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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549



FORM 10-K



ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2008oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from                                to


Commission File No. 001-03040

QWEST CORPORATION(Exact name of registrant as specified in its charter)

Colorado(State or other jurisdiction of
incorporation or organization)

84-0273800(I.R.S. Employer
Identification No.)1801 California Street, Denver, Colorado(Address of principal executive offices)

80202(Zip Code)


(303) 992-1400(Registrant's telephone number, including area code)

Securities
registered pursuant to Section 12(b) of the Act:

Title of Each Class

Name of Each Exchange on Which Registered6.5% Notes Due 2017

New York Stock Exchange


Securities
registered pursuant to Section 12(g) of the Act:None

THE
REGISTRANT, A WHOLLY OWNED SUBSIDIARY OF QWEST COMMUNICATIONS INTERNATIONAL INC., MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS I(1) (a) AND (b)
OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTION I(2).

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o    No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o    No ý

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 ý    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer ý (Do not check if a smaller reporting company)

Smaller reporting company o


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

On February 17, 2009, one share of Qwest Corporation common stock was outstanding. None of Qwest Corporation's common stock is held by
non-affiliates.

DOCUMENTS INCORPORATED BY REFERENCE: None.



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TABLE OF CONTENTS



PagePART IGlossary of Terms

iiItem 1. Business

1Item 1A. Risk Factors

11Item 1B. Unresolved Staff Comments

18Item 2. Properties

19Item 3. Legal Proceedings

19Item 4. Submission of Matters to a Vote of Security
Holders

22PART IIItem 5. Market for Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities

23Item 6. Selected Financial Data

23Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations

24Item 7A. Quantitative and Qualitative Disclosures About
Market Risk

48Item 8. Consolidated Financial Statements and Supplementary
Data

49Consolidated Statements of Operations

50Consolidated Balance Sheets

51Consolidated Statements of Cash Flows

52Consolidated Statements of Stockholder's Equity and
Comprehensive Income

53Notes to Consolidated Financial Statements

54Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure

94Item 9A. Controls and Procedures

94Item 9B. Other Information

94PART IIIItem 10. Directors, Executive Officers and Corporate
Governance

95Item 11. Executive Compensation

95Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters

95Item 13. Certain Relationships and Related Transactions, and
Director Independence

95Item 14. Principal Accountant Fees and
Services

95PART IVItem 15. Exhibits and Financial Statement
Schedules

97Signatures

99


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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.



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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, references to "QSC" refer to our direct parent company, Qwest Services Corporation, and its consolidated
subsidiaries, and references to "QCII" refer to our ultimate parent company, Qwest Communications International Inc., and its consolidated subsidiaries.

PART I

ITEM 1.    BUSINESS

We are wholly owned by QSC, which is wholly owned by QCII. We provide data, Internet, video and voice services within the
14-state region of Arizona, Colorado, Idaho, Iowa, Minnesota, Montana, Nebraska, New Mexico, North Dakota, Oregon, South Dakota, Utah, Washington and Wyoming. We refer to this region as
our local service area. Through joint marketing relationships with our affiliates, we are able to bundle our services with additional services offered by our affiliates. You can find more information
about our products, services and customers and about our bundled offerings below under the heading "Products, Services and Customers."

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 national telecommunications network. Through its fiber optic network, QCII provides the following products and services that we do not provide:



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

We
were incorporated under the laws of the State of Colorado in 1911. Our principal executive offices are located at 1801 California Street, Denver, Colorado 80202, and our
telephone number is (303) 992-1400.

For
a discussion of certain risks applicable to our business, financial condition and results of operations, including risks associated with our outstanding legal matters, see "Risk
Factors" in Item 1A of this report.

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Financial and Operational Highlights

The table below provides a summary of some of our financial highlights. In 2008 QCII moved to us most of the administrative and other
functions of QSC and merged into us two of QSC's other wholly owned subsidiaries that previously charged the majority of their costs to us. These activities affected our consolidated financial
statements as further described in Note 2Summary of Significant Accounting Policies to our consolidated financial statements in Item 8 of this report, and accordingly we
have recast the financial information below for prior years to conform to the current presentation.

This
information should be read in conjunction with, and is qualified by reference to, our consolidated financial statements and notes thereto in Item 8 and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this report.

Years Ended December 31,2008

2007

2006(Dollars in millions)Operating results:Operating revenue

$
10,388

$
10,691

$
10,721Operating expenses


7,525


7,631


8,288Income before income taxes


2,267


2,440


1,882Net income


1,438


1,527


1,203Cash flow data:Cash provided by operating activities


3,479


3,670


3,374Capital expenditures


1,404


1,270


1,410Dividends paid to QSC


2,000


2,470


1,946




December 31,2008

2007(Dollars in millions)Balance sheet data:Total debt(1)

$
7,588

$
7,911Working capital deficit(2)


(841
)

(904
)Total stockholder's equity


786


1,370






The
table below presents some of our operational metrics:

December 31,2008

2007

2006(in thousands)Operational metrics:Total access lines


11,565


12,789


13,795Total broadband subscribers


2,774


2,530


2,081Total video subscribers


757


589


353


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Operations

Our operations are integrated into and are part of the segments of QCII. Our business contributes to all three of QCII's segments:
business markets, mass markets, and wholesale markets. QCII's Chief Operating Decision Maker, or CODM, reviews our 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. Additional information on our
contribution to QCII's segments is provided in Note 15Contribution to QCII Segments to our consolidated financial statements in Item 8 of this report. For more information
about QCII's reporting segments, see QCII's Annual Report on Form 10-K for the year ended December 31, 2008.

Substantially
all of our revenue comes from customers located in the United States, and substantially all of our long-lived assets are located in the United States.

Products, Services and Customers

Our products and services include a variety of data, Internet, video and voice services. Revenue from our data, Internet and video
services represented 31% of our total revenue for the year ended December 31, 2008, and these services are our fastest growing source of revenue.

We
offer our customers the ability to bundle together several products and services. In addition, through joint marketing relationships with our affiliates, we are also able to bundle
our services with additional services offered by our affiliates. For example, we offer our mass markets customers integrated and unlimited local and long-distance voice services. These
customers can also bundle two or more services such as broadband access, video, voice and wireless. We believe these customers value the convenience of, and price discounts associated with, receiving
multiple services through a single company. In addition, we offer combinations of features and services relating to a single access line (such as 3-way calling and call forwarding).

Most
of our products and services are provided using our telecommunications network, which consists of voice and data switches, copper cables, fiber optic broadband cables and other
equipment. Our network serves approximately 11.6 million access lines and forms a portion of the public switched telephone network, or PSTN.

We
offer our products and services through three main customer channels, which are made up of our business markets, mass markets and wholesale markets customers. Our business markets
customers include enterprise and government customers. Enterprise customers consist of local, national and global businesses. We sell our products and services to business markets customers through
direct sales, partnership relationships and arrangements with third-party sales agents. Our mass markets customers include consumers and small businesses. We sell our products and services to mass
markets customers using a variety of channels, including our sales and call centers, our website, telemarketing and retail stores and kiosks. Our wholesale markets customers are other carriers and
resellers that purchase our products and services in large quantities to sell to their customers or that purchase our access services that allow them to connect their customers and their networks to
our network. We sell our products and services to wholesale customers through direct sales, partnership relationships and arrangements with third-party sales agents.

Described
below are our key products and services.

Data, Internet and Video Services

Our business markets customers use our data and Internet services to access the Internet and Internet-based services, as well as to
connect to private networks and to conduct internal and external data transmissions such as transferring files from one location to another. Our mass markets customers

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generally
use our data, Internet and video services to access the Internet, Internet-based services and digital television. Our wholesale customers use our facilities for collocation and use our
private line services to connect their customers and their networks to our network.

Our
marketing and sales efforts increasingly focus on our data, Internet and video services. These services include:



In
addition, we continue to provide several traditional data and Internet services including ATM, frame relay and integrated services digital network, or ISDN.

Voice Services

We provide local voice services, long-distance voice services, wireless services and access services.



We originate, transport and terminate local voice services. For our business and mass markets customers, local voice services include
basic local exchange and switching services. We also provide enhanced features with our local voice exchange services, such as caller ID, call waiting, call return, 3-way calling, call
forwarding and voice mail. For our wholesale customers, local voice services include primarily unbundled network elements, or UNEs, which allow them to use our network or a combination of our network
and their own networks to provide local voice and data services to their customers. Our local voice services also include network transport, billing services and access to our telecommunications
network by other telecommunications providers and wireless carriers. These services allow other telecommunications companies to provide telecommunications services that originate or terminate on our
network.



We provide domestic long-distance voice services to our business markets, mass markets and wholesale markets customers. Our
domestic long-distance voice services revenue does not contribute significantly to our total revenue.



We sell wireless products and services, primarily to customers who buy these products and services as part of a bundle with one or more
of our other products and services. In April 2008, we entered into a five-year agreement with Verizon Wireless that allows us to market and sell its wireless products and services under
its brand name to our mass markets and
business markets customers. Our wireless services revenue does not contribute significantly to our total revenue.

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We also provide access services to our wholesale customers. Access services include fees that we charge to other telecommunications
providers to connect their customers and their networks to our network so that they can provide long-distance, transport, data, wireless and Internet services.

Other

We also generate other revenue from Universal Service Fund, or USF, surcharges and the leasing and subleasing of space in our office
buildings, warehouses and other properties.

Affiliate Services

We provide to our affiliates data services, voice services and billing and collections services that we also provide to external
customers. In addition, we provide to our affiliates: marketing, sales and advertising; computer system development and support services; network support and technical services; and other support
services, such as legal, regulatory, general finance and accounting, tax, human resources and executive support.

Importance, Duration and Effect of Patents, Trademarks and Copyrights

Either directly or through our affiliates, we own or have licenses to various patents, trademarks, trade names, copyrights and other
intellectual property necessary to conduct our business. We believe it is unlikely that we could lose any intellectual property rights that are material to our business.

Competition

We compete in a rapidly evolving and highly competitive market, and we expect competition will continue to intensify. Regulatory
developments and technological advances over the past several years have increased opportunities for alternative communications service providers, which in turn have increased competitive pressures on
our business. These alternate providers often face fewer regulations and have lower cost structures than we do. In addition, the telecommunications industry has experienced some consolidation, and
several of our competitors have consolidated with other telecommunications providers. The resulting consolidated companies are generally larger, have more financial and business resources and have
greater geographical reach than we do.

Data, Internet and Video Services

In providing data, Internet and video services to our mass markets customers, we compete primarily with broadband service providers,
including cable providers and national telecommunications providers. In providing data and Internet services to our business and wholesale markets customers, we compete primarily with national
telecommunications providers and smaller regional providers. We also compete with large integrators that provide customers with data services, thereby taking traffic off of our network. Additionally,
we are experiencing increased competition for private line services from cable operators, fixed wireless service providers and wireless tower owners.

Competition
is based on network reach and bandwidth, as well as quality, reliability, customer service and price. Many of our competitors in this market are not subject to the same
regulatory requirements as we are, and therefore they are able to avoid significant regulatory costs and obligations.

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Voice Services



Although our status as an incumbent local exchange carrier, or ILEC, continues to provide us some advantages in providing voice
services to our business and mass markets customers, we increasingly face significant competition in this market. Many consumers are substituting cable, wireless and VoIP for traditional voice
telecommunications services, which has increased the number and type of competitors within our industry and has decreased our market share. As a result of this product substitution, we face greater
competition in providing voice services from wireless providers, resellers and sales agents (including ourselves) and from broadband service providers, including cable companies and VoIP providers. We
also continue to compete with cable companies and traditional telecommunications providers, such as national carriers, smaller regional providers, competitive local exchange carriers and independent
telephone companies.

Competition
for business and mass markets customers is based primarily on pricing, packaging of services and features, quality of service and meeting customer care needs. In addition, we
believe these customers value the convenience of, and price discounts associated with, receiving multiple services through a single company. Within the telecommunications industry, these services may
include telephone, wireless, video and Internet access. Accordingly, we and our competitors continue to develop and deploy more innovative product bundling, enhanced features and combined billing
options in an effort to retain and gain customers. While we rely on reseller or sales agency arrangements to provide some of our bundled services, some of our competitors are able to provide all of
their bundled services directly, which may provide them a competitive advantage.

Many
of our competitors are subject to fewer regulations than we are, which affords them competitive advantages against us. Under federal regulations, telecommunication providers are
able to interconnect their networks with ours, resell our local services or lease separate parts of our network (UNEs) in order to provide competitive local voice services. Generally, we have been
required to provide these functions and services at wholesale rates, which allows our competitors to sell their services at lower prices. However, these rules have been and continue to be reviewed by
state and federal regulators. For
additional discussion of regulations affecting our business, see "Regulation" below. In addition, wireless and broadband service providers generally are subject to less or no regulation, which allows
them to operate with lower costs than we are able to operate.

The
market for wholesale local voice services is highly competitive. Our resale and UNE customers are experiencing the same competition for local voice services customers as we are, as
discussed above. We also compete with some of our own wholesale markets customers that are deploying their own networks to provide customers with local voice services. By doing so, these competitors
take traffic off of our network.



The market for wireless services is highly competitive. We market and sell Verizon Wireless products and services, and in doing so we
compete with national and regional carriers, as well as other sales agents and resellers. We market and sell wireless services to customers who are buying these services as part of a bundle with one
or more of our other services. Competition is based on coverage area, price, services, features, handsets, technical quality and customer service.



We provide access services to other telecommunications providers to connect their customers and their networks to our network so that
they can provide long-distance, transport, data, wireless and Internet services. We face significant competition for access services from competitive local exchange

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carriers.
Our access service customers face competitive pressures in their businesses that are similar to those we face in our business. To the extent that these competitive pressures result in
decreased demand for their services, demand for our access services also declines.

Regulation

We are subject to significant state and federal regulation. Interstate communications (including international communications that
originate or terminate in the U.S.) are regulated by the Federal Communications Commission, or FCC, pursuant to the Communications Act of 1934, as amended by the Telecommunications Act of 1996, and
other laws. Intrastate communications are regulated by state utilities commissions pursuant to state utility laws. Generally, we must obtain and maintain certificates of authority from the FCC and
regulatory bodies in most states where we offer regulated services and must obtain prior regulatory approval of rates, terms and conditions for regulated services, where required.

Each
state has its own unique set of constitutional provisions, statutes, regulations, stipulations and practices that impose restrictions or limitations on the regulated entities'
activities. For example, jurisdictions may restrict the manner in which a regulated entity can interact with affiliates, transfer assets, issue debt and engage in other business activities.

Interconnection

The FCC and state commissions continue to interpret the obligations of ILECs under the Telecommunications Act of 1996 to interconnect
their networks with other telecommunications providers and allow competing local exchange carriers, or LECs, to resell ILECs' services and use ILECs' facilities as UNEs. The FCC's rules establish our
obligations in our local service area. The FCC has provided us limited relief eliminating UNEs subject to these rules in our Omaha, Nebraska service area. We sought similar regulatory relief in our
service areas in Denver, Colorado; Minneapolis, Minnesota; Phoenix, Arizona; and Seattle, Washington. In July 2008, the FCC denied our request. We appealed that decision to the D.C. Circuit Court of
Appeals, where the appeal is currently pending.

Intercarrier Compensation and Access Pricing

The FCC has initiated a number of proceedings that could affect the rates and charges for services that we sell to or purchase from
other carriers and for traffic that we exchange with other carriers. The FCC has been considering comprehensive reform of these charges, known as "intercarrier compensation," in a proceeding that has
been open for several years. This proceeding could result in fundamental changes in the charges we collect from other carriers and our end-users. This proceeding is not yet complete, and,
because of its complexity and
economic significance, may not be completed for some time. This complexity is due in part to the difficulty in applying the existing rules to new types of traffic for which accurate billing is
difficult to assure or verify (sometimes referred to as "phantom traffic"). The FCC may address discrete intercarrier compensation issues, such as compensation for phantom traffic, prior to completing
comprehensive reform. State commissions also periodically open proceedings to change the rates that we or other local carriers charge to terminate and originate intrastate calls.

In
January 2005, the FCC initiated a proceeding to examine whether ILEC special access rates should be reduced and pricing flexibility for those services should be curtailed. This
proceeding remains pending before the FCC.

In
October 2007, the FCC initiated a rulemaking proceeding to consider the rules, tariffs and rates governing switched access rates charged by rural LECs experiencing substantial growth
in demand for terminating services, often resulting from arrangements with companies providing free calling services. This proceeding responded to complaints filed by one of QCII's other subsidiaries,
Qwest

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Communications
Company, LLC, or QCC, and other long-distance telecommunications providers asserting that rural LECs are engaging in arrangements with providers of free calling
services, such as conference calling, chat lines and international calling. Under these arrangements, the calls are placed to a local number within the LEC's exchange, resulting in dramatic increases
in access charges paid by long-distance telecommunications providers to terminate those calls. The resulting revenues are shared by the LECs and the providers of free calling services.
This proceeding remains pending before the FCC. Further, cases and dockets addressing these matters are pending before state commissions and the federal courts.

In
November 2008, the FCC issued an order complying with an order of the D.C. Circuit Court of Appeals to provide a different legal rationale for the FCC's rules regarding intercarrier
compensation charges for calls to Internet service providers. A party subsequently appealed the November 2008 order to the D.C. Circuit. An adverse decision could cause us to pay substantially higher
charges for these calls. Also under review by the FCC, state commissions and federal courts are the intercarrier compensation arrangements, if any, for traffic bound for Internet service providers
that cross local exchange boundaries (known as "VNXX traffic").

VoIP and Broadband Internet Access Services

In March 2004, the FCC instituted a rulemaking proceeding addressing many issues related to VoIP and other Internet services. In this
proceeding, the FCC is considering a number of issues that could affect intercarrier compensation rules and other federal or state
requirements, such as programs that support the extension of telecommunications and Internet facilities to rural areas and to public schools and facilities in inner cities. The FCC is also considering
whether VoIP services should be classified as unregulated "information services" or regulated "telecommunications services" under the Communications Act of 1934. The FCC may also address in this
proceeding whether VoIP providers must pay carrier access charges or intercarrier compensation and other issues involving IP-enabled services, including access by disabled persons and
applicability of law enforcement statutes. This proceeding remains pending. In another proceeding in 2006, the FCC required providers of VoIP services to make contributions to support "universal
service," based on a percentage of their revenues from those services. In June 2007, the D.C. Circuit Court of Appeals upheld the FCC's decision to require universal service contributions from VoIP
providers, and that decision is final. VoIP offerings are likely to grow as the technology matures and the regulatory situation is clarified. While we may stand to benefit from growth in VoIP, it
could also contribute to further declines in our local exchange services.

In
September 2005, the FCC issued an order reclassifying certain ILEC wireline broadband Internet access offerings as information services no longer subject to tariffing or other common
carrier obligations. We have eliminated these offerings from our federal tariffs, which allows us to tailor our wireline broadband Internet access offerings to specific customer needs. In October
2007, the Third Circuit Court of Appeals upheld the FCC's order. In August 2008, the FCC eliminated tariffing and other related obligations for certain broadband services we provide to large business
customers. An appeal of that order is pending in the D.C. Circuit Court of Appeals.

Universal Service

The FCC maintains a number of "universal service" programs that are intended to ensure affordable telephone service for all Americans,
including low-income consumers and those living in rural areas that are costly to serve, and ensure access to advanced telecommunications services for schools, libraries and rural health
care providers. These programs, which totaled over $6 billion annually in recent years, are funded through contributions by interstate telecommunications carriers, which are generally passed
through to their end-users. In 2008, universal service contributions were assessed at an average rate of approximately 11% of interstate and international end-user

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telecommunications
revenues. At the end of 2008, the FCC was actively considering a new contribution methodology based on telephone numbers, which, if adopted, could significantly increase our
universal service contributions. While we would have the right to pass these charges on to our customers, the additional charges could affect the demand for certain telecommunications services. If a
telephone number contribution methodology is adopted, it will likely apply to all wireline, wireless and VoIP service providers.

In
2008, we received approximately $70 million in federal universal service high-cost subsidies. The FCC is actively considering changes in the structure and
distribution methodology of its universal service programs. Additionally, in January 2009, we and the state public utility commissions for Maine, Vermont, and Wyoming filed a petition with the Tenth
Circuit Court of Appeals asking that the court direct the FCC to comply with the court's prior order to issue valid rules for the universal service non-rural high-cost support
fund. The resolution of these proceedings ultimately could affect the amount of universal service support we receive.

In
2008, we received approximately $93 million in state universal service high-cost subsidies. State commissions and legislatures may review and alter their respective
state universal service programs, and, as a result, our distributions may be affected.

Employees

Our
occupational employees are covered by collective bargaining agreements with the Communications Workers of America, or CWA, and the International Brotherhood of Electrical Workers, or
IBEW. Our current four-year agreements with the CWA and IBEW expire on October 6, 2012. See the discussion of risks relating to our labor relations in "Risk
FactorsOther Risks Relating to Qwest" in Item 1A of this report.

(Decrease)

% ChangeDecember 31,2008 v
2007

2007 v
2006

2008 v
2007

2007 v
20062008

2007

2006(in Thousands)Management employees


13,404


13,756


13,829


(352
)

(73
)

(3
)%

(1
)%Occupational employees


17,145


20,250


22,005


(3,105
)

(1,755
)

(15)
%

(8)
%Total employees


30,549


34,006


35,834


(3,457
)

(1,828
)

(10)
%

(5)
%


Website Access and Important Investor Information

Our website address iswww.qwest.com, and we routinely post important investor
information in the "Investor Relations" section of our website atwww.qwest.com/about/investor. The information contained on, or that may be accessed
through, our website is not part of this annual report. You may obtain free electronic copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and all amendments to those reports in the "Investor Relations" section of our website under the heading "SEC Filings." These reports are available on
our website as soon as reasonably practicable after we electronically file them with the Securities and Exchange Commission, or SEC.

QCII
has adopted written codes of conduct that serve as the code of ethics applicable to our directors, officers and employees, including our principal executive officer and senior
financial officers, in accordance with Section 406 of the Sarbanes-Oxley Act of 2002, the rules of the SEC promulgated thereunder and the New York Stock Exchange rules. In the event that QCII
makes any changes to, or provides any waivers from, the provisions of its code of conduct applicable to its and our principal executive officer and senior financial officers, QCII intends to disclose
these events on QCII's and our website or in a report on Form 8-K within four business days of such event.

