Shenandoah Telecommunications Co (SHEN) 2012 Q2 法說會逐字稿

Good morning, everyone, and welcome to the Shenandoah Telecommunications second-quarter of 2012 earnings conference call. Today's conference is being recorded. At this time I would like to turn the conference over to Ms. 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, 2012. Our results were announced in a press release distributed this morning, 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 will begin with slide 2 of the presentation. While we don't provide 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 our various risk factors in our SEC filings, which you are strongly 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 statements.

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 will turn the call over to Chris now.

Thank you, Adele. We appreciate everyone joining us this morning. I am pleased to report another quarter of strong improvement in our financial results. Revenue growth again led the way, with customer growth and demand for additional data services making important contributions. Our Network Vision project, the transition to 4G LTE, continued in the second quarter as we began installing base stations to replace existing 3G cell sites.

Financial highlights are shown on slide 5. Net income was $5.6 million for the quarter, up 86% from the second quarter of 2011. Net income from continuing operations was similar due to there only being a small portion remaining of our old Converged Services business.

The earnings improvement was driven by a $9.8 million increase in revenues. Adjusted operating income before depreciation and amortization was up $3.9 million over the second quarter of 2011, an increase of 17%.

Moving to slide 6. Revenues reached $71.4 million, an increase of almost 16% over second-quarter of 2011. Wireless customer growth and RGU growth in our Cable segment drove the revenue increase. We continued our streak of quarterly positive net adds in Wireless, ending the quarter with just over 372,000 postpaid and prepaid subscribers.

While our Cable segment had a seasonal loss of RGUs for the quarter, at quarter's end we had approximately 137,000 RGUs, an increase of 4.6% over second-quarter 2011's ending number.

Growth in average billings per customer in the Cable segment, and particularly in the Wireless segment, also contributed significantly to the revenue growth.

Specific Wireless segment highlights are shown on slide 7. We again had positive net Wireless additions in both our postpaid and prepaid services, with a number of total customers up nearly 4.6% over the year-end 2011 number and 12% higher than second-quarter 2011.

We added 4,341 net postpaid customers during the quarter reaching a total of approximately 255,000. Prepaid customers grew by 2,686 in the second quarter to a total of just over 117,000. Continued prepaid growth was helped by churn of just 3.56% this quarter relative to 4.58% for the second quarter of 2011.

Customer and revenue growth contributed to an increase of operating income in the Wireless segment of $2.1 million over the second quarter of 2011.

Cable segment highlights are shown on the side 8. We experienced a 2,547 decrease in Cable segment RGUs in this quarter attributed to seasonal disconnects in the college communities we serve, but total RGUs ended the quarter 4.6% higher than the second quarter of 2011. We now have a total of approximately 137,000 Cable segment RGUs. The upgrades to the cable systems acquired in 2010 are nearing completion, with the last system upgrade currently underway and expected to be completed later this year.

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

Thank you, Chris. OIBDA for Q2 2012 was $26.9 million or up $3.9 million from Q2 2011. In order to better understand the forces driving this change, I have provided the OIBDA results by segment on slide 11. This table shows the individual operating segments' contribution to the consolidated financial results.

Wireless OIBDA has grown by 17% and Cable results have improved by 71%. The slight improvement in Wireline financial results was driven primarily by additional sales of fiber facilities. I will review the Wireless and Cable improvements in greater depth on the next two slides.

On slide 12 I have analyzed the changes in the Wireless OIBDA results between Q2 2011 and Q2 2012. Postpaid billing rates are up over 6.3% during this he period, while customers have grown by 5.7%. The growth in billing rates includes the growth in the number of customers who are paying the $10 per month smartphone fee. As a result, postpaid revenues are up $3.9 million between Q2 2011 and Q2 2012.

In addition, prepaid revenues grew by $2.5 million related primarily to growth in average prepaid customers up 33.9%. Customers' increased data usage drove the need for increases in the data capacity of the network, requiring additional backhaul from the cell sites to our switch. As a result, network operating costs increased by $900,000.

Conspicuous by its absence is any significant change in depreciation between Q2 2011 and Q2 2012. While we continue to accelerate depreciation and record incremental depreciation related to our 3G network, this increase was all but offset by a favorable net adjustment of $850,000 relating to asset retirement obligations on our 3G assets.

This adjustment resulted from reducing the outstanding balance in the obligation to the amount we expect to incur to retire these 3G assets, net of a reduction in the related undepreciated asset.

