of New York against QCII, certain of its former executives
who were also on the supervisory board of KPNQwest, N.V. (of which QCII was a major shareholder), and others. This lawsuit was initially filed on October 4, 2002. The most recent complaint alleged, purportedly on behalf of certain purchasers of
KPNQwest securities, that, among other things, defendants engaged in a fraudulent scheme and deceptive course of business in order to inflate KPNQwests revenue and the value of KPNQwest securities. Plaintiffs sought compensatory damages and/or
rescission as appropriate against defendants, as well as an award of plaintiffs attorneys fees and costs. In February 2006, QCII, certain other defendants and the putative class representative in this action executed an agreement to
settle the case against QCII and certain other defendants. No parties admitted any wrongdoing as part of the settlement. The settlement agreement settled the individual claims of the putative class representative and the claims of the class he
purports to represent against QCII and all defendants except Koninklijke KPN N.V. a/k/a Royal KPN N.V., Willem Ackermans, Eelco Blok, Joop Drechsel, Martin Pieters, and Rhett Williams. Those defendants are parties to a separate settlement agreement
with the putative class representative. In January 2007, the federal district court for the Southern District of New York issued an order approving the settlements



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and certifying a settlement class on behalf of purchasers of KPNQwests publicly traded securities from November 9, 1999 through May 31, 2002.

Settlement of Consolidated ERISA Action

Seven putative class actions brought against QCII purportedly on behalf of all participants and beneficiaries of the Qwest Savings and Investment Plan and predecessor plans, or the Plan, were consolidated into a consolidated action in
federal district court in Colorado. Other defendants in this action include current and former directors of QCII, former officers and employees of QCII and Deutsche Bank Trust Company Americas, or Deutsche Bank (formerly doing business as Bankers
Trust Company). These suits also purport to seek relief on behalf of the Plan. The first of these actions was filed in March 2002. Plaintiffs asserted breach of fiduciary duty claims against QCII and others under the Employee Retirement Income
Security Act of 1974, as amended, alleging, among other things, various improprieties in managing holdings of QCIIs stock in the Plan from March 7, 1999 until January 12, 2004. Plaintiffs sought damages, equitable and declaratory
relief, along with attorneys fees and costs and restitution. Counsel for plaintiffs indicated that the putative class would seek billions of dollars of damages.

On April 26, 2006, QCII, the other defendants, and the putative class representatives entered into a Stipulation of Settlement that, when implemented, will settle the consolidated ERISA action against QCII and
all defendants. No parties admit any wrongdoing as part of the settlement. We deposited $33 million in cash into a settlement fund in connection with it. Pursuant to the Stipulation of Settlement, we also agreed to pay, subject to certain
contingencies, the amount (if any) by which the Plans recovery from the settlement of the consolidated securities action is less than $20 million. Deutsche Bank deposited $4.5 million in cash into a settlement fund to settle the claims against
it in connection with the settlement. QCII received certain insurance proceeds as a contribution by individual defendants to this settlement, which offset $10 million of its $33 million payment. In January 2007, the district court issued an order
approving the settlement and certifying a settlement class on behalf of participants in and beneficiaries of the Plan who owned, bought, sold or held shares or units of the Qwest Shares Fund, U S WEST Shares Fund or QCII common stock in their Plan
accounts from March 7, 1999 until January 12, 2004.

ITEM 1A. RISK FACTORS

Risks Affecting Our Business

Increasing competition, including product substitution, continues to cause access line losses, which could adversely affect our operating results and financial performance.

We compete in a rapidly evolving and highly competitive market, and we expect competition to continue to intensify. We are facing greater competition in
our core local business from cable companies, wireless providers (including one of our affiliates), facilities-based providers using their own networks as well as those leasing parts of our network, and resellers. In addition, regulatory
developments over the past few years have generally increased competitive pressures on our business. Due to some of these and other factors, we continue to lose access lines.

