ATN International Inc (ATNI) 2010 Q2 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Atlantic Tele-Network Second Quarter 2010 Earnings Conference Call and webcast. At this time, all participants are in listen-only mode. (Operator Instructions) As a remainder, this conference may be recorded.

I would now like to turn the conference over to Justin Benincasa. Sir, you may begin.

Thank you, operator. Good morning everyone and thank you for joining us on our quarterly investor call, as we review our results from the second quarter. With me here is Michael Prior, ATN's President and Chief Executive Officer.

During the call, I'll be covering the relevant financial information and operational data for the quarter and Michael will be providing an update on business activities. Before I turn the call over to Michael, I'd like to point out certain of our statements in this call and in our press release contain forward-looking statements concerning our goals, beliefs, expectations, strategies, objectives, plans, future operating results, and underlying assumptions, and are subject to risks and uncertainties that could cause actual results to differ materially from those described. Also, in an effort to provide useful information to investors, our comments today include non-GAAP financial measures. For details on those measures and reconciliations to comparable GAAP measures, please refer to our earnings release on our website at www.atn.com or the 8-K filing provided to the SEC.

With that said, I will turn the call over to Michael to give some commentary on the quarter before I provide additional financial and operational details.

Thank you, Justin. I guess he is the play-by-play guy on the color. We thought it would be good to switch up the order a little bit for this quarter to give some context, since we've had such as major change in the P&L geography and the source of revenues. Overall, it was a very good quarter for ATN. We posted solid financial and operating performance. Most importantly, we completed the transformational transaction, and the benefit to our earnings capability is already clear I think in the large increase in revenue.

Furthermore, I'm pleased that we were able to hold steady with our existing businesses while we turned our focus to this major addition. And as I alluded to before, the quarter result was the start of a major shift in the business mix with just two months -- a little over two month of this acquisition, wireless now is about 81% of revenues, US domestic wireless accounts for 74% of revenues and our total 1.1 million retail wireless subscribers, excluding affiliates worldwide, of that total, 73% were US domestic subscribers.

And the first matter I'd like to touch on is the transition, because we think that is the critical area of focus right now for this team. It will remain our primary focus until we are well clear of the transition period, which should -- we think of ending late April next year. And divestitures of this size are challenging deals for both buyer and seller, and I'm pleased, I think we are all pleased that thus far our team has executed a smooth transition.

We still have a number of major transition milestones in front of us, but to date we are at or ahead of plan in all key areas. We have successfully on-boarded more than 700 new employees, including over a 150 new headquarter employees already. We have selected all critical systems and vendors and finalized the most important network and systems design work, and so far we are on track in setting up all of those systems. At the same time, we have done considerable work on fine-tuning our marketing and sales strategy based on what we have learned since close. While our attention today remains on the continuation of existing strengths, including a strong brand and strong network and customer service reputation, we are also looking forward and considering ways to enhance the brand and our competitive footing.

I am happy to report that the brand does remain strong and customers and employees in the markets do see great value in our offerings. A significant part or our marketing spending in the transition period has been and will be spent on reinforcing the value of the brand showing the continuity of programs and plans like My Circle and the most popular rate plans, and reassuring customers that Alltel is still here for them in these communities.

It's significant to us, the Alltel brand is celebrating its 25th anniversary, and even the iconic Chad is still with us to help that feeling of continuity. And of course, brand and customer care are only part of the equation. To remain competitive -- there has been a lot of talk I've noticed recently with the other earnings releases about the device lineup, particularly smartphone, so we thought it would be helpful to provide some information on that. And if we have a competitive device lineup, it needs improvement. Our initial lineup includes a number of smartphones, we also have an Android 3G touch screen smartphone as part of that, we have a number of BlackBerry products. But before the end of the year, we expect that roughly half of our total device lineup will be 3G smartphones. And currently, we estimate that roughly 40% of new devices sold are smartphones, and that's an overall number, the number is higher through our retail stores.

