Shenandoah Telecommunications Co (SHEN) 2011 Q2 法說會逐字稿

Good morning, everyone, and welcome to the Shenandoah Telecommunications second quarter of 2011 earnings conference call. Today's conference is being recorded.

At this time I would like to turn the conference over to Mr. Adele Skolits, CFO. Please go ahead, ma'am.

Good morning and thank you for joining us. The purpose of today's call is to review Shentel's results for the quarter ended June 30, 2011. Our results were announced in a press release distributed Friday evening, and the presentation we will be reviewing is included on our website at www.Shentel.com. Please note that a replay of the call will be made available later today. The details were set forth in the press release announcing this call.

With us on the call today are Christopher French, our President and Chief Executive Officer, and Earle MacKenzie, our Executive Vice President and Chief Operating Officer. After our prepared remarks we will conduct a question-and-answer session.

I'll begin with slide 2 of the presentation. While we don't give guidance with respect to specific future financial results, we caution that this call may contain forward-looking statements which involve a number of known and unknown risks and uncertainties. These may cause our actual results to differ materially from these statements.

Shentel provides a detailed discussion of various risk factors in our SEC filings, which you are encouraged to review. You are cautioned not to place undue reliance on these forward-looking statements. Except as required by law we undertake no obligation to publicly update or revise any forward-looking statement.

Also, in an effort to provide useful information to investors, we note on slide 3 that our comments today include non-GAAP financial measures. Details on these measures, including why we use them and reconciliations to the most comparable GAAP measures, are included in our SEC filings.

I'll turn the call over to Chris now.

Thank you, Adele. Adele. We appreciate everyone joining us this morning. This quarter we continued to execute on our plans to create future value for our shareholders by expanding our prepaid Wireless customer base; continuing the upgrade of the Cable properties purchased last year; building the Shentel brand within our new Cable markets; and growing our Cable customer base.

As expected, all these efforts have resulted in lower operating income than in the same period of 2010. But we have achieved positive results on all of these objectives.

Slide 5 lists the highlights of the results in our Wireless segment. We again had positive net Wireless additions in both our postpaid and prepaid services, with the number of total customers up 4% in this quarter and up 10% over the year-end 2010 number.

Prepaid contributed nearly 80% of the net customer growth, adding over 11,000 net customers. Since we began offering prepaid products in June of 2010, we have added over 41,000 net customers. We also had solid growth in postpaid, adding over 3,000 net customers.

Specific Cable segment highlights are shown on slide 6. The total number of revenue generating units rose to 131,000 at June 30. The segment had gains in digital video, high-speed Internet, and voice.

These gains were offset by seasonal loss of video customers due to students moving out of college and university communities we serve in the Radford and Farmville areas of Virginia. Major upgrades in the markets we acquired from JetBroadband began in April of this year, and we have now completed upgrades to approximately 10% of the homes passed by these systems.

Financial results on a consolidated basis, shown on slide 7, were negatively impacted by the significant cost associated with depreciation and amortization on the acquired businesses and by the interest expense related to the debt required to fund the acquisitions. We are reporting net income of $3 million for the quarter, compared to $4.6 million from the second quarter of 2010. Despite the impact to current earnings, we continue to believe our cable acquisitions and our entry into prepaid represent great opportunities for us to create long-term growth and shareholder value.

I will now turn the call back to Adele to review the details of our financial results.

Thank you, Chris. I'll begin on slide 9. Adjusted operating income before depreciation and amortization, or OIBDA, for Q2 '11 was $23 million or up $2.6 million from Q2 '10. In order to better understand the forces driving this change, I have provided the OIBDA results by segment on slide 10.

Here, you get a picture of how the segments' results are contributing to the consolidated financial results. In a moment I will go into the segments' OIBDA changes in depth.

What you see from this table is that adjusted Wireless OIBDA has increased, despite the fact that significant incremental costs were incurred associated with the growth in prepaid customers. In the Cable segment, the impact of the incremental OIBDA from the JetBroadband business is being offset by the significant incremental cost of acquiring customers in the cable business. As we will see in a moment, the Wireline segment's adjusted OIBDA dropped due to the sale of the directory in the third quarter of 2010.