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These
codes of conduct, as well as copies of QCII's guidelines on significant governance issues and the charters of QCII's audit committee, compensation and human resources committee and
nominating and governance committee, are available in the "Corporate Governance" section of QCII's and our website at www.qwest.com/about/investor/governanceor in print to any stockholder who requests
them by sending a written request to QCII's Corporate Secretary at
Qwest Communications International Inc., 1801 California Street, Denver, Colorado 80202.

Special Note Regarding Forward-Looking Statements

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



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 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.

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ITEM 1A.    RISK FACTORS

Risks Affecting Our Business

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

We compete in a rapidly evolving and highly competitive market, and we expect competition to continue to intensify. We are facing
greater competition from cable companies, wireless providers, resellers and sales agents (including ourselves) and facilities-based providers using their own networks as well as those leasing parts of
our network. In addition, regulatory developments over the past several 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 continually evaluating our responses to these competitive pressures. Some of our more recent responses are product bundling and packaging and QCII's and our continuing focus on
customer service. However, we may not be successful in these efforts. We may not be able to distinguish our service levels from those of our competitors, and we may not be successful in integrating
our product offerings, especially products for which we act as a reseller or sales agent, such as wireless services and video services. If these initiatives are unsuccessful or insufficient and we are
otherwise unable to sufficiently stem or offset our continuing access line losses and our revenue declines significantly without corresponding cost reductions, this could adversely affect our
operating results and financial condition, as well as affect our ability to service debt and pay other obligations.

Unfavorable general economic conditions in the United States could negatively impact our operating results and financial condition.

Unfavorable general economic conditions, including the current recession in the United States and the recent financial crisis affecting
the banking system and financial markets, could negatively affect our business. While it is often difficult for us to predict the impact of general economic conditions on our business, these
conditions could adversely affect the affordability of and consumer demand for some of our products and services and could cause customers to shift to lower priced products and services or to delay or
forgo purchases of our products and services. One or more of these circumstances could cause our revenue to decline. Also, our customers may not be able to obtain adequate access to credit, which
could affect their ability to make timely payments to us. If that were to occur, we could be required to increase our allowance for doubtful accounts, and the number of days outstanding for our
accounts receivable could increase. In addition, as discussed below under the heading "Risks Affecting our Liquidity," due to recent turmoil in the credit markets and the continued decline in the
economy, we may not be able to refinance maturing debt at terms that are as favorable as those from which we previously benefited, at terms that are acceptable to us or at all. For these reasons,
among others, if the current economic conditions persist or decline, this could adversely affect our operating results and financial condition, as well as our ability to service debt and pay other
obligations.

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 condition.

The telecommunications industry has experienced some consolidation, and several of our competitors have consolidated with other
telecommunications providers. This consolidation 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 experienced and expect further increased pressures as a result of this consolidation 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

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our
operating results and financial condition, as well as our ability to service debt and pay other obligations.

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 and adversely affect our operating results and financial condition.

The telecommunications industry is experiencing significant technological changes, and our ability to execute our business plans and
compete depends upon our and our affiliates' ability to develop and deploy new products and services, such as broadband, wireless, video and VoIP 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 our operating results and financial condition, as well as our ability to service debt and pay other obligations.

Our reseller and sales agency arrangements expose us to a number of risks, one or more of which may adversely affect our business and operating results.

We rely on reseller and sales agency arrangements with other companies to provide some of the services that we sell to our customers,
including video services and wireless products and services. If we fail to extend or renegotiate these arrangements as they expire from time
to time or if these other companies fail to fulfill their contractual obligations to us or our customers, we may have difficulty finding alternative arrangements and our customers may experience
disruptions to their services. In addition, as a reseller or sales agent, we do not control the availability, retail price, design, function, quality, reliability, customer service or branding of
these products and services, nor do we directly control all of the marketing and promotion of these products and services. To the extent that these other companies make decisions that negatively
impact our ability to market and sell their products and services, our business plans and goals and our reputation could be negatively impacted. If these reseller and sales agency arrangements are
unsuccessful due to one or more of these risks, our business and operating results may be adversely affected.

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 or are named in lawsuits filed by third parties claiming we have infringed or
are infringing upon their intellectual property rights. We may receive similar notices or be involved in similar lawsuits 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 licensing agreements requiring royalty payments that we would not otherwise have to pay 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.

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Risks Relating to Legal and Regulatory Matters

Any adverse outcome of the securities-related matters pending against QCII, including the KPNQwest litigation, 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 "Legal Proceedings" in Item 3 of this report, the securities-related matters, including the KPNQwest matters,
present material and significant risks to QCII and us. In the aggregate, the plaintiffs in the KPNQwest matters seek billions of dollars in damages. In addition, the outcome of one or more of these
matters could have a negative impact on the outcomes of the other matters. QCII continues to defend against these matters vigorously and is currently unable to provide any estimate as to the timing of
their resolution. In addition, the ultimate resolution of the objections by Messrs. Nacchio and Woodruff to the decision approving the QCII settlement of the consolidated securities action is
uncertain and could result in the payment of additional monies by QCII in connection with indemnification claims by Messrs. Nacchio and Woodruff if the proposed settlement of the claims of the
putative class against Messrs. Nacchio and Woodruff is not implemented.

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. The ultimate outcomes of these
matters are still uncertain, and substantial settlements or judgments in these matters 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 "Legal Proceedings" in Item 3 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 operating results or financial condition as a result of these matters.

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.

We are subject to significant state and federal regulation. Interstate communications (including international communications that
originate or terminate in the U.S.) are regulated by the FCC, pursuant to the Communications Act of 1934, as amended by the Telecommunications Act of 1996, and other laws. Intrastate communications
are regulated by state utilities commissions pursuant to state utility laws. Generally, we must obtain and maintain certificates of authority from the FCC and regulatory bodies in most states where we
offer regulated services and
must obtain prior regulatory approval of rates, terms and conditions for regulated services, where required. We 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 customer complaints or on their own initiative. See additional information about regulations affecting our business in
"BusinessRegulation" in Item 1 of this report.

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
utility commissions have adopted reduced or modified forms of regulation for retail services. These changes also generally allow

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more
flexibility for rate changes and for new product introduction, and they enhance our ability to respond to competition. At the same time, some of the changes 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. Despite these regulatory changes, a
substantial portion of our local voice services revenue remains subject to FCC and state utility commission pricing regulation, which could expose us to unanticipated price declines. The FCC is
considering changing the rates that carriers can charge each other for originating, carrying and terminating traffic and for local access facilities. Also under review by the FCC and state commissions
are the intercarrier compensation issues arising from the delivery of traffic destined for entities that offer conference and chat line services for free (known in the industry as "access
stimulation," or "traffic pumping"), and of traffic bound for Internet service providers that cross local exchange boundaries (known as "VNXX traffic"). 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 management, discharge and disposal of hazardous and environmentally sensitive materials. Although we believe that we are in compliance with these regulations, our management,
discharge or disposal of hazardous and environmentally sensitive materials 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 December 31, 2008, our consolidated debt was approximately
$7.6 billion, which was included in QCII's consolidated debt of $13.7 billion as of that date. Approximately $5.1 billion of QCII's debt, which includes approximately
$1.3 billion of our debt obligations, comes due over the next three years. The $5.1 billion amount also includes $1.265 billion of QCII's 3.50% Convertible Senior Notes due 2025
(referred to as the 3.50% Convertible Senior Notes), which QCII may elect to redeem at any time on or after November 20, 2010 and holders may require QCII to repurchase for cash on
November 15, 2010. In addition, holders of these 3.50% Convertible Senior Notes may also elect to convert the principal of their notes into cash during periods when specified, market-based
conversion requirements are met. While we currently believe QCII and we will have the financial resources to meet our obligations when they come due, we cannot fully anticipate our future condition or
that of QCII, the credit markets or the economy generally. We may have unexpected costs and liabilities, and we may have limited access to financing. In addition, QCII has $193 million of
potential stock repurchases remaining under its previously disclosed stock repurchase program, and it is the current expectation of QCII's Board of Directors that QCII will continue to pay a quarterly
cash dividend. Cash used by QCII to purchase its common stock or to pay dividends will 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. Due to recent turmoil in the credit markets and the continued decline in the economy,
we may not be able to refinance maturing debt at terms that are as favorable as those from which we previously benefited, at terms that are acceptable to us or at all. 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
continue to weaken, if competitive pressures increase, if holders of the 3.50% Convertible Senior Notes elect to convert their notes because market based conversion provisions are met or require QCII
to repurchase their notes

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for
cash on November 15, 2010, if QCII or we are required to contribute a material amount of cash to QCII's pension or other post-retirement benefit plans or if QCII or we become
subject to significant judgments or settlements in one or more of the matters discussed in "Legal Proceedings" in Item 3 of this report. We can give no assurance that this additional financing
will be available on terms that are acceptable to us or at all. 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 securities-related actions
discussed in "Legal Proceedings" in Item 3 of this report. See "Liquidity and Capital ResourcesNear-Term View" in Item 7 of this report for additional
information about the Credit Facility.

The
degree to which we, together with QCII, are leveraged may have other important limiting consequences, including the following:



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 we anticipate that our capital requirements will continue to be significant
in the coming years. Although we have reduced our 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 planned 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.

Adverse changes in the value of assets or obligations associated with QCII's employee benefit plans could negatively impact QCII's stockholders' equity balance, which may in
turn affect our business and liquidity.

Our employees participate in employee benefit plans sponsored by QCII.

QCII
maintains a qualified pension plan, a non-qualified pension plan and post-retirement benefit plans. The funded status of these plans is the difference
between the value of all plan assets and benefit obligations under these plans. The process of calculating benefit obligations is complex. Adverse changes in interest rates or market conditions, among
other assumptions and factors, could cause a significant increase in QCII's benefit obligations or a significant decrease in the value of plan assets. With respect to QCII's qualified pension plan,
adverse changes could require QCII to contribute a material amount of cash to the plan or could accelerate the timing of any required cash payments. The amounts contributed by us through QCII are not
segregated or restricted and may be used to provide

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benefits
to employees of QCII's other subsidiaries. QCII determines our cash contribution and, historically, has only required us to pay our portion of its required pension contribution. QCII is not
required to make any cash contributions before 2010. However, given the significant decline in the value of plan assets in 2008, based on current actuarial analyses and forecasts QCII may be required
to make cash contributions in the range of $0 to $300 million in 2010 and can give no assurances that it will not be required to make additional cash contributions after 2010. Future material
cash contributions, if any, could have a negative impact on QCII's liquidity by reducing its cash flows which in turn could affect our liquidity.

In
addition, QCII's consolidated balance sheets indirectly reflect the value of all plan assets and benefit obligations under these plans. The accounting for employee benefit plans is
complex, and significant increases in QCII's benefit obligations or significant decreases of the value of plan assets can occur without necessarily impacting QCII's net income in the short term. In
addition, QCII's benefit obligations could increase significantly if it needs to unfavorably revise the assumptions it used to calculate the obligations. The value of QCII's plan assets was several
times larger than QCII's stockholders' equity as of December 31, 2007. However, asset values decreased significantly in 2008, which caused QCII's previous stockholders' equity position to
become a deficit position as of December 31, 2008. Stockholders' equity or deficit is one of several measures used by certain customers and vendors, among others, to evaluate a company's
financial condition. As such, QCII's current stockholders' deficit position or any future increases in its stockholders' deficit could adversely impact QCII's competitiveness in obtaining favorable
purchase arrangements and make it more challenging to compete for certain sales contracts, among other things.

Because
we are a wholly owned subsidiary of QCII, these events could adversely affect our ability to conduct business or to access the capital markets.

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 operating results and financial condition 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 U.S. generally accepted accounting principles
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 discussed in "Management's Discussion and Analysis of Financial Condition and Results of OperationsCritical Accounting Policies and Estimates" in Item 7 of this report,
describe those significant accounting policies and methods used in the preparation of our

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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 by the Internal Revenue Service, or IRS, as well as
state and local tax authorities. These audits could subject us to tax liabilities if adverse positions are taken by these tax authorities. In June 2006, QCII received notices of proposed adjustments
on several significant issues for the 2002 through 2003 audit cycle, including a proposed adjustment disallowing a loss recognized by QCII relating to the sale of its DEX directory publishing
business. QCII has reached tentative settlements with the IRS on several of these issues, including the DEX sale. These settlements have been approved by the IRS and are now subject to review by the
United States Congress Joint Committee on Taxation. There is no assurance that these settlements will ultimately be effected in accordance with QCII's expectations.

In
April 2008, QCII received from the IRS proposed adjustments on several issues for the 2004 and 2005 audit cycle. Based on QCII's and our evaluation of the IRS's positions reflected in
the proposed adjustments, we have not recorded a material adjustment of our unrecognized tax benefits. However there can be 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 us.

Because
prior to 1999 we were a member of affiliated groups filing consolidated U.S. federal income tax returns, we could be severally liable for tax examinations and adjustments
not directly applicable to us or 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 agreements and applicable
tax law. We have not generally provided for liabilities attributable to current or former affiliated companies or for claims they have asserted or may assert against us.

We
believe that we have adequately provided for tax contingencies. However, QCII's tax audits and examinations may result in tax liabilities that differ materially from those that we
have recorded in our consolidated financial statements. Because the ultimate outcomes of all of these matters are uncertain, we can give no assurance as to whether an adverse result from one or more
of them will have a material effect on our financial results.

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. Our
current four-year agreements with the CWA and the IBEW expire on October 6, 2012. Although we believe that our relations with our employees and unions 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 significant disputes with our unions
arise, or if our unionized workers engage in a strike or other work stoppage, we could incur

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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, QCII is continuing to reorganize the legal structure of its subsidiaries, which could adversely affect
the trading price of our debt securities and 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 us more flexibility to integrate our local operations with the long-distance operations of QCII and gives QCII more flexibility to integrate the operations of its
subsidiaries that provide shared services to us and QCII's other subsidiaries. In light of this order and consistent with QCII's continuing strategy to simplify its and our corporate structure and
gain operational efficiencies, QCII has made changes to the legal organization of some of its subsidiaries and has moved some of its operations among its subsidiaries. QCII continues to evaluate other
ways to better organize its legal organization and operations of its subsidiaries and may make additional changes in the future. In connection with these activities, we do not expect that QCII will
consummate any business combinations or other transactions that will adversely affect our consolidated financial condition or results of operations. However, if we continue to be involved in any of
these activities and are unable to successfully integrate the affected operations, the trading price of our debt securities and credit ratings could be adversely affected. Additionally, these
activities may impact the entities that are consolidated into our financial statements and, as a result, our future financial statements may be different from the financial statements we have
historically presented. Therefore, our historical financial performance might not be indicative of future financial performance.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

None.

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ITEM 2.    PROPERTIES

Our principal properties do not lend themselves to simple description by character and location. The components of our gross investment
in property, plant and equipment consisted of the following as of December 31, 2008 and 2007:

December 31,2008

2007Components of gross investment in property, plant and equipment:Land and buildings


7
%

7
%Communications equipment


42
%

42
%Other network equipment


46
%

46
%General-purpose computers and other


5
%

5
%Total


100
%

100
%


Land
and buildings consists of land, land improvements, central office and certain administrative office buildings. Communications equipment consists primarily of switches, routers and
transmission electronics. Other network equipment includes primarily conduit and cable. General-purpose computers and other consists principally of computers, office equipment, vehicles and other
general support equipment. We own substantially all of our telecommunications equipment required for our business. Total gross investment in property, plant and equipment was approximately
$43.9 billion and $44.1 billion as of December 31, 2008 and 2007, respectively, before deducting accumulated depreciation.

We
own and lease administrative offices in major metropolitan locations within our local service area. Substantially all of our communications equipment and other network equipment is
located in buildings that we own or on land within our local service area.

For
additional information, see Note 7Property, Plant and Equipment to our consolidated financial statements in Item 8 of this report.

ITEM 3.    LEGAL PROCEEDINGS

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. Only those matters to which
we are a party (primarily the third matter described under the heading "Other Matters" relating to litigation brought by several owners of payphones) represent contingencies for which we have
recorded, or could reasonably anticipate recording, an accrual if appropriate to do so.

Throughout
this section, 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.

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 of the matters described below, and QCII has been advancing legal fees and costs to many former directors, officers and employees in connection with certain matters
described below.

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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 (the "QCII settlement"). No parties admit any wrongdoing as part of the QCII
settlement. Pursuant to the QCII settlement, QCII has deposited approximately $400 million in cash into a settlement fund. In connection with the QCII settlement, QCII received
$10 million from Arthur Andersen LLP. As part of the QCII settlement, the class representatives and the settlement class they represent are also releasing Arthur Andersen. If the QCII
settlement is not implemented, QCII will be repaid the $400 million plus interest, less certain expenses, and QCII will repay the $10 million to Arthur Andersen.

If
implemented, the QCII 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 QCII settlement on behalf of purchasers of QCII's publicly traded securities between May 24, 1999 and July 28, 2002, over the objections of Messrs. Nacchio
and Woodruff. Messrs. Nacchio and Woodruff then appealed that order to the United States Court of Appeals for the Tenth Circuit. In addressing that appeal, the Tenth Circuit held that the
federal district court order overruling Nacchio and Woodruff's objections to the QCII settlement was not sufficiently specific, and it remanded the case to the district court with instructions to
consider certain issues and to provide a more detailed explanation for its earlier decision overruling those objections. Subsequent to the remand, a proposed settlement was reached involving the
claims of the putative class against Messrs. Nacchio and Woodruff as described below that, if implemented, will also result in the implementation of the QCII settlement.

On
August 4, 2008, QCII, Messrs. Nacchio and Woodruff, and the putative class representatives entered into a Stipulation of Settlement (the "Nacchio/Woodruff settlement").
The court has preliminarily approved the Nacchio/Woodruff settlement, has certified a class for settlement purposes of purchasers of our publicly traded securities between May 24, 1999 and
July 28, 2002, and has scheduled a hearing to consider final approval of the Nacchio/Woodruff settlement. If implemented, the settlement will, among other things, (i) settle the
individual claims of the class representatives and the class they represent against Messrs. Nacchio and Woodruff, and (ii) result in the withdrawal by Messrs. Nacchio and Woodruff
of their objections to the QCII settlement and the resolution of their indemnification dispute with QCII arising from the QCII settlement. Under the proposed Nacchio/Woodruff settlement, QCII has
contributed $40 million, and, if implemented, Messrs. Nacchio and Woodruff will contribute a total of $5 million of insurance proceeds. The Nacchio/Woodruff settlement is subject
to a number of conditions and future contingencies, including that it (i) requires final court approval, and (ii) provides QCII with the right to terminate the settlement if class
members representing more than a specified amount of alleged securities losses elect to opt out of the settlement. No parties admit any wrongdoing as a part of the Nacchio/Woodruff settlement.

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KPNQwest Litigation/Investigation

On January 27, 2009, the trustees in the Dutch bankruptcy proceeding for KPNQwest, N.V. (of which QCII was a major
shareholder) filed a lawsuit in the federal district court for the District of Colorado alleging violations of the Racketeer Influenced and Corrupt Organizations Act and breach of duty and
mismanagement under Dutch law. QCII is a defendant in this lawsuit along with Joseph Nacchio, Robert S. Woodruff and John McMaster, the former president and chief executive officer of KPNQwest.
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 and punitive damages as well as an award of plaintiffs' attorneys' fees and costs. A lawsuit asserting the same claims that was
previously filed in the federal district court for the District of New Jersey was dismissed without prejudice and that dismissal was affirmed on appeal.

On
September 13, 2006, Cargill Financial Markets, Plc and Citibank, N.A. filed a lawsuit in the District Court of Amsterdam, located in the Netherlands, against QCII, KPN
Telecom B.V., Koninklijke KPN N.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 approximately $305 million based on the exchange rate on December 31, 2008).

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. As amended and following the appeal of a partial summary judgment against plaintiffs which was affirmed in part and reversed in part, plaintiffs allege, among other things, that defendants
violated state securities laws in connection with plaintiffs' investments in KPNQwest securities. QCII is a defendant in this lawsuit along with Qwest B.V. (one of QCII's subsidiaries), Joseph
Nacchio and John McMaster. The Arizona Superior Court dismissed most of plaintiffs' claims, and plaintiffs voluntarily dismissed the remainder of their claims. Plaintiffs have appealed the court's
decision to the Arizona Court of Appeals. Plaintiffs claim to have lost approximately $9 million in their investments in KPNQwest, and are also seeking interest and attorneys' fees.

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 January 1 through May 23,
2002. QCII and others have appealed that order to the Netherlands Supreme Court. On December 5, 2008, the Enterprise Chamber appointed investigators to conduct the inquiry.

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

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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
in which QCII has fiber optic cable in railroad rights-of-way (other than Louisiana and Tennessee), 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 July 18, 2008,
a federal district court in Massachusetts entered an order preliminarily approving a settlement of all of the actions described above, except the action pending in Tennessee. On November 18,
2008, the court held a hearing to consider final approval of the proposed settlement and the parties are awaiting the court's decision.

QCC
is a defendant in litigation filed by several billing agents for the owners of payphones seeking compensation for coinless calls made from payphones. The matter is pending in the
United States District Court for the District of Columbia. Generally, the payphone owners claim that QCC underpaid the amount of compensation due to them under FCC regulations for coinless calls
placed from their phones onto QCC's network. The claim seeks compensation for calls, as well as interest and attorneys' fees. QCC will vigorously defend against this action.

We
have been a defendant in litigation brought by several owners of payphones relating to the rates we charged them for the lines to their payphones between 1997 and 2003. Generally, the
payphone owners have claimed that we charged more for payphone access lines than we were permitted to charge under
the applicable FCC rules. The largest of these lawsuits, filed in the United States District Court for the Western District of Washington, was amicably settled for an immaterial amount and dismissed.
A second lawsuit, pending in the United States District Court for the District of Utah with related proceedings before the FCC, has also been amicably settled for an immaterial amount. Another
proceeding against us remains pending before the Oregon Public Utility Commission. Several related proceedings are underway at the FCC involving us, other telecommunications companies and payphone
owners. In all of these proceedings, the payphone owners seek damages for amounts paid allegedly exceeding the amounts that were permitted under the applicable FCC rules. We will vigorously defend
against the remaining actions.