As we promised, part of the transition has been a review of all sales and retail practices to ensure stability and profitability and a good platform for longer-term growth. The main part of that platform of course is the existing base of customers. Quarter-end US retail subscriber levels were well in line with our expectations. As we noted in the release, we expect continued net attrition in this space over the next several quarters, and that's really because of the actions we are talking about to re-institute, just fine-tune is probably a better way to say it, the sales and retail practices to those that we think are more industry standard and are more in line with the historical approach in Alltel.

This is not a criticism of the trust ownership, they did a lot to maintain competitiveness, invest in the business, but we felt that several sales and marketing policies implemented that -- [because that they] implemented inadvertently led to an increase in the number of unprofitable subs.

So the result of both the past policies and the change of policies with a higher rate of involuntary disconnects and therefore churn, particularly postpaid, in this past quarter, and we do expect that to continue, although to a diminishing degree, through the remainder of the transition period. I want to emphasize also that all of these actions we have taken thus far are carefully balanced with our desire to maintain the strength of the Alltel brand and its reputation for a fair treatment of customers. That is very important for the long-term value of this business.

Another important development in the US wireless area was a new strategic agreement with a national carrier covering spectrum leases, new builds, and long-term running rates. We are happy to have this agreement in place, because it providers us with the opportunity to round out our retail footprint in certain areas and to better manage our roaming expenses and capabilities over the longer term. And we will continue to review and are reviewing other strategic initiatives to provide opportunities for growth and to mitigate risk. Another aspect of this transition period has been the integration of much of our Commnet subsidiary operations into and with our Alltel operations. You see this now as our combined US Wireless segment. And I am pleased there too that the integration has gone well so far, and I expect to see us reap performance and cost synergies going forward. Indeed, the added scale that this transaction provides us has already begun to lead the benefits in the areas of capital equipment spending, vendor support, elimination of duplicate costs, and more important to me, the speed and quality of execution.

I don't have any headlining numbers that I can point to for those synergies at this point, but I see great potential over time for improving execution and financial performance across the entire Company.

Speaking of our legacy US wholesale business, revenues were flat for the quarter and that -- as noted that reflects previously noted price reductions. We expect wholesale traffic and revenue to pick up in the third quarter as we said in the release. And that that's -- followers of our Company know that's always been a seasonally strong quarter in this business. But after that, we are facing the results of the AT&T purchase of certain Western and Midwestern Alltel properties, which was -- which closed not that long ago. So we still believe a lots of revenue later in 2010 on the wholesale side is likely to result in what was the existing wholesale business being flat for the full-year and perhaps even down slightly. It's hard to predict, of course, the precise rate or expense of that loss, it's -- there's a lot of different factors that we don't have any visibility into, but we want to reiterate it, it still could have that effect.

Other business highlights for the quarter, we were awarded a $32 million grant for a $43 million middle-mile fiber build in Vermont that still -- we are still fine-tuning the timing and details of that project with the State of Vermont and Federal Government, but it's another nice recognition. Our international business results were similar with recent quarters, notably however in Guyana, we saw another significant year-on-year decline in ILD revenues, but they were actually flat sequentially, and some of that is expected seasonality, but we thought that was significant enough to point out. And we also think perhaps more important is, the continued growth in wireless revenues and to a lesser extent the early start up in broadband revenues. I mean total revenues from that market increased for the first time in many quarters.

Also we recently returned from celebrating a very important milestone in Guyana. The President of the country and other dignitaries, customers, partners and officials joined us in our ceremonial ribbon cutting for a now fully operational subsea fiber optic cable. Our new cable is the first submarine fiber optic cable to land in that country, and really represents the potential for widespread availability of affordable high-speed data services to businesses and consumers in that country. We are very proud to make this investment, and we are delighted to see the project completed on time and on budget, which is not, I believe, a common occurrence in the submarine cable world.

We also launched wireless service in Turks and Caicos just in this past month. And we acquired a small existing 3G wireless network and license center in Aruba.