While the number of prepaid gross additions is down by 34% between Q2 2011 and Q2 2012, the level of handset subsidies is up, driving a $1 million increase in prepaid customer acquisition costs.

Postpaid customer gross additions grew by 9.8% between Q2 2011 and Q2 2012. Also, the cost per gross add of providing iPhones and smartphones to new customers and upgrading the handsets of existing customers has grown, resulting in an additional $1.5 million in postpaid acquisition costs.

On slide 13 I have shown the components of the changes to adjusted Cable segment OIBDA. You can see on the first three bars service revenues have grown by $2.1 million. The growth in popularity of our high-speed data products continues to outpace the growth in video.

Customer growth also comes with an immediate cost related to acquiring customers. This incremental cost was $900,000 in Q2 2011 over Q2 2012 -- rather, Q2 2012 over Q2 2011.

Finally, we are in the process of negotiating a restructured credit facility. Based on our work to date, we are confident that we can amend the existing facility to increase the size of the term loan and extend maturities on competitive terms. When we consummate the restructured facility we will distribute a press release and file an 8-K announcing the specific terms.

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.

Thanks, Adele. I will start my presentation on slide 15. In the second quarter we had strong postpaid gross and net adds, ending the quarter was 255,000 postpaid customers. This is a 6% increase from June 30, 2011 and a 2.6% increase since the beginning of the year.

On slide 16 are the gross and net postpaid adds for the second-quarter of 2011 and 2012. A 10% increase in gross additions to 16,107, coupled with a decrease in second-quarter churn from 1.62% in 2011 to 1.55% in 2012 resulted in net postpaid adds of 4,341.

We did see an increase in the number of iDEN conversions from 9% of gross adds in the second quarter of 2011 to 27% of gross adds in second-quarter 2012. We had a similar uptick in iDEN conversions in the first quarter of 2012, with 18% of gross adds compared with 10% iDEN conversions in the first quarter 2011.

We do not have visibility into the number of iDEN customers that still remain in our service area, so we are unable to predict the number of additional iDEN customers that can be added.

As shown on slide 17, we continue to see a significant increase in average gross billed revenue per postpaid user. The average in the second quarter of 2012 was $60.68, a $3.62 or 6.3% increase from the second quarter of 2011. The $3.96 increase in the data component is driven by the $10 per month surcharge on all smartphones after January 2011, and a continued mix of higher ARPU price plans.

We believe that there will be continued upward movement in average gross billed revenue due to the $10 surcharge, but the pace may slow as we have fewer customers getting a smartphone for the first time. As of June 30, 2012, 48% of our postpaid customers were paying the $10 surcharge.

We are very pleased with the results shown on slide 18. As we have provided each quarter, here is the reconciliation between our postpaid gross billed and net revenue reflected in the financial statements. The 6% growth in customers, coupled with a 6% growth in average gross billed revenue per customer, resulted in a 12% increase in gross billed revenue to $46.1 million in the second quarter of 2012.

We saw a $300,000 decrease in credits and discounts, offset by a $500,000 increase in bad debt. The result was a 14% increase in net postpaid revenue in the second quarter of 2012 to $32.4 million.

Slide 19 shows the top service plans and phones sold in the second quarter of 2012. Our top-selling service plans are the same as last quarter. The iPhone was purchased by 17% of new activations, but the rugged push-to-talk phone, the DuraMax, was also purchased by 17% of the new activations. The popularity of the more basic DuraMax phone shows that the iDEN customers that moved to our network still see push-to-talk as the primary feature.

As of June 30, 59% of our postpaid customers had a smartphone compared to 44% a year ago. Slide 20 reflects the iPhone activity during the second quarter. 17% of new gross activations purchased an iPhone. This is down from 20% of gross activations in the first quarter. 41% of all iPhones were sold out of the Shentel control sales channels compared with 51% in the first quarter.

With both new activation and upgrades since the launch of the iPhone in October 2011, as of June 30, 2012, there were 25,000 iPhones on our network, which was 9.8% of total postpaid base. This is a 3% -- this is 3 percentage points higher than the first quarter.

Moving to prepaid on slide 21, you see gross and net additions by quarter, along with the cumulative number of prepaid customers. As we predicted last quarter, we have seen a drop in the number of gross and net prepaid customers as the pent-up demand has subsided.

We still saw good growth with cumulative prepaid customers growing by 2.4% in the second quarter of 2012 to over 117,000. We have started selling the iPhone with prepaid Virgin Mobile service at the end of June. To date we have had less than 150 prepaid iPhones purchased.