A
putative class action filed on behalf of certain of QCII's retirees was brought against QCII, the Qwest Life Insurance Plan and other related entities in federal district court in
Colorado in connection with QCII's decision to reduce the life insurance benefit for these retirees to a $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 benefit at the levels in place before QCII decided to reduce them. Plaintiffs seek restoration of the life
insurance benefit to previous levels and certain equitable relief. The district court ruled in QCII's favor on the central issue of whether QCII properly reserved its right to reduce the life
insurance benefit under applicable law and plan documents. The retirees have amended their complaint to assert additional claims. QCII believes the remaining claims are without merit, and QCII will
continue to vigorously defend against this matter.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

We have omitted this information pursuant to General Instruction I(2).

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Not Applicable.

ITEM 6.    SELECTED FINANCIAL DATA

The following selected consolidated financial data should be read in conjunction with, and are qualified by reference to, the
consolidated financial statements and notes thereto in Item 8 of this report and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this
report. The comparability of the following selected financial data is significantly impacted by various changes in accounting principles including:



Years Ended December 31,2008

2007

2006

2005

2004(Dollars in millions)Operating revenue

$
10,388

$
10,691

$
10,721

$
10,842

$
11,210Operating expenses


7,525


7,631


8,288


8,588


8,754Income from continuing operations before income
taxes and cumulative effect of changes in
accounting principles


2,267


2,440


1,882


1,628


1,871Net income


1,438


1,527


1,203


1,038


1,068Other data:Cash provided by operating activities

$
3,479

$
3,670

$
3,374

$
3,689

$
3,774Cash used for investing activities


1,402


1,254


1,279


1,151


1,498Cash used for financing activities


2,136


2,400


1,980


2,753


2,555Capital expenditures


1,404


1,270


1,410


1,401


1,545




December 31,2008

2007

2006

2005

2004(Dollars in millions)Balance sheet data:Total assets

$
15,443

$
16,522

$
17,404

$
18,445

$
20,580Total debt(1)


7,588


7,911


7,735


7,720


7,704Total debt to total capital ratio(2)


91
%

85
%

77
%

73
%

64
%


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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain statements set forth below constitute forward-looking statements. See "BusinessSpecial Note Regarding
Forward-Looking Statements" in Item 1 of this report for additional factors relating to such statements, and see "Risk Factors" in Item 1A 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 data, Internet, video and voice services. We generate revenue from services provided in the 14-state region of
Arizona, Colorado, Idaho, Iowa,
Minnesota, Montana, Nebraska, New Mexico, North Dakota, Oregon, South Dakota, Utah, Washington and Wyoming. We refer to this region as our local service area.

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 national telecommunications network. Through its fiber optic network, QCII provides some long-distance, data and Internet services that we do not provide. You
can find additional information about these services that we do not provide in "Business" in Item 1 of this report.

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 that are similar to services we provide within our local service area. These services include private line,
ATM and frame relay.

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 consolidated financial statements and the notes thereto in Item 8 of this report.

Our
operations are integrated into and are part of the segments of QCII and contribute to all three of QCII's segments: business markets, mass markets, and wholesale markets. We have the
same Chief Operating Decision Maker, or CODM, as QCII. During the first quarter of 2008, QCII's CODM began to manage QCII's business using different information than he was using previously. QCII
changed its segments accordingly. QCII's CODM reviews our 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. Additional information on our contributions to QCII's segments is provided in
Note 15Contribution to QCII Segments to our consolidated financial statements in Item 8 of this report.

In
light of regulatory changes in 2007 and consistent with QCII's continuing strategy to simplify its and our corporate structure and gain operational efficiencies, in 2008 QCII moved to
us most of the administrative and other functions of QSC and merged into us two of QSC's other wholly owned subsidiaries that previously charged the majority of their costs to
us:



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These
reorganization activities combined businesses that were already controlled by QCII, therefore we accounted for these activities in a manner similar to a pooling of interests. These
activities had the following effect on our previously reported financial statements for each year presented:

Years Ended
December 31,2007

2006(Dollars in millions)Increases in:Total operating revenue

$
814

$
850Income before income taxes


63


31Net income


35







December 31, 2007(Dollars in millions)Increases in:Total assets

$
1,125Total liabilities


732


As
a result of these reorganization activities, we have reclassified certain expenses in this Item and in our consolidated statements of operations in Item 8 of this report, for
the years ended December 31, 2007 and 2006, to conform to the current year presentation.

QCII
continues to evaluate other ways to better organize the legal structure and operations of its subsidiaries and may make additional changes to the legal structure and operations of
its subsidiaries,
including us, in the future. In connection with these past or future reorganization activities, we do not believe we have consummated, and we do not expect to consummate in the future, any business
combinations or other transactions that will adversely affect our consolidated financial condition or results of operations.

During
the first quarter of 2008, we also changed the definitions we use to classify expenses as cost of sales, selling expenses or general, administrative and other operating expenses.
As a result, we have reclassified certain expenses in this Item and in our consolidated statements of operations in Item 8 of this report. Operating expenses are now reported as
follows:



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We
believe these changes allow users of our financial statements to better understand our cost structure and the way we manage our business. These expense classifications may not be
comparable to those of
other companies. These changes had no impact on total operating expenses or net income for any period.

We
have also reclassified certain other prior year revenue, expenses and access line amounts to conform to the current year presentation.

Business Trends

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





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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 this
report may also materially impact our business operations and financial results.

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Table of Contents

Results of Operations

Overview

We generate the majority of our revenue by providing data, Internet, video and voice services using our network as described further
below. We also generate revenue from services we provide to our affiliates. Depending on the products or services purchased, a customer may pay a service activation fee, a monthly service fee, a usage
charge or a combination of these.



The
following table summarizes our results of operations for the years ended December 31, 2008, 2007 and 2006 and the number of employees as of December 31, 2008, 2007 and
2006:

Increase/(Decrease)

% ChangeYears Ended December 31,2008 v
2007

2007 v
2006

2008 v
2007

2007 v
20062008

2007

2006(Dollars in millions, except employees)Operating revenue

$
10,388

$
10,691

$
10,721

$
(303
)
$
(30
)

(3
)%


%Operating expenses


7,525


7,631


8,288


(106
)

(657
)

(1
)%

(8
)%Other expensenet


596


620


551


(24
)

(69
)

(4
)%

13
%Income before income taxes


2,267


2,440


1,882


(173
)

558


(7
)%

30
%Income tax expense


829


913


679


(84
)

234


(9
)%

34
%Net income

$
1,438

$
1,527

$
1,203

$
(89
)
$
324


(6
)%

27
%Employees (as of December 31)


30,549


34,006


35,834


(3,457
)

(1,828
)

(10
)%

(5
)%


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Operating Revenue



The following table compares our operating revenue for the years ended December 31, 2008 and 2007:

Years Ended December 31,

Increase/
(Decrease)

% Change2008

2007

2008 v 2007

2008 v 2007(Dollars in millions)Operating revenue:Data, Internet and video services

$
3,199

$
2,916

$
283


10
%Voice services


5,196


5,687


(491
)

(9
)%Affiliate and other services


1,993


2,088


(95
)

(5
)%Total operating revenue

$
10,388

$
10,691

$
(303
)

(3
)%


In
addition to the specific items discussed below, we believe declining general economic conditions negatively impacted our revenue in 2008.



Data, Internet and video services revenue increased primarily due to a 10% increase in broadband subscribers and, to a lesser extent, a
28% increase in video subscribers as of December 31, 2008 compared to December 31, 2007. The growth in broadband services revenue resulted from continuing increases in penetration and,
to a lesser extent, increased rates as customers upgraded to higher speed services. Private line services revenue also increased as a result of higher volumes partially offset by rate compression.
These revenue increases were partially offset by a decrease in frame relay and ATM services revenue due to lower volumes.



Local voice services revenue decreased primarily due to access line losses as a result of the competitive pressures described in
"Business Trends" above. Local voice services revenue was impacted by these competitive pressures as customers disconnected primary and additional lines and continued to be affected by a declining
demand for UNEs.

Access
services revenue decreased primarily due to a 9% decline in volume compared to 2007.

The
following table summarizes our access lines by customer channel as of December 31, 2008 and 2007:

December 31,

Decrease

% Change2008

2007

2008 v 2007

2008 v 2007(in thousands)Access lines:Mass markets


7,796


8,707


(911
)

(10
)%Business markets


2,636


2,791


(155
)

(6
)%Wholesale markets


1,133


1,291


(158
)

(12
)%Total access lines


11,565


12,789


(1,224
)

(10
)%


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Affiliate services revenue decreased primarily due to a change in the way we determine sales support services billed to our affiliates.
We implemented this change in the fourth quarter of 2007. This revenue decrease was partially offset by an increase in services we provided to support an affiliate's data and Internet product
offerings.

We
estimate that the profit from affiliate services was approximately $380 million and $410 million for the years ended December 31, 2008 and 2007, respectively.



The following table compares our operating revenue for the years ended December 31, 2007 and 2006:

Years Ended December 31,

Increase/
(Decrease)

% Change2007

2006

2007 v 2006

2007 v 2006(Dollars in millions)Operating revenue:Data, Internet and video services

$
2,916

$
2,576

$
340


13
%Voice services


5,687


6,104


(417
)

(7
)%Affiliate and other services


2,088


2,041


47


2
%Total operating revenue

$
10,691

$
10,721

$
(30
)


%




Local voice services revenue decreased primarily due to access line losses as a result of the competitive pressures described in
"Business Trends" above. Local voice services revenue was impacted by these competitive pressures as customers disconnected primary and additional lines. Additionally, but to a lesser extent, local
voice services revenue decreased due to lower USF revenue primarily due to the elimination of the USF assessment on certain products in late 2006. This decrease also reduced our expense by a similar
amount. Wholesale local services revenue continued to be affected by a declining demand for UNEs.

Access
service revenue decreased primarily due to decreased demand from interexchange carriers that provide long distance service to our local customers.

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

December 31,

Decrease

% Change2007

2006

2007 v 2006

2007 v 2006(in thousands)Access lines:Mass markets


8,707


9,430


(723
)

(8
)%Business markets


2,791


2,870


(79
)

(3
)%Wholesale markets


1,291


1,495


(204
)

(14
)%Total access lines


12,789


13,795


(1,006
)

(7
)%




Data, Internet and video services revenue increased primarily due to a 22% increase in broadband subscribers and, to a lesser extent, a
67% increase in video subscribers. The growth in broadband services revenue resulted from continuing increases in penetration as customers migrated from dial-up Internet connections, as
well as customers upgrading to higher speed Internet connections. The increase in data and Internet services revenue was primarily due to growth in private line volume.

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The increase in affiliate and other services revenue was primarily due to increased volumes of private line and other services we
provide to support our affiliates' data, Internet and video businesses and, to a lesser extent, price increases for these services.

Operating Expenses

This section should be read in conjunction with our business trends discussed above.



The following table provides further detail regarding our operating expenses:

Years Ended
December 31,

Increase/
(Decrease)

% Change2008

2007

2008 v 2007

2008 v 2007(Dollars in millions)Cost of sales (exclusive of depreciation and amortization):Employee-related costs

$
1,199

$
1,243

$
(44
)

(4
)%Other


488


421


67


16
%Total cost of sales


1,687


1,664


23


1
%Selling:Employee-related costs


1,067


1,045


22


2
%Marketing, advertising and external commissions


475


499


(24
)

(5
)%Other


300


242


58


24
%Total selling


1,842


1,786


56


3
%General, administrative and other operating:Employee-related costs


486


491


(5
)

(1
)%Taxes and fees


372


450


(78
)

(17
)%Real estate and occupancy costs


297


305


(8
)

(3
)%Other


583


550


33


6
%Total general, administrative and other operating


1,738


1,796


(58
)

(3
)%Affiliates


185


164


21


13
%Depreciation and amortization


2,073


2,221


(148
)

(7
)%Total operating expenses

$
7,525

$
7,631

$
(106
)

(1
)%




Cost of sales are costs incurred in providing products and services to our customers. These include: employee-related costs directly
attributable to operating and maintaining our network (such as salaries, wages and certain benefits); and other cost of sales directly related to our network operations (such as professional fees,
materials and supplies, cost of equipment sales and outsourced services).

Employee-related
costs decreased primarily due to lower salaries, wages and benefit costs as a result of employee reductions in our network operations and lower overtime costs partially
offset by severance charges of approximately $78 million in 2008.

Other
cost of sales increased primarily due to higher cost of equipment sales and higher professional fees and other costs for operating and maintaining our network.

As
discussed in Note 17Commitments and Contingencies to our consolidated financial statements in Item 8 of this report, during June 2008 floods in the Midwest,
particularly Iowa, caused

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damage
to our network. Based on our current assessment, we estimate that cumulative expenditures required for the restoration of our network and physical plant will be less than $20 million,
including repairs and equipment replacement. For the year ended December 31, 2008, we incurred repair expenditures of $13 million, which are included in the $20 million estimate.



Selling expenses are costs incurred in selling products and services to our customers. These include: employee-related costs directly
attributable to selling products or services (such as salaries, wages, internal commissions and certain benefits); marketing, advertising and external commissions; and other selling costs (such as bad
debt expense, professional fees and outsourced services).

Employee-related
costs increased primarily due to severance charges of $16 million in 2008 and higher costs associated with our sales force. These increases were partially offset
by a decline in the amortization of deferred costs associated with the activation of access lines. Certain customer acquisition costs are deferred up to the amount of any up-front fee and amortized
over the expected life of the customer relationship and have been declining in amount as a result of access line losses and promotional waivers of up-front fees.

Marketing,
advertising and external commissions decreased primarily due to lower costs for media advertising in 2008.

Other
selling costs increased due to higher professional fees, higher costs for postage and shipping, a refund associated with a regulatory matter in 2007 and other costs including
expenses associated with sponsoring the Democratic and Republican National Conventions, which took place in our 14-state region in 2008.



General, administrative and other operating expenses are corporate overhead and other operating costs. These include: employee-related
costs for administrative functions (such as salaries, wages and certain benefits); taxes and fees (such as property and other taxes and USF charges); real estate and occupancy costs (such as rents,
utility and fleet costs); and other general, administrative and other operating costs (such as professional fees, outsourced services, litigation related charges and general computer systems support
services). General, administrative and other operating expenses also include our allocated share of QCII's combined net periodic pension and post-retirement health care and life insurance
plans for all eligible employees and retirees.

Employee-related
costs decreased primarily due to lower pension expense partially offset by severance charges of $32 million in 2008 and an increase in post-retirement
benefit expenses. QCII allocates the expense of its benefit plans to us based upon demographics of our employees compared to all the remaining participants. The expense is a function of the amount of
benefits earned, interest on benefit obligations, expected return on plan assets, amortization of costs and credits from prior benefit changes and amortization of actuarial gains and losses. For the
year ended December 31, 2008, QCII allocated to us combined pension and post-retirement benefit income of $13 million compared to a combined pension and
post-retirement benefit expense of $39 million for the year ended December 31, 2007. The shift from recording combined net periodic expense to recording combined net periodic
income was primarily due to a decrease in net actuarial losses. We expect to record combined net periodic expense of approximately $172 million in 2009. Actuarial gains or losses reflect the
differences between earlier actuarial assumptions and what actually occurred.

Taxes
and fees decreased primarily due to a $40 million favorable property tax settlement recognized in 2008. Excluding this settlement, taxes and fees decreased due to other
favorable property tax adjustments.

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Other
expenses increased due to increased professional fees, increased marketing and advertising expense, and the impairment of certain assets related to real estate properties and
QCII's wireless business partially offset by a decrease in legal expenses resulting from charges recorded in 2007 for a litigation matter.



Affiliate expenses include charges for our use of long-distance services, wholesale Internet access, insurance, occupancy
charges and certain retiree benefits.

Affiliate
expenses increased primarily due to increases in Internet access and voice mail services, occupancy charges and a general liability insurance credit received in 2007.



The following table provides further detail regarding our operating expenses:

Years Ended
December 31,

Increase/
(Decrease)

% Change2007

2006

2007 v 2006

2007 v 2006(Dollars in millions)Cost of sales (exclusive of depreciation and amortization):Employee-related costs

$
1,243

$
1,292

$
(49
)

(4
)%Other


421


437


(16
)

(4
)%Total cost of sales


1,664


1,729


(65
)

(4
)%Selling:Employee-related costs


1,045


1,050


(5
)


%Marketing, advertising and external commissions


499


485


14


3
%Other


242


253


(11
)

(4
)%Total selling


1,786


1,788


(2
)


%General, administrative and other operating:Employee-related costs


491


698


(207
)

(30
)%Taxes and fees


450


481


(31
)

(6
)%Real estate and occupancy costs


305


312


(7
)

(2
)%Other


550


572


(22
)

(4
)%Total general, administrative and other operating


1,796


2,063


(267
)

(13
)%Affiliates


164


179


(15
)

(8
)%Depreciation and amortization


2,221


2,529


(308
)

(12
)%Total operating expenses

$
7,631

$
8,288

$
(657
)

(8
)%




Employee-related costs decreased primarily due to employee reductions in both years and lower severance costs as we adjusted our
workforce in response to productivity improvements, partially offset by additional maintenance work.

Other
cost of sales decreased primarily due to call termination settlements and lower overall volume, partially offset by higher professional fees for operating and maintaining our
network.



Marketing, advertising and external commissions increased primarily due to higher media advertising costs incurred to promote name and
brand recognition in our business markets channel. In

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addition,
continued product bundling and broadband promotions in our mass markets channel also contributed to higher costs.

Other
selling costs decreased primarily due to a refund associated with a regulatory matter and lower professional fees, partially offset by increased bad debt expense. Bad debt expense
increased in 2007 to a normal expense level that reflects our write-off experience over the last three years. Our 2006 bad debt expense was lower than 2007 due to non-recurring
reductions in our reserve level to reflect improvement in our collections experience.



Employee reductions and lower severance costs contributed to the decrease in employee-related costs in 2007. Employee-related costs
decreased primarily due to lower combined net periodic pension and post-retirement benefits expenses as a result of post-retirement benefit plan changes effective in 2007 and
net reduced expense associated with the recognition of actuarial gains. Our employees participate in the QCII pension and non-qualified pension plans and certain employees are eligible for
post-retirement health care and life insurance plans. QCII allocated to us combined benefits expenses of $39 million and $198 million for the years ended December 31,
2007 and 2006, respectively.

Effective
January 1, 2007, changes to QCII's benefit plans capped QCII's levels of contributions for certain post-retirement health care 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 QCII's earlier actuarial
assumptions and what actually occurred. The recognized net actuarial loss for this period was reduced primarily due to higher discount rates and higher than expected actual returns on pension assets.

For
additional information on QCII's pension and post-retirement plans, see Note 11Employee Benefits to our consolidated financial statements in
Item 8 of this report.

Taxes
and fees decreased primarily due to lower USF charges largely related to the elimination of the USF assessment on certain products.

Other
general, administrative and other operating costs decreased due to lower third party information technology services and lower insurance premiums, due to our settling various legal
matters.



Affiliate expenses decreased primarily due to reduced expenses for promotional modems and workers' compensation insurance adjustments,
which resulted in a credit to expense in 2007 and an expense in 2006. These reductions were partially offset by increased expenses for long-distance services as we transitioned our
employees' use of these services to an affiliate in early 2007. Prior to this transition, these services were provided by our network and other carriers' networks.

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Depreciation and Amortization

The following table provides detail regarding depreciation and amortization expense:

Increase/(Decrease)

% ChangeYears Ended December 31,2008 v
2007

2007 v
2006

2008 v
2007

2007 v
20062008

2007

2006(Dollars in millions)Depreciation and amortization:Depreciation

$
1,855

$
2,017

$
2,169

$
(162
)
$
(152
)

(8
)%

(7
)%Amortization


218


204


360


14


(156
)

7
%

(43
)%Total depreciation and amortization

$
2,073

$
2,221

$
2,529

$
(148
)
$
(308
)

(7
)%

(12
)%


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 shorten our estimates of the useful lives of our assets, we expect that our depreciation expense will continue to
decrease.

Amortization
expense decreased in 2007 compared to 2006 due to the change in our estimate of average economic lives of capitalized software in January 2007 and lower capital spending on
software related assets since 2001. Amortization expense would have been approximately $120 million higher in 2007 had we not changed our estimates of the average economic lives to better
reflect the expected period of future use of the software. We did not change our estimates of the average economic lives of capitalized software in 2008.

Other Consolidated Results

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

Increase/(Decrease)

% ChangeYears Ended December 31,2008 v
2007

2007 v
2006

2008 v
2007

2007 v
20062008

2007

2006(Dollars in millions)Other expense (income)net:Interest expense on long-term borrowings and capital leasesnet

$
589

$
608

$
616

$
(19
)
$
(8
)

(3
)%

(1
)%Loss on early retirement of debtnet





18


9


(18
)

9


nm


100
%Gain on sale of assets





(6
)

(65
)

6


59


nm


(91
)%Othernet


7





(9
)

7


9


nm


nmTotal other expense (income)net

$
596

$
620

$
551

$
(24
)
$
69


(4
)%

13
%Income tax expense

$
829

$
913

$
679

$
(84
)
$
234


(9
)%

34
%


---

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



Other expense (income)net includes: interest expense on long-term borrowings and capital leases; investment
write-downs; gains and losses on the sales of investments and fixed assets; gains and losses on early retirement of debt; interest income and interest expense not related to borrowings, such as
interest on income taxes.

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Loss
on early retirement of debtnet for 2007 was primarily due to the redemption of $250 million aggregate principal amount of 87/8% Debentures due
June 1, 2031. The redemption resulted in a loss on early retirement of debt of $18 million.

Concurrent
with the issuance of our 7.5% Notes due 2014 on August 8, 2006, we redeemed the remaining $500 million aggregate principal amount of our floating rate term loan
maturing in June 2007, plus accrued interest of $3 million. The redemption resulted in a loss on early retirement of debt of $9 million.

The
gain on sale of assets in 2007 and 2006 was primarily due to a sale of real estate of $6 million and $61 million, respectively.

