ATN International Inc (ATNI) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Atlantic Tele-Network Q1 earnings conference call and webcast. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to introduce Mr. Justin Benincasa, Chief Financial Officer. You may begin.

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

During this call, I will be covering the relevant financial information and operational data and Michael will be providing an update on the business activities.

Before I turn the call over to Michael for his comments, I would like to point out that statements in this call and in our press release containing 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 these measures and reconciliations to comparable GAAP measures, please refer to our earnings release on our website at www.atni.com or to the 8-K filing provided to the SEC.

With that, I would like to turn the call over to Michael for his comments.

Thank you, Justin. As I've done the last few quarters, I'm going start with a couple overall comments on the quarter, then turn to the transition and update on the US Retail Wireless transition, and then I'll get into some of the dynamics and developments in that business and some of our other businesses.

So first, overall we thought this was a pretty respectable quarter. In fact, it surprised us a little bit on the positive side. While we're still in the thick of our US Wireless transition activities, we were able to manage expenses and to benefit from some better than expected improvements in subscriber churn. We are cautiously optimistic that we are seeing a light at the end of this tunnel in terms of many of the key US Retail Wireless subscriber metrics despite continued tough competition.

However, to take that analogy a little bit further the tunnel exit is at least a quarter away. We expect the current quarter, the second quarter to be the most challenging of the past 12 months as it will include our largest overlaps of internal expense and transition expense, and will reflect the tremendous focus and attention required on the final stage of the Alltel transition as we look to cut over most key systems and processes from the transition support organization to our own systems and resources.

So on the transition itself, we are continuing to progress towards our goal of completing the transition by the middle part of this year. On the systems conversion particularly, which is the most important and most difficult of the major transition items, we've completed user acceptance testing of our new billing system and the results were good enough for us to initiate a plan to go-forward with the next phase, which is actual conversion. We expect the first market to be converted within the next month.

Of course, as we said before, no matter how well it goes there are bound to be a few glitches and bumps and our job is to keep the problems to a minimum and to stand ready to remedy those that do crop up as swiftly and as efficiently as possible.

Getting into the dynamics of the US Retail Wireless market, in our earnings release I think investors can see the first indication of some improvement of certain key subscribe metrics in this business, such as churn and ARPU. As to churn, the sequential improvement in the post post-pay subscriber churn from 3.18% to 2.93% and overall churn from nearly 4.5% down to 4.3% resulted from improvements in both involuntary churn and voluntary churn.

With respect to involuntary churn, or disconnects, this improved due to the tightening of our collection processes and policies to take a more proactive approach to managing delinquent accounts. Involuntary churn was also reduced by the elimination of problematic, high churn distribution channels that we talked about before. Those were eliminated early in the fourth quarter. As expected, voluntary churn also improved because of the launch of new service offerings, which had a high take up rate among existing customers such as our free Fridays promotion. And as with involuntary churn, voluntary churn has benefited from out initiatives to rectify some of the past practices, particularly the often discussed fact that we had a large bubble of one-year contracts coming due and we have now made it through the biggest part of that bubble.

Gross additions, while hardly spectacular, also showed well sequentially with only a 4% drop in postpaid adds over the fourth quarter. We believe this was primarily due to the popularity of some our new service offerings. In particular, we saw a nice pickup in our new bundle unlimited plans. We also continue to enhance and improve an already solid handset lineup with an impressive array of popular devices and smartphones. Smartphones accounted for nearly 50% of postpaid additions and upgrades in the quarter, down only marginally from the fourth quarter.

More meaningful gains in subscriber additions will require improvements to our distribution footprint and we are actively working on expanding both direct and indirect channels in our markets, and we hope that will start to pay dividends later in 2011.

So on this business overall, to resort to another analogy, we're not through the woods of this transition process, but the forest is definitely thinning. The end is in sight and that will be a welcome development for our entire team. We very much look forward to having full control of the operation.

Moving on in US Wireless to the wholesale revenue front, in previous quarters we've drawn investor attention to the wholesale roaming revenues at risk from the AT&T Alltel deal and network conversion. We believe that ultimately we will lose all of that revenue stream, which we quantified in the previous quarter as about $14 million a year. The impact of this was limited in the first quarter, at least the visibility of that, and that was due to two things. We saw modest growth in wholesale revenue and other areas and also because some of the larger overlaps were not converted until early in the current quarter, so early in the second quarter.