Slide 22 shows the trends for prepaid churn and average gross billed revenue. We saw continued improvement in churn to 3.6%. The average gross billed revenue continued to grow reaching $23.40, a 7.7% increase over the $21.72 we had at the second quarter of 2011. The increase is due to a shift in the mix of price plans towards the higher-revenue options.

Moving to our Cable segment on slide 23, you see the number of Cable RGUs by quarter. We had an increase of 6,015 RGUs or 4.6% since the second quarter of 2011, but a decrease of 2,574 from the first quarter of 2012. Similar to last year, the second quarter reflects the drop in RGUs due to college students, primarily at Radford and Longwood Universities, leaving for the summer. It appears that more of the students went home this year than last.

We also saw an increase in the number of customers that disconnected due to nonpayment. We are monitoring this trend, and as a result have tightened our credit policy going forward.

As of June 30, 2012, we had 74,726 customers with an average of 1.83 RGUs per customer. 16% of our customers don't take a video service from us. The net change in high-speed Internet from the first quarter was only 233, which is the result of the students leaving, offset by continued strong demand for our broadband product.

We have launched a 25 megabit service in most of our service area. Voice grew by 4.9% since the first quarter of 2012 and 43% since the second quarter of 2011 to 11,133. We see continued upside in both residential and small-business phone sales.

The majority of the RGU losses were in video. This is where we experienced a net loss due to the move-out of college students and the biggest impact of disconnect for nonpayment.

New activations are the weakest in video. We are pushing two and three service bundles since our research shows that those customers are less likely to churn.

Additionally, we have just launched a two-year contract option on bundles that gives the customer an additional 10% to 15% discount with no price increase during the contract period.

We expect a nice uptick in RGUs in the third quarter as students return in August. We had very slow sales in July, as we focused on recovering from the harsh June 29 storm that hit the mid-Atlantic area, and severely impacted much of our service areas.

In particular, all of our West Virginia service area and the western part of our Virginia service area were impacted, with many of our customers without electricity for up to a week or more. Our employees did a great job working 14- to 16-hour days right behind the electric companies restoring service once it was safe to work.

At this point everyone has service, but we are going back and making permanent repairs where we did temporary fixes to get all of our customers back in service. We don't have final figures, but there will be an impact on the third-quarter financials.

On slide 24 you see the average monthly revenue per RGU has increased by $2.85 or 7% since the second quarter of 2011. The increase is primarily due to customers taking higher data speeds, moving more customers to digital and a rate increase on video in the latter part of 2011.

Also shown is the average total monthly revenue per customer. In the past year the average per customer has increased $7.87 to $77.63. As I stated earlier, 16% of our customers don't take video, which is a higher revenue but lower-margin service. If we give the same statistics using only video customers, similar to some other cable companies, the average total revenue per video customer increased $14.27 to $92.35

Slide 25 shows the continued improvement we are having in penetration. All of the services except basic video had a nice increase in penetration in the past year.

I have one slide on the Wireline segment, slide 26. We continue to see our regulated telephone access lines decrease, but much slower than the industry averages. We continue to see growth in our DSL with 2.5% growth in the past year with 55% of our access lines having DSL.

We still have approximately 1,200 dial-up customers, virtually all in surrounding counties outside our telephone service area where broadband is still not available.

My final slide, slide 27, shows our capital expenditures. At this point we are not changing our estimate for 2012. We are still targeting $138.4 million, but will have a better position to update that number at the end of the third quarter.

Progress on our cable upgrade is going very well. All of the systems have been upgraded except for one 10,000 home path service area in Southern West Virginia. This was the area with the worse plant conditions so we we are rebuilding this area using fiber-to-the-home.

Work is underway, but the storm on June 29 has caused delays. The completion of the makeready work by the electric and telephone companies on their poles have been delayed due to storm repairs on their network. We are pushing hard and still expect that we could have completed the construction by year-end, assuming we don't have an early winter.

Network Vision is off to a good start. Since our initial kick-off in March we have completed the upgrade to our switch, which was required to be in place before we could start replacing base stations. To date we have replaced 18 base stations and expect the pace to ramp up quickly. There are multiple Alcatel-Lucent crews working in our network. We still are targeting to have 274 base stations replaced by year-end and the initial launch of LTE service by the end of the third quarter.

We still believe that we can stay within our $115 million budget and we will be finished by year-end 2013.

I will now turn it back over to Adele.