On slide 11, I have analyzed the changes in the Wireless OIBDA results between Q2 '10 and Q2 '11. Postpaid revenues continued to grow as a result of the continued steady growth in its customer base. The prepaid business has already begun to make a meaningful contribution, with $5.3 million in new revenue related to prepaid customers.

As you may recall, the service fee charged by Sprint Nextel in the postpaid business rose from 8.8% to 12% effective June 1, 2010. This change should increase service fees by $1.1 million in Q2 '11. Acquiring prepaid customers involves additional expenses related to handset subsidies, commissions, marketing, and other sales-related costs. As a result of our success in acquiring prepaid customers, there are $3.5 million of new prepaid costs in Q2 '11.

We also pay separate fees to Sprint Nextel to provide ongoing support fees for prepaid customers. These prepaid services added an incremental $1.5 million to expenses in Q2 '11. The growth in postpaid customers resulted in $1 million in incremental postpaid customer acquisition costs, including a higher handset subsidy for new and existing customers related to smartphones and 4G devices.

We continue to enhance our network to handle the increased customer base and increased data traffic. As a result, network costs increased by $1.1 million in Q2 '11. The growth in data traffic associated with smartphones will continue to drive increased operating and capital spending.

On slide 12, I have shown the components of the changes to adjusted Cable OIBDA, which improved by $3 million in Q2 '11 over Q2 '10. As you can see in the first four bars, revenues have grown by $13 million.

This is driven by the JetBroadband acquisition on July 30, 2010, and the overall growth in RGUs. As with Wireless, the growth in customers comes with an immediate cost related to acquiring new customers. This incremental cost was $1.4 million in Q2 '11 over Q2 '10.

The increase in video customers resulted in an increase of $3.7 million in programming costs in Q2 '11 over Q2 '10. In addition, the improvements in the network, an increase in broadband customers, and the addition of JetBroadband resulted in a $3.7 million increase in network and backhaul expenses.

Slide 13 shows the forces driving the $800,000 drop in Wireline OIBDA. The sale of the directory business last fall resulted in a $400,000 drop in net directory revenues. Depreciation expense associated with new network enhancements grew by $200,000.

In the last week our lenders approved an amendment to our syndicated debt deal, which dropped the fixed charge coverage ratio from 0.8 to 0.75 for the final two quarters of 2011. This change was necessitated by the growth in data usage on the Wireless network, which will require some additional capital spending this year. Also, the fixed charges will be higher than originally anticipated as a result of continued delays in selling the Converged Services assets.

At this time, I will turn the call over to Earle to go into greater depth on some of the operating factors driving our results.

Thank you, Adele. Slide 15 shows that the positive momentum that we have had in the postpaid Wireless sales continued into the second order. We ended the quarter with 240,862 postpaid customers, a 6% increase in the past 12 months.

As shown on slide 16, during the second quarter we added 14,673 postpaid gross adds, compared to 14,740 in the second quarter of 2010. Due to the improvement of our quarterly postpaid churn to 1.6%, we had net postpaid adds of 3,037, a 4% increase over the same quarter last year.

Postpaid gross billed revenue is shown on slide 17. For the second quarter in a row we had an increase in total postpaid gross billed revenue. The second quarter 2011 gross billed revenue was $57.06, an increase of $2.18 from the same quarter last year and a $1.01 increase from the first quarter of 2011.

The data portion has increased $4.29 in the past year and $1.30 from the prior quarter. A primary reason is the additional $10 per month paid by all new smartphone users since the end of January 2011.

The reconciliation of our postpaid gross billed revenue to postpaid net service revenue reported on our financial statements is shown on slide 18. Gross billed revenue increased approximately 10% from the second quarter of 2010 to $41 million on customer growth of 6%. The net service revenue increased 8%.

The amount of bad debt continues its downward trend from 2010 and was flat compared to the first quarter of 2011. Service credits increased by approximately $500,000, which included some one-time promotional credits given to new customers. The net service fee percentage paid to Sprint increased from 8.8% to 12% on June 1, 2010, so 2011 reflects a full quarter of the higher rate compared to only one month in the second quarter of 2010.