We therefore expect to see an increased impact in the second quarter and following periods, although general organic growth and seasonality of this revenue stream should partly compensate for this. On this front, we also formally launched our partnership with the Navajo Tribal Utility Authority, which is centered around the rollout of wireless broadband on the reservation on the Navajo Nation over the next couple years and it also involved a contribution of certain network assets we own in and around the Navajo Nation to our partnership.

Moving on to international operations, in international wireless we saw solid subscriber gains year-on-year. This was mainly due to rapid growth in some of our New Island markets, albeit from a low base and it also reflects continued gains in Guyana's largely (inaudible) subscriber base. Additionally, yesterday morning we announced a very positive development, a combination of Bermuda Wireless operations with M3, which are the wireless operations, the incumbent carrier in Bermuda. And our brand, which in Bermuda is Cellular One, will be the surviving brand, and our team will be the team leading that operation.

And we view these businesses as very complimentary and see excellent opportunity to translate those synergies into some exciting new offerings and technologies for customers. So it was a very nice deal to get done.

On the wireline side, we are pleased to see continued growth both in our wholesale capacity business in New York State and our RC Data business in Guyana, and these positive factors were just enough to fully offset the ongoing decline in our legacy long-distance business in Guyana.

So to summarize overall for the quarter, we saw a nice increase in operating income and adjusted EBITDA. We're nearly through the US Retail Wireless transition and we're gearing up for taking full control of that business and turning our attention to the day-to-day demands of that business, and to customizing our value proposition to the unique needs of our customers.

So with that, I will turn it back to Justin.

Thank you, Michael. Just to cover the financial information, our operating revenues for the quarter totaled $188.2 million, which was an increase of $133.4 million over the same quarter in 2010. This increase was primarily the result of the Alltel acquisition, which generated $121.9 million of the service revenues and $7.6 million of equipment and other revenues.

Our total wireless service revenues for the quarter were $169.3 million or 85% of total revenues and our US Wireless service revenues were $144.4 million or 77% of total revenues this quarter.

Operating expenses for the quarter totaled $177.8 million and adjusted EBITDA was $35.4 million. Included within the adjusted EBITDA was noncash, stock-based compensation expense of $1.1 million and approximately $250,000 of acquisition-related expenses associated with the joint venture stimulus project we announced in early April with the Navajo Tribal Utility Authority and the merger in Bermuda that we announced yesterday.

Our US Wireless segment accounted for $141.7 million of the $177.8 million of operating expenses, and $27.8 million of the adjusted EBITDA total. As we noted in our press release, this included approximately $9.3 million of duplicate transition-related expenses and the net of other one-time items.

Reported net income for the quarter was $4.5 million, resulting in earnings per share of $0.29. Our effective tax rate was 49% this quarter, reflecting our current mix of taxable income and losses in our various tax jurisdictions. The Bermuda merger we announced yesterday will initially add approximately 17,000 subscribers to our Island segment and increased revenues between $4 million and $5 million a quarter. Also, we anticipate that over the next one to two years we'll benefit from numerous costs in network synergies in this market.

In conjunction with the transaction, we also increased our ownership in IslandCom, our Turks and Caicos subsidiary, by about 17% and our ownership in Bermuda went from 48% -- 58%, I'm sorry, to 42%. Both entities will continue to be consolidated in our operating results.

Turning to the balance sheet, as of March 31, we had cash balances of approximately $47 million and total borrowings outstanding of $296 million. Capital expenditures totaled approximately $16.3 million for the quarter, of which $10.9 million was incurred by the US Wireless segment and $2.2 million by our international telephony segment. We still anticipate full year capital expenditures to be in the range of $105 million to $120 million with our US Wireless segment spending between $70 million and $80 million of that total.

Some additional operational data for the quarter, our legacy wholesale markets, MOUs, were $153.1 million, down 9% from Q4 and about flat with Q1 2010. Data traffic was up 11% from Q4 and up 108% from the same period last year.

In international wireless, we ended the quarter with 303,000 subscribers in Guyana, up from 286,000 a year ago and 28,600 subscribers in the Islands, up from 21,100 a year ago. In our US Wireless segment, business lines increased 19% from a year ago and 6% from the fourth quarter 2010, ending the quarter at 53,700 lines.

And with that said, operator, I would like to turn it back for questions.

(Operator Instructions) Our first question comes from Ric Prentiss from Raymond James.

Thanks. Good morning, guys.