We are consistently evaluating our responses to these competitive pressures. Our recent responses include product bundling and packaging, QCIIs and
our digital voice advertising campaign and focusing on customer service. However, we may not be successful in these efforts. We may not have sufficient resources to distinguish our service levels from those of our competitors, and we may
not be successful in integrating our product offerings, especially satellite video services for which we act as a reseller. Even if we are successful, these initiatives may not be sufficient to offset our continuing loss of access lines. If these
initiatives are unsuccessful or insufficient and our revenue declines significantly without corresponding cost reductions, this will cause a significant deterioration to our results of operations and financial condition and adversely affect our
ability to service debt and pay other obligations.



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Consolidation among participants in the telecommunications industry may allow our competitors to compete more
effectively against us, which could adversely affect our operating results and financial performance.

The telecommunications
industry is experiencing an ongoing trend towards consolidation, and several of our competitors have consolidated with other telecommunications providers. This trend results in competitors that are larger and better financed and affords our
competitors increased resources and greater geographical reach, thereby enabling those competitors to compete more effectively against us. We have begun to experience and expect further increased pressures as a result of this trend and in turn have
been and may continue to be forced to respond with lower profit margin product offerings and pricing plans in an effort to retain and attract customers. These pressures could adversely affect our operating results and financial performance.

Rapid changes in technology and markets could require substantial expenditure of financial and other resources in excess of contemplated levels, and
any inability to respond to those changes could reduce our market share.

The telecommunications industry is experiencing
significant technological changes, and our ability to execute our business plans and compete depends upon our ability to develop and deploy new products and services, such as broadband data and video services. The development and deployment of new
products and services could also require substantial expenditure of financial and other resources in excess of contemplated levels. If we are not able to develop new products and services to keep pace with technological advances, or if those
products and services are not widely accepted by customers, our ability to compete could be adversely affected and our market share could decline. Any inability to keep up with changes in technology and markets could also adversely affect the
trading price of our debt securities and our ability to service our debt.

Third parties may claim we infringe upon their intellectual property
rights and defending against these claims could adversely affect our profit margins and our ability to conduct business.

From time
to time, we receive notices from third parties claiming we have infringed or are infringing upon their intellectual property rights. We may receive similar notices in the future. Responding to these claims may require us to expend significant time
and money defending our use of affected technology, may require us to enter into royalty or licensing agreements on less favorable terms than we could otherwise obtain or may require us to pay damages. If we are required to take one or more of these
actions, our profit margins may decline. In addition, in responding to these claims, we may be required to stop selling or redesign one or more of our products or services, which could significantly and adversely affect the way we conduct business.

Risks Relating to Legal and Regulatory Matters

Any adverse outcome of the material matters pending against QCII and us, which include the remaining securities actions, the KPNQwest litigation and the investigation of QCIIs business currently being conducted by the Department
of Justice, or DOJ, could have a material adverse impact on our financial condition and operating results, on the trading price of our debt securities and on our ability to access the capital markets.

As described in Note 5Commitments and Contingencies to our condensed consolidated financial statements in Item 1 of Part I of this report, the
remaining securities actions, certain of the KPNQwest litigation, and the DOJ investigation present material and significant risks to QCII and us. In the aggregate, the plaintiffs in the remaining securities actions and the KPNQwest litigation, as
well as persons who, at their request, were excluded from the settlement class in the consolidated securities action, seek billions of dollars in damages. In addition, the outcome of one or more of these matters or the DOJ investigation could have a
negative impact on the outcomes of the other actions. Further, the size, scope and nature of the restatements of QCIIs consolidated financial statements for 2001 and 2000, which are described in QCIIs Annual Report on Form 10-K/A for the
fiscal year ended December 31, 2002, affect the risks presented by many of these matters as they involve, among other things, QCIIs prior accounting practices and related disclosures. Plaintiffs in certain of the remaining securities
actions have alleged QCIIs restatement of items in support of their claims. QCII and we continue to



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defend against the remaining securities actions and the KPNQwest litigation vigorously and are currently unable to provide any estimate as to the timing of
their resolution.