Before I turn it over to Justin to provide you with additional financial and operating detail and statistics, I would like to make two more general points related to the outlook for the next few quarters. First, as we -- we understand that investors and analysts are anxious to fine-tune their expectations and forecast for our US retail wireless business and to be able to compare that business to its peers. To that end, we provided a number of standard operating statistics in our earnings release and we hope those will be helpful in giving a baseline view of this business. But we are still limited in how much additional firm useable data and analysis we can provide you after only two months under our belt.

Like you, we do not have an apples-to-apples period to compare to. Q3 will be our first full quarter of operations, which should give us more insight, but I think it will take several quarters to be able to really pinpoint trends in our retail wireless business.

In terms of profitability of this business, I can reiterate our expectation that this will be a very strong source of profit from cash flows. We have noted before that operating margins will be lean during the transition period, which ends in about nine months. One of the main reasons for that, of course is the overlap in transition support fees and expense paid to the seller, and the internal expenses associated with setting up the same capabilities. The transition services agreement is basically comprised of five parts; give you a way to think about it. The first three, or the biggest three; customer service, network systems and IT; so information technology and systems account for about 85% of those costs, and those three big areas are likely to stay in place until the end or near the end of the contract, which is the one-year anniversary of the close. That means, while there are some smaller overlapping expenses will fall away over the next quarter or so, the largest amount of overlap is likely to be in the last three to four months of the transition period. Offsetting that though, we do expect to see a reduction in certain other operating expenses such as roaming expense, and we think those reductions will increase gradually over that same period. Furthermore, we will have three full months of revenues from this business in coming quarters, and we believe that we are substantially done with acquisition-related charges, thankfully.

And to sum up, this is a very exciting time for ATN; it's not without its challenges. I think we have met those challenges so far, we are combining our experience, I think, in providing high-quality telecom services in underserved markets with the Alltel name, the operating structure and -- I might make them blush -- but marketing machine to recreate a premier brand in the domestic wireless business, while at the same time, we need to continue to profitably manage and grow all our businesses and consider additional investment opportunities.

So with that, a long-winded preamble, I will turn it over to Justin.

Great, thank you, Michael. With the close of the Alltel acquisition on April 26, we had total operating revenues of $164.4 million for the quarter, which was an increase of $104 million over the same quarter in 2009. This increase was primarily the result of the Alltel acquisition, which generated $95.2 million in service revenues and $7.1 million in equipment and other revenues for the 66 days included in the quarter.

Our total wireless revenues for the quarter were $133.6 million or 81% of total revenues, and our domestic US wireless revenues were $121.1 million or 74% of total revenues this quarter. Operating expenses for the quarter totaled $156.7 million. Included in the cost were $11 million of acquisition-related charges for the Alltel transaction, which included banker fees payable with the closing of the transaction, and other consulting and professional fees including accrued costs associated with the preparation and audit of required financial statements filed with the SEC.

Adjusted for the $11 million of acquisition charges, EBITDA for the quarter was $37.4 million compared to $28.3 million in the same quarter 2009. We had non-cash stock-based compensation expense of $625,000 for the quarter as well.

Reported net income for the quarter was $24.8 million giving us earnings per share of $1.62. Included in net income this quarter was a $45 million bargain purchase gain related to the fair market value appraisal of the assets acquired in the Alltel transaction, which is recorded net of income taxes on the statement of operations at $27 million.

Income tax expense this quarter was negatively impacted by an allowance of $5.2 million on foreign tax credit that we believe are likely to expire before we are able to utilize them.

As noted in our press release, we modified our segment reporting, and the previously reported Rural Wireless segment has been combined with the results of Alltel and is now being reported as the US Wireless segment. This segment reported revenues of $124.2 million or 78% of total revenues and adjusted EBITDA of $29.4 million or 79% of total adjusted EBITDA.

Turning to the balance sheet, as of June 30, we had cash balances of approximately $60 million, which includes $2.4 million of restricted cash that we report in other current assets, and total debt outstanding of $260 million. This takes into account the $190 million borrowed and $33 million of cash used to fund the Alltel transaction.