Morning.

Good to know that the over the river and through the woods is almost over, huh.

Yes, that's right.

A couple questions for you if I could. First, on the Bermuda merger you mentioned 17,000 subscribers, $4 million to $5 million of quarter in revenue. I assume there's a fair amount of roaming in that too, just kind of looking at the average revenue that that would imply.

I don't think it's as significant as the roaming revenue in our Bermuda operation. So the bulk of it is still retail service revenues.

So that's $4 million a quarter, 17,000 customers, bringing in about $78 a month?

That would not be unusual in Bermuda.

Second question is the Alltel asset, the roaming in the Alltel markets was a little better than what we had been expecting. Is this from your relationship with a national carrier where they're starting to shift some of the volume onto those markets that might not have been there previously? And just thinking through the typical seasonal pattern, usually it starts ramping up in the second quarter and then it has its highest quarter of the year in the third quarter. Do you expect that pattern will continue in the Alltel markets?

Yes, I think it was pretty consistent with the fourth quarter. I'm not sure if we -- we've owned the asset long enough to see the seasonal patterns yet, but I think it was all just fairly consistent at what we've seen the last couple of quarters.

Yes, it was definitely kind of flattish quarter-to-quarter, but usually there was a little bit of a drop off seasonally. Okay, that's good to know.

On the larger issues in the United States Wireless, a lot of discussion about LTE. Yesterday on MetroPCS's call, they talked extensively about how they think smartphones are critical. 4G is going to be very important. Can you update us on your thoughts, one, about your Spectrum position, and what you're seeing as far as demand for 3G and then 4G services in your markets?

Well, it's hard to tell what the 4G demand is because there are no offerings in our market to date by us our competitors. But the demand for 3G is high and certainly for smartphones is high. As we noted, it was again pretty high in the first quarter. First quarter isn't the surge of a quarter for us like it is for one of the all you can eat players. So to see smartphone take up in postpaid at nearly just under 50% still indicates pretty strong demand there. So I think customers will absolutely eat off bandwidth overall and faster speeds overall. So I think every carrier is looking at it and trying to figure out where the right price points are, what's the right timing, and the right technology.

So that's the first part of your question. I think the second part of your question was Spectrum. We don't -- obviously as with most smaller carriers, we have not nearly as a deep a Spectrum position as one of the big two and so that is a challenge for us. It's not perhaps quite the same challenge as it is in the denser areas because of the capacity demands in any one area and the more spread out populations it's a little easier to deal with. But to some extent we could face what Metro talked about, which is we could face cell splitting as a way to deal with a thinner spectrum in some areas. I don't think we're quite as thin as they are in some areas, but it's still an issue.

And thoughts as far as when you might spend on 4G?

No, we don't have anything to announce about that. We are actively looking at it, looking at technologies as everybody else is. There's two components to that. There's of course what it might do for your service offerings and customer, and what the demand might be in the market. But the other prospect that we all are looking at with LTE in particular is the potential for improved efficiency of the network and actually some savings there. So there's sort of two angles driving our review of it as well as a lot of our peers, I think.

Great. Thanks, Michael.

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

Morning, Barry.

Good morning, guys. Good quarter.

Thank you.

So just thinking about your discussion on the second quarter and a lot of the overlapping expenses, we did see a pretty substantial improvement in margin for the US Wireless business for this quarter. Based on your discussion here, it sounds like you think that could actually slip back a little bit before moving forward again maybe in 3Q. Is that fair?

Yes, I think we'll be, like we kind of pointed out, we'll be the deepest into duplicate costs right before we pull the trigger.

And is that kind of target for midyear conversion, has that been pushed back or was that kind of the original target all along?

Our original target was kind of soft middle of the year, but our hard target was a little earlier than it is now. So it was pushed back a very little bit. So we're talking -- we're looking at somewhere between mid-June and mid-July where as we were probably about a month or so earlier originally.

Okay, and then I guess just secondly, we continue to see ARPU become steadily move up every quarter as you sort of flush out the subscriber base. Can you give us an idea of sort of the core base, what that ARPU looks like so we have kind of an idea where this thing should start to stabilize over the next several quarters?

I think probably the ARPU -- ARPU this quarter probably, other than on the postpaid, the subscriber APRU has some benefit from the ETC revenues in there that were out of period. But I think on the postpaid it's probably a good base to go off of.