We can give no assurance as to the impacts on QCIIs and our financial results or financial condition that may
ultimately result from these matters. With respect to the remaining securities actions and any additional actions that may be brought by parties who, at their request, were excluded from the settlement class in the consolidated securities action but
who have not yet filed suit, QCII has recorded reserves in its financial statements for the minimum estimated amount of loss it believes is probable. However, the ultimate outcomes of those claims are still uncertain, and the amount of loss QCII
ultimately incurs could be substantially more than the reserves it has provided. If the recorded reserves are insufficient, QCII will need to record additional charges to its consolidated statement of operations in future periods. In addition,
settlements or judgments in several of these actions substantially in excess of QCIIs recorded reserves could have a significant impact on QCII and us. The magnitude of such settlements or judgments resulting from these matters could
materially and adversely affect QCIIs financial condition and ability to meet its debt obligations, potentially impacting its credit ratings, its ability to access capital markets and its compliance with debt covenants. In addition, the
magnitude of any such settlements or judgments may cause QCII to draw down significantly on its cash balances, which might force it to obtain additional financing or explore other methods to generate cash. Such methods could include issuing
additional securities or selling assets. As a wholly owned subsidiary of QCII, our business operations and financial condition could be similarly affected.

Further, there are other material proceedings pending against QCII and us as described in Note 5Commitments and Contingencies to our condensed consolidated financial statements in Item 1 of Part I of this
report that, depending on their outcome, may have a material adverse effect on QCIIs and our financial position. Thus, we can give no assurances as to the impacts on QCIIs and our financial results or financial condition as a result of
these matters.

Current or future civil or criminal actions against QCIIs former officers and employees could reduce investor confidence in
QCII and us and cause the trading price of our debt securities to decline.

As a result of QCIIs past accounting issues,
investor confidence in QCII and us has suffered and could suffer further. Although QCII has consummated a settlement with the SEC concerning its investigation of QCII, in March 2005, the SEC filed suit against QCIIs former chief executive
officer, Joseph Nacchio, two of QCIIs former chief financial officers, Robert Woodruff and Robin Szeliga, and other former QCII officers and employees. In December 2005, a criminal indictment was filed against Mr. Nacchio charging him
with 42 counts of insider trading.

A trial took place in March and April 2007 in connection with the criminal charges against
Mr. Nacchio. Mr. Nacchio was convicted on 19 counts of insider trading. A trial could also take place in the pending SEC lawsuit against Mr. Nacchio and others. Evidence introduced at such trials and in other matters may result in
further scrutiny by governmental authorities and others. The existence of this heightened scrutiny could adversely affect investor confidence in QCII and us and cause the trading price of our debt securities to decline.

We operate in a highly regulated industry and are therefore exposed to restrictions on our manner of doing business and a variety of claims relating to such
regulation.

Our operations are subject to significant federal regulation, including the Communications Act of 1934, as modified by
the Telecommunications Act of 1996, or the Telecommunications Act, and the Federal Communications Commission, or FCC, regulations thereunder. We are also subject to the applicable laws and regulations of various states, including regulation by
public utility commissions, or PUCs, and other state agencies. Federal laws and FCC regulations generally apply to regulated interstate telecommunications (including international telecommunications that originate or terminate in the United States),
while state regulatory authorities generally have jurisdiction over regulated telecommunications services that are intrastate in



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nature. The local competition aspects of the Telecommunications Act are subject to FCC rulemaking, but the state regulatory authorities play a significant
role in implementing those FCC rules. Generally, we must obtain and maintain certificates of authority from regulatory bodies in most states where we offer regulated services and must obtain prior regulatory approval of rates, terms and conditions
for our intrastate services, where required. Our businesses are subject to numerous, and often quite detailed, requirements under federal, state and local laws, rules and regulations. Accordingly, we cannot ensure that we are always in compliance
with all these requirements at any single point in time. The agencies responsible for the enforcement of these laws, rules and regulations may initiate inquiries or actions based on their own perceptions of our conduct, or based on customer
complaints.