Slide 19 shows the most popular postpaid rate plans and phones for the second quarter of 2011. The three Everything plans listed are the same ones that were the most popular last quarter. The same three phones were the top sellers in the second quarter, although the HTC EVO moved from third to second place. Over 60% of all of new gross activations and over 50% of upgrades were smartphones, bringing smartphones to 43.5% of the postpaid base.

Slide 20 shows that we have had a very strong prepaid result in the second quarter, with 22,864 gross adds, only about 300 fewer than the first quarter. We had net prepaid adds of 11,089 compared to 13,287 in the first quarter of 2011. The lower net was a result of an increase in prepaid churn to 4.6% on a larger base.

Our strong second quarter increased our total prepaid customers to 91,332. On a combined postpaid and prepaid basis, we have total penetration of 15.7% of our covered POPS.

Slide 21 shows the trends for churn and average revenue for the fourth quarter since we entered the prepaid business. The average revenue growth is a result of a much higher percentage of Virgin Mobile customers, including Assurance customers, added to our total prepaid customer base.

Shifting to the Wireline segment on slide 22, we continue to have modest access line loss with only a 2% change in the past year, considerably below the industry average. We continue to grow our DSL base with a 5% growth in the past 12 months to reach 52% of access lines.

We have been able to grow DSL customers to offset access line losses. So to total connections, which is the total of access lines and DSL customers, has remained constant at 35,700.

Slide 23 shows the total Cable revenue generating units or RGUs in the past four quarters. The net growth in the second quarter was a very modest 310 for a total of 31,010 RGUs.

The reason for the low net change in RGUs is because we serve three colleges and universities within our Cable systems, and a significant number of students cancel their service at the end of the school year. We are in the process of ramping up for their return later this month. Without these seasonal losses we would have not seen a decrease in video subscribers and greater growth in high-speed Internet.

A growing number of customers take only high-speed Internet and/or phone service. Therefore using video subs as a surrogate for number of customers is becoming less reliable. So we have added the total customer relationships in average RGUs per customer to the bottom of this slide.

We have provided the Cable stats on slide 24 for the past few quarters. This slide shows the total number of homes passed, the number of homes where each of the services are available, and the number of customers, along with the penetration percentage of each service. Internet and voice continued to be our strongest selling products.

My final slide is slide 25. This gives you an update on our current view of the 2011 capital expenditures compared to the actual expenditures by segment for the past two years. The major change is an additional $11 million increase in expected wireless expenditures to add needed EVDO capacity to our network as a result of the higher percentage of smartphone sales.

We have pushed Cable expenditures into 2012, primarily due to balancing our ability to do all the projects prior to year end. As of June 30 we have completed the upgrade for approximately 10% of the JetBroadband homes passed. We still expect to have all the Virginia systems completed by year-end. The projects we have pushed into 2012 were some initial work on the Jet West Virginia systems and the two systems we purchased late last year from Suddenlink.

I will now turn it back over to Adele.

This concludes our prepared remarks. Mimi, would you now review the instructions for posing a question?

(Operator Instructions) Ric Prentiss, Raymond James.

Thanks. Good morning. Hey, I am asking a question about several of the carriers this quarter. When you think of smartphones, the thesis many people had was that ARPU would go up; we have seen that. Churn would come down; seemed pretty reasonable. And that the CapEx that would be required to handle the data would be manageable to make a return on the invested capital.

Are you guys comfortable that that formula is working? What is the variable you are most concerned about as you watch that play out?

Ric, this is Earle. You are absolutely correct in that we are seeing lower churn on the smartphone users. We have looked at that activity since January. Churn on smartphone users is about 1.1%, where churn on other users is up 1.8%. So there is a distinguishable difference.

As you have heard from our comments, we are adding some CapEx for EVDO growth. I think if we look at the future, one of the things -- or the thing I think that we are most concerned about is, what will that average usage per customer be? What kind of capital expenditures will we need to make? And equally, what kind of backhaul requirement will we need for each cell site in order to be able to do that?