Okay, good. That's very helpful. And then just the last question, I could squeeze one more in here. We saw in your GT&T business, revenue from I guess the data [grid] was able to offset the decline in long-distance revenue. Are you seeing that data revenue ramp up and do you think that can continue to do that throughout this year?

Yes, I think it will continue to do that and the good news about any declining legacy stream is eventually it becomes the law of small numbers a and it starts not to have as much of an effect. So we are continuing to see strong demand for data and I think that should continue throughout this year at least.

Okay. Great. Thanks a lot guys.

Thank you. Our next question comes from Chris King from Stifle Nicolaus.

Hi, good morning, guys. Just one quick follow-up and then a second question for you. On the prior period ETC money, could you provide us a ballpark number on that amount in the quarter?

In the quarter, it was -- the effect on ARPU or the absolute number?

Just the total dollar amount is fine.

Total dollar amount was about $700,000.

Okay, all right, thanks. And second question, just was wondering if you could talk a little bit about I guess as a follow-up to the last question as well both in terms of ARPU and churn in terms of how you kind of see those metrics trending over the course of the next several quarters as you get off a transition services agreement and begin to stabilize the business. Do you have set goals in mind that you could possibly share even on kind of a broad basis in terms of where you would like to see those metrics kind of by year-end or something along those lines that we could run with?

Yes, I think broadly speaking on churn we certainly -- our objective is to continue to improve over these numbers. They're not where we want them to be yet. So I think we'd like to see them get down quite a bit more to more traditional postpaid numbers in the industry and more competitive with our peers. So I think without picking a specific number I think that's the objective. And I think there's some room on prepaid too to move it down. And some of that is distribution, some of that is service offerings, and some of it is continued work on some of the policies and approaches on the customer care side we've had.

So I think it's a combination of that. As to ARPU, I think that Justin said it well. We have a good base to work off. There are puts and takes going forward. We're benefiting, as with other carriers, with data demand and the growth in the data revenue side. There's a bit of an offset from a decline in voice usage, in particular overage amounts, and some of that overage is also a function of the more proactive policies that are managed in involuntary churn. So there's a few different dynamics going there. I'm not sure until we have our hands fully on the business that we're comfortable with an exact target, but our objective would be to creep that up for sure.

Thanks and then just a quick follow-up on the LT question. Do you guys have a sense as to how much or your service territory, particularly I guess the former Alltel assets would be covered by a competitor's LTE network either today or by year-end? Is that something that's going to be more slow to develop because you guys are in more rural areas? Or is that coming fairly quickly at this point?

We don't have any information that's much better than what you have probably from Verizon's announcement. It's really Verizon in our area that would be doing LTE anytime soon, 4G, and these areas are typically in the last, as a generalization, are in that last 5% that people get to because of their rural nature. But I think we fully expect them to stick with what they said and eventually roll it out everywhere. So I can't predict whether it will happen this year or 2012. I think what I've seen in public estimates has been more 2012 and 2013, and perhaps they've stated, you may know better than I, but I think they stated that the objective of being complete by the end of next year.

Got it. Thank you very much.

Sure.

Thank you. Our next question comes from Hamed Khorsand from BWS Financial.

Good morning, guys. Got a few questions here. I'll comment first. How many base stations did you have at the end of the quarter?

I think we had roughly around 636.

Okay, what kind of CapEx expansion program are you planning for [ComEd]?

Well, I think we kind of don't use the same terms anymore, but if you're talking about our roam-focused areas, our roam only as opposed to retail and roam, I think we expect capital spending to be quite a bit down this year from previous years. otherwise, it's wrapped up in that total number we've given you and Justin just reiterated.

All right, so what are the exact plans in replacing that lost revenue to AT&T?

I think to some extent some of it is going to be hard to replace with new markets. We do have a few new markets that are smaller. We have overall growth. We have growth in data as we roll out data capabilities in more areas, or enhance them, or enhance capacity. So those are the main offsets but there's nothing big to talk about at this point.

I mean other then the fact that we've entered into the joint venture with the Navajo Tribal Utility Authority, which we'll build out with the stimulus money. But that's probably more of --

That's more recent and that's most -- the bulk of that will be retail revenue so will not be in the wholesale revenue line.

Okay and then changing gears here, last quarter you had said there's another $15 million in expenses related to Allied Wireless. How much of that was in the Q1 numbers?

Say that again, Hamed.