Regulation of the telecommunications industry is changing rapidly, and the regulatory environment varies substantially from
state to state. A number of state legislatures and state PUCs have adopted reduced or modified forms of regulation for retail services. This is generally beneficial to us because it reduces regulatory costs and regulatory filing and reporting
requirements. These changes also generally allow more flexibility for new product introduction and enhance our ability to respond to competition. At the same time, some of the changes, occurring at both the state and federal level, may have the
potential effect of reducing some regulatory protections, including having FCC-approved tariffs that include rates, terms and conditions. These changes may necessitate the need for customer-specific contracts to address matters previously covered in
our tariffs. Despite these regulatory changes, a substantial portion of our local voice services revenue remains subject to FCC and state PUC pricing regulation, which could expose us to unanticipated price declines. There can be no assurance that
future regulatory, judicial or legislative activities will not have a material adverse effect on our operations, or that regulators or third parties will not raise material issues with regard to our compliance or noncompliance with applicable
regulations.

All of our operations are also subject to a variety of environmental, safety, health and other governmental regulations. We
monitor our compliance with federal, state and local regulations governing the discharge and disposal of hazardous and environmentally sensitive materials, including the emission of electromagnetic radiation. Although we believe that we are in
compliance with such regulations, any such discharge, disposal or emission might expose us to claims or actions that could have a material adverse effect on our business, financial condition and operating results.

Risks Affecting Our Liquidity

QCIIs high debt levels
pose risks to our viability and may make us more vulnerable to adverse economic and competitive conditions, as well as other adverse developments.

Our ultimate parent, QCII, continues to carry significant debt. As of March 31, 2007, our consolidated debt was approximately $7.7 billion, which was included in QCIIs consolidated debt of $14.9 billion as
of that date. Approximately $2.3 billion of QCIIs debt, which includes approximately $400 million of our debt obligations, comes due over the next three years. In addition, holders of the $1.265 billion of QCIIs 3.50% Convertible
Senior Notes due 2025 may elect to convert the principal of their notes into cash during periods when specified, market-based conversion requirements are met. However, QCII does not anticipate holders will make such an election because the
market price of these notes is currently above the estimated conversion value. While we currently believe QCII and we will have the financial resources to meet our obligations when they come due, we cannot anticipate what QCIIs and our future
condition will be. We may have unexpected costs and liabilities and we may have limited access to financing. In addition, on October 4, 2006, QCIIs Board of Directors approved a stock repurchase program for up to $2 billion of QCIIs
common stock over two years. Cash used by QCII in connection with any purchases of its common stock would not be available for other purposes, including the repayment of debt.

We may periodically need to obtain financing in order to meet our debt obligations as they come due. We may also need to obtain additional financing or
investigate other methods to generate cash (such as further cost



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reductions or the sale of assets) if revenue and cash provided by operations decline, if economic conditions weaken, if competitive pressures increase or if
QCII or we become subject to significant judgments, settlements and/or tax payments as further discussed in Note 5Commitments and Contingencies to our condensed consolidated financial statements in Item 1 of Part I of this report and in
Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources in Item 2 of Part I of this report. We can give no assurance that this additional financing will be
available on terms that are acceptable. Also, we may be impacted by factors relating to or affecting our liquidity and capital resources due to perception in the market, impacts on our credit ratings or provisions in our financing agreements that
may restrict our flexibility under certain conditions.

QCIIs $850 million revolving credit facility (referred to as the Credit
Facility), which is currently undrawn, has a cross payment default provision, and the Credit Facility and certain other debt issues of QCII and its other subsidiaries have cross acceleration provisions. When present, these provisions could have a
wider impact on liquidity than might otherwise arise from a default or acceleration of a single debt instrument. As a subsidiary of QCII, any such event could adversely affect our ability to conduct business or access the capital markets and could
adversely impact our credit ratings. In addition, the Credit Facility contains various limitations, including a restriction on using any proceeds from the facility to pay settlements or judgments relating to the DOJ investigation and securities
actions discussed in Note 5Commitments and Contingencies to our condensed consolidated financial statements in Item 1 of Part I of this report.