At this point we have been able to manage it. We still believe that we are making a very good return. But I think it is really uncertain at this point exactly what that usage may grow to and, very honestly, whether Sprint makes a decision to put some caps on usage.

Then as you think about 4G, Sprint has discussed at least a bit about their 4G LTE strategy. Can you update us as far as what requirements there might be on your balance sheets as far as deploying LTE and what kind of costs might be involved?

We are still working through that. I think we see a couple of different alternatives. We are talking to Sprint about mirroring their move towards Network Vision, but that is not our only alternative. Our other alternative is to do a 4G, which is much less dramatic and would be more of an add-on to our existing network rather than the significant upgrade or changeout that they are doing as part of Network Vision.

So we are continuing to have our discussions with Sprint. We hope to conclude those in a reasonable amount of time and make some final decision so that we will actually be able to move forward on a 4G strategy starting next year.

Any color on what a 4G-only kind of buildout would require? Like a price per POP or ballpark kind of thought? Do we know at least what the low end would be?

We are still talking to Alcatel-Lucent about that. I really don't have some good numbers yet because it is just a different configuration than really any other carrier has, because of the frequencies that we use and we could actually use the existing 30 megahertz of spectrum that we have. So as soon as we do have those numbers, Ric, we will share them with everyone.

Okay, thanks.

Greg Burns, Sidoti Inc.

Good morning. Just wanted to dig into the incremental interest expense this quarter. It was a little higher than we were looking for. If you could you maybe give us a little color around that, Adele?

Yes, there are two things influencing that. One is that we have hedged one-third of the debt that we have outstanding; and that is required by the debt facility. Because the value of the hedge changed during the quarter, we recorded about a $400,000 paper loss, if you will, on the value of that hedge.

We also had a modest adjustment to the capitalized interest. Both of those things affected the interest charges this month. We are paying about 3.2% or LIBOR plus 3 right now.

Okay. In terms of D&A up a little bit this quarter, I am assuming that was some of the incremental investments you have been making. But could you give us what the amortization expense on the Virgin Mobile acquisition is going to be for this year and next year?

The amortization expense has a run rate of about $200,000 right now. By the year-end it will be down to about $150,000 per month. That is scheduled -- as we have discussed before, it is scheduled to decline as the number of customers churned.

Okay, thank you. On the gross margin and it looks like you are starting to gain a little leverage on the prepaid business now that the subs are approaching 100,000. Is that the case? Should we expect increased leverage and margin expansion going forward?

Yes. We have hit that inflection point, as we have discussed before, the much-anticipated inflection point with the prepaid customers.

Okay. In terms of Cable RGUs, where is that inflection point on the Cable side of the business?

Greg, this is Earle. We haven't really given that number out yet, because an awful lot of it has to depend on the mix. What we are finding is that -- a lot more demand for our phone and Internet than we anticipated as a ratio to video. The good news is that the margin on the Internet and voice is much better than on video.

The other thing that really hasn't kicked in yet is the fixed costs. Because we own and operate much of our own fiber backbone, our costs are relatively fixed up to a point on that backhaul.

We have gotten -- we will have all of that in place by the end of this year. So what you are going to see is that revenues will continue to increase, but there will be a very modest increase in the amount of additional cost for that backbone for Internet and phone.

The other part that we are doing is we are converting -- when we bought Jet, they were using a third party to provide their phone services, Net2Phone. By the end of August, we will have all of those customers migrated onto our own MetaSwitch using our own backhaul. So we will see significantly better margins in our voice business.

Okay, thank you.

Barry Sine, Drexel Hamilton.

Good morning, folks. I wanted to zero in on that 310 RGU increase in the Cable business. I know you mentioned that it is largely due to the fact you have a number of universities with seasonality in the area. So I want to take that a step farther.

Does that imply that we add back the shortfall in RGUs in the third quarter, plus get back to a normal first-quarter run rate, which would imply somewhere close to a 5,000 RGU addition in 3Q? Is that -- am I thinking about that the right way?

We don't give forward-looking numbers, but I will talk about the student portion of that. The answer is yes on the student portion.