In last quarter's call you had mentioned there was going to be $15 million of additional expenses related to --

We said that there was $15 million in the quarter of duplicate in one-time costs. So that number is $9.3 million this quarter.

Okay, and my last question here was how have subscriber trends been so far in Q2? Can you give any kind of color?

No, I think we're not going to talk about that unless there was something dramatic that we would need to say. We'll wait until next quarterly call.

Okay, thank you.

Thank you. Our next question comes from Anil Gupta from Imperial Capital.

Hey, guys. Good morning. Most of my questions have been answered, but on that $9.3 million of duplicative cost in one quarter, just curious did that come in a little bit lower or higher than you expected? It seemed like it was a good pretty good improvement sequentially. So I just wanted to get your thoughts on that and then if you could provide the split between handset and commissions versus service agreements and that type of thing.

The lion's share of that number was the transition, duplicate transition cost. We had a few other one-time items that went in our favor that netted out the majority of the handset upgrade costs.

And I think it's also fair to say that the slight push out in that timeline we talked about before shifted some expense of the second quarter from the first.

Okay, and then would you be able to provide any outlook on what you think that number could be in the second quarter, whether it's going to be up or down?

I would say it's going to be up.

Okay, thank you.

Thank you. Our next question comes from Erik Keener from River Road Asset Management.

Good morning, guys. I have a few questions for you. First, start with the easy ones. On the balance sheet, hoping for just a couple of housekeeping numbers here. Can you give me the short-term debt and the current portion of long-term debt number that's sitting there in current liabilities?

The short-term debt is $15 million and the current portion is -- the short-term and the current are at $15 million.

Okay, great. And then the minority interest number on the balance sheet?

$44.8 million.

Okay. In the past, you've talked about expecting to get kind of peak leverage the first half of this year. Do you think this quarter one balance is there or should we expect that in quarter two?

I would say expect that in quarter two just because the second quarter will be probably our most challenging from an EBITDA standpoint. So --

Okay, do you expect the net debt balance to go up between now and quarter two? I'm looking --

Yes, it's hard to predict. It moves up and down a little bit. It may go up somewhat but I don't think --

So no material change?

Yes, nothing significant.

Okay. Then on the US Wireless business, you guys mentioned in the press release about a limited ability to kind of customize offerings at point of sale. Can you give some color on that and maybe give an example of what that is?

Well, yes. I mean without telegraphing any of our plans there that are important competitive information, I think that the new billing system that we're putting in place has a fair amount of flexibility and functionality that we don't have today. So there are just limits to what we can do and there's also costs and limits to the timing of rolling through changes in the transition support organization. So both factors are there and then I think the third factor would be also just kind of focus and attention in terms of keeping our focus and attention on the transition as opposed to a higher percentage of attention on new service offerings and refining the value proposition.

So I think the last one is probably the third most important, but they're all factors.

Okay, got it. And then lastly on the US Wireless business, can you give an update on the network build out? You guys have talked about kind of bridging between your islands to reduce the roaming costs that you have? Any kind of update there?

No, I think we've done a lot of the work that, the initial work that mostly was affecting customer experience. So there are a few aspects to it. There's cost and there's customer experience. We've got a lot of the work done on the ragged edges, if you will. That's not complete. That's an ongoing process. There's more to do. But we also expect to see improvement in the second, third, and fourth quarter, particularly third/fourth on some of the other things in terms of more directly managing that roaming expense. So there's not much of that in the just reported quarter.

Okay. And then to wrap up, just a couple questions on the international wireless business. If you can, can you give us some more color on the merger, maybe the structure of the acquisition and some network details there?

Sure, I'll try to give you a little bit more. It's a combination or an amalgamation in Bermuda of two existing businesses and we are -- there's ATN and we had minority partners in BDC in our operation there. And then you had the owners of M3, which is the parent company is KeyTech, which is company in Bermuda that's the incumbent carrier. We and KeyTech will own roughly similar amounts and together about 80%, maybe a little over 80% of the equity. It was important for us and less important for them that we be able to consolidate and we have operational control of the board. And so we will be able to do that and that's part of the deal. So that's the basic structure.

And in terms of technology, they have always been entirely on the GSM side. So they have a [young] TS 3G network or 3G plus. I think they may even have some 4G young TS in some places and we're combining that with our 4G ENTS network. So there will be that combination of plus still maintaining the 3G CDMA network [4], which is really to serve visitors to the island.

Great. Is M3 profitable at the EBIT level, at the EBITDA level?

Yes.