Our high debt levels could adversely impact our credit ratings. Additionally, the degree to which we, together with QCII, are leveraged may have other important limiting consequences, including the following:



| |  |  | placing us at a competitive disadvantage as compared with our less leveraged competitors;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | making us more vulnerable to downturns in general economic conditions or in any of our businesses;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | impairing our ability to obtain additional financing in the future for working capital, capital expenditures or general corporate purposes.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------

We may be unable to significantly reduce the substantial capital requirements or operating expenses necessary to continue to
operate our business, which may in turn affect our operating results.

The industry in which we operate is capital intensive, and as
such we anticipate that our capital requirements will continue to be significant in the coming years. Although we have reduced our capital expenditures and operating expenses over the past few years, we may be unable to further significantly reduce
these costs, even if revenue in some areas of our business is decreasing. While we believe that our current level of capital expenditures will meet both our maintenance and our core growth requirements going forward, this may not be the case if
circumstances underlying our expectations change.

Declines in the value of QCIIs qualified pension plan assets, or unfavorable changes in laws
or regulations that govern pension plan funding, could require it to provide significant amounts of funding for its qualified pension plan.

Our employees participate in a qualified defined benefit pension plan sponsored by QCII. While QCII does not expect to be required to make material cash contributions to its qualified defined benefit pension plan in the near term based upon
current actuarial analyses and forecasts, a significant decline in the value of qualified pension plan assets in the future or unfavorable changes in laws or regulations that govern pension plan funding could materially change the timing and amount
of required pension funding. As a result, QCII and we may be required to fund QCIIs qualified defined benefit pension plan with cash from operations, perhaps by a material amount.



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The cash needs of our affiliated companies consume a significant amount of the cash we generate.

We regularly declare and pay dividends to our direct parent, QSC. We may declare and pay dividends in excess of our earnings to the
extent permitted by applicable law, which may consume a significant amount of the cash we generate. Our debt covenants do not limit the amount of dividends we can pay to our parent.

Our debt agreements and the debt agreements of QCII allow us and QCII to incur significantly more debt, which could exacerbate the other risks described in this report.

The terms of QCIIs and our debt instruments permit both QCII and us to incur additional indebtedness. Additional debt may be necessary for many
reasons, including to adequately respond to competition, to comply with regulatory requirements related to our service obligations or for financial reasons alone. Incremental borrowings or borrowings at maturity on terms that impose additional
financial risks to our various efforts to improve our financial condition and results of operations could exacerbate the other risks described in this report.

Other Risks Relating to Qwest

If conditions or assumptions differ from the judgments, assumptions or estimates used in our critical
accounting policies, the accuracy of our financial statements and related disclosures could be affected.

The preparation of
financial statements and related disclosures in conformity with accounting principles generally accepted in the United States, or GAAP, requires management to make judgments, assumptions and estimates that affect the amounts reported in our
consolidated financial statements and accompanying notes. Our critical accounting policies, which are described in our Annual Report on Form 10-K for the year ended December 31, 2006, describe those significant accounting policies and
methods used in the preparation of our consolidated financial statements that are considered critical because they require judgments, assumptions and estimates that materially impact our consolidated financial statements and related
disclosures. As a result, if future events or assumptions differ significantly from the judgments, assumptions and estimates in our critical accounting policies, these events or assumptions could have a material impact on our consolidated financial
statements and related disclosures.

Taxing authorities may determine we owe additional taxes relating to various matters, which could adversely
affect our financial results.

We are included in the consolidated federal income tax return of QCII. As such, we could be severally
liable for tax examinations and adjustments attributed to other members of the QCII affiliated group. As a significant taxpayer, QCII is subject to frequent and regular audits from the Internal Revenue Service, or IRS, as well as from state and
local tax authorities. These audits could subject us to risks due to adverse positions that may be taken by these tax authorities. See Note 5Commitments and Contingencies to our condensed consolidated financial statements in Item 1 of
Part I of this report for examples of legal proceedings involving some of these adverse positions. For example, in the fourth quarter of 2004, QCII received notices of proposed adjustments on several significant issues for its 1998-2001 audit cycle.
Certain of these proposed adjustments are before the Appeals Office of the IRS. And in June 2006 QCII received notices of proposed adjustments on several significant issues for its 2002-2003 audit cycle, including a proposed adjustment disallowing a
loss recognized by QCII relating to the sale of its DEX directory publishing business. There is no assurance that QCII and the IRS will reach settlements on any of these issues or that, if QCII does reach settlements, the terms will be favorable to
QCII.