This concludes our prepared remarks. Stephanie, would you please share the instructions for posing a question at this time?

(Operator Instructions). Ric Prentiss, Raymond James.

A couple of questions. First, on the iPhone. What percent of your iPhone sales were customers that are new to you guys?

Hold on just a second; I have that number. In the first quarter it was about 45%. I mean, in the second quarter it was about 45% of our iPhones were for new.

Okay. And a lot of people have been watching what percent of the base are upgrading phones in a quarter of the postpaid base. Do you have that number for the second quarter or maybe some of the last couple of quarters prior to that, what percent of the postpaid base were upgrading their phones?

It has been approximately 5% of our base a quarter.

And no real swings in the first or second quarter out of that norm area?

No.

Okay. And on the Project Vision earlier you just mentioned you have done 18 base stations that expected to ramp quickly. What is the gating factor? Is it backhaul? Is it Sprint actually said they had birds in some of their cell sites that were slowing them down. The Osprey were a bit active. As you think about ramping up to try and hit the 274 at year-end, what is going to possibly slow you down, and where are you at?

At this point we have crews in place and have gotten the site work done that we expect that we can do 2 to 3 new sites a day going forward. We got a much later start than Sprint did as far as starting our planning and putting everything in place, but we have closed that gap very quickly.

I would say that probably the thing that is the most gating at this point is the availability of the equipment, and not so much the equipment from Lucent but the particular piece parts that Lucent has sourced from various different suppliers. We had to get ramped up, get our inventory heading to our locations, and that has now happened in the last 60 days. And so I think you will see when we announce at the end of the third quarter we are going to probably out somewhere in the range of 50 plus sites a month going forward.

Great, thanks. I will come in for more if there is time at the end.

Barry Sine, Drexel Hamilton.

I wanted to zero in on the cable RGU number. You are nearing the finish line on all of the upgrades, and particularly on the video side that number continues to decline, which I find a little surprising that your video product today is much improved versus what you had before you bought the plant. And then, obviously, we have other factors, video substitution for Internet video, and then you have the NFL factor with DIRECTV in your market. Could you give us an overview of what you expect in terms of cable RGUs, and in particular the video RGUs?

This is Earle. As we have said before, and the numbers have held, is for every one new video RGU, we are getting two voice and four data. So there has been a particular strong demand for our voice and data.

We have two different competitors. Our competitor for voice and data is the telephone company, which is using primarily DSL, and in most cases is offering 3, sometimes 5 meg in most of our service areas. So having launched 25 meg we have a significant difference between what our competitor is offering.

On the video side, the cable companies -- I mean, the satellite companies were very well-entrenched when we got there, and they offer a very robust lineup. And so what we're finding is to try to convert just a video customer is very difficult, because many of them are under a contract. They also can offer a much more robust sports programming than we can afford to put into our tiers.

And so we continue to work at that, but I think where we will make our gains will be in the bundling, as we continue to gain the customers' confidence, show them that we can provide a consistent product and move forward. But the industry as a total is seeing a shrinking in video, so that trend is something that we are observing closely with all other cable providers, but feel that we can ultimately increase our penetration, it will just be slower than the other two.

Okay, and then shifting -- a question on the iPhone. Is there anything in your agreements with Apple that talks -- or I guess with Sprint in your case -- that talks about whether you would or would not receive any new handsets on a timely manner in the same fashion that Sprint would get them or would you have delays or would you have quantity issues in terms of how many handsets -- anything in the agreement on that?

Nothing specific. Our relationship with Sprint has always been that they treat us basically like they do their other company stores. If they make a decision to launch first in their company stores we are included in that. If they make the decision to launch a phone first in a national retailer that is the same case for us.

As far as allocation, they allocate based on us being just one of their many stores. So we don't get a higher or a lower percentage of allocation; we get our pro rata share based on the size of our markets. And I see no reason on any new phone, whether it is iPhone or any other phone, that that would change.

Okay. And my last question is also related to Sprint. You probably saw after Intelius' results where they talked about data resets coming out of Sprint in terms of the rates there was some concern among investors. I believe you are under a very, very different type of agreement with Sprint, so you wouldn't be affected, but I just wanted to ask the question.

No, as you said, we are under a very different agreement. Our agreement is very straightforward. Sprint keeps 20% of gross billed revenue; we get 80%. So as our revenues go up $1, Sprint is retaining $0.20 of that, we are retaining $0.80 of that. There is no reset of that, other than the fact that we did announce that in July of next year the net service fee ceiling can go up 2%. So a maximum of up 22% of revenue could be retained by Sprint, but that is the only change that can happen by contract between now and 2024.