Othernet
includes, among other things, interest income, income tax penalties, other interest expense (such as interest on income taxes), and gains or losses related to fair
value interest rate hedges.



The effective income tax rate is the provision for income taxes as a percentage of income before income taxes. Our effective income tax
rate for 2008, 2007 and 2006 was 37%, 37% and 36%, respectively.

Liquidity and Capital Resources

We are a wholly owned subsidiary of 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 impacts on our credit ratings, our access to capital markets and changes in the financial market's perception of us. QCII and its
consolidated subsidiaries had total borrowings of $13.7 billion and $14.3 billion as of December 31, 2008 and 2007, respectively.

QCII
has cash management arrangements between certain of its subsidiaries that include lines of credit, affiliate 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 intercompany obligations vary from time to time and are
classified as short-term borrowings.

Near-Term View

We had $233 million in cash and cash equivalents available as of December 31, 2008. For the year ended
December 31, 2008, our cash was generated by operating activities. For the next 12 months, we expect to use our available excess cash primarily to pay dividends and income tax related
amounts to QSC and to make additional investments in our network. We expect our 2009 capital expenditures to approximate our 2008 expenditures of $1.4 billion. For the year ended
December 31, 2008, we declared dividends of $2.2 billion to QSC and paid dividends of $2.0 billion to QSC.

Our
working capital deficit, or the amount by which our current liabilities exceed our current assets, was $841 million and $904 million as of December 31, 2008 and
2007, respectively. Our working capital deficit decreased $63 million as earnings before depreciation, amortization and income taxes was partially offset by dividends declared to QSC and
capital expenditures.

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 and continued cash flows from operations should be more than sufficient to meet our cash needs
through the next twelve months. We have no debt maturing in 2009.

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QCII's
$850 million revolving credit facility (referred to as the Credit Facility) is currently undrawn and expires in October 2010. The Credit Facility has 12 lenders with
commitments ranging from $15 million to $160 million. Any amounts drawn on the Credit Facility are guaranteed by QSC and are secured by a senior lien on our stock.

The
Credit Facility contains various limitations, including a restriction on using any proceeds from the facility to pay settlements or judgments relating to securities-related actions
discussed in "Legal Proceedings" in Item 3 of this report. In addition, to the extent that QCII's earnings before interest, taxes, depreciation and amortization, or EBITDA (as defined in QCII's
debt covenants), is reduced by cash settlements or judgments relating to the matters discussed in "Legal Proceedings" in Item 3 of this report, 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 the Credit Facility 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.

On
December 10, 2008, QCII's Board of Directors declared a quarterly cash dividend of $0.08 per share totaling approximately $136 million payable on March 6, 2009 to
shareholders of record as of February 13, 2009. It is the current expectation of QCII's Board of Directors that QCII will continue to pay a quarterly cash dividend.

On
October 4, 2006, QCII's Board of Directors approved a stock repurchase program for up to $2 billion of QCII's common stock. For the years ended December 31, 2008
and 2007, QCII repurchased 95 million and 137 million shares, respectively, of its common stock under this program at a weighted average price per share of $4.49 and $8.54, respectively.
As of December 31, 2008, QCII had repurchased a total of $1.807 billion of common stock under this program; thus $193 million remained available for stock repurchases. In light of
current credit market conditions, QCII's Board of Directors has extended the timeframe to complete these repurchases, which were originally scheduled to be completed in 2008.

Long-Term View

We have historically operated with a working capital deficit due to our practice of declaring and paying regular cash dividends to QSC,
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 the likelihood that we will continue to have access to capital markets to refinance our debt as it matures, should allow us to meet our cash
requirements for the foreseeable future. Due to recent turmoil in the credit markets, we may not be able to refinance maturing debt at terms that are as favorable as those from which we previously
benefited or at terms that are acceptable to us.

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 continue to weaken, if competitive pressures increase,
if holders of the 3.50% Convertible Senior Notes require QCII to repurchase their notes for cash equal to par value of their notes because market-based conversion provisions are met or on other
redemption dates which occur every five years on November 15 beginning in 2010, if QCII or we are required to contribute a material amount of cash to QCII's pension or other
post-retirement benefit plans or if QCII or we become subject to significant judgments or settlements in one or more matters discussed in "Legal Proceedings" in Item 3 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

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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. 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, is currently undrawn and expires in October 2010.
The Credit Facility has 12 lenders with commitments ranging from $15 million to $160 million. 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:



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, 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 securities-related actions discussed in "Legal
Proceedings" in Item 3 of this report.

As
of December 31, 2008, the unfunded status of QCII's pension plan for accounting purposes was $745 million. QCII is not required to make any cash contributions before
2010. However, given the significant decline in the value of plan assets in 2008, based on current actuarial analyses and forecasts, QCII may be required to make contributions in the range of $0 to
$300 million in 2010 and can give no assurances that it will not be required to make additional contributions after 2010. Our employees participate in the QCII pension plan. The amounts
contributed by us through QCII are not segregated or restricted to pay amounts due to our employees and may be used to provide benefits to other employees of QCII's affiliates. Historically, QCII has
only required us to pay our portion of their required pension contribution.

As
of December 31, 2008, the unfunded status of QCII's post-retirement benefit plans was $2.509 billion. Certain of these post-retirement benefit
plans are unfunded; however, a trust has been established to help cover the health care cost of retired occupational employees. QCII did not make any cash contributions to this trust in 2008 and does
not expect to make any cash contributions to this trust in 2009. The fair value of the trust assets was $915 million as of December 31, 2008. Assuming that the trust's current asset
allocation remains the same and the trust assets earn an expected long-term rate of return of 8.5%, QCII believes the trust assets will be adequate to provide reimbursements for its
occupational post-retirement health care costs for approximately five years. This period could be substantially shorter depending on returns on plan assets, projected benefit payments and
future changes in benefit obligations; for instance, if we assume that the rate of return on trust

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assets
is zero and benefit reimbursements remain at projected levels the trust would be exhausted in five years, but if we assumed that the rate of return on trust assets were zero and benefit
reimbursements increase by 20%, the trust assets could be exhausted in only three years. Thereafter, covered benefits for QCII's eligible retirees who are former occupational employees will be paid
directly by QCII. Our employees participate in the QCII post-retirement plan. The amounts contributed by us through QCII are not segregated or restricted to pay amounts due to our
employees and may be used to provide benefits to other employees of QCII's affiliates. Historically, QCII has only required us to pay our portion of their required post-retirement
contribution.

In
December 2008, QCII and we filed a universal shelf registration statement, under which we may issue an indeterminate amount of debt securities in one or more offerings. This
registration statement was filed concurrent with the expiration of a universal shelf registration statement that QCII filed in December 2005. QCII's and our ability and willingness to issue debt
securities under this registration statement will depend on market conditions at the time of any desired offering.

Historical View

The following table summarizes cash flow activities for the years ended December 31, 2008, 2007 and 2006:

Increase/(Decrease)

% ChangeYears Ended December 31,2008 v
2007

2007 v
2006

2008 v
2007

2007 v
20062008

2007

2006(Dollars in millions)Cash flows:Provided by operating activities

$
3,479

$
3,670

$
3,374

$
(191
)
$
296


(5
)%

9
%Used for investing activities


1,402


1,254


1,279


148


(25
)

12
%

(2
)%Used for financing activities


2,136


2,400


1,980


(264
)

420


(11
)%

21
%




Cash provided by operating activities decreased in 2008 compared to 2007 primarily due to reduced cash collections from reduced
operating revenues, reduced affiliate billing and collections and quicker settlements of payroll, partially offset by a decrease in tax-related payments to QSC. We reduced our tax-related payments to
QSC in 2008 due to the utilization of deferred tax assets that were transferred to us as a part of QCII merging into us two of QSC's other wholly owned subsidiaries, as described above. Cash provided
by operating activities increased in 2007 compared to 2006 primarily due to lower cost of sales and general, administrative and other operating expenses.



Cash used for investing activities increased in 2008 compared to 2007 primarily due to increased capital expenditures to support the
planned growth in our data and Internet services. The decrease in cash used for investing activities in 2007 compared to 2006 was primarily due to lower capital expenditures primarily resulting from
reduced spending on telecommunications infrastructure for new real estate developments.

We
received proceeds of $165 million primarily from the sales of our real estate properties and made net purchases of investment securities of $34 million in 2006.



The changes in cash used for financing activities were primarily due to differences in dividend payments to QSC. We paid cash dividends
of $2.000 billion, $2.470 billion, and $1.946 billion in 2008, 2007 and 2006, respectively. We may declare and pay dividends to QSC in excess of our earnings to the extent
permitted by applicable law. Our debt covenants do not limit the amount of dividends we can pay to QSC.

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Table of Contents

We were in compliance with all provisions and covenants of our borrowings as of December 31, 2008. For additional information on our 2008 and 2007
financing activities, see Note 9Borrowings to our consolidated financial statements in Item 8 of this report.

Letters of Credit

We had outstanding letters of credit of approximately $56 million as of December 31, 2008.

Credit Ratings

The table below summarizes our long-term debt ratings as of December 31, 2008 and 2007:

December 31, 2008 and 2007Moody's

Ba1S&P

BBB-Fitch

BBB-


With
respect to Moody's, a rating of Ba is judged to have speculative elements and is subject to substantial credit risk, meaning that the future of the issuer cannot be considered to be
well-assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times. The "1,2,3" modifiers show
relative standing within the major categories, 1 being the highest, or best, modifier in terms of credit quality.

With
respect to S&P and Fitch, a rating of BBB indicates that there are currently expectations of adequate protection. The capacity for payment of financial commitments is considered
adequate but adverse changes in circumstances and economic conditions are more likely to impair this capacity. This is the lowest investment grade category. The plus and minus symbols show relative
standing within major categories.

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 impaired ability to borrow under acceptable terms. 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, which as shown above are unchanged from December 31, 2007, our ability to raise additional capital under acceptable terms and conditions may be
impaired.

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 currently use derivative financial instruments to manage our interest rate risk exposure and we may continue to employ them in the future.



As of December 31, 2008, no portion of our long-term debt obligations was scheduled to mature in the subsequent
12 months.



One objective of our short-term debt strategy is to take advantage of favorable interest rates by effectively converting
floating rate debt to fixed rate debt using interest rate swaps. As of December 31, 2008, we had $750 million of floating-rate debt outstanding, of which $250 million
was exposed to

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changes
in interest rates. This exposure is linked to the London Interbank Offered Rate, or LIBOR. During 2008, we entered into interest rate swaps related to the other $500 million that have
the economic effect of converting the floating interest rates to fixed interest rates until March 2010. A hypothetical increase of 100 basis points in LIBOR relative to the $250 million of
floating-rate debt that is exposed to changes in interest rates would decrease annual pre-tax earnings by approximately $2.5 million.



As of December 31, 2008, our cash and investments managed by QSC included $230 million invested in highly liquid
cash-equivalent instruments, $43 million invested in auction rate securities and $9 million in an investment fund. 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 decrease annual pre-tax
earnings by approximately $3 million.

Future Contractual Obligations

The following table summarizes our estimated future contractual obligations as of December 31, 2008:

Payments Due by Period2009

2010

2011

2012

2013

2014 and
Thereafter

Total(Dollars in millions)Future contractual obligations(1):Debt and lease payments:Long-term debt

$


$
500

$
825

$
1,500

$
750

$
4,082

$
7,657Capital lease and other obligations


19


6


4


1


1


3


34Interest on long-term borrowings and capital leases(2)


574


553


535


402


315


3,438


5,817Operating leases


106


94


84


54


35


116


489Total debt and lease payments


699


1,153


1,448


1,957


1,101


7,639


13,997Other long-term liabilities


2


2


2


3


2


21


32Purchase commitments:Telecommunications commitments


67


31














98Advertising, promotion and other services(3)


73


49


36


30


29


93


310Total purchase commitments


140


80


36


30


29


93


408Non-qualified pension obligation(4)


1


1


1


1


1


18


23Total future contractual obligations

$
842

$
1,236

$
1,487

$
1,991

$
1,133

$
7,771

$
14,460


---

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Off-Balance Sheet Arrangements

We have no special purpose or limited purpose entities that provide off-balance sheet financing, liquidity, or market or
credit risk support, and we do not engage in leasing, hedging, research and development services, or other relationships that expose us to any significant liabilities that are not reflected on the
face of the consolidated financial statements or in "Future Contractual Obligations" above.

Critical Accounting Policies and Estimates

We have identified certain policies and estimates as critical to our business operations and the understanding of our past or present
results of operations. For additional information on the application of these and other significant accounting policies, see Note 2Summary of Significant Accounting Policies to our
consolidated financial statements in Item 8 of this report. 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 consolidated financial statements and because they require significant judgments, assumptions or estimates. The preparation of our consolidated financial statements and related
disclosures requires us to make estimates, intercompany allocations and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the
date of our consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. We believe that the estimates, judgments and assumptions made when
accounting for the items described below 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.

Intercompany Revenue and Charges

We charge our affiliates based on tariffed rates for telecommunications and data services and either fully distributed cost or market
rates for other services. Our fully distributed costs methodology includes employee costs, facilities costs, overhead costs and a return on investment component.

Our
affiliates charge us for services rendered by their employees primarily by applying the fully distributed cost methodology discussed above. Our affiliates also contract services from
third parties on our behalf. For these services, the third parties bill our affiliates who in turn charge us for our respective share of these third-party expenses.

The
methodologies discussed above for determining affiliate revenue and charges are based on rules that the FCC adopted pursuant to the Communications Act, as amended by the
Telecommunications Act. We believe the accounting estimates related to affiliate revenue and charges are "critical accounting estimates" because determining market rates and determining the allocation
methodology and the supporting allocation factors: (i) requires judgment and is subject to refinement as facts and circumstances change or as new cost drivers are identified, (ii) are
based on regulatory rules which are subject to change, and (iii) QCII occasionally changes which affiliates provide them services which can impact overall costs and related affiliate charges,
all of which require significant judgment and assumptions.

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Affiliate Transactions

We record intercompany charges at the amounts billed to us by our affiliates. Regulatory rules require certain expenses to be recorded
at market price or fully distributed cost, as more fully described in Note 16Related Party Transactions to our consolidated financial statements in Item 8 of this report.
Regulators periodically review our compliance with regulations. Adjustments to intercompany charges that result from these reviews are recorded in the period they become known.

Because
of the significance of the services we provide to our affiliates and our other affiliate transactions, the result of operations, financial position, and cash flows presented
herein are not necessarily indicative of the results of operations, financial position and cash flows we would have achieved had we operated as a stand-alone entity during the periods presented.

Loss Contingencies and Litigation Reserves

QCII and we are involved in several material legal proceedings, as described in more detail in "Legal Proceedings" in Item 3 of
this report. We assess potential losses in relation to any such matters to which we are a party and in relation to other pending or threatened legal and tax matters. 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. To the extent these estimates are more or less than the actual
liability resulting from the resolution of these matters, our earnings will be increased or decreased accordingly. If the differences are material, our consolidated financial statements could be
materially impacted. If a loss is considered reasonably possible, we disclose the item and any determinable estimate of the loss if material but we do not recognize any expense for the potential loss.

For
income tax related matters, prior to January 1, 2007, we recorded a liability computed at the statutory income tax rate if (i) we did not believe that we were 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 was probable that we would prevail and the uncertainty was not
related to the timing of recognition for the item. Effective January 1, 2007, we adopted FASB Interpretation No 48, "Accounting for Uncertainty in
Income Taxes," or FIN 48, and changed our methodology for estimating potential liability for income tax related matters.

Though
the validity of any tax position is a matter of tax law, the body of statutory, regulatory and interpretive guidance on the application of the law is complex and often ambiguous.
Because of this, whether a tax position will ultimately be sustained may be uncertain. FIN 48 prescribes a comprehensive model for how a company should recognize, measure, present and disclose
uncertain tax positions that a company has taken or expects to take on a tax return. Under FIN 48, the impact of an uncertain tax position that is more likely than not to be sustained upon
audit 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 has less than a 50% likelihood
of being sustained.

To
the extent we have recorded tax liabilities that are more or less than the actual liability that ultimately results from the resolution of an uncertain tax position, our earnings will
be increased or decreased accordingly. Also, as we become aware of new interpretations of relevant tax laws and as we discuss our interpretations with taxing authorities, we may in the future change
our assessments of the sustainability of an uncertain tax position or of the amounts that may be sustained upon audit. We believe that the estimates, judgments and assumptions made in accounting for
these matters are reasonable, based on information currently available. However, as our assessments change and as uncertain tax positions are resolved, the impact to our consolidated financial
statements could be material.

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Deferred Taxes

We are included in the consolidated federal income tax return of QCII. Under QCII's tax allocation policy, QCII treats our consolidated
results as if we were a separate taxpayer. The policy requires us to pay our tax liabilities in cash based upon our separate return taxable income. We are also included in the combined state tax
returns filed by QCII, and the same payment and allocation policy applies.

Our
provision for income taxes includes amounts for tax consequences deferred to future periods. We record deferred income tax assets and liabilities reflecting future tax consequences
attributable to tax credit carryforwards and differences between the financial statement carrying value of assets and liabilities and the tax bases of those assets and liabilities. Deferred taxes are
computed using enacted tax rates expected to apply in the year in which the differences are expected to affect taxable income.
The effect on deferred income tax assets and liabilities of a change in tax rate is recognized in earnings in the period that includes the enactment date.

The
measurement of deferred taxes often involves an exercise of judgment related to the computation and realization of tax basis. Our deferred tax assets and liabilities reflect our
assessment that tax positions taken, and the resulting tax basis, are more likely than not to be sustained if they are audited by taxing authorities. Also, assessing tax rates that we expect to apply
and determining the years when the temporary differences are expected to affect taxable income requires judgment about the future apportionment of our income among the states in which we operate.
These matters, and others, involve the exercise of significant judgment. Any changes in our practices or judgments involved in the measurement of deferred tax assets and liabilities could materially
impact our consolidated financial condition or consolidated results of operations.

Pension and Post-Retirement Benefits

Our employees participate in the QCII pension and non-qualified pension plans and post-retirement health care
and life insurance benefit plans. The amounts contributed by us through QCII are not segregated or restricted to pay amounts due to our employees and may be used to provide benefits to other employees
of QCII's affiliates. QCII allocates the expense relating to pension, non-qualified pension, and post-retirement health care and life insurance benefits and the associated
obligations and assets to us and determines our cash contribution. Historically, QCII has only required us to pay our portion of its required pension contribution. The allocation of expense to us is
based upon demographics of our employees and retirees compared to all the remaining participants. QCII allocates its pension, non-qualified pension and post-retirement benefit
obligations to us using the amount of its funded or unfunded status and its related accumulated other comprehensive income balance. Therefore, significant year over year changes in QCII's funded
status affecting accumulated other comprehensive income may not have a significant initial impact on the asset or obligation that is allocated to us.

In
computing the pension and post-retirement health care and life insurance benefits expenses, the most significant assumptions QCII makes include discount rate, expected
rate of return on plan assets, employee mortality and turnover, expected salary and wage increases, expected future cost increases, health care claims experience and QCII's evaluation of the legal
basis for plan amendments. The plan benefits covered by collective bargaining agreements as negotiated with our employees' unions can also significantly impact the amount of expense we record.

Changes
in any of the assumptions QCII made in computing the pension and post-retirement health care and life insurance benefit expenses could have a material impact on
various expense or income components that are allocated to us as described above. For further discussion of the QCII pension, non-qualified pension and
post-retirement benefit plans and the critical accounting estimates, see QCII's Annual Report on Form 10-K for the year ended December 31, 2008.

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Revenue Recognition and Related Reserves

We recognize revenue for services when the related services are provided. Recognition of certain payments received in advance of
services being provided is deferred until the service is provided. These advance payments received, primarily activation fees and installation charges, as well as the associated customer acquisition
costs, are deferred and recognized over the expected customer relationship period, which ranges from one to five years. Customer arrangements that include both equipment and services are evaluated to
determine whether the elements are separable based on objective evidence. If the elements are deemed separable and separate earnings processes exist, total consideration is allocated to each element
based on the relative fair values of the separate elements and the revenue associated with each element is recognized as earned. If these criteria are not satisfied, the total advance payment is
deferred and recognized ratably over the longer of the contractual period or the expected customer relationship period.

We
believe that the accounting estimates related to customer relationship periods and to the assessment of whether bundled elements are separable are "critical accounting estimates"
because: (i) they require management to make assumptions about how long we will retain customers; (ii) the assessment of whether bundled elements are separable is subjective;
(iii) the impact of changes in actual retention periods versus these estimates on the revenue amounts reported in our consolidated statements of operations could be material; and
(iv) the assessment of whether bundled elements are separable may result in revenue being reported in different periods than significant portions of the related costs.

As
the telecommunications market experiences greater competition and customers shift from traditional land based telecommunications services to wireless and Internet-based services, our
estimated customer relationship period could decrease and we will accelerate the recognition of deferred revenue and related costs over a shorter estimated customer relationship period.

Economic Lives of Assets to be Depreciated or Amortized

We perform annual internal studies or reviews to determine depreciable lives for our property, plant and equipment. These studies
utilize models that take into account actual usage, physical wear and tear, replacement history, assumptions about technology evolution, and, in certain instances, actuarially determined probabilities
to calculate the remaining life of our asset base.

Due
to rapid changes in technology and the competitive environment, selecting the estimated economic life of telecommunications plant, equipment and software requires a significant
amount of judgment. We regularly review data on utilization of equipment, asset retirements and salvage values to determine adjustments to our depreciation rates. The effect of a one year increase or
decrease in the estimated remaining useful lives of our property, plant and equipment would have decreased depreciation by approximately $260 million or increased depreciation by approximately
$350 million, respectively. The effect of a one half year increase or decrease in the estimated remaining useful lives of our capitalized software would have decreased amortization by
approximately $30 million or increased amortization by approximately $40 million, respectively.

Recoverability of Long-Lived Assets

We periodically perform evaluations of the recoverability of the carrying value of our long-lived assets using gross
undiscounted cash flow projections. These evaluations require identification of the lowest level of identifiable, largely independent, cash flows for purposes of grouping assets and liabilities
subject to review. The cash flow projections include long-term forecasts of revenue growth, gross margins and capital expenditures. All of these items require significant judgment and
assumptions. We believe our estimates are reasonable, based on information available at the time they were made. However, if our estimates of our future cash flows had been different, we may have

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concluded
that some of our long-lived assets were not recoverable, which would likely have caused us to record a material impairment charge. Also, if our future cash flows are
significantly lower than our projections we may determine at some future date that some of our long-lived assets are not recoverable.