Total assets increased approximately $340 million over last quarter. In addition to our capital expenditures during the quarter, the Company recorded approximately $290 million of tangible and intangible assets related to the Alltel transaction. The additional $90 million over the $200 million purchase price was the result of the fair market value appraisal of all the assets and liabilities acquired in the transaction and subsequent step up of the assets in the bargain purchase gain I mentioned earlier. The $290 million of assets is comprised of approximately $171 million of tangible equipment, $56 million of customer relationships, $44 million in telecom licenses, $13.5 million in trade names and $5 million in land.

Capital expenditures were approximately $35.1 million for the quarter and $52 million year-to-date. The second quarter expenditures included $21 million in our US wireless business, $5 million on the undersea cable in Guyana and $4 million on wireless network build-outs in the US Virgin Island.

Looking ahead for the remainder of 2010, we anticipate total capital expenditures to be in the range of $130 million to $140 million. This includes our current estimates for Alltel's capital expenditures plans of $70 million to $80 million, which consists of one-time cost related to network migration or separating the network from Verizon and developing our billing, point-of-sale and other OSS and BSS systems in IT expenditures, which comprises approximately $50 million to $60 million of this total. We are currently working with our banks to expand our facility by an additional $75 million to help fund these expenditures.

I'd like to offer some other additional operating data for the quarter. MOUs in our legacy wholesale markets were $180 million, which is up 17% from Q1 and flat from Q2 2009. We also added a total of 18 base stations in these markets year-to-date for a total of 598 base stations. In Guyana, we ended the quarter with 290,000 wireless subscribers compared to 266,000 a year ago and access lines at the end of the quarter were 149,000. Subscribers in Bermuda ended the quarter at 20,800, up 2% from a year earlier.

With that, operator, I'd like to turn it over for questions.

Yes sir, thank you. (Operator Instructions) Our first question comes from Ric Prentiss with Raymond James, sir you may begin.

Thanks, good morning guys.

Good morning, Ric.

Yes, I'll toss a couple and then come back in. First question on the $11 million related to the acquisition with the banker fees, consulting and auditing. I think Michael, you said substantially done, but how much more do you expect to drip in, and over what time frame?

I think, we can pretty much say we're done at this point. So, substantially it means next to zero hopefully next quarter.

So pretty good. Second question on the Alltel properties, I think you reported about $13 million on the wholesale line, almost $14 million revenue in the wholesale line. Can you break that down for us, is there roaming revenue in that, Universal Service Fund ETC revenue in that, is there traditional wholesale, just trying to look at the different components that might be in there?

I think, when we talk about wholesale in both side, it's primarily roaming. There is very little USF in that, in the Alltel side at this -- at this date for that quarter.

Okay, and so we think of that being seasonally similar to your legacy business, where the too much you had in there were nice, third quarter might ramp up then come back down fourth quarter?

I don't know that we know that -- I mean, I think there is some logic to the idea that the third quarter, which includes the summer, tend to be a little higher for all carriers in roaming revenues, but I don't know that we have a graph that it would be the seasonality at the level we have seen in our legacy businesses.

Okay, and then on the Alltel business. We made an estimate on the EBITDA coming from Alltel as opposed to the legacy Commnet business. It looks like margins, being EBITDA over service revenue, were about 13% in the Alltel business, and if I am hearing you right, it might stay down in those low-teens for most of the transition period before jumping up, is that a fair assessment?

Yes, I mean, first of all, I mean we really are integrating the businesses, so we don't -- we don't look at it quite that way, but if you take the general thought of where it will go, yes, I don't think -- we think that there will be any -- it should be lumpy as we said before, but no great improvement over that period.

It's the nature of the transition too, I think, we will have some at some points, and we come off of things like customer care and part of the transition, we will have an entire organization set up for customer care. So we have -- had more duplicate costs. So it will tend to be a little bit lumpy.

Okay, I will come back if I have more questions at the end.

Okay.

Thank you, sir. Our next question comes from Barry McCarver from Stephens.

Hi. Good morning guys, great quarter.