In most college towns -- and these are typical -- there are apartment complexes and homes that are pretty much designated as student housing. Not officially, but unofficially. That is where we saw the big losses in Radford and Farmville.

We anticipate and have talked to the landlords. They are expecting good leasing because both of these are schools that actually have growing student bases. So we expect the losses that we saw in this quarter being recovered in the August/September time frame.

Then to other factors, just also on Cable RGUs. One, I believe there is some overlap in your footprint with the upgrade that nTelos is doing on their fiber to the home builder. Then another factor -- I don't know to the extent you are seeing this -- but it seems that college students have a lower and lower propensity to take both voice and video services while still taking Internet. Can you talk about the impact of both of those trends?

Yes. On the buildout that nTelos is doing, there is some overlap. But the monies that they got for the stimulus was to build the unserved portions of Allegheny County that didn't have high-speed Internet. I believe their plans are also to overbuild some or all of us too. But the parts that they have been concentrating on initially is the unserved portions.

We understand that we will have competition there. But we have upgraded that network since we purchased it so that we offer a very competitive voice and video lineup, and we can offer 25 megs of Internet there.

So from a competitive standpoint we believe that we will be very competitive. Not as competitive as we might be against 3 megs of DSL in other areas, but we are have not changed our overall strategy as a result of their plans.

Your other question was related to --?

In the student markets, just the propensity to take multiple RGUs.

There never was much voice in these markets. So voice is really not something that we have focused on really for a number of years, even in our Converged Services business.

But what we have seen from the early sign-ups is not a significant difference in video, because students still want the sports and some of the other programming that they can't get through Hulu and Netflix. But what we are seeing definitely is increased speed that they are requesting.

So even in properties where the landlord provides a basic amount of Internet speed, a high percentage of those students are actually upgrading to pay us on a retail basis for 5 or 10 meg of Internet, when 1.5 or 3 might be offered by the property.

Okay; thank you.

(Operator Instructions) Will Lauber, Sterling Capital Management.

How much CapEx are you pushing out into 2012 from 2011?

There is about $8 million of CapEx spending in Cable that we pushed out from Q4 2011 to Q1 2012.

What was the reasoning behind that?

Well, primarily, Will, it is just how much we can get done this year. We already have a record level of CapEx planned for this year. When the decision was made that we needed to add some additional EVDO capacity to our Wireless network, the decision was to take some of the projects that we had planned for the fourth quarter of this year and push them into the first quarter of next year.

If you could elaborate a little bit more on the 4G, when you said mirroring, that would mean you would basically be doing whatever Sprint would be doing on the Network Vision?

Yes, yes; they have announced a plan to basically renovate or redo their network with some fairly innovative approaches to networking. We are looking at that as one possibility.

The other possibility, one where we would just add some additional equipment to the network that we have to. We are weighing the costs and the pros and cons of all those alternatives as we look forward to what is the best way to position ourselves not just for the next year or two but for the next five or six years.

I mean if you would mirror, would there be any negotiations with third parties, like LightSquared? I guess I am confused. Every time I think I realize what Sprint is doing, I get kind of further confused because it seems like they have changed so much. But how would LightSquared -- would they figure into your decision at all?

I really can't speak for LightSquared. The discussions that we have had with Sprint, they have always included the affiliates in any contract negotiations that they have done on a national basis. Although we have not been privy to the details of the LightSquared conversations, the discussions I have had with Sprint, they assure me that the affiliate areas have been included in their discussions with LightSquared.

sprint has been losing a lot an awful lot of the Nextel customers. How does that figure in with you at some point getting those Nextel customers in your territory? Do you know how much that is down to about now?

We don't have access to the number of Nextel customers that are actually in our footprint. One of the things that we have been discussing with Sprint is there would be some transaction plan that they would have on a national basis when and if they turn off the Nextel network. Obviously, they would want to include us in that process in order to migrate those customers in our footprint. But they have not given us any details as to the number of those customers within our 2.3 million POP area.

On the Cable business, did I miss it, or are you guys quantifying how much of -- how many customers you lost due to the colleges?