Derivative Financial Instruments

We sometimes use derivative financial instruments, specifically interest rate swap contracts, to manage interest rate risks. We execute
these instruments with financial institutions we deem creditworthy and monitor our exposure to these counterparties. An interest rate hedge is generally designated as either a cash flow hedge or a
fair value hedge. In a cash flow hedge, a borrower of variable interest debt agrees with another party to make fixed payments equivalent to paying fixed rate interest on debt in exchange for receiving
payments from the other party equivalent to receiving variable rate interest on debt, the effect of which is to eliminate some portion of the variability in the borrower's overall cash flows. In a
fair value hedge, a borrower of fixed rate debt agrees with another party to make variable payments equivalent to paying variable rate interest on the debt in exchange for receiving fixed payments
from the other party equivalent to receiving fixed rate interest on debt, the effect of which is to eliminate some portion of the variability in the fair value of the borrower's overall debt
portfolio.

We
recognize all derivatives on our consolidated balance sheets at fair value. We generally designate the derivative as either a cash flow hedge or a fair value hedge on the date on
which we enter into the derivative instrument.

For
a derivative that is designated as and meets all of the required criteria for a cash flow hedge, we record in accumulated other comprehensive income on our consolidated balance
sheets any changes in the fair value of the derivative. We then reclassify these amounts into earnings as the underlying hedged item affects earnings. In addition, if there are any changes in the fair
value of the derivative arising from ineffectiveness of the cash flow hedging relationship, we record those amounts immediately in other expense (income)net in our consolidated statements
of operations. For a derivative that is designated as and meets all of the required criteria for a fair value hedge, we record in other expense (income)net in our consolidated statements
of operations the changes in fair value of the derivative and the underlying hedged item.

We
assess quarterly whether each derivative is highly effective in offsetting changes in fair values or cash flows of the hedged item. If we determine that a derivative is not highly
effective as a hedge, or if a derivative ceases to be a highly effective hedge, we discontinue hedge accounting with respect to that derivative prospectively. We record immediately in earnings changes
in the fair value of derivatives that are not designated as hedges.

Recently Adopted Accounting Pronouncements

Effective January 1, 2008, we adopted SFAS No. 157, "Fair Value Measurements," or SFAS No. 157, for all financial
instruments and non-financial instruments accounted for at fair value on a recurring basis. SFAS No. 157 provides a definition of fair value, establishes a framework for measuring
fair value and expands disclosures about fair value measurements. Our valuation methods used in 2008 are consistent with those used in prior years and, therefore, the adoption of SFAS No. 157
did not have a material impact on our financial position or results of operations. See Note 3Fair Value of Financial Instruments to our consolidated financial statements in
Item 8 of this report for additional information.

Effective
January 1, 2008, we also adopted SFAS No. 159, "Fair Value Option for Financial Assets and Financial Liabilities," or 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

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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. Although we have adopted this standard, we have not yet elected the fair value option for any assets or liabilities that currently are not required to be recorded at fair value. Therefore,
the adoption of this standard has not had any impact on our financial position or results of operations.

Effective
January 1, 2007, we adopted FIN 48. See Note 12Income Taxes to our consolidated financial statements in Item 8 of this report for
additional information.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information in "Management's Discussion and Analysis of Financial Condition and Results of OperationsRisk Management"
in Item 7 of this report is incorporated herein by reference.

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ITEM 8.    CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

The
Board of Directors and Stockholder
Qwest Corporation:

We
have audited the accompanying consolidated balance sheets of Qwest Corporation and subsidiaries (the Company) as of December 31, 2008 and 2007, and the related consolidated
statements of operations, stockholder's equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2008. These consolidated
financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Qwest Corporation and subsidiaries as of
December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2008, in conformity
with U.S. generally accepted accounting principles.

As
discussed in note 12 to the accompanying consolidated financial statements, effective January 1, 2007, the Company adopted Financial Accounting Standards Board (FASB)
Interpretation No. 48,Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109.

KPMG LLPDenver, Colorado
February 18, 2009


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QWEST CORPORATION        CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended December 31,2008

2007

2006(Dollars in millions)Operating revenue:Operating revenue

$
8,576

$
8,791

$
8,901Operating revenueaffiliates


1,812


1,900


1,820Total operating revenue


10,388


10,691


10,721Operating expenses:Cost of sales (exclusive of depreciation and amortization)


1,687


1,664


1,729Selling


1,842


1,786


1,788General, administrative and other operating


1,738


1,796


2,063Affiliates


185


164


179Depreciation and amortization


2,073


2,221


2,529Total operating expenses


7,525


7,631


8,288Other expense (income)net:Interest expense on long-term borrowingsnet


589


608


616Othernet


7


12


(65
)Total other expense (income)net


596


620


551Income before income taxes


2,267


2,440


1,882Income tax expense


829


913


679Net income

$
1,438

$
1,527

$
1,203


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

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QWEST CORPORATION        CONSOLIDATED BALANCE SHEETS

December 31,2008

2007(Dollars in millions)ASSETSCurrent assets:Cash and cash equivalents

$
233

$
292Accounts receivablenet of allowance of $52 and $55, respectively


907


1,006Accounts receivableaffiliates


127


59Deferred income taxesnet


203


481Prepaid expenses and other


241


244Total current assets


1,711


2,082Property, plant and equipmentnet


11,441


12,155Capitalized softwarenet


844


820Prepaid pensionaffiliates


1,047


1,020Other


400


445Total assets

$
15,443

$
16,522LIABILITIES AND STOCKHOLDER'S EQUITYCurrent liabilities:Current portion of long-term borrowings

$
19

$
343Accounts payable


430


503Accounts payableaffiliates


224


341Dividends payableQwest Services Corporation


400


200Accrued expenses and other


891


952Current portion of post-retirement and other post-employment benefits and otheraffiliates


179


210Deferred revenue and advance billings


409


437Total current liabilities


2,552


2,986Long-term borrowingsnet of unamortized debt discount and other of $103 and $117, respectively


7,569


7,568Post-retirement and other post-employment benefits and otheraffiliates


2,597


2,612Deferred income taxesnet


1,262


1,406Other


677


580Total liabilities


14,657


15,152Commitments and contingencies (Note 17)Stockholder's equity:Common stockone share without par value, owned by Qwest Services Corporation


11,326


11,132Accumulated deficit


(10,540
)

(9,762
)Total stockholder's equity


786


1,370Total liabilities and stockholder's equity

$
15,443

$
16,522


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

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QWEST CORPORATION        CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31,2008

2007

2006(Dollars in millions)Operating activities:Net income

$
1,438

$
1,527

$
1,203Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization


2,073


2,221


2,529Deferred income taxes


215


(199
)

(257
)Provision for bad debtnet


83


82


65Other non-cash chargesnet


41


25


(34
)Changes in operating assets and liabilities:Accounts receivable


3


(47
)

(81
)Accounts receivableaffiliates


(68
)

213


(58
)Prepaid expenses and other current assets


29


32


10Accounts payable and accrued expenses and other current liabilities


(112
)

(63
)

52Accounts payable and accrued expenses and other current liabilitiesaffiliates


(71
)

3


(95
)Deferred revenue and advance billings


(36
)

(35
)

(49
)Other non-current assets and liabilities including affiliates


(116
)

(89
)

89Cash provided by operating activities


3,479


3,670


3,374Investing activities:Expenditures for property, plant and equipment and capitalized software


(1,404
)

(1,270
)

(1,410
)Changes in interest in investments managed by Qwest Services Corporation


(13
)

14


(34
)Reclassification of cash equivalent to investment (Note 5)





(26
)

Proceeds from sale of property and equipment


15


28


165Cash used for investing activities


(1,402
)

(1,254
)

(1,279
)Financing activities:Proceeds from long-term borrowings





500


600Repayments of long-term borrowings, including current maturities


(347
)

(343
)

(606
)Proceeds from long-term borrowingsaffiliates





334


661Repayments of long-term borrowings, including current maturitiesaffiliates


(22
)

(318
)

(678
)Dividends paid to Qwest Services Corporation


(2,000
)

(2,470
)

(1,946
)Equity infusions from Qwest Services Corporation


231


25


81Other


2


(128
)

(92
)Cash used for financing activities


(2,136
)

(2,400
)

(1,980
)Cash and cash equivalents:(Decrease) increase in cash and cash equivalents


(59
)

16


115Beginning balance


292


276


161Ending balance

$
233

$
292

$
276


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

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QWEST CORPORATION        CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY        AND COMPREHENSIVE INCOME

Common
Stock

Accumulated
Deficit

Total

Comprehensive
Income(Dollars in millions)Balance as of December 31, 2005

$
10,755

$
(7,885
)
$
2,870Net income





1,203


1,203

$
1,203Dividends declared on common stock





(2,000
)

(2,000
)Other comprehensive income, net of deferred taxes of $1





2


2


2Total comprehensive incomenet










$
1,205Equity infusions from Qwest Services Corporation


81





81Other net asset transfers


119


(23
)

96Balance as of December 31, 2006


10,955


(8,703
)

2,252Net income





1,527


1,527

$
1,527Dividends declared on common stock





(2,470
)

(2,470
)Impact upon adoption of FIN 48





(11
)

(11
)Equity infusions from Qwest Services Corporation


25





25Other net asset transfers


152


(105
)

47Balance as of December 31, 2007


11,132


(9,762
)

1,370Net income





1,438


1,438

$
1,438Dividends declared on common stock





(2,200
)

(2,200
)Other comprehensive incomenet of taxes:Unrealized losses on derivative instruments, net of deferred taxes of $3





(6
)

(6
)

(6
)Unrealized losses on auction rate securities and other, net of deferred taxes of $3





(8
)

(8
)

(8
)Total comprehensive incomenet










$
1,424Equity infusions from Qwest Services Corporation


231





231Other net asset transfers


(37
)

(2
)

(39
)Balance as of December 31, 2008

$
11,326

$
(10,540
)
$
786


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

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QWEST CORPORATION        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        For the Years Ended December 31, 2008, 2007 and 2006

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, references to "QSC" refer to our direct parent company, Qwest Services 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: Business and Background

We are wholly owned by QSC, which is wholly owned by QCII. We provide data, Internet, video and voice services within the 14-state region of Arizona, Colorado, Idaho, Iowa,
Minnesota, Montana, Nebraska, New Mexico, North Dakota, Oregon, South Dakota, Utah, Washington and Wyoming. We refer to this region as our local service area. 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 national telecommunications network. Through its fiber optic network, QCII provides the following products and services that we do not provide:



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

In
April 2008, we signed a five-year agreement with Verizon Wireless to market and sell its wireless products and services under its brand name to our mass markets and
business markets customers beginning in the third quarter of 2008. We recognize revenue from services offered under this Verizon Wireless agreement on a net basis in voice services revenue.

Note 2: Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements include our accounts and the accounts of our subsidiaries over which we exercise
control. All intercompany amounts and transactions with our consolidated subsidiaries have been eliminated.

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QWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 2: Summary of Significant Accounting Policies (Continued)

In
light of regulatory changes in 2007 and consistent with QCII's continuing strategy to simplify its and our corporate structure and gain operational efficiencies, in 2008 QCII moved to
us most of the administrative and other functions of QSC and merged into us the following two of QSC's other wholly owned subsidiaries that previously charged the majority of their costs to
us:



These
reorganization activities combined businesses that were already controlled by QCII, therefore we accounted for these activities in a manner similar to a pooling of interests. These
activities had the following effect on our consolidated financial statements for each year presented:

Years Ended
December 31,2007

2006(Dollars in millions)Increases in:Total operating revenue

$
814

$
850Income before income taxes


63


31Net income


35







December 31, 2007(Dollars in millions)Increases in:Total assets

$
1,125Total liabilities


732


QCII
continues to evaluate other ways to better organize the legal structure and operations of its subsidiaries and may make additional changes to the legal structure and operations of
its subsidiaries, including us, in the future. In connection with these past or future reorganization activities, we do not believe we have consummated, and we do not expect to consummate in the
future, any business combinations or other transactions that will adversely affect our consolidated financial condition or results of operations.

Reclassifications

During 2008, we changed the definitions we use to classify expenses as cost of sales, selling expenses or general, administrative and
other operating expenses. Operating expenses are now reported as follows:



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QWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 2: Summary of Significant Accounting Policies (Continued)



We
believe these changes allow users of our financial statements to better understand our cost structure and the way we manage our business. These expense classifications may not be
comparable to those of other companies. These changes had no impact on total operating expenses or net income for any period. To reflect the impact these changes would have had if they had been
implemented in prior
periods, we have reclassified certain financial information for the years ended December 31, 2007 and 2006 that is presented in these consolidated financial statements.

We
have also reclassified certain other prior year revenue, expense and cash flow amounts to conform to the current year presentation.

Use of Estimates

Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles. 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, investments, long-term contracts, customer retention patterns, allowance for doubtful accounts, depreciation, amortization, asset valuations, internal labor capitalization
rates, affiliate transactions, intercompany allocations, recoverability of assets (including deferred tax assets), impairment assessments, pension and post-retirement benefits, taxes,
reserves and other provisions and contingencies are reasonable, based on information available at the time they were made. These estimates, intercompany allocations, judgments and assumptions can
affect the reported amounts of assets, liabilities and components of equity as of the dates of the consolidated balance sheets, as well as the reported amounts of revenue, expenses and components of
cash flows during the periods presented in our consolidated statements of operations and our consolidated statements of cash flows. We also make estimates in our assessments of potential losses in
relation to threatened or pending tax and legal matters. See Note 12Income Taxes and Note 17Commitments and Contingencies for additional information.

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QWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 2: Summary of Significant Accounting Policies (Continued)



For
all of these and other matters, actual results could differ from our estimates.

Affiliate Transactions

We record intercompany charges at the amounts billed to us by our affiliates. Regulatory rules require certain expenses to be recorded
at market price or fully distributed cost, as more fully described in Note 16Related Party Transactions. Regulators periodically review our compliance with regulations. Adjustments
to intercompany charges that result from these reviews are recorded in the period they become known.

Because
of the significance of the services we provide to our affiliates and our other affiliate transactions, the results of operations, financial position, and cash flows presented
herein are not necessarily indicative of the results of operations, financial position and cash flows we would have achieved had we operated as a stand-alone entity during the periods presented.

In
the normal course of business, we transfer assets to and from our parent, QSC which are recorded through our equity. It is QCII's and our policy to record asset transfers to and from
QSC based on carrying values.

Revenue Recognition

We recognize revenue for services when the related services are provided. Recognition of certain payments received in advance of
services being provided is deferred until the service is provided. These advance payments include activation fees and installation charges, which we recognize as revenue over the expected customer
relationship period, which ranges from one to five years. We also defer costs for customer acquisitions. The deferral of customer acquisition costs is limited to the amount of deferral of revenue on
advance payments. Costs in excess of advance
payments are recorded as expense in the period such costs are incurred. Expected customer relationship periods are estimated using historical experience. Termination fees or other fees on existing
contracts that are negotiated in conjunction with new contracts are deferred and recognized over the new contract term.

Customer
arrangements that include both equipment and services are evaluated to determine whether the elements are separable based on objective evidence. If the elements are deemed
separable and separate earnings processes exist, the revenue associated with each element is allocated to each

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QWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 2: Summary of Significant Accounting Policies (Continued)

element
based on the relative fair values of the separate elements. The revenue associated with each element is then recognized as earned. For example, if we receive an advance payment when we sell
equipment and continuing service together, we immediately recognize as revenue the amount attributable to the equipment sale as long as all the conditions for revenue recognition have been satisfied.
Any portion of the advance payment in excess of the relative fair value of the equipment is recognized ratably over the longer of the contractual period or the expected customer relationship period.
If separate earnings processes do not exist, the total advance payment is deferred and recognized ratably over the longer of the contractual period or the expected customer relationship period.

We
offer some products and services that are provided by third-party vendors. We review the relationship between us, the vendor and the end customer to assess whether revenue should be
reported on a gross or net basis. For example, the revenue from video and wireless services that we offer through sales agency relationships is reported on a net basis. Our evaluation and ultimate
determination of gross or net reporting is based on indicators provided in FASB Emerging Issues Task Force Issue No. 99-19, "Reporting Revenue Gross as a Principal versus Net as an
Agent."

Allocation of Bundle Discounts

We offer bundle discounts to our customers who receive certain groupings of products and services. These bundle discounts are
recognized concurrently with the associated revenue and are allocated to the various products and services in the bundled offerings. The allocation is based on the relative fair value of products
included in each bundle combination.

USF, Gross Receipts Taxes and Other Surcharges

In determining whether to include in our revenue and expenses the taxes and surcharges collected from customers and remitted to
governmental authorities, including USF charges, sales, use, value added and some excise taxes, we assess, among other things, whether we are the primary obligor or principal taxpayer for the taxes
assessed in each jurisdiction where we do business. In jurisdictions where we determine that we are the principal taxpayer, we record the taxes on a gross basis and include them in our revenue and
general, administrative and other operating expenses. In jurisdictions where we determine that we are merely a collection agent for the government authority, we record the taxes on a net method and do
not include them in our revenue and general, administrative and other operating expenses.

Our
revenue and general, administrative and other operating expenses included taxes and surcharges accounted for on a gross basis of $199 million, $209 million and
$244 million for the years ended December 31, 2008, 2007 and 2006, respectively.

Advertising Costs

Costs related to advertising are expensed as incurred. Advertising expense was $394 million, $407 million and
$381 million for the years ended December 31, 2008, 2007 and 2006, respectively, and is included in selling expenses and general, administrative and other operating expenses in our
consolidated statements of operations.

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QWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 2: Summary of Significant Accounting Policies (Continued)

Legal Costs

In the normal course of our business, we incur costs to hire and retain external legal counsel to advise us on regulatory, litigation
and other matters. We expense these costs as the related services are received.

Income Taxes

We are included in the consolidated federal income tax return of QCII. Under QCII's tax allocation policy, QCII treats our consolidated
results as if we were a separate taxpayer. The policy requires us to pay our tax liabilities in cash based upon our separate return taxable income. We are also included in the combined state tax
returns filed by QCII, and the same payment and allocation policy applies.

The
provision for income taxes consists of an amount for taxes currently payable, an amount for tax consequences deferred to future periods and adjustments to our liabilities for
uncertain tax positions, including interest. We record deferred income tax assets and liabilities reflecting future tax consequences attributable to differences between the financial statement
carrying value of assets and liabilities and the tax bases of those assets and liabilities. Deferred taxes are computed using enacted tax rates expected to apply in the year in which the differences
are expected to affect taxable income. The effect on deferred income tax assets and liabilities of a change in tax rate is recognized in earnings in the period that includes the enactment date.

We
use the deferral method of accounting for federal investment tax credits earned prior to the repeal of such credits in 1986. We also defer certain transitional investment tax credits
earned after the repeal, as well as investment tax credits earned in certain states. We amortize these credits ratably over the estimated service lives of the related assets as a credit to our income
tax expense in our consolidated statements of operations.

Cash and Cash Equivalents

Cash and cash equivalents include highly liquid investments that are readily convertible into cash and are not subject to significant
risk from fluctuations in interest rates. As a result, the value at which cash and cash equivalents are reported in our consolidated financial statements approximates their fair value. In evaluating
investments for classification as cash equivalents, we require that individual securities have original maturities of three months or less and that the individual investment funds have dollar-weighted
average maturities of ninety days or less. To preserve capital and maintain liquidity, we invest with financial institutions that we deem to be of sound financial condition and in high quality and
relatively risk-free investment products. Our cash investment policy limits the concentration of investments with specific financial institutions or among certain products and includes
criteria related to credit worthiness of any particular financial institution.

Book
overdrafts occur when checks have been issued but have not been presented to certain controlled disbursement bank accounts for payment. These bank accounts allow us to delay funding
of issued checks until the checks are presented for payment. A delay in funding results in a temporary source of financing. The activity related to book overdrafts is shown as financing activities in
our consolidated statements of cash flows. Book overdrafts are included in accounts payable on our

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QWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 2: Summary of Significant Accounting Policies (Continued)

consolidated
balance sheets. As of December 31, 2008 and 2007, the book overdraft balance was $26 million and $24 million, respectively.

Allowance for Doubtful Accounts

The allowance for doubtful accounts receivable reflects our best estimate of probable losses inherent in our receivable portfolio
determined on the basis of historical experience, specific allowances for known troubled accounts and other currently available evidence.

Property, Plant and Equipment

Property, plant and equipment are carried at cost, plus the estimated value of any associated legally or contractually required
retirement obligations. Property, plant and equipment are depreciated primarily using the straight-line group method. Under the straight-line group method, assets dedicated to
providing telecommunications services (which comprise the majority of our property, plant and equipment) that have similar physical characteristics, use and expected useful lives are categorized in
the year acquired on the basis of equal life groups for purposes of depreciation and tracking. Generally, under the straight-line group method, when an asset is sold or retired, the cost
is deducted from property, plant and equipment and charged to accumulated depreciation without recognition of a gain or loss. A gain or loss is recognized in our consolidated statements of operations
only if a disposal is abnormal or unusual. Leasehold improvements are amortized over the shorter of the useful lives of the assets or the lease term. Expenditures for maintenance and repairs are
expensed as incurred. Interest is capitalized during the construction phase of network and other internal-use capital projects. Employee-related costs directly related to construction of
internal use assets are also capitalized during the construction phase. Property, plant and equipment supplies used internally are carried at average cost, except for significant individual items for
which cost is based on specific identification.

We
perform annual internal studies or reviews to determine depreciable lives for our property, plant and equipment. Our studies utilize models that take into account actual usage,
physical wear and tear,
replacement history, assumptions about technology evolution and, in certain instances, actuarially determined probabilities to calculate the remaining life of our asset base.