Good morning, Barry.

First of, Michael, coming back to your bigger discussion on the agreement with the national carrier, I was taking notes as fast as I could, but that's a new agreement signed since you closed the deal; could you give us a little more detail there?

Sure, I mean, I'll give you a little more or I can speak more slowly, I mean, basically it's a deal that allows us the ability to access mainly in long-term lease sometimes by additional spectrum to fill in some of the contours -- round out the contours of what we bought. So that's the most important aspect to us. The second aspect is, it is a long term -- there is a long-term strategic roaming agreement on voice and data, and it gives us a lot more control over that uncertainty over an ability to control those, the expense side of that over the longer term. And there is some offsets, there is some revenue loss as part of that in terms of wholesale revenue capacity or roaming revenue capacity that we are giving off.

And, can you share the term length for this?

Yes, it's going to be at least a five-year deal, but it's more complicated than that, it could last a bit -- quite a bit longer than that.

Okay, I got you. That's very helpful, thank you.

Sure.

Back to your discussion on the handsets and being able to roll out a lot of -- a lot more 3G devices, taking a look at the network, which is obviously mostly rural, can you give us an idea of what your thoughts are on any real quick need to build beyond 3G here in the near-term, or do you feel like we are at where we need to be for now?

I think we are at where we need to be for now. I think, in those markets and with the quality of the network and coverage, I think we have a very good state of products and data service. So, I don't think there is any current need but like everybody in telecom and -- you are continually evaluating your next technology and you can't just sit back, you are always evaluating and thinking about it, but definitely not worried about addressing that currently.

Okay, and then last question, I'll let somebody else get on, but good to see the undersea cable in place. I know that's -- that debt offering is something you guys have been working for for a while, did you see or did you get a chance to roll out that offering yet, or did you see any revenue at all in the second quarter?

Not significantly in the second quarter. I mean we were growing, but it really was operational on the beginning of July. But we do expect demand to be strong. It's coming from a small number. But we do think demand will be strong. We think data and we have already seen that, and we think data revenue will be a long-term significant driver of value for this business.

Okay, thanks a lot, guys.

Sure.

Thank you sir, our next question comes from Chris King with Stifel, Nicolaus.

Hi, good morning guys and congratulations on the closing of the transaction.

Good morning.

Just two quick questions for you related to the Alltel asset. First, the subscriber numbers that you guys had given in the past were closer to the 900,000 number, I believe an 895,000 number, and the table hedge you guys starting out with 827,000, just wondered if you could kind of walk us through that step down, whether that was more just a simple cleanup of subscriber rolls that was done in conjunction with the deal close or internal sub counts, what that was?

And then secondly, just I noticed that in terms of the gross additions that the prepaid subscriber rolls were almost 60% of the gross sub ads during those last two months, just wanted to get your flavor in terms of whether that was a conscientious effort on you guys to go after that -- the prepaid market a little bit more or whether this is more of a kind of the continued trend we have seen toward prepaid, throughout the US wireless space?

Yes, Chris, I'll take the first part on the subscriber count. When we talked originally in the deal, there were about -- probably close to 60,000 subscribers related to a partnership that we don't consolidate, so what we are trying to do is just align the kind of consolidated entities with the subscribers associated with those. So, that's the missing piece.

Yes. So it's aligned with the revenue line?

It's aligned with the revenue line.

Got it. Thank you.

And then the second question, I'll take that. We are not heavily promoting prepaid at an expense of postpaid at this point. So I think really what you are seeing is the industry-wide trend manifest itself.

Thank you.

Yes.

Thank you, sir. (Operator Instructions) Our next question comes from Hamed Khorsand.

Good morning.

Good morning.

Just a question here, could you comment a little bit further on the Aruba acquisition you talked about?