What would drive a possible increase? Are there metrics that they would point to to determine whether it is 1% or 2% or zero?

Basically, we go back to the pre-2006 period where we were settling all of the 120 different variables from long distance to billing cost to customer service costs. They monitor those, and we look at the balance of trade between the two companies because obviously their customers are traveling on us; we travel on them. There is a number of things go back and forth.

If that balance of trade changes by more than 2% then they can raise it up to 2%. If that balance of trade changes 1%, then they can change it 1%. And they can look at that every year between now and 2024. So if the balance of trade showed that the rate would go up 1 point, but two years from now something changes and the balance of trade goes the other way, then that net service fee could actually be reduced.

Okay, that is great. Thank you very much.

Greg Burns, Sidoti & Company.

I just had a question about the -- some of the credit issues you're having on the cable side of the business. Can you just give us a little more color around that? And maybe the change in your credit policy, does that change in any way the projected growth of that business?

This is Earle. What we are seeing on the bad debt, it is primarily video only customers that have -- where we have seen that. I won't say it is 100% that, but primarily where we have seen that are video only customers. What we don't know, to be very honest, whether these are customers who are going to our competitor and basically just stiffing us, or if they truly are bad debt and unable to pay.

If it is the latter, there is a very good chance at some point in time they will come back by paying their bill and reinstating their service. But what we have done, and we have been looking at this over several quarters, is that we felt like we had better information now, and with upgrading all of our systems it was time for us to tighten up our credit.

We have seen some contraction in gross adds, but how we have countered that is we have added more distribution. So we may be knocking on more doors is to get the same number, but we are not seeing a reduction in our gross as much it is it takes a little more effort to get the same number of gross.

Okay. And in terms of the cable margins looks like they were at the highest level in probably over a year or so. Outside of the one-time weather issues you had this quarter, is there any reason those should not continue to improve from the current levels? Is there anything that is going to be layering in that will crimp margins going forward?

This is Adele. There are no specific significant expense increases, aside from accommodating the increased capacity particularly with respect to backhaul for our high-speed customers.

But as you no doubt know, we pay $0.50 on the $1 for content in the video arena. The margins on voice, particularly for a telephone company operator like us, are quite rich. And high-speed data not quite so rich as voice perhaps, but also more like 80% gross margin in that business.

So to the extent that we are adding customers in those higher-margin businesses with those higher-margin products, rather, you can expect to see that continue to grow. And, obvious as our penetration improves, the fixed costs associated with building into a house and so forth is compensated for more heavily.

There may be -- this is Earle. We expect there will be ongoing increases in programming. That has been very well documented. Unfortunately. But we are expecting and have in our plans to continue to increase the price to our consumers on the video products in order to be able to cover those increase in programming. So the margins -- there is no reason to believe that the margins can't continue at the same level and continue to actually improve.

And we are actually showing the retrans costs separately on the bill now.

Yes, that was a change we made -- I am not sure if we shared that on a previous call or not -- but that is a change we actually made before -- actually in the fourth quarter in anticipation of significant increases in retrans. As we have now broken out the retrans -- the fee that we are paying to the broadcasters to carry me broadcast channels -- as a separate line on the bill. And the customer is paying dollar for dollar exactly what we are being charged.

And so by market that retrans is different and the customer is seeing it right on the bill exactly what they're paying for ABC, CBS. We don't break it down by the various -- but in total they know what they're paying for the pool of broadcast networks.

And so that is a way that we have been able to improve our margins. Rather than just having that as part of the overall cost, we are breaking it out as a separate charge on the customer's bill.

Okay, thanks. And just, lastly, back to the Sprint net service fees. I didn't catch when those -- what is the timing of the potential reset? Is it end of year, so any kind of reset would hit in the first quarter or --?

No, it is at the end of the second quarter of next year.

Okay, thank you.

Ric Prentiss, Raymond James.

A couple of follow-up questions. First, the iDEN percent of the gross adds have gotten pretty large, obviously. I assume you do not count those people that come in as iDEN customers in the upgrades if they weren't really your customers before.

We look at an iDEN customer really as if it was the same as a Verizon or an AT&T customer. We have had no relationship with that customer before. When they sign up for service we actually port them in just like we port in any other customer. And our cost -- if they are getting a phone from us the cost of the phone is included in the cost of goods sold.