We
have asset retirement obligations associated with the legally or contractually required removal of a limited group of property, plant and equipment assets from leased properties, and
the disposal of certain hazardous materials present in our owned properties. When an asset retirement obligation is identified, usually in association with the acquisition of the asset, we record the
fair value of the obligation as a liability. The fair value of the obligation is also capitalized as property, plant and equipment and then amortized over the estimated remaining useful life of the
associated asset. Where the removal obligation is not legally binding, the net cost to remove assets is expensed in the period in which the costs are actually incurred.

Capitalized Software

Internally used software, whether purchased or developed by us, is capitalized and amortized using the straight-line group
method over its estimated useful life. We capitalize certain costs associated with software such as costs of employees devoting time to the projects and external direct costs for materials

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QWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 2: Summary of Significant Accounting Policies (Continued)

and
services. Costs associated with internally developed software to be used internally are expensed until the point at which the project has reached the development stage. Subsequent additions,
modifications or upgrades to internal-use software are capitalized only to the extent that they allow the software to perform a task it previously did not perform. Software maintenance and
training costs are expensed in the period in which they are incurred. The capitalization of software requires judgment in determining when a project has reached the development stage and the period
over which we expect to benefit from the use of that software. We review the economic lives of our capitalized software annually.

Impairment of Long-Lived Assets

We review long-lived assets, other than intangible assets with indefinite lives, for impairment at the QCII level whenever
facts and circumstances indicate that the carrying amounts of the assets may not be recoverable. For measurement purposes, long-lived assets are grouped with other assets and liabilities,
including other assets and liabilities of QCII. An impairment loss is recognized only if the carrying amount of the asset group is not recoverable and exceeds its fair value. Recoverability of the
asset group to be held and used is
measured by comparing the carrying amount of the asset group to the estimated undiscounted future net cash flows expected to be generated by the asset group. If the asset group's carrying value is not
recoverable, an impairment charge is recognized for the amount by which the carrying amount of the asset group exceeds its fair value. We determine fair values by using a combination of comparable
market values and discounted cash flows, as appropriate.

Derivative Financial Instruments

We sometimes use derivative financial instruments, specifically interest rate swap contracts, to manage interest rate risks. We execute
these instruments with financial institutions we deem creditworthy and monitor our exposure to these counterparties. An interest rate hedge is generally designated as either a cash flow hedge or a
fair value hedge. In a cash flow hedge, a borrower of variable interest debt agrees with another party to make fixed payments equivalent to paying fixed rate interest on debt in exchange for receiving
payments from the other party equivalent to receiving variable rate interest on debt, the effect of which is to eliminate some portion of the variability in the borrower's overall cash flows. In a
fair value hedge, a borrower of fixed rate debt agrees with another party to make variable payments equivalent to paying variable rate interest on the debt in exchange for receiving fixed payments
from the other party equivalent to receiving fixed rate interest on debt, the effect of which is to eliminate some portion of the variability in the fair value of the borrower's overall debt
portfolio.

We
account for derivatives in accordance with Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities (as
amended)," ("SFAS No. 133"). We recognize all derivatives on our consolidated balance sheets at fair value. We generally designate the derivative as either a cash flow hedge or a fair value
hedge on the date on which we enter into the derivative instrument. Cash flows from derivative instruments that are fair value hedges or cash flow hedges are classified in cash flows from operations.

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QWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 2: Summary of Significant Accounting Policies (Continued)

For a derivative that is designated as and meets all of the required criteria for a cash flow hedge, we record any changes in the fair value of the derivative in accumulated other
comprehensive income on our consolidated balance sheets. We then reclassify these amounts into earnings as the underlying hedged item affects earnings. In addition, if there are any changes in the
fair value of the derivative arising from ineffectiveness of the cash flow hedging relationship, we record those amounts immediately in other expense (income)net in our consolidated
statements of operations. For a derivative that is designated as and meets all of the required criteria for a fair value hedge, we record in other expense (income)net in our consolidated
statements of operations the changes in fair value of the derivative and the fair value of the underlying hedged item.

We
assess quarterly whether each derivative is highly effective in offsetting changes in fair values or cash flows of the hedged item. If we determine that a derivative is not highly
effective as a hedge, or if a derivative ceases to be a highly effective hedge, we discontinue hedge accounting prospectively with respect to that derivative. We record immediately in earnings changes
in the fair value of derivatives that are not designated as hedges. See Note 9Borrowings for additional information.

Fair Value of Financial Instruments

Our financial instruments consist of cash and cash equivalents, short-term and long-term investments, accounts
receivable, accounts payable, interest rate hedges and borrowings. The carrying values of accounts receivable and accounts payable approximate their fair values. See Note 3Fair
Value of Financial Instruments for a more detailed discussion of the fair value of our other financial instruments.

Pension and Post-Retirement Benefits

Our employees participate in the QCII pension and non-qualified pension plans and post-retirement health care
and life insurance benefit plans. QCII allocates the expense relating to pension, non-qualified pension, and post-retirement health care and life insurance benefits and the
associated obligations and assets to us and determines our cash contribution. The amounts contributed by us through QCII are not segregated or restricted to pay amounts due to our employees and may be
used to provide benefits to other employees of QCII's affiliates. Historically, QCII has only required us to pay our portion of its required pension contribution. The allocation of expense to us is
based upon demographics of our employees and retirees compared to all the remaining participants. QCII allocates its pension, non-qualified pension and post-retirement benefit
obligations to us using the amount of its funded or unfunded status and its related accumulated other comprehensive income balance. Therefore, significant year over year changes in QCII's funded
status
affecting accumulated other comprehensive income may not have a significant initial impact on the asset or obligation that is allocated to us.

In
2008, QCII allocated qualified pension income to our operating expenses, which also was recorded as a prepaid asset-affiliate on our consolidated balance sheets. However, the pension
plan sponsored by QCII experienced a significant decline in the fair value of plan assets in 2008 and the pension plan went from an overfunded status of approximately $1.672 billion at
December 31, 2007 to an unfunded status of approximately $745 million as of December 31, 2008. As a result, beginning in 2009, the amount of qualified pension expense that QCII
will allocate to us is expected to be

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QWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 2: Summary of Significant Accounting Policies (Continued)

approximately
$87 million, which compares to income of approximately $34 million in 2008, and will be recorded as a reduction in our prepaid pension-affiliate balance. In computing the
pension and post-retirement health care and life insurance benefit expenses, the most significant assumptions QCII makes include discount rate, expected rate of return on plan assets,
employee mortality and turnover, expected salary and wage increases, expected future cost increases, health care claims experience and QCII's evaluation of the legal basis for plan amendments. The
plan terms of QCII's post-retirement plan benefits covered by collective bargaining agreements as negotiated with our employees' unions can also significantly impact the amount of expense,
affiliate benefit obligation and affiliate pension asset we record.

For
further information on QCII pension, non-qualified pension, post-retirement and other post-employment benefit plans, see QCII's Annual Report on
Form 10-K for the year ended December 31, 2008.

Recently Adopted Accounting Pronouncements

Effective January 1, 2008, we adopted SFAS No. 157, "Fair Value Measurements" ("SFAS No. 157"), for all financial
instruments and non-financial instruments accounted for at fair value on a recurring basis. SFAS No. 157 provides a definition of fair value, establishes a framework for measuring
fair value and expands disclosures about fair value measurements. Our valuation methods used in 2008 are consistent with those used in prior years and, therefore, the adoption of SFAS No. 157
did not have a material impact on our financial position or results of operations. See Note 3Fair Value of Financial Instruments for additional information.

Effective
January 1, 2008, we also adopted 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. Although we have adopted this standard, we have not yet elected the fair value option for any assets or liabilities that currently are not required to be recorded at fair value. Therefore,
the adoption of this standard has not had any impact on our financial position or results of operations.

Effective
January 1, 2007, we adopted FIN 48. See Note 12Income Taxes for additional information.

Note 3: Fair Value of Financial Instruments

Our financial instruments consist of cash and cash equivalents, short-term and long-term investments (including auction rate securities and an investment fund),
accounts receivable, accounts payable, interest rate hedges and borrowings. The carrying values of cash and cash equivalents, accounts receivable and accounts payable approximate their fair values.
The fair values for our short-term and long-term investments, interest rate hedges and borrowings are described below.

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QWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 3: Fair Value of Financial Instruments (Continued)

SFAS
No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. The fair value hierarchy established by SFAS No. 157 prioritizes the inputs into valuation techniques used to measure fair value. Accordingly, we use valuation techniques
which maximize the use of observable inputs and minimize the use of unobservable inputs when determining fair value.

The
table below presents the input levels used to determine the fair values of our other financial instruments for the years ended December 31, 2008 and 2007:

Fair value as of
December 31,Level

2008

2007(Dollars in millions)Assets:Auction rate securities


3

$
43

$
31Investment fund


3


9


24Total assets




$
52

$
55Liabilities:Long-term borrowings


1 & 2

$
6,189

$
8,004Interest rate hedges


3


8


Total liabilities




$
6,197

$
8,004


The
three levels of the hierarchy are as follows:

Input Level

Description of InputLevel 1

Inputs are based upon unadjusted quoted prices for identical instruments traded in active marketsLevel 2

Inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all
significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilitiesLevel 3

Inputs are generally unobservable and typically reflect management's estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using
model-based techniques that include option pricing models, discounted cash flow models, and similar techniques


The
fair value of our auction rate securities was determined using a discounted cash flow model that takes into consideration the interest rate of the securities, the probability that we
will be able to sell the securities in an auction or that the securities will be redeemed early, the probability that a default will occur and its severity, a discount rate and other factors.

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QWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 3: Fair Value of Financial Instruments (Continued)

The
fair value of our investment fund was based on the asset values of the securities underlying the fund.

The
fair value of our interest rate hedges was determined using projected future cash flows, discounted at the mid-market implied forward London Interbank Offered Rate
("LIBOR"). The debt underlying the fair value hedges was valued using projected future cash flows, discounted at mid-market implied forward LIBOR, plus a constant spread above LIBOR
determined at the inception of the hedging relationship. These valuations were determined excluding accrued interest.

The
fair values of our long-term borrowings are based on quoted market prices where available or, if not available, based on discounted future cash flows using current market
interest rates. Unlike the items listed above, our long-term borrowings are reflected on our consolidated balance sheets at original cost net of unamortized discounts and premiums, not at
fair value.

A
rollforward of the instruments valued using SFAS No. 157 level 3 inputs for the year ended December 31, 2008 follows:

Instruments Valued
Using Level 3 Inputs2008

2007(Dollars in millions)Balance as of January 1

$
55

$
Transfers into (out of) Level 3





69Additions


25


Dispositions


(11
)

(14
)Realized and unrealized losses:Included in other income (expense)net


(3
)

Included in other comprehensive income


(22
)

Balance as of December 31

$
44

$
55


Note 4: Business Combinations

In February 2007, the Federal Communications Commission ("FCC") issued an order that freed us from some regulatory obligations under the Telecommunications Act of 1996. Among other
things, the order gives us more flexibility to integrate our local operations with the long-distance operations of our ultimate parent, QCII, and gives QCII more flexibility to integrate
the operations of its subsidiaries that provide shared services to us and QCII's other subsidiaries.

In
light of this order and consistent with QCII's continuing strategy to simplify its corporate structure and gain operational efficiencies, in 2008 QCII moved to us most of the
administrative and other
functions of QSC and merged into us two of QSC's other wholly owned subsidiaries that previously charged the majority of their costs to us.

In
addition, QCII's reorganization activities resulted in the transfer of assets, liabilities and employees to us that do not represent a business, as defined, and are recorded as equity
contributions in our consolidated statements of stockholder's equity and comprehensive income.

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QWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 5: Investments

QSC manages the majority of cash and all investments for us and our affiliates. Our proportionate ownership of any investments, including illiquid investments, can change because we
record our portion of the entire portfolio of cash and investments managed by QSC. These changes are reflected on a net basis in cash flows from investing activities on our consolidated statements of
cash flows.

As
of December 31, 2008 and 2007, our investments included auction rate securities of $43 million and $31 million, respectively, which are classified as
non-current, available-for-sale investments and are included in other non-current assets at their estimated fair value on our consolidated balance
sheets. Auction rate securities are generally long-term debt instruments that provide liquidity through a Dutch auction process that resets the applicable interest rate at
pre-determined calendar intervals, generally every 28 days. This mechanism generally allows existing investors to rollover their holdings and continue to own their respective
securities or liquidate their holdings by selling their securities at par value. Prior to August 2007, QSC invested in these securities for short periods of time as part of its cash management
program. However, the uncertainties in the credit markets have prevented QSC and other investors from liquidating holdings
of these securities in auctions since the third quarter of 2007. These securities are "Triple X" structured obligations of special purpose reinsurance entities associated with life insurance companies
and they currently pay interest every 28 days at one-month LIBOR plus 200 basis points. These securities have ratings ranging from AA to AA-. These securities are also insured
against loss of principal and interest by bond insurers with AA and CCC credit ratings at December 31, 2008, and AAA credit ratings at December 31, 2007. These securities are
collateralized by the issuer and mature between 2033 and 2036. These securities were valued using a discounted cash flow model that takes into consideration the following factors, among
others:



We
initially recorded an immaterial impairment of these auction rate securities in 2007. We recorded additional unrealized losses, net of deferred income taxes, on these auction rate
securities of $8 million for the year ended December 31, 2008. The cumulative unrealized losses related to these securities as of December 31, 2008 were $8 million, net of
deferred income taxes. These unrealized losses were recorded in accumulated other comprehensive income, which is included in accumulated deficit in our consolidated balance sheets. We consider the
decline in fair value to be a temporary impairment because the securities are rated investment grade and the issuers continue to make required interest payments and because we have the ability and
intent to hold the securities until they recover or mature. However, if the credit ratings of the securities or the bond insurers deteriorate or the value of the collateral deteriorates, we may
further adjust the carrying value of these investments. We may also determine that the decline in fair value is other than temporary if, among other factors, the issuers cease making required interest
payments or our intent or ability to hold these securities until they recover changes, we would then recognize the other-than-temporary decline in fair value in other expense
(income)net in our consolidated statements of operations. Because we are uncertain as

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QWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 5: Investments (Continued)

to
when the liquidity issues relating to these investments will improve, we continue to classify these securities as non-current as of December 31, 2008.

During
2007, an investment fund we historically treated as a cash equivalent began liquidating its holdings and restricting distributions. As a result, we reclassified our holdings in
the fund from cash and cash equivalents to investments, which are included in other current assets on our consolidated balance sheets. We valued this investment considering the asset values of the
securities underlying the fund. As of December 31, 2007, $21 million of our remaining investment in the fund was included in other current assets and $3 million was included in
other non-current assets on our consolidated balance sheet because we did not expect to be able to liquidate this portion of our investment in 2008. As of December 31, 2008,
$5 million of our remaining investment in the fund was included in other current assets and $4 million was included in other non-current assets on our consolidated balance
sheet because we continued to expect that we would not be able to liquidate this portion of our investment in the subsequent twelve months. During the year ended December 31, 2008, we recorded
immaterial realized and unrealized losses for the change in the fair value of the fund, which were recorded in other expense (income)net in our consolidated statements of operations.

Note 6: Accounts Receivable

The following table presents details of our accounts receivable balances as of December 31, 2008 and 2007:

December 31,2008

2007(Dollars in millions)Total accounts receivablenet:Trade receivables

$
581

$
659Earned and unbilled receivables


140


149Purchased and other receivables


238


253Total accounts receivable


959


1,061Less: allowance for doubtful accounts


(52
)

(55
)Accounts receivable non-affiliatesnet


907


1,006Accounts receivableaffiliates


127


59Total accounts receivablenet

$
1,034

$
1,065


We
are exposed to concentrations of credit risk from customers within our local service area and from other telecommunications service providers. We generally do not require collateral
to secure our receivable balances. We have agreements with other telecommunications service providers whereby we agree to bill and collect on their behalf for services rendered by those providers to
our customers within our local service area. We purchase accounts receivable from other telecommunications service providers primarily on a recourse basis and include these amounts in our accounts
receivable balance. We have not experienced any significant loss associated with these purchased receivables.

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QWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 6: Accounts Receivable (Continued)

The
following table presents details of our allowance for doubtful accounts for the years ended December 31, 2008, 2007 and 2006:

Balance at
beginning
of period

Charged to
expense

Deductions

Balance at
end of
period(Dollars in millions)Allowance for doubtful accounts:2008

$
55

$
83

$
86

$
522007


53


82


80


552006


66


65


78


53


Note 7: Property, Plant and Equipment

The components of our property, plant and equipment as of December 31, 2008 and 2007 are as follows:

December 31,Depreciable
Lives2008

2007(Dollars in millions)Property, plant and equipmentnet:Land

N/A

$
97

$
98Buildings

15 - 30 years


2,844


2,827Communications equipment

7 - 10 years


18,595


18,655Other network equipment

8 - 45 years


20,306


20,327General purpose computers and other

5 - 11 years


2,016


2,114Construction in progress

N/A


82


110Total property, plant and equipment




43,940


44,131Less: accumulated depreciation




(32,499
)

(31,976
)Property, plant and equipmentnet



$
11,441

$
12,155


During
2007, we changed the estimates of the remaining economic lives of our communications and other network equipment. This resulted in a net increase in depreciation expense in our
consolidated statements of operations of $18 million, for the year ended December 31, 2007.

Asset Retirement Obligations

As of December 31, 2008, our asset retirement obligations balance was primarily related to estimated future costs of removing
circuit equipment from leased properties and estimated future costs of properly disposing of asbestos and other hazardous materials upon remodeling or demolishing buildings. Asset retirement
obligations are included in other long-term liabilities on our consolidated

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QWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 7: Property, Plant and Equipment (Continued)

balance
sheets. The following table provides asset retirement obligation activity for the years ended December 31, 2008, 2007 and 2006:

December 31,2008

2007

2006(Dollars in millions)Asset retirement obligations:Balance as of January 1

$
30

$
28

$
27Accretion expense


2


2


2Liabilities incurred





1


Liabilities settled and other





(1
)

(1
)Balance as of December 31

$
32

$
30

$
28


Note 8: Capitalized Software

Internally used software, whether purchased or developed by us, is capitalized and amortized using the straight-line group method over its estimated useful life. As of
December 31, 2008 and 2007, our capitalized software had carrying costs of $2.292 billion and $2.131 billion, respectively, and accumulated amortization was $1.448 billion
and $1.311 billion, respectively.

Effective
January 1, 2007, we changed our estimates of the average economic lives of capitalized software from between four and five years to between four and seven years. For the
year ended
December 31, 2007, amortization expense would have been higher by $120 million had we not changed our estimates of the average economic lives. We recorded amortization expense of
$218 million and $204 million for the years ended December 31, 2008 and 2007, respectively, for capitalized software based on a life range of four to seven years. We recorded
amortization expense of $360 million for the year ended December 31, 2006 for capitalized software based on a life range of four to five years.

The
weighted average remaining life of our capitalized software was 3.4 years as of December 31, 2008.

The
estimated future amortization expense for capitalized software is as follows:

Estimated Amortization(Dollars in millions)Estimated future amortization expense:2009

$
2172010


1782011


1442012


1132013


892014 and thereafter


103Total estimated future amortization expense

$
844


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QWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 9: Borrowings

Current Portion of Long-Term Borrowings

As of December 31, 2008 and 2007, the current portion of our long-term borrowings consisted of:

December 31,2008

2007(Dollars in millions)Current portion of long-term borrowings:Long-term notes

$


$
322Long-term capital lease and other obligations


19


21Total current portion of long-term borrowings

$
19

$
343


Long-Term Borrowings

As of December 31, 2008 and 2007, our long-term borrowings consisted of the following (for all notes with
unamortized discount or premium, the face amount of the notes and the unamortized discount or premium are presented separately):

December 31,2008

2007(Dollars in millions)Long-term borrowings:Notes and term loan with various rates ranging from 5.246% to 8.875% including LIBOR + 3.25% and maturities from 2010 to 2043

$
7,657

$
7,979Unamortized discount


(113
)

(117
)Fair value hedge adjustment


10


Capital lease and other obligations


34


49Less: current portion


(19
)

(343
)Total long-term borrowings

$
7,569

$
7,568


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QWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 9: Borrowings (Continued)

Our long-term borrowings had the following interest rates and contractual maturities as of December 31, 2008:

Contractual Maturities2009

2010

2011

2012

2013

2014 and
Thereafter

Total(Dollars in millions)Interest rates:Above 5% to 6%

$


$


$


$


$
750

$


$
750Above 6% to 7%





500











1,500


2,000Above 7% to 8%








825








2,582


3,407Above 8% to 9%











1,500








1,500Total notes

$


$
500

$
825

$
1,500

$
750

$
4,082

$
7,657Capital lease and other obligations


34Less: unamortized discount


(113
)Add: fair value hedge adjustment


10Less: current portion of long-term borrowings


(19
)Total long-term borrowings

$
7,569


Our
long-term borrowings contractual maturities as of December 31, 2008:

Maturities2009

2010

2011

2012

2013

2014 and
Thereafter

Total(Dollars in millions)Notes and bonds:6.95% Term Loan

$


$
500

$


$


$


$


$
5007.875% Notes








825











8258.875% Notes











1,500








1,500Floating Rate Notes














750





7506.5% Notes

















500


5006.875% Debentures

















1,000


1,0007.125% Debentures

















250


2507.2% Debentures

















250


2507.25% Debentures

















500


5007.375% Debentures

















55


557.5% Notes

















600


6007.5% Debentures

















484


4847.625% Notes

















400


4007.75% Debentures

















43


43Total notes and bonds

$


$
500

$
825

$
1,500

$
750

$
4,082

$
7,657


71

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Table of Contents

QWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 9: Borrowings (Continued)



The indentures governing our notes contain certain covenants including, but not limited to: (i) a prohibition on certain liens
on our assets; and (ii) a limitation on mergers or sales of all, or substantially all, of our assets, which limitation requires that a successor assume the obligation with regard to these
notes. These indentures do not contain any cross-default provisions. We were in compliance with all of the provisions and covenants of our borrowing agreements as of December 31, 2008.

QCII
and its other subsidiaries were in compliance with all of the provisions and covenants of their borrowing agreements as of December 31, 2008.



On May 16, 2007, we issued $500 million aggregate principal amount of our 6.5% Notes due 2017.