Yes, Hamed, it's small, but it's -- we think it's a nice market and slots in nicely to our other Caribbean wireless properties. And so there are -- there are some benefits, scale to adding those properties. And the entry price was attractive and fit what we could do because it was basically a licensing, an existing network, high quality network that ran into difficulty, so it was a distress situation that allowed us to add something to our footprint at, we thought, an attractive price. So, it's one of those -- it's like a lot of places in Caribbean, Aruba is a fairly vibrant economy, it has very heavy tourist visitors, there is a high quality local customer bases as well as visitors, so we think it fits well with other markets like Bermuda and Turks and Caicos.

Okay, so would we expect a wireless service there within the next six months, 12 months?

Now, we have already launched some services there. But I wouldn't look to this to be a significant number on our P&L in the short term. I don't think it's going to be a drag and I don't think it's going to be a big upside in the short term.

Okay, and then could you talk about the attrition in the US wireless, and was this immediately once you guys took over or could you provide some trends there, and why are you expecting attrition rates to continue until the current quarter?

Because of what we had talked about before that we are looking at some of the credit practices and other sales and marketing practices that were implemented, we think we are a little outside industry standard and a little outside what we thought was wise was an ongoing approach. And the result of that will be, that we'll have -- the results of those practices having been in place over the past year or so before we acquired it, is that we will have -- we expect to see higher involuntary economic disconnects and in fact, in these two months we saw, we saw it was significantly higher than historical and standard numbers. So that's a big part of what we'll see there and of course reforming sales practices also affects your gross add numbers as well.

All right. So, let me -- I'll ask [the better] questions, could you provide us a certain percentage of your attrition number, if that was associated with the customer dissatisfaction that's now a different entity from Verizon?

I don't, we don't feel that there is as much customer dissatisfaction apparent at all. I think we felt that we continue to get high approval ratings, if you will, from our customer base, I don't think there is anything coming up out of the markets from employees on the frontline that says -- that says there is much of that.

Okay. And my last question is now with the submarine line out of the way in Guyana, what kind of CapEx number are you looking at for GT&T?

I think we'll still have some higher levels of CapEx in the rest of this -- late this year and into next year just because we want to kind of upgrade some of the core network to basically increase the data redundancy and capability of carrying traffic now to the submarine. So, I think you will see another year of decent size CapEx coming out of Guyana. For example, a lot of the new, the data revenue growth will come from expanded DSL subs and there is a certain amount of CapEx associated with continuing to roll that out.

Okay. Thank you.

Yes.

Thank you sir. Our next question goes to Ric Prentiss with Raymond James.

I have got a few for you. I think you mentioned the non-consolidated kind of affiliate subscribers about 60,000?

Correct.

So, that would not be in revenue, not in EBITDA, what percent of that affiliate do you own that we might want to consider as far as there is some value associated with those subscribers?

33% of it.

Okay and then the -- you mentioned $70 million to $80 million of CapEx at the Alltel subsidiary, the rest of this year, for one-time management, billing, OSS, back office stuff. When would the billing system transition occur?

That will be, that will move into '11, 2011, I think it's early '11 that they actually cut over. It will be towards the end of the transition service agreement. But just to go back, Ric, on the -- of the $70 million to $80 million, kind of $50 million to $60 million is kind of network migration and billing system part, so there is still -- there is some expansion CapEx in there as well.

Sure, sure. And I think you guys already have, isn't there a 3G EV-DO network in most of the footprint already?

All of it.

All of it. Good. I had a couple of these miscellaneous ones, I noticed there was $2.6 million that was related to Guyana Internet and interconnect revenues, I don't remember you guys specifically breaking that out before, was that something new or is that something that used to be buried within the wireline business or just trying to figure out?

Yes, it has always been within there, we are saying it wasn't $2.6 million of those, it was those two items were leading to the -- were making up the increase in the core. Just to be clear.

Okay.

So we have always had interconnection fees and we've always had Internet revenues in that line, it's just that they were kind of -- they were the drivers of the increase, making up for the loss in ILD.

Got you. And so if we look at that International Integrated Telephony line doing $24.5 million in revenue or so, look like about $8 million was it ILD, flat sequentially like you mentioned?

That might be rounding it up, but -- yes.