Because prior to 1999 QCII was a member of affiliated groups filing consolidated U.S. federal income tax returns, QCII could be
severally liable for tax examinations and adjustments not directly applicable to current members of the QCII affiliated group. Tax sharing agreements have been executed between QCII and previous affiliates, and QCII believes the liabilities, if any,
arising from adjustments to previously filed returns would be borne by the affiliated group member determined to have a deficiency under the terms and conditions of such



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agreements and applicable tax law. Generally, QCII has not provided for liabilities of former affiliated members or for claims they have asserted or may
assert against QCII.

While QCII believes its tax reserves adequately provide for the associated tax contingencies, QCIIs tax audits
and examinations may result in tax liabilities that differ materially from those QCII has recorded in its consolidated financial statements. Also, the ultimate outcomes of all of these matters are uncertain, and QCII can give no assurance as to
whether an adverse result from one or more of them will have a material effect on its financial results or its net operating loss carryforwards, which could in turn affect our financial condition and operating results to the extent the matters
affect us.

If we fail to extend or renegotiate our collective bargaining agreements with our labor unions as they expire from time to time, or if
our unionized employees were to engage in a strike or other work stoppage, our business and operating results could be materially harmed.

We are a party to collective bargaining agreements with our labor unions, which represent a significant number of our employees. In August 2005, we reached agreements with the Communications Workers of America and the International
Brotherhood of Electrical Workers on three-year labor agreements. Each of these agreements was ratified by union members and expires on August 16, 2008. Although we believe that our relations with our employees are satisfactory, no assurance
can be given that we will be able to successfully extend or renegotiate our collective bargaining agreements as they expire from time to time. The impact of future negotiations, including changes in wages and benefit levels, could have a material
impact on our financial results. Also, if we fail to extend or renegotiate our collective bargaining agreements, if disputes with our unions arise, or if our unionized workers engage in a strike or other work stoppage, we could incur higher ongoing
labor costs or experience a significant disruption of operations, which could have a material adverse effect on our business.

As a result of recent
regulatory developments or other business needs, we may merge or combine operations with one or more of QCIIs other subsidiaries, which could adversely affect the trading price of our debt securities and/or our credit ratings.

In February 2007, the FCC issued an order that freed us from some regulatory obligations under the Telecommunications Act. Among
other things, the order gives QCII more flexibility to integrate its local and long-distance operations. In addition, QCII continues to pursue a strategy to streamline its corporate structure. Due to these and other reasons, QCII may merge or
combine the operations of various of its subsidiaries, including us. QCII and we do not currently expect these transactions to adversely affect our financial condition or results of operations. However, if we are involved in any such transactions
and/or if we are unable to successfully integrate the affected operations, the trading price of our debt securities and/or credit ratings could be adversely affected. Additionally, the resulting consolidated financial statements could be
substantially different from our historical consolidated financial statements. Therefore, our historical financial performance might not be indicative of future financial performance.



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ITEM 6. EXHIBITS

Exhibits identified in parentheses below are on file with the SEC and are incorporated
herein by reference. All other exhibits are provided as part of this electronic submission.