We didn't give a specific number because it is almost impossible to track it specifically, because we don't have a category called college student. So it has been -- we tried to estimate it based on the addresses and knowing what complexes students normally live in. So rather than giving a number that we thought would be inaccurate, we decided the best thing to do is not to give a number.

Okay. For the areas that you are upgrading, can you give us kind of any indication of how sales are going, whether we are going to reach an inflection point on the Cable business as you guys do these upgrades?

As we stated, only 10% of the homes passed in Virginia have -- or 10% of total homes passed. So only about 11,000 homes have been completely upgraded at this point.

We expect 4, 5, 6 times that between now and the end of the year. So it's been very early.

But in the markets where we have upgraded -- and some of those have only been a couple of weeks since we finished that upgrade -- we have seen a significant uptick in RGU sales in those markets. But the ones that we upgraded first were the JetMarkets that were the most challenged. So we expected that we would get some good uplift there are.

We may not get the same percentage in some of the other ones, because they were already offering Internet and in some cases even voice. So those services have been available; we just know that they will be a lot more reliable and robust once we finish the upgrade and expect to be able to build on that.

So what is your -- your sales still door to door, or --?

We're using a combination. We do have door to door. We are doing direct mail. We are doing telemarketing.

We also are using our customer service group as a sales arm for us. That is a different culture for us, because historically telephone companies have not used their customer service group as a sales organization. But we have given them training and we continue to work with them to get them comfortable in asking existing customers primarily for additional services.

Obviously, somebody who calls us who moves into the area, they are very comfortable in signing them up with their initial service. It is getting them comfortable with asking -- I see that you have our Internet service; could I interest you in our phone and video? As an example.

Then the final question on the Wireless, with the AT&T/T-Mobile merger you see a lot of analysts and I guess pundits saying that Sprint's only shot is to use their data and become the low-cost provider. I guess with you guys having to upgrade the network, I guess the question becomes, since you pretty much have to follow Sprint's plans, if they stay with this without capping the data plans, I guess what is your capacity?

Well, capacity is really just down to a cell site by cell site analysis. So it is really not a -- you kind of drown in an average here. So as we look at our network, we are adding $9 million of additional EVDO expenditures for this year, but it is really only impacting about a third of our geography -- is where most of that capacity is being put, which is where we also have the highest voice usage.

So when we look forward it is difficult to have come up with an exact model. We are constantly estimating where growth is going to be.

The big unknown, though, will be what will be Sprint's long-term strategy relative to pricing and data caps. At this point you are absolutely correct; they are the only carrier that doesn't have some caps. We have seen growth in our data usage, but I think every wireless carrier has seen significant growth in their data usage, primarily driven by smartphones.

Somebody who goes from a regular phone to a smartphone will start using different applications than they did prior to having the phone. So it is an awful lot -- it's also going to be driven by the different applications that continue to be developed by third parties.

I mean -- I know a lot in the major cities a lot of the carriers are looking at WiFi offloading. Would that be anything that you guys would look into at some point?

Well, that is already available. I mean you can buy equipment and phones today from Sprint that use the WiFi as an additional network. So the answer is absolutely we will and we are.

Okay. That was more of like a third party; I guess there's a few third-party players that will build out WiFi networks rather than just someone's home WiFi or their office WiFi.

I am sure that at this point what we have seen in wireless for the last 25 years is that smaller markets follow the big markets on trends. So I think that trend certainly is a reasonable one.

Okay. All right. Thank you.

Ric Prentiss, Raymond James.

Yes, I wanted to follow up on a couple of things. First on the $10 bolt-on for smartphones, can you talk about what effect that has on your adds? Have you seen it dampen adds? Just wondering how that $10 is being embraced given some sluggish economy out there.

Ric we have absolutely seen zero impact of adding the $10. You can see that we have been giving smartphone sales and penetrations for quite a few quarters in a row. And this quarter we had the highest both in new activations and in upgrades that we have ever had.

So talking to the folks in my own stores, or the agents that we have the relationship with, and being able in the Best Buy stores and RadioShacks and asking the folks that are talking to the customers, that just does not seem to be an issue at all.