The
aggregate net proceeds from the above offering have been or will be used for general corporate purposes, including repayment of indebtedness and funding or refinancing our
investments in telecommunication assets. The notes are unsecured obligations and rank equally in right of payment with all other unsecured and unsubordinated indebtedness. The covenant and default
terms are substantially the same as those associated with our other long-term borrowings.



On November 15, 2008, we repaid at maturity $320 million aggregate principal amount of our 5.625% Notes due 2008.

On
June 7, 2007, we redeemed $70 million aggregate principal amount of our 6.0% Notes due 2007.

On
June 4, 2007, we redeemed $250 million aggregate principal amount of our 87/8% Debentures due June 1, 2031. The redemption resulted in a loss on
early retirement of debt of $18 million.



On November 26, 2007, we commenced a registered exchange offer for our 6.5% Notes due 2017 pursuant to the registration rights
agreement that we entered into in connection with the issuance of these notes. We completed the registered exchange offer on December 28, 2007.

Interest on Debt



During 2008, we entered into the interest rate hedges described below as part of our short-term and long-term
debt strategies. One objective of our short-term debt strategy is to take advantage of favorable interest rates by swapping floating rate debt to fixed rate debt using cash flow hedges.
One objective of our long-term debt strategy is to achieve a more balanced ratio of fixed rate to floating rate debt by swapping a portion of our fixed interest rate debt to floating rate
debt through fair value hedges. This decreases our exposure to changes in the fair value of our fixed interest rate debt due to

72

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Table of Contents

QWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 9: Borrowings (Continued)

changes
in interest rates. See Note 2Summary of Significant Accounting Policies for additional information.

We
evaluate counterparty credit risk before entering into any hedge transaction. During 2008, one of our counterparties merged into a large bank. We evaluated the new counterparty credit
risk and found it to be acceptable. We will continue to closely monitor the financial market and the risk that our counterparties will default on their obligations to us. We are prepared to unwind
these hedge transactions if our counterparties' credit risk becomes unacceptable to us.

In
March 2008, we entered into interest rate hedges on $500 million of the outstanding $750 million aggregate principal amount of our Floating Rate Notes due 2013. The
notes bear interest at a rate per year equal to the LIBOR plus 3.25%. These hedges had the economic effect of converting our floating interest rate to fixed interest rates of approximately 6.0% for a
term of approximately two years. We designated these interest rate swaps as cash flow hedges. We did not recognize any gain or loss in earnings for hedge ineffectiveness for the year ended
December 31, 2008.

In
March 2008, we also entered into interest rate hedges on the outstanding $500 million aggregate principal amount of our 6.5% Notes due 2017. These hedges had the economic
effect of converting our fixed interest rate to a floating interest rate until these notes mature in 2017. We designated these interest rate swaps as fair value hedges. Due to the recent turmoil in
the credit markets, we terminated these hedges in the fourth quarter of 2008. Upon termination, we received $20 million in cash for the fair value of the swap asset and accrued interest from
our counterparty. The accumulated increase of $10 million in the carrying value of the 6.5% Notes due 2017 through the hedge termination date is being amortized to interest income using the
effective interest method over the remaining term of the notes.

The
cash flow and fair value hedges were valued using projected future cash flows, discounted at mid-market implied forward LIBOR. The debt underlying the fair value hedges
was valued using projected future cash flows, discounted at mid-market implied forward LIBOR, plus a constant spread above LIBOR determined at the inception of the hedging relationship.
These valuations were determined excluding accrued interest.

For
additional information on our accounting policies for derivative financial instruments, see Note 2Summary of Significant Accounting Policies.

The
fair value of derivative instruments designated as hedging instruments as of December 31, 2008 is described below:

Asset Derivatives

Liability DerivativesBalance sheet location

Fair value

Balance sheet location

Fair value(Dollars in millions)Cash Flow Hedging Contracts

Other non-current assets

$


Other non-current liabilities

$
8


73

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Table of Contents

QWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 9: Borrowings (Continued)

The following table presents the effect of derivative instruments on our consolidated statement of operations for the year ended
December 31, 2008 and our consolidated balance sheet as of December 31, 2008:

Derivatives in SFAS No. 133 Fair Value
Hedging Relationships

Statement of Operations Location

Gain Recognized in Income During 2008(Dollars in millions)Interest rate contracts

Other expense (income)

$
(1
)




Derivatives in SFAS No. 133 Cash Flow Hedging Relationships

(Dollars in millions)Interest rate contracts:Amount of loss recognized in other comprehensive income on derivative in 2008 (effective portion), net of deferred taxes of $3


$  6Location of amount reclassified from accumulated other comprehensive income into income (effective portion)


Interest expensenetAmount of gain reclassified from accumulated other comprehensive income into interest expense (effective portion)


$  1Location of amount recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)


Not ApplicableAmount recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)


$




Interest expense includes interest on long-term borrowings and capital lease obligations. Other interest expense, such as
interest on income taxes, is included in othernet in our consolidated statements of operations. The following table presents the amount of gross interest expense, capitalized interest and
cash paid for interest during the years ended December 31, 2008, 2007 and 2006:

Years Ended December 31,2008

2007

2006(Dollars in millions)Interest expense on long-term borrowings and capital leasesnet:Gross interest expense

$
603

$
620

$
628Capitalized interest


(14
)

(12
)

(12
)Total interest expense on long-term borrowings and capital leasesnet

$
589

$
608

$
616Cash paid for interest:Cash interest paid on long-term borrowings and capital leases

$
628

$
625

$
598Cash received from interest rate contract counterparties


(46
)




Net interest paid on long-term borrowings and capital leases

$
582

$
625

$
598


74

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Table of Contents

QWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 10: Severance

For the years ended December 31, 2008, 2007 and 2006, we accrued severance costs of $143 million, $27 million and $61 million, respectively, reversed
severance costs of $16 million, $13 million and $4 million, respectively, and paid severance costs of $96 million, $48 million and $47 million, respectively.
A portion of our severance charges is included in each of cost of sales, selling expenses and general, administrative and other operating expenses in our consolidated statements of operations. As of
December 31, 2008 and 2007, our severance liability was $54 million and $23 million, respectively. The remaining balance included charges primarily recorded in 2008, and we expect
to pay substantially all of the 2008 severance charges in 2009.

Note 11: Employee Benefits

Pension and Post-Retirement Benefits

In accordance with SFAS No. 132, "Employers' Disclosures about Pensions and Other Post-Retirement Benefits," we are
required to disclose the amount of our contributions to QCII relative to the QCII pension and post-retirement benefit plans. No pension or post-retirement occupational health
care trust contributions were made during 2008 or 2007 and we do not expect to make contributions in 2009. As of December 31, 2008, the unfunded status of QCII's pension plan for accounting
purposes was $745 million, compared to a funded status of $1.672 billion as of December 31, 2007. The unfunded status of its post-retirement benefit plans for
accounting purposes was $2.509 billion and $2.226 billion as of December 31, 2008 and 2007, respectively.

In
2008 we recognized an allocated $28 million in income for pension expense. Our allocated pension expense for 2007 and 2006 was $33 million and $77 million,
respectively. Our allocated post-retirement benefit expense for 2008, 2007, and 2006 was $15 million, $6 million, and $121 million, respectively. These allocated
amounts represent our share of the pension and post-retirement benefit expenses based on the actuarially determined amounts. Our allocated portion of QCII's total pension and
post-retirement benefit expenses were 92%, 98% and 97% for the years ended December 31, 2008, 2007 and 2006, respectively. QCII allocates the expenses of these plans to us and its
other affiliates. The allocation of expense to us is based upon demographics of our employees compared to all remaining participants. The combined net pension and post-retirement benefits
(income) expenses is included in general, administrative and other operating expenses.

The
benefit obligation for QCII's occupational health care and life insurance post-retirement plans is estimated based on the terms of QCII's written benefit plans. In making
this determination, QCII considers numerous assumptions, estimates and judgments, including but not limited to, discount rates, health care cost trend rates and mortality trend rates. In 2008, we
negotiated our current four-year collective bargaining agreements. These collective bargaining agreements covered approximately 17,000 of our unionized employees as of December 31,
2008 and reflect changes for the eligible post-1990 retirees who are former occupational employees, including: (i) a Letter of Agreement that states such
post-1990 retirees will begin contributing to the cost of health care benefits in excess of specified limits on the company-funded portion of retiree health care costs (also referred to as
"caps") beginning January 1, 2009 and (ii) a provision that such post-1990 retirees will pay increased out of pocket costs through plan design changes starting
January 1, 2009. These changes have been considered in the determination of the benefit obligation for QCII's occupational employee benefits under the health care plan.

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QWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 11: Employee Benefits (Continued)

The
terms of the post-retirement health care and life insurance plans between QCII and its eligible management employees and its eligible post-1990 management
retirees are established by QCII and are subject to change at its discretion. QCII has a past practice of sharing some of the cost of providing health care benefits with its management employees and
post-1990 management retirees. The benefit obligation for the management post-retirement health care benefits is based on the terms of the current written plan documents and is
adjusted for anticipated continued cost sharing with management employees and post-1990 management retirees. However, QCII's contribution under its post-1990 management
retirees' health care plan is capped at a specific dollar amount. QCII allocates its pension, non-qualified pension and post-retirement benefit obligations to us using the
amount of its funded or unfunded status and its related accumulated other comprehensive income balance. Therefore, significant year over year changes in QCII's funded status affecting accumulated
other comprehensive income may not have a significant initial impact on the assets or obligations that is allocated to us.

A
putative class action purportedly filed on behalf of certain of QCII retirees was brought against QCII and certain other defendants in Federal District Court in Colorado in connection
with QCII's decision to reduce life insurance benefits for these retirees during 2006 and 2007. See Note 17Commitments and ContingenciesOther Matters for additional
information.

Medicare Prescription Drug, Improvement and Modernization Act of 2003

QCII sponsors post-retirement health care plans with several benefit options that provide prescription drug benefits which
QCII deems actuarially equivalent to or exceeding Medicare Part D. QCII recognizes the impact of the federal subsidy received under the Medicare Prescription Drug, Improvement and Modernization
Act of 2003 in the calculation of its post-retirement benefit obligation and net periodic post-retirement benefit expense. The effect of the subsidy reduced our net periodic
post-retirement benefit expense by $36 million, $51 million and $80 million for the years ended December 31, 2008, 2007 and 2006, respectively.

Other Benefit Plans



QCII sponsors a qualified defined contribution benefit plan covering substantially all management and occupational employees. Under
this plan, employees may contribute a percentage of their annual compensation to the plan up to certain maximums, as defined by the plan and by the Internal Revenue Service ("IRS"). Currently, QCII,
on our behalf, matches a percentage of our employees' contributions in cash. We made cash contributions in connection with our employees' participation in QCII's 401(k) plan of $59 million and
$63 million for the years ended December 31, 2008 and 2007, respectively.



QCII sponsors several non-qualified unfunded deferred compensation plans for various groups that include certain of our
current and former management and highly compensated employees. Certain of these plans are open to new participants. Participants in these plans may, at their discretion, invest their deferred
compensation in various investment choices, including QCII's common stock.

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QWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 11: Employee Benefits (Continued)

Our
portion of QCII's deferred compensation assets for these plans is included on our consolidated balance sheets in prepaid pensionaffiliates. Our portion of QCII's
deferred compensation obligations is included on our consolidated balance sheets in current and non-current post-retirement and other post-employment benefits and
otheraffiliates. Investment earnings, administrative expenses, changes in investment values and increases or decreases in the deferred compensation liability resulting from changes in the
investment values are recorded in our consolidated statements of operations. The values of assets and liabilities related to these plans are not significant.

Note 12: Income Taxes

Adoption of FIN 48

Effective January 1, 2007, we adopted FIN 48, which prescribes a comprehensive model for how a company should recognize,
measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. Though the validity of any tax position is a matter of
tax law, the body of statutory, regulatory and interpretive guidance on the application of the law is complex and often ambiguous. Because of this, 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 was included in our income tax provision if it were probable the position would be sustained upon audit. The benefit of any uncertain tax position that was temporary was reflected in our tax
provision if it were 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 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.

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



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. However, because we are included in the consolidated federal income tax returns and the combined
state income tax returns of QCII, any tax audits involving QCII will also involve us. The IRS examines all of QCII's federal income tax returns because QCII is included in the coordinated industry
case program. As of December 31, 2008, the QCII federal income tax returns for 2002-2005 have been examined and are in

77

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QWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 12: Income Taxes (Continued)

review
with the IRS Appeals Office and the QCII federal income tax returns filed for tax years after 2005 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 we have filed since 1995 are still open
for state specific adjustments.

On
April 15, 2008, QCII received from the IRS the Revenue Agent's Report for tax years 2004 and 2005. The report contains proposed adjustments on several issues, including issues
that may affect us. Based on QCII's and our evaluation of the IRS's positions reflected in the proposed adjustments, we have not recorded a significant adjustment to our unrecognized tax benefits or
our uncertain tax position liability. However, there can be 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 us.

During
2008, QCII executed a settlement with the IRS relating to its audit of the 1998-2001 tax years. We paid an immaterial amount in the fourth quarter of 2008 as our share
of the settlement. We also recorded an equity transaction with QSC to recognize the difference between the settlement recorded on our books and the actual cash payment. We recognized an immaterial
interest benefit as a result of the settlement. Our unrecognized tax benefits have decreased by $43 million since December 31, 2007 primarily due to the 1998-2001 settlement.

QCII
has also agreed on tentative settlements with the IRS related to several of the issues raised in its audit of tax years 2002 and 2003. These settlements have been approved by the
IRS and are now subject to review by the United States Congress Joint Committee on Taxation. If these settlements are effected in accordance with QCII's expectations, QCII's total unrecognized tax
benefits could decrease by approximately $222 million in the next 12 months.

A
reconciliation of the unrecognized tax benefits for the years ended December 31, 2008 and 2007 follows:

Unrecognized Tax Benefits2008

2007(Dollars in millions)Balance as of January 1

$
138

$
132Additions for current year tax positions


31


28Additions for prior year tax positions





Reductions for prior year tax positions


(38
)

(22
)Settlements


(36
)

Reductions related to expirations of statute of limitations





Balance as of December 31

$
95

$
138


As
of December 31, 2008, none of the unrecognized tax benefits could affect our income tax provision and effective income tax rate.

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 consolidated

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Table of Contents

QWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 12: Income Taxes (Continued)

statements
of operations. For each of the years ended December 31, 2008 and 2007, we recognized $20 million for interest expense related to uncertain tax positions. As of
December 31, 2008 and 2007, we had recorded liabilities for interest related to uncertain tax positions in the amounts of $44 million and $63 million, respectively. We made no
accrual for penalties related to income tax positions.

Income Tax Expense

The components of the income tax expense from continuing operations are as follows:

Years Ended December 31,2008

2007

2006(Dollars in millions)Income tax expense:Current tax provision:Federal

$
537

$
967

$
819State and local


77


144


118Total current tax provision


614


1,111


937Deferred tax benefit:Federal


180


(171
)

(201
)State and local


35


(27
)

(57
)Total deferred tax benefit


215


(198
)

(258
)Income tax expense

$
829

$
913

$
679


The
effective income tax rate for our continuing operations differs from the statutory tax rate as follows:

Years Ended December 31,2008

2007

2006(in percent)Effective income tax rate:Federal statutory income tax rate


35.0
%

35.0
%

35.0
%State income taxesnet of federal effect


3.2
%

3.0
%

2.1
%Other


(1.6
)%

(0.6
)%

(1.0
)%Effective income tax rate


36.6
%

37.4
%

36.1
%


79

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Table of Contents

QWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 12: Income Taxes (Continued)

Deferred Tax Assets and Liabilities

The components of the deferred tax assets and liabilities are as follows:

December 31,2008

2007(Dollars in millions)Deferred tax assets and liabilities:Deferred tax liabilities:Property, plant and equipment

$
(1,999
)
$
(2,075
)Receivable from an affiliate due to pension plan participation


(398
)

(388
)Other


(54
)

(142
)Total deferred tax liabilities


(2,451
)

(2,605
)Payable to affiliate due to post-retirement benefit plan participation


1,100


1,107Receivable from parent due to prior operating losses





256Other


292


317Total deferred tax assets


1,392


1,680Net deferred tax liabilities

$
(1,059
)
$
(925
)


We
have performed an evaluation of the recoverability of our deferred tax assets. It is our opinion that it is more likely than not that the deferred tax assets will be realized and
should not be reduced by a valuation allowance.

Other Income Tax Information

We paid $627 million, $1.127 billion and $1.015 billion to QSC related to income taxes in 2008, 2007, and 2006,
respectively. As of December 31, 2008 and 2007 we had
approximately $29 million and $22 million, respectively, in amounts relating to taxes payable to QSC reflected in accounts payable-affiliates on our consolidated balance sheets.

We
had unamortized investment tax credits of $77 million and $82 million as of December 31, 2008 and 2007, respectively, which are included in other
long-term liabilities on our consolidated balance sheets. These investment credits are amortized over the lives of the related assets. Amortization of investment tax credits of
$7 million, $4 million, and $5 million are included in the provision for income taxes for the years ended December 31, 2008, 2007, 2006, respectively.

Note 13: Stockholder's Equity

We have one share of common stock (no par value) issued and outstanding, which is owned by QSC.

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QWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 13: Stockholder's Equity (Continued)

Equity Infusions

In 2008 QCII moved to us most of the administrative and other functions of QSC and merged into us two of QSC's other wholly owned
subsidiaries that previously charged the majority of their costs to us. We received cash equity infusions from QSC of $190 million in connection with the transfer. We also received other cash
equity infusions of $41 million in 2008.

In
2007 and 2006, QSC made equity infusions into two of its other wholly owned subsidiaries that have now been merged into us totaling $25 million and $81 million,
respectively.

Other Net Asset Transfers

The reorganization activities noted above combined businesses that were already controlled by QCII, therefore we accounted for these
activities in a manner similar to a pooling of interests. The difference between the assets and liabilities transferred to us from QSC was recorded as an adjustment to accumulated deficit in 2007 and
2006. QSC cash was not transferred to us as part of the transfer for any prior period. Accordingly, for purposes of the presentation of our prior period combined financial statements, the net cash
generated or used by the transferred set of QSC activities for each year presented in our consolidated financial statements is recorded in operating and investing cash flows with a corresponding
distribution or contribution of cash in financing activities. For the years ended December 31, 2007 and 2006, cash generated by operating activities and the corresponding financing cash
outflows amounted to $113 million and $43 million, respectively.

During
2008, QCII executed a settlement with the IRS relating to its audit of the 1998-2001 tax years. We paid an immaterial amount in the fourth quarter of 2008 as our share of the
settlement. We recorded a $62 million asset transfer with QSC to recognize the difference between the settlement recorded on our books and the actual cash payment. In 2007, QSC forgave an
$82 million tax liability we owed to QSC. We recorded the forgiveness as an asset transfer.

In
addition, in the normal course of business we transfer assets and liabilities to and from QSC and its affiliates. It is our policy to record these asset transfers based on carrying
values.

Dividends

During the years ended December 31, 2008, 2007 and 2006 we declared cash dividends to QSC of $2.200 billion,
$2.470 billion and $2.000 billion, respectively, and we paid cash dividends of $2.000 billion, $2.470 billion and $1.946 billion, respectively.

The
timing of cash payments for declared dividends to QSC is at our discretion in consultation with QSC. We may declare and pay dividends to QSC in excess of our earnings to the extent
permitted by applicable law. Our debt covenants do not limit the amount of dividends we can pay to QSC.

Note 14: Stock-Based Compensation

Our employees participate in QCII's Equity Incentive Plan ("EIP") and Employee Stock Purchase Plan ("ESPP"). For more information about these plans, see QCII's Annual Report on
Form 10-K for the year ended December 31, 2008.

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QWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 14: Stock-Based Compensation (Continued)

Following
are the weighted-average assumptions used with the Black-Scholes option-pricing model to determine the fair value estimates of options granted in the years ended
December 31, 2008, 2007 and 2006:

Years Ended December 31,2008

2007

2006Black-Scholes assumptions:Risk-free interest rate


2.7
%

4.3
%

4.5
%Expected dividend yield


6.4
%


%


%Expected option life (years)


4.9


4.7


5.0Expected stock price volatility


38
%

45
%

80
%


We
believe the two most significant assumptions used in our estimates of fair value are the expected option life and the expected stock price volatility, both of which we estimate based
on historical information.

Stock-Based Compensation Expense

Stock-based compensation expense is included in cost of sales, selling expenses and general, administrative and other operating
expenses in our consolidated statements of operations. We recognize compensation expense relating to awards granted to our employees under the EIP using the straight-line method over the
applicable vesting periods. We recognize compensation expense related to our employee purchases of QCII's stock under the ESPP for the difference between the employees' purchase prices and the fair
market values of QCII's stock.

For
the years ended December 31, 2008, 2007and 2006, our total stock-based compensation expense was approximately $43 million, $21 million and $28 million,
respectively.

As
of December 31, 2008, QCII had $62 million of total unrecognized compensation expense related to unvested stock options and restricted stock under the EIP. QCII expects
to recognize this amount over the remaining weighted average vesting terms of 1.9 years. There is no unrecognized compensation expense related to the ESPP. QCII will continue to record
stock-based compensation and it will continue to allocate a portion of these costs to us. However, based on the many factors that affect the allocation, the amount that is ultimately allocated to us
as a result of stock-based compensation recorded at QCII may fluctuate.

Note 15: Contribution to QCII Segments

Our operations are integrated into and are part of the segments of QCII. Our business contributes to all three of QCII's segments: business markets, mass markets, and wholesale markets.
QCII's Chief Operating Decision Maker ("CODM"), who is also our 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.

During
the first quarter of 2008, QCII's CODM began to manage QCII's business using different information than he was using previously. QCII changed its segments accordingly.

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Table of Contents

QWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 15: Contribution to QCII Segments (Continued)

We generate our revenue from data, Internet, video and voice services we provide to our customers. We also generate revenue from services we provide to our affiliates. The services are
further described below.