Okay. Is there a transaction multiple that's implied here based on the ownership steps that were taken?

We're not -- it's too small of a deal to get into details, but it's also complicated there. But we do expect this will certainly boost, obviously will boost revenue, but it will also boost EBITDA in the segment and overall. But it's a similarly sized business to our business there. So it's not a big number.

Okay. Last one, I promise. On revenue growth in international wireless overall, the 37% growth number, what's the best way to break that up? I know you gave some subs numbers but I know Aruba is new. Can you give any granularity on the, what is it, $4 million of growth there?

Yes, it's not so -- there's not one big factor I would say. So there's three newer markets. Aruba you just mentioned. There's the Turks and Caicos and there's the US Virgin Islands. And all of those are moving up in smaller numbers and have grown well. And then on a year-on-year business Guyana also has grown nicely on the wireless revenue side. So it's not really disproportionately spread in any significant way.

Okay, but would you say it's 2 million new markets, 2 million growth in existing markets or -- ?

Even in the existing markets, though, we put up new networks in the existing markets in the US Virgin Islands. So there's definitely growth in there and some of it is obviously coming out of Aruba, but it's kind of spread throughout honestly.

Okay, so there's no real good apples to apples. All right, thanks for the answers. Appreciate it.

Thank you. (Operator Instructions) Our next question is a follow-up from Ric Prentiss from Raymond James.

Yes, on the island side, wanted to continue that line of questioning. You guys were able to turn the inflection point back to positive EBITDA there in the quarter. Can you walk us through a little bit? Is -- have you reached the scale you required, do you think, that we'll continue to see a modest and maybe growing EBITDA in that segment?

Yes, I think we will. I mean there's -- if we had additional growth opportunities even small that may put it back the way in the short-term. But right now, from where we sit today I think we expect that number to grow.

And then appreciate the color on the last question about the M3 that they were positive. Would you think their margins were similar to the Alltel properties in the US? Are we think they're more US in general or just trying to think of what kind of operating margins you'll have? And I guess there's not too many network synergies at least immediately down there.

I think there are a fair amount of network synergies. I think there are a fair amount of network opportunities to overlay those -- to integrate those two UMTS networks. Operating margins in Bermuda generally are -- they're about where we aim to be with the Alltel properties. They're not as high as the big US because even though ARPU is very high, costs very high there. However, there is all fees and taxes essentially are above the line. So the net margin looks better. Right, there's no income tax below that and that's another positive aspect to this transaction for us because we have a large amount of foreign tax credit carry forward. So getting more income from no income tax foreign jurisdictions is a good tax efficiency for us.

And then to follow-up further on the ETC Universal Service Fund, Justin I think I heard you say to Chris's question, $0.7 million was the outer period. What was the total ETC USF that you received in the quarter or the normal amount we should expect?

I mean I think on the -- in the first half of the year we're probably running, we hope to increase on the second half of the year. But I think in the -- we're probably running about a little over $600,000 in the quarter normal. But --

Not a big number.

Not a big number, but hope to obviously increase that as we work through some of the line count issues in the second half of the year.

And do you book that just into service revenue?

Yes.

Okay. And then as you think about Spectrum and as you think about the T-Mobile transaction, what are your thoughts as far as about any interest in buying Spectrum either in your existing markets or in improving the cluster or islands that you have out there? So what's the appetite as you look at the regulatory process if there some divestitures at AT&T, T-Mobile?

Well, I think everybody in the industry is looking at that, right, and anybody who has got a less than huge Spectrum position is always looking around for more and we're no different. So I don't know that it's critical to any near term approaches, but we've always been opportunistic. We'll continue to be opportunistic. We'll try to be disciplined too because there are real price parameters around anything we would look it.

And I assume similar to what Metro said yesterday on their call, you'd be more interested in the Raw Spectrum rather than buying markets that would come with GSM networks, GSM customers along with the Spectrum.

Yes, I don't know. I don't really like to speculate on current M&A opportunities. I get why they said that. I mean there's an obvious point that they're making in terms of the cost of converting technologies and customer base, especially theirs because they have a very different model than T-Mobile or AT&T.

Great, thanks.

Thank you. If there are no further questions, I would now like to turn the conference back over to the speakers for any additional remarks.

No additional remarks. Thank you everybody for joining us and we'll see you in another quarter.

Ladies and gentlemen, this does conclude today's program. You may now disconnect and have a wonderful day.