Okay. I think Sprint made mention of a mail-in rebate that they would switch back to being -- or maybe they were thinking of switching it off of mail-in to be -- or it was instant rebates and they were switching back to mail-in. Where is that status in your markets?

We exactly mirror whatever Sprint's promotion is. So they have had the switcher credits, they have had the immediate rebate. We have been doing that.

Obviously when you have a mail-in rebate there is more breakage, so there from a cost standpoint there is some advantage to us. But Sprint continues to drive that decision and we mirror.

Right now, is it a mail-in or is it instant right now marketplace in your markets?

Right now it is instant.

Instant? Okay. When you think about smartphone cost, that is one of the other variables there to making the formula work. Where is the typical or the average cell phone or smartphone cost to you these days?

Some of the other carriers have suggested that they will have sub-$200 handsets by year-end. One carrier even suggested a $100 handset cost to them by year-end on a smartphone. What are you seeing as far as the costs go?

We pay the exact same cost as Sprint does. There is no markup in our relationship with them. So when you look at the mix of the various phones that Sprint is selling and their contribution towards cost of gross add, we are paying the same.

So generally it's in the couple hundred dollar range is what our subsidy is at this point. Obviously, if we could get down to a $100 smartphone, that would be great.

Is that like a year away, do you think? Or what kind of -- it has got to be the nirvana for you guys, getting it down to there. But how long do you think you have to wait for it?

I really don't know, because we are not involved in those negotiations with the manufacturers, Ric. So we basically have some foresight, but normally it is just a couple of months ahead of where the market sees the pricing. So I really don't have a lot of insight.

Not to put you guys in a box but when you think of an iPhone out there at two of the largest carriers attracting a lot of customers for adds and retention; but the cost of the iPhone is just pretty dramatic too. How would you view the possibility of getting an iPhone, given what could be very nice on gross add churn but pretty costly on the subsidy side?

We're actually very pleased with the Android lineup we have right now and especially as more and more apps are being written for it. I think it would be nice to have the iPhone.

But -- and if you would've asked me this a couple of years ago I probably would have been a little more desperate in my answer. But, I think that where we are as far as cost versus gross adds, we have been pretty please with the Android product.

Okay, and what percent of your base upgraded in the quarter?

Approximately 3% of our base upgrades every quarter.

Is that the total base or is that just the postpaid?

Just the postpaid. We have some upgrades in the prepaid, but we really don't have enough history to know what that is going to be long-term. We have just now hit the one-year mark on that.

We believe like the first six months or seven months probably was not a very good indication because we had virtually such a low base. If you look at where we are now, we see the upgrade in the prepaid being lower than postpaid. But you probably have much better information from other carriers than what we have.

As far as tone of business, July, how did that feel? There's some people getting nervous about the economy. Obviously the market is being pretty much whipped around these days as well. Consumer confidence looks like it's probably getting shaken.

How do July go? And how do you think things are looking?

I assume you mean relative to Wireless.

No; both sides or all sides.

Okay. On Wireless, postpaid looked like a pretty typical month for us, nothing significantly different. We did see lower activity on the prepaid, but that is probably also contributed by seasonal.

As far as on our telephone business, really nothing; no change there.

On Cable, we have had a pretty good month of July, particularly in the Internet and voice side of it. As we continue to roll out speeds that are faster than the comparable DSL, customers are looking at us, especially as we are building a brand.

You have got to remember that in many of these markets, Shentel wasn't a known entity a year ago. So as we are building the brand and the word is getting out about the quality -- but I won't deny that the economy, I do believe, has an overhang. I think our growth could be better if it was a more robust economy. But the good news is that we have seen growth in every one of our product lines except for access lines, which we continue to lose at about 2% a year.

Which is still considerably lower than most RLECs, certainly.

That's very true. Great. Thanks, guys.

Thank you. I am showing no further questions in the queue at this time.

All right, well thank you for participating. Please let me know if there are additional details you would like to see on future calls. Our Q will be released at the close of the market today, and my contact information was provided on the press release announcing our earnings and this call. Thank you.

Again, ladies and gentlemen, this concludes today's conference. We thank you for your participation. You may now all disconnect.