They are really -- we don't look at that as an upgrade, we look at it as a new customer, because for us it is a new customer. Obviously, that is very different for Sprint because it goes from one pocket to the other, but for us it really is looked at as a completely new relationship.

It makes sense. Now when you had announced the new agreement with Sprint to do the LTE Vision Project that was going to be a cost to move iDEN customers over to you, I think. You're not having to pay that fee as customers are coming on today, right, or would you have to pay that fee?

You are correct. In our contract it states that if Sprint delivers us a customer -- a postpaid customer with an upgraded phone we pay them $350. If they deliver us a prepaid customer with an upgraded phone we pay $150.

To date none of the postpaid customers that we have received or have signed up have come through that process. They actually don't have us scheduled to be in their formal process to contact the customer and upgrade them and move them over until the fourth quarter.

So if there are still iDEN customers, and unfortunately we don't have good visibility to the number that are still in the marketplace, but assuming there are iDEN customers still on the network in our area in the fourth quarter, and Sprint contacts them and does the heavy lifting of getting them to sign a two-year contract and gives them a new phone, then we will pay Sprint $350 for each one of those customers.

But what we are seeing now is customers on their own are looking for an alternative and they're coming to us. We are signing them up under our normal acquisition process, we are incurring the cost of the phones, and therefore there is no need for us to be paying Sprint. And that was clearly outlined and discussed with Sprint as part of the negotiations, so this is not something that will come back to be an issue that we have to discuss in the future.

And when you say fourth-quarter, is that beginning -- is that like October 1 or is that --?

We don't really know exactly when it is. They have just informed us -- they still have millions of customers that they are working with. They have just informed us that they plan to start actively -- and I use the word marketing -- actively marketing in our footprint during the fourth quarter. So I really don't know if that is October or December.

Okay. And then I know you haven't done many Vision base stations yet, but Sprint had mentioned that as they have been adding Vision base stations they have seen an increase of north of 10% -- I think it was 10% to 20% volume on those new base stations as soon as they put them in, implying that roaming -- in-network roaming would be reduced. Have you seen any anecdotal evidence that as you're putting in base stations more traffic is hitting those base stations?

The answer is no, we haven't. Actually, our thoughts are if there is increased usage it could be because we purposely did not add, or have not added, a lot of the old 3G carriers, because they basically would have been thrown away. And so we have been monitoring our sites very carefully and trying to be very judicious in adding new 3G carriers to the old base stations.

And so our -- what we actually anticipate, but once again I don't have enough information, is that we may see additional volume simply because there could have been some blockage of 3G usage simply because it wasn't enough capacity prior to upgrading the site. But in upgrading the site we are going to add significant or adequate 3G capacity, in addition to putting in LTE so that our customers can have a good experience.

And then eventually you'll get the lower frequency in there as well?

Well, yes. Actually, they have already harvested one carrier of 800 that they have given us that we are putting in as we are upgrading. But that one carrier is being used for voice at 800, and when they turn off the iDEN network then they will harvest the remainder of the 800, and the remainder of the 800 is meant to be used for LTE.

And then last question on the CapEx side. You said you would update to a better view at the end of the third quarter. Was that meant to be more of a better view on the cable upgrade because of the storm or is that meant to be the Vision spending might slip a little bit? I am just trying to gauge the CapEx spending and the impact on the balance sheet.

The answer is it could be both of them. We are very optimistic now. But as you said, we have only done 18 sites and we got 274 planned. So the next 90 days are very critical for us of exactly being able to pace how quickly Lucent can install these base stations.

The other issue is a good portion of our CapEx is for CPE on the cable side. So if we don't see the growth that we are anticipating in the last half of the year, then we could be under budget as far as the amount of CPE that we think we are going to need to purchase for our customers.

And then the last one, as you pointed out, it is a big project for us doing fiber-to-the-home to 10,000 homes. We are very, very dependent right now on the electric companies and the phone companies being able to get their poles ready for us to do our work.

And in the devastation in West Virginia was just incredible. Transmission towers crumbled, if you hadn't seen pictures of it. I mean, it was very, very severe. And so we understand why -- the phone company and the electric company is not being disagreeable, it is just they have an awful lot to do there. But they are working with us, and we are optimistic that we are going to be able to stay on target.

Okay, thanks very much.

Thank you for participating. Please let me know if there are additional details you would like on further calls. My contact information was provided on the press release.

Again, ladies and gentlemen, this concludes today's conference. We thank you for your participation. You may now disconnect. And have a wonderful day.