Citizens Communications included the results of recently acquired Commonwealth Telephone Enterprises in its earnings call today and reported first quarter revenue of $556.1 million.

After closing the deal four months ahead of schedule, Commonwealth contributed $20.7 million to the $49.2 million increase over last quarter. Chairman and CEO Maggie Wilderotter said the company’s strong first quarter performance was a direct result of continued emphasis on selling bundled packages and enhanced data products—that, and a $38.7 million carrier settlement over a switched access dispute.

She also said the company is on track to realize projected synergies from the Commonwealth acquisition in part by closing four call centers and moving to a work-at-home environment for customer care. Approximately 157 employees accepted positions to work at home, accounting for 28% of current staff.

Despite losing 22,700 access lines in the quarter, Citizens grew its data and Internet services revenue by 13.8%. It added approximately 70,800 Internet customers in the quarter, over 50,000 of which came from Commonwealth.

“We have a very positive outlook for the future performance of this business and its ability to generate free cash flow,” Wilderotter said. “With the successful integration of our new Pennsylvania properties we expect to see our dividend payout ratio below 70%.”

Because of the favorable settlement dispute and the successful merger transaction with Commonwealth Telephone Enterprises, Citizens has revised its guidance. It now expects to spend between $315 million and $325 million in capital expenditures in 2007; it spent $41.5 million in the first quarter. CFO Donald Shassian said capital spending is seasonal and will ramp up the rest of the year. Free cash flow for the year is expected to be between $500 million and $520 million. It was $187.6 million in the first quarter.

Executives from Citizens sat down last week with over 100 members of Congress and the FCC to discuss, among other things, Universal Service Funding. Wilderotter said she was pleased with the cap put in place this week by the FCC.

“We do think they will continue to look at USF holistically and hopefully in next 12 to 24 months come out with something from the FCC that really gives some predictability to the volatility we are all living with today,” Wilderotter said. “I think their level of sensitivity to how this is impacting our businesses is pretty high.”

She went on to say she didn’t think Congress will act on anything although people are talking about legislation on the subject. “Anything that can be done to make the funds more predictable is a good news story for us,” she said.

By us, she meant the industry. “We are a rural company that does not have a substantially high reliance on subsidies. The subsidy revenue we get is terrific and great revenue, but we really focus on delivery product and service revenue to customers because we think, in the long run, that’s what is really important to the business.”