Revenue
from our products and services for the years ended December 31, 2008, 2007 and 2006 is summarized in the following table:

Years Ended December 31,2008

2007

2006(Dollars in millions)Operating revenue:Data, Internet and video services

$
3,199

$
2,916

$
2,576Voice services


5,196


5,687


6,104Affiliate and other services


1,993


2,088


2,041Total operating revenue

$
10,388

$
10,691

$
10,721


Revenue
from affiliates was 17%, 18% and 17% of total revenue for the years ended December 31, 2008, 2007 and 2006, respectively. We do not have any single customer that provides
more than 10% of our total operating revenue. Substantially all of our revenue comes from customers located in the United States.

Note 16: Related Party Transactions

We provide to our affiliates data, voice and billing and collections services that we also provide to external customers. In addition, we provide to our affiliates, marketing, sales and
advertising, computer system and development support services, network support and technical services and other support services.

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Table of Contents

QWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 16: Related Party Transactions (Continued)

Below
are details of the services we provided to our affiliates:



We
charge our affiliates for services based on market price or fully distributed cost ("FDC"). We charge our affiliates market price for services that we also provide to external
customers, while other services that we provide only to our affiliates are priced by applying an FDC methodology. FDC rates include salaries and wages, payroll taxes, employee benefits, miscellaneous
expenses, and charges for the use of our buildings, computing and software assets. Whenever possible, costs are directly assigned to our affiliates for the services they use. If costs cannot be
directly assigned, they are allocated among all affiliates, based upon cost usage measures; or if no cost usage measure is available, these costs are allocated based on a general allocator. We believe
these cost allocation methodologies are reasonable. From time to time, QCII adjusts the basis for allocating the costs of a shared service among affiliates. Such changes in allocation methodologies
are generally billed prospectively.

We
also purchase services from our affiliates including long-distance, wholesale Internet access and insurance. Our affiliates charge us for these services based on market
price or FDC.

In
2008 and 2007, we paid approximately $27 million and $29 million in administrative fees in the ordinary course of business to United Healthcare Services, Inc.,
which provides health benefit plans to some of our employees and is a subsidiary of UnitedHealth Group. QCII's director, Anthony Welters, serves as Executive Vice President of UnitedHealth Group and
as President of its Public and Senior Markets Group.

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QWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 17: Commitments and Contingencies

Commitments



The following table summarizes our estimated future contractual obligations as of December 31, 2008:

|                                     |                                     |                                                        |     |     |     |       |       |     |       |       |     |       |       |       |       |       |     |       |       |       |        |        |       | 
|------------------------------------ | ----------------------------------- | ------------------------------------------------------ | --- | --- | --- | ----- | ----- | --- | ----- | ----- | --- | ----- | ----- | ----- | ----- | ----- | --- | ----- | ----- | ----- | ------ | ------ | ----- | 
|
|
|
|Future contractual obligations(1):   |                                     |                                                        |     |     |     |       |       |     |       |       |     |       |       |       |       |       |     |       |       |       |        |       
|                                     | Debt and lease payments:            |                                                        |     |     |     |       |       |     |       |       |     |       |       |       |       |       |     |       |       |       |        |        |      
|                                     |                                     | Long-term debt                                         |     | $   |    |       | $     | 500 |       | $     | 825 |       | $     | 1,500 |       | $     | 750 |       | $     | 4,082 |        | $      | 7,657 | 
|                                     |                                     | Capital lease and other obligations                    |     |     | 19  |       |       | 6   |       |       | 4   |       |       | 1     |       |       | 1   |       |       | 3     |        |        | 34    | 
|                                     |                                     | Interest on long-term borrowings and capital leases(2) |     |     | 574 |       |       | 553 |       |       | 535 |       |       | 402   |       |       | 315 |       |       | 3,438 |        |        | 5,817 | 
|                                     |                                     | Operating leases                                       |     |     | 106 |       |       | 94  |       |       | 84  |       |       | 54    |       |       | 35  |       |       | 116   |        |        | 489   | 
|                                     |                                     |                                                        |     |     |     |       |       |     |       |       |     |       |       |       |      
|                                     | Total debt and lease payments       |                                                        |     | 699 |     |       | 1,153 |     |       | 1,448 |     |       | 1,957 |       |       | 1,101 |     |       | 7,639 |       |        | 13,997 |      
|                                     |                                     |                                                        |     |     |     |       |       |     |       |       |     |       |       |       |      
|                                     | Other long-term liabilities         |                                                        |     | 2   |     |       | 2     |     |       | 2     |     |       | 3     |       |       | 2     |     |       | 21    |       |        | 32     |      
|                                     |                                     |                                                        |     |     |     |       |       |     |       |       |     |       |       |       |      
|                                     | Purchase commitments:               |                                                        |     |     |     |       |       |     |       |       |     |       |       |       |       |       |     |       |       |       |        |        |      
|                                     |                                     | Telecommunications commitments                         |     |     | 67  |       |       | 31  |       |       |    |       |       |      |       |       |    |       |       |      |        |        | 98    | 
|                                     |                                     | Advertising, promotion and other services(3)           |     |     | 73  |       |       | 49  |       |       | 36  |       |       | 30    |       |       | 29  |       |       | 93    |        |        | 310   | 
|                                     |                                     |                                                        |     |     |     |       |       |     |       |       |     |       |       |       |      
|                                     | Total purchase commitments          |                                                        |     | 140 |     |       | 80    |     |       | 36    |     |       | 30    |       |       | 29    |     |       | 93    |       |        | 408    |      
|                                     |                                     |                                                        |     |     |     |       |       |     |       |       |     |       |       |       |      
|                                     | Non-qualified pension obligation(4) |                                                        |     | 1   |     |       | 1     |     |       | 1     |     |       | 1     |       |       | 1     |     |       | 18    |       |        | 23     |      
|                                     |                                     |                                                        |     |     |     |       |       |     |       |       |     |       |       |       |      
|Total future contractual obligations |                                     | $                                                      | 842 |     | $   | 1,236 |       | $   | 1,487 |       | $   | 1,991 |       | $     | 1,133 |       | $   | 7,771 |       | $     | 14,460 |       
|                                     |                                     |                                                        |     |     |     |       |       |     |       |       |     |       |       |       |      

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QWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 17: Commitments and Contingencies (Continued)



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QWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 17: Commitments and Contingencies (Continued)





We lease certain office facilities and equipment under various capital lease arrangements. Assets acquired through capital leases
during 2008, 2007 and 2006 were $10 million,
$10 million and $17 million, respectively. Assets recorded under capitalized lease agreements included in property, plant and equipment consisted of $107 million,
$112 million and $108 million of cost less accumulated depreciation of $64 million, $58 million and $42 million as of December 31, 2008, 2007 and 2006,
respectively. In 2008, 2007 and 2006, we recognized depreciation of capital leases of $21 million, $21 million and $18 million, respectively, which is included in depreciation
expense.

The
future minimum payments under capital leases as of December 31, 2008 are included in our consolidated balance sheet as follows:

Future Minimum
Payments(Dollars in millions)Capital lease obligations:Total minimum payments

$
51Less: amount representing interest and executory costs


(17
)Present value of minimum payments


34Less: current portion


(19
)Long-term portion

$
15




Certain office facilities, real estate and equipment are subject to operating leases. We also have easement (or
right-of-way) agreements with railroads and public transportation authorities that are accounted for as operating leases. For the years ended December 31, 2008, 2007 and
2006, rent expense under these operating leases was $204 million, $185 million and $215 million, respectively, net of sublease rental income of $19 million,
$22 million and $25 million, respectively. Operating leases as reported in the table in "Future Contractual Obligations" above have not been reduced by minimum sublease rental income of
$75 million, which we expect to realize under non-cancelable subleases.



On our behalf, QCII maintains letter of credit arrangements with various financial institutions. As of December 31, 2008, the
amount of letters of credit outstanding was $56 million, and we had no outstanding guarantees.

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QWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 17: Commitments and Contingencies (Continued)

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. Only those matters to which
we are a party (primarily the third matter described under the heading "Other Matters" relating to litigation brought by several owners of payphones) 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.

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 of the matters described below, and QCII has been advancing legal fees and costs to many former directors, officers and employees in connection with certain matters
described below.



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 (the "QCII settlement"). No parties admit any wrongdoing as part of the QCII
settlement. Pursuant to the QCII settlement, QCII deposited approximately $400 million in cash into a settlement fund. In connection with the QCII settlement, QCII received $10 million
from Arthur Andersen LLP. As part of the QCII settlement, the class representatives and the settlement class they represent are also releasing Arthur Andersen. If the QCII settlement is not
implemented, QCII will be repaid the $400 million plus interest, less certain expenses, and QCII will repay the $10 million to Arthur Andersen.

If
implemented, the QCII 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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 17: Commitments and Contingencies (Continued)

financial
officer. In September 2006, the federal district court in Colorado issued an order approving the proposed QCII settlement on behalf of purchasers of QCII's publicly traded securities between
May 24, 1999 and July 28, 2002, over the objections of Messrs. Nacchio and Woodruff. Messrs. Nacchio and Woodruff then appealed that order to the United States Court of
Appeals for the Tenth Circuit. In addressing that appeal, the Tenth Circuit held that the federal district court order overruling Nacchio and Woodruff's objections to the QCII settlement was not
sufficiently specific, and it remanded the case to the district court with instructions to consider certain issues and to provide a more detailed explanation for its earlier decision overruling those
objections. Subsequent to the remand, a proposed settlement was reached involving the claims of the putative class against Messrs. Nacchio and Woodruff as described below that, if implemented,
will also result in the implementation of the QCII settlement.

On
August 4, 2008, QCII, Messrs. Nacchio and Woodruff, and the putative class representatives entered into a Stipulation of Settlement (the "Nacchio/Woodruff settlement").
The court has preliminarily approved the Nacchio/Woodruff settlement, has certified a class for settlement purposes of purchasers of our publicly traded securities between May 24, 1999 and
July 28, 2002, and has scheduled a hearing to consider final approval of the Nacchio/Woodruff settlement. If implemented, the settlement will, among other things, (i) settle the
individual claims of the class representatives and the class they represent against Messrs. Nacchio and Woodruff, and (ii) result in the withdrawal by Messrs. Nacchio and Woodruff
of their objections to the QCII settlement and the resolution of their indemnification dispute with QCII arising from the QCII settlement. Under the proposed Nacchio/Woodruff settlement, QCII will
have contributed $40 million, and, if implemented, Messrs. Nacchio and Woodruff will contribute a total of $5 million of insurance proceeds. The Nacchio/Woodruff settlement is
subject to a number of conditions and future contingencies, including that it (i) requires final court approval, and (ii) provides QCII with the right to terminate the settlement if
class members representing more than a specified amount of alleged securities losses elect to opt out of the settlement. No parties admit any wrongdoing as a part of the Nacchio/Woodruff settlement.



On January 27, 2009, the trustees in the Dutch bankruptcy proceeding for KPNQwest, N.V. (of which QCII was a major
shareholder) filed a lawsuit in the federal district court for the District of Colorado alleging violations of the Racketeer Influenced and Corrupt Organizations Act and breach of duty and
mismanagement under Dutch law. QCII is a defendant in this lawsuit along with Joseph Nacchio, Robert S. Woodruff and John McMaster, the former president and chief executive officer of KPNQwest.
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 and punitive damages as well as an award of plaintiffs' attorneys' fees and costs. A lawsuit asserting the same claims that was previously filed in the
federal district court for the District of New Jersey was dismissed without prejudice, and that dismissal was affirmed on appeal.

On
September 13, 2006, Cargill Financial Markets, Plc and Citibank, N.A. filed a lawsuit in the District Court of Amsterdam, located in the Netherlands, against QCII, KPN
Telecom B.V., Koninklijke KPN N.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

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QWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 17: Commitments and Contingencies (Continued)

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 approximately $305 million based on the exchange rate on December 31, 2008).

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. As amended and following the appeal of a partial summary judgment against plaintiffs which was affirmed in part and reversed in part, plaintiffs allege, among other things, that defendants
violated state securities laws in connection with plaintiffs' investments in KPNQwest securities. QCII is a defendant in this lawsuit along with Qwest B.V. (one of QCII's subsidiaries), Joseph
Nacchio and John McMaster. The Arizona Superior Court dismissed most of plaintiffs' claims, and plaintiffs voluntarily dismissed the remainder of their claims. Plaintiffs have appealed the court's
decision to the Arizona Court of Appeals. Plaintiffs claim to have lost approximately $9 million in their investments in KPNQwest, and are also seeking interest and attorneys' fees.

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 January 1 through May 23, 2002. QCII and
others have appealed that order to the Netherlands Supreme Court. On December 5, 2008, the Enterprise Chamber appointed investigators to conduct the inquiry.

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



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
in which QCII has fiber optic cable in railroad rights-of-way (other than Louisiana and Tennessee), 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

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QWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 17: Commitments and Contingencies (Continued)

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 July 18, 2008, a federal district court in Massachusetts entered an order preliminarily approving a settlement of all of the actions described above,
except the action pending in Tennessee. On November 18, 2008, the court held a hearing to consider final approval of the proposed settlement and the parties are awaiting the court's decision.

Qwest
Communications Company, LLC ("QCC"), one of QCII's other subsidiaries, is a defendant in litigation filed by several billing agents for the owners of payphones seeking
compensation for coinless calls made from payphones. The matter is pending in the United States District Court for the District of Columbia. Generally, the payphone owners claim that QCC underpaid the
amount of compensation due to them under Federal Communications Commission ("FCC") regulations for coinless calls placed from their phones onto QCC's network. The claim seeks compensation for calls,
as well as interest and attorneys' fees. QCC will vigorously defend against this action.

We
have been a defendant in litigation brought by several owners of payphones relating to the rates we charged them for the lines to their payphones between 1997 and 2003. Generally, the
payphone owners have claimed that we charged more for payphone access lines than we were permitted to charge under the applicable FCC rules. The largest of these lawsuits, filed in the United States
District Court for the Western District of Washington, was amicably settled for an immaterial amount and dismissed. A second lawsuit, pending in the United States District Court for the District of
Utah with related proceedings before the FCC, has also been amicably settled for an immaterial amount. Another proceeding against us remains pending before the Oregon Public Utility Commission.
Several related proceedings are underway at the FCC involving us, other telecommunications companies, and payphone owners. In all of these proceedings, the payphone owners seek damages for amounts
paid allegedly exceeding the amounts that were permitted under the applicable FCC rules. We will vigorously defend against the remaining actions.

A
putative class action filed on behalf of certain of QCII's retirees was brought against QCII, the Qwest Life Insurance Plan and other related entities in federal district court in
Colorado in connection with QCII's decision to reduce the life insurance benefit for these retirees to a $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 benefit at the levels in place before QCII decided to reduce them. Plaintiffs seek restoration of the life
insurance benefit to previous levels and certain equitable relief. The district court ruled in QCII's favor on the central issue of whether QCII properly reserved its right to reduce the life
insurance benefit under applicable law and plan documents. The retirees have amended their complaint to assert additional claims. QCII believes the remaining claims are without merit, and QCII will
continue to vigorously defend against this matter.

Flood Damage

During June 2008, floods in the Midwest, particularly Iowa, caused damage to our network and other assets. Based on our current
assessment, we estimate that cumulative expenditures required for the restoration of our network and physical plant will be less than $20 million including repairs and

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 17: Commitments and Contingencies (Continued)

equipment
replacement. For the year ended December 31, 2008, we incurred repair expenditures of approximately $13 million, which are included in the estimate. Although we carry insurance
that covers certain property damage and business interruption, because of applicable deductibles, we expect any recoveries to be immaterial in relation to our expenditures.

Note 18: Quarterly Financial Data (Unaudited)

Quarterly Financial DataFirst
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

Total(Dollars in millions)2008Operating revenue

$
2,624

$
2,607

$
2,556

$
2,601

$
10,388Income tax expense


214


252


183


180


829Net income


349


411


299


379


1,4382007Operating revenue

$
2,666

$
2,715

$
2,668

$
2,642

$
10,691Income tax expense


239


240


228


206


913Net income


399


378


378


372


1,527


Note 19: Other Financial Information

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets as of December 31, 2008 and 2007 consisted of the following:

December 31,2008

2007(Dollars in millions)Prepaid expenses and other current assets:Deferred activation and installation charges

$
107

$
120Prepaid expenses and other


134


124Total prepaid expenses and other current assets

$
241

$
244


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QWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

Note 19: Other Financial Information (Continued)

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities as of December 31, 2008 and 2007 consisted of the following:

December 31,2008

2007(Dollars in millions)Accrued expenses and other current liabilities:Accrued interest

$
124

$
119Employee compensation


306


386Accrued property and other taxes


223


257Other


238


190Total accrued expenses and other current liabilities

$
891

$
952


Note 20: Labor Union Contracts

We are a party to collective bargaining agreements with our labor unions, the Communications Workers of America and the International Brotherhood of Electrical Workers. Our current
four-year collective bargaining agreements expire on October 6, 2012. As of December 31, 2008, employees covered under these collective bargaining agreements totaled 17,145,
or 56% of all our employees.

Note 21: Subsequent Events

Between January 1, 2009 and February 18, 2009, we paid to QSC dividends totaling $300 million.

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ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.    CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure 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 December 31,
2008. 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 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 fourth quarter of 2008 that materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.

Management's Report on Internal Control Over Financial Reporting

This section of this Annual Report on Form 10-K will not be deemed incorporated by reference
by any general statement incorporating by reference this Annual Report on Form 10-K into any filing under the Securities Act of 1933 or under the Securities Exchange Act of 1934,
except to the extent that we specifically incorporate this information by reference, and will not otherwise be deemed filed under these Acts.

Our
management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act
Rule 13a-15(f). Under the
supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal
control over financial reporting based on the framework inInternal ControlIntegrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our evaluation under the framework inInternal ControlIntegrated Framework,our
management concluded that our internal control over financial reporting was effective as of December 31, 2008.

This
Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management's
report in this Annual Report on Form 10-K.

ITEM 9B.    OTHER INFORMATION

None.

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PART III

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

We have omitted this information pursuant to General Instruction I(2).

ITEM 11.    EXECUTIVE COMPENSATION

We have omitted this information pursuant to General Instruction I(2).

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

We have omitted this information pursuant to General Instruction I(2).

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

We have omitted this information pursuant to General Instruction I(2).

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

Pre-Approval Policies and Procedures

The Audit Committee of the Board of Directors of QCII is responsible for the appointment, compensation and oversight of the work of our
independent registered public accountant. Under the Audit Committee's charter, which was most recently amended on December 10, 2008, the Audit Committee pre-approves all audit and
permissible non-audit services provided by our independent registered public accountant. The approval may be given as part of the Audit Committee's approval of the scope of the engagement
of our independent registered public accountant or on an individual basis. The pre-approval of non-audit services may be delegated to one or more of the Audit Committee's
members, but the decision must be reported to the full Audit Committee. Our independent registered public accountant may not be retained to perform the non-audit services specified in
Section 10A(g) of the Exchange Act.

Fees Paid to the Independent Registered Public Accountant

QCII first engaged KPMG LLP ("KPMG") to be our independent registered public accountant in May 2002. The aggregate fees billed
or allocated to us for professional accounting services, including KPMG's audit of our annual consolidated financial statements, are set forth in the table below.

2008

2007(Dollars in thousands)Audit fees

$
3,188

$
2,554Audit-related fees


308


447Total fees

$
3,496

$
3,001


There
were no fees billed to us in 2008 or 2007 for professional services rendered by KPMG for tax compliance, tax advice or tax planning.

For
purposes of the preceding table, the professional fees are classified as follows:

Audit
feesThese are fees for professional services billed for the audit of the consolidated financial statements included in our Form 10-K filings, the
review of condensed consolidated financial statements included in our Form 10-Q filings, comfort letters, consents and assistance with and review

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of
documents filed with the SEC. Audit fees for each year shown include amounts billed or allocated to us through the date of this Form 10-K for that particular year.

Audit-related
feesThese are fees for assurance and related services that traditionally are performed by our independent registered public accountant. More specifically,
these services include: international statutory audits, regulatory filings and employee benefit plan audits.

All
of the services performed by KPMG described above were approved in advance by QCII's Audit Committee.

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PART IV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)   Documents
filed as part of this report:

Page(1)

Report of Independent Registered Public Accounting Firm

49Financial Statements covered by the Report of Independent Registered Public Accounting Firm:Consolidated Statements of Operations for the years ended December 31, 2008, 2007 and 2006

50Consolidated Balance Sheets as of December 31, 2008 and 2007

51Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006

52Consolidated Statements of Stockholder's Equity and Comprehensive Income for the years ended December 31, 2008, 2007 and 2006

53Notes to the Consolidated Financial Statements for the years ended December 31, 2008, 2007 and 2006

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(a)(3)
and (b) Exhibits required by Item 601 of Regulation S-K:

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.

Exhibit
Number

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).


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Exhibit
Number

Description(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
filed August 8, 2006, File No. 001-03040).(4.9)

Fifth Supplemental Indenture, dated May 16, 2007, 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
May 18, 2007, File No. 001-03040).(10.1)

Registration Rights Agreement, dated May 16, 2007, among Qwest Corporation and the initial purchasers listed therein (incorporated by reference to Qwest Corporation's Current Report on Form 8-K filed
May 18, 2007, File No. 001-03040).(10.2)

Aircraft Time Sharing Agreement, dated December 1, 2008, by and between Qwest Corporation and Edward A. Mueller (incorporated by reference to Qwest Communications International Inc.'s Annual Report on
Form 10-K for the year ended December 31, 2008, File No. 001-15577).12

Calculation of Ratio of Earnings to Fixed Charges.23

Consent of Independent Registered Public Accounting Firm.24

Power of Attorney.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.


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(    )
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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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Denver, State of Colorado, on February 18, 2009.

QWEST CORPORATION,
A COLORADO CORPORATIONBy:

/s/ R. WILLIAM JOHNSTON R. William Johnston
Senior Vice President, Controller
and Chief Accounting Officer
(Principal Accounting Officer and
Duly Authorized Officer)


Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities
indicated on the 18th day of February 2009.

Signature

Title/s/ EDWARD A. MUELLER Edward A. Mueller

Director and Chief Executive Officer
(Principal Executive Officer)/s/ JOSEPH J. EUTENEUER Joseph J. Euteneuer

Executive Vice President and Chief Financial Officer
(Principal Financial Officer)* Thomas E. Richards

Director




*By:

/s/ JOSEPH J. EUTENEUER Joseph J. Euteneuer As Attorney- In- Fact


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