Yes. So, $7.9 million is like $5.7 million for wireless and so it looks like Guyana wireline actually had some nice increase.

Yes, it wasn't bad actually, and some of that was, as we've mentioned, driven by the Internet data, Internet revenue that we call it.

Right, okay. And then back to one of the earlier questions on the smartphones, I think you mentioned 20% of the sales were smartphones, that's pretty impressive, can you update us as far as what percentage of your base, whether it's postpaid, prepaid or total, what percent of the base has smartphones?

Yes. I don't, I don't have -- Ric I don't have that number in front of me. So, I can't give you that, I really -- we really -- it's really more looking at it as going forward what's the take up we are seeing.

Okay. And then about -- I think I know the answer, but how much was data of your retail business? And I think I saw data of the wholesale, which I'm not sure if that was legacy, data wholesale was 24%, but do we know what data was of retail yet?

Yes, I mean that's a little bit of an arbitrary number and we're going to evaluate that and the kind of ARPU as we move forward, because we kind of basically stepped into those arbitrary allocations. But I think what came out was in the mid-20s is data, 20%.

Say it again.

It was in the mid-20% range.

Is our estimate.

Is our estimate, yes, and we got it from the data that was in there.

Okay. And is that on the -- I think I saw, maybe an ARPU of $50 or something?

Correct.

Okay. And just a footnote of somebody who followed Alltel for a lot of years too and follows the industry, historically I think our preference is that ARPU be retail revenue divided retail subs, instead of including all the roaming business, because roaming business is not really associated with those retail subs. And our math last night suggests that maybe retail ARPU is closer to $40, maybe.

Yes, we get that, and that's where -- we are working towards some of those ARPU calcs, we're just kind of now inheriting a lot of allocations that were in there, so --.

Sure, no, that makes sense, and one final (inaudible) some follow-ups, there was the $5 million write-off, and maybe I was writing too fast, but was that the tax item that you talked about briefly there?

Yes, that was a little over $5 million, and we have the foreign tax credits that we evaluated and just don't know if we are going to utilize them within the next five years now, with the kind of change in the mix of businesses.

So this was -- was this the Guyanese thing that you've been holding back in negotiations with the government in the license terms or --?

No, no, it's just -- it's strictly just foreign tax credits we get from the payment of taxes in Guyana. But it's -- we thought that we would have enough offsetting foreign revenue sources that we could use them, but we just don't, at this point now feel we are going to be able to utilize it.

Got you. And, I would like one other one, the eliminations line, if you will, on the EBITDA was about $5 million. Now that you've got the combined Company, we just weren't sure where that was going to head, is that kind of a good thought about corporate costs and other eliminations that the -- when you add up all the different segments now with their new names, should we see about a negative $5 million?

Yes, I think that's probably good, it might be a little bit higher this quarter than we think on floor, because there is still -- there is about another $1 million of integration cost that didn't get categorized and outlined in the acquisition line that ran through G&A. So --.

So, (multiple speakers) integration cost is probably pretty much done now?

Correct.

Okay, thanks guys.

Thank you sir, I have a follow-up from Hamed Khorsand with BWS Financial.

Just two quick questions, what was your Sovernet business lines for the quarter?

That was -- hang on a second, I'll give you that, it was 46,000.

Okay, and then my other question is, as far as Commnet revenues goes from a per minute standpoint, can we expect that to stabilize after the second quarter rate, or can it decline further?

I mean, on a consecutive quarter basis, we don't see any major changes in that unless of course there are major changes in volume. There are -- we do have volume-pricing agreements that can bring things down, but the volume will offset that. So there is no major rate reduction that we are in the midst of negotiating or currently expecting.

Okay, thank you.

Yes.

Thank you, sir. I'm showing no more further questions. I would like to turn it back to Mr. Benincasa for his final remarks.

Thank you, everybody. That's all we have. We look forward to speaking to you again in another quarter, take care.

Thank you, ladies and gentlemen for your participation in today's conference. This does concludes the conference, and you may now all disconnect, everyone have a wonderful day.