|              |  |                                                                                                                                                                                                                                                                                                    
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                        
|              | 
|(3.1)         |  | Restated Articles of Incorporation of Qwest Corporation (incorporated by reference to Qwest Corporations Annual Report on Form 10-K for the year ended December 31, 1997, File
No. 001-03040).                                                                                                    
|              | 
|(3.2)         |  | Articles of Amendment to the Articles of Incorporation of Qwest Corporation (incorporated by reference to Qwest Corporations Quarterly Report on Form 10-Q for the quarter ended June
30, 2000, File No. 001-03040).                                                                              
|              | 
|(3.3)         |  | Amended and Restated Bylaws of Qwest Corporation (incorporated by reference to Qwest Corporations Annual Report on Form 10-K for the year ended December 31, 2002, File
No. 001-03040).                                                                                                           
|              | 
|(4.1)         |  | Indenture, dated as of April 15, 1990, by and between Mountain States Telephone and Telegraph Company and The First National Bank of Chicago (incorporated by reference to Qwest
Corporations Annual Report on Form 10-K for the year ended December 31, 2002, File No. 001-03040).               
|              | 
|(4.2)         |  | First Supplemental Indenture, dated as of April 16, 1991, by and between U S WEST Communications, Inc. and The First National Bank of Chicago (incorporated by reference to Qwest
Corporations Annual Report on Form 10-K for the year ended December 31, 2002, File No. 001-03040).              
|              | 
|(4.3)         |  | Indenture, dated as of October 15, 1999, by and between U S West Communications, Inc. and Bank One Trust Company, N.A. (incorporated by reference to Qwest Corporations
Annual Report on Form 10-K for the year ended December 31, 1999, File No. 001-03040).                                     
|              | 
|(4.4)         |  | Officers Certificate of Qwest Corporation, dated as of March 12, 2002 (including forms of 87/8% notes due March 15, 2012) (incorporated by reference
to Qwest Corporations Form S-4, File No. 333-115119).                                                                                       
|              | 
|(4.5)         |  | First Supplemental Indenture, dated as of August 19, 2004, by and between Qwest Corporation and U.S. Bank National Association (incorporated by reference to Qwest Communications
International Inc.s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, File No. 001-15577).
|              | 
|(4.6)         |  | Second Supplemental Indenture, dated as of November 23, 2004, by and between Qwest Corporation and U.S. Bank National Association (incorporated by reference to Qwest
Corporations Current Report on Form 8-K filed November 23, 2004, File No. 001-03040).                                       
|              | 
|(4.7)         |  | Third Supplemental Indenture, dated as of June 17, 2005, by and between Qwest Corporation and U.S. Bank National Association (incorporated by reference to Qwest Corporations Current Report
on Form 8-K filed June 23, 2005, File No. 001-03040).                                                
|              | 
|(4.8)         |  | Fourth Supplemental Indenture, dated August 8, 2006, by and between Qwest Corporation and U.S. Bank National Association (incorporated by reference to Qwest Corporations Current Report on
Form 8-K filing August 8, 2006, File No. 001-03040).                                                  
|              | 
|(10.1)        |  | Registration Rights Agreement, dated June 17, 2005, by and among Qwest Corporation and the initial purchasers listed therein (incorporated by reference to Qwest Corporations Current Report
on Form 8-K filed June 23, 2005, File No. 001-03040).                                                
|              | 
|(10.2)        |  | Registration Rights Agreement, dated August 8, 2006, by and among Qwest Corporation and the initial purchasers listed therein (incorporated by reference to Qwest Corporations Current
Report on Form 8-K filing August 8, 2006, File No. 001-03040).                                             



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|              |  |                                                                                                                        
|------------- |  | -----------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                            
|12            |  | Calculation of Ratio of Earnings to Fixed Charges.                                                                     
|              | 
|31.1          |  | Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                       
|              | 
|31.2          |  | Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                       
|              | 
|32            |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

---

|(    ) | Previously filed.
|------ | -----------------

In accordance with
Item 601(b)(4)(iii)(A) of Regulation S-K, copies of certain instruments defining the rights of holders of certain of our long-term debt are not filed herewith. Pursuant to this regulation, we hereby agree to furnish a copy of any such
instrument to the SEC upon request.



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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



QWEST CORPORATIONBY:

/S/    JOHN W.
RICHARDSONJohn W. Richardson Executive Vice President and Chief Financial Officer (Principal
Financial and Accounting Officer and Duly Authorized Officer)


May 1, 2007



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