Shenandoah Telecommunications Co (SHEN) 2016 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Shenandoah Telecommunications Company First Quarter Earnings Conference Call. 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 your host for today's conference, Ms. Adele Skolits, CFO. Ms. Skolits, you may begin.

Good morning and thank you for joining us. The purpose of today's call is to review Shentel's results for the quarter ended March 31, 2016. Our results were announced in a press release distributed this morning and the presentation we'll be reviewing is included on the Investor page of our website at www.shentel.com. Please note that an audio 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'll conduct a question-and-answer session. As always, let me refer you to slide 2 of the presentation, which contains our Safe Harbor disclaimer and remind you that this conference call may include forward-looking statements subject to certain 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're strongly encouraged to review.

You're 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. These reconciliations are also provided in an appendix to today's slide presentation.

I'll turn the call over to Chris now.

Thank you, Adele. We appreciate everyone joining us this morning. We've gotten off to a great start for the year. In the first quarter, we achieved revenue increases across all of our segments, grew our customer base and experienced improved operating income and net profitability. In addition, subsequent to the close of the quarter, we received FCC approval for our acquisition of NTELOS Holdings. This was the last approval needed and we are now finalizing the transaction with an anticipated closing on May 6. We look forward to welcoming NTELOS employees into integrating the two companies. The acquisition will significantly expand our wireless customer base and presence, and also strengthen our relationship with Sprint.

I'll now discuss some highlights from the first quarter. On slide 5, you'll see the first quarter 2016 net income increased 35% to $13.9 million compared to the prior year, driven by strong growth in the Cable and Wireline segments. Adjusted operating income before depreciation and amortization, or OIBDA for the quarter increased 12.8% to $40.4 million. Revenues were $92.6 million in the first quarter, a 9.8% increase from the prior year period. Revenues increased chiefly as a result of subscriber growth and improved product mix. Our cable segment revenues also improved as a result of an increase in the number of revenue generating units or RGUs and higher average revenue per customer, as customers increasingly selected high speed data in premium digital TV packages. Wireless segment revenues benefited from a reduction in postpaid fees retained by Sprint and from prepaid customers selecting higher-priced services.

Wireless highlights start on slide 6. We experienced continued growth in our Wireless segment with an 8.3% increase in customers for our postpaid offering. Growth again resulted from our upgraded network, leveraging Sprint's national marketing and providing high-quality local customer service. Consistent with recent quarters, we saw a decline of 3.5% in our smaller prepaid customer base, but saw our net prepaid service revenue increase 4.3% due to changes in the mix of subscribers toward higher rate plans. Wireless operating income grew 2.5% as compared to 2014.

Turning to slide 7, our Cable segment delivered outstanding growth in the quarter as demand for our high-speed internet and voice services outpaced the anticipated decrease in video subscribers. Operating revenues increased 13.4% to $26.4 million, both from video rate increases to pass on programing costs and from customers opting for a higher-speed data offerings. Cable adjusted OIBDA grew almost 39% to $7 million, driven by the revenue growth and a 6.6% increase in RGUs.

As many of you know, we have diverse revenue streams and slide 8 profiles two additional assets. Our fiber lease revenues increased more than 25% to $10 million and 157 towers generated $1.9 million in OIBDA from cell site lease revenue, which was up 9.5% compared to last year's first quarter.

From our strong performance in 2015, we continued the momentum into the new year with a great first quarter, achieving continued organic revenue growth and increased profitability. Our upgraded wireless and cable networks provide reliability and increased capabilities that our market demands, and as a result, we are attracting new customers and growing our customer base.

As we complete the NTELOS acquisition and integrate our systems and networks, we look forward to providing our customers with even greater service capabilities and improved coverage.

I'll now turn the call back to Adele to review the details for our financial results.

Thank you, Chris. I'll begin with slide 10, which shows our growth and profitability. In the top line, you can see that we had nearly $2.8 million or 15% increase in operating income for Q1 2016 over Q1 2015. Over the same period, net income was up 35%, and basic and diluted -- fully diluted earnings per share are up 38% and 33%, respectively.

On slide 11, you see that adjusted OIBDA grew by nearly $4.6 million or almost 13%. Depreciation grew by nearly $1.4 million in Q1 2016 over Q1 2015. Incremental share-based compensation was up by $223,000. Finally, the NTELOS acquisition costs are up slightly to $332,000.

The contributions of the three operating segments to the OIBDA growth are shown on slide 12. Adjusted wireless OIBDA has increased by $1.2 million or 4%, while Cable results have improved by $1.9 million or 39%. Wireline results have increased by $1.4 million or 20%.

On slide 13, I've analyzed the changes in the adjusted wireless OIBDA results between Q1 2015 and Q1 2016. On January 1, the settlement structure with Sprint changed. As a result, Sprint began paying Shentel for travel, and these revenues totaled $1.8 million in Q1 2016 and are included in service revenues in the Wireless section of the Management Discussion and Analysis in 10-Q, which we released this morning.

Postpaid revenues grew by $1.6 million. This growth is a result of the January 1 drop in the net service fee rates Sprint charges us from 14% to 8.6% and growth in the average customers of 8.4%. These two changes more than offset a 10% drop in the average billing rates. The cost Sprint charges us to support prepaid customers dropped by $800,000.

Prepaid revenues grew by $500,000, as 7.6% growth in average billing rates, net of spread fees, was partially offset by a 3% drop in average customers. Network costs have grown by $900,000, as a result primarily of growth in the cost of cell site backhaul and rent.

On January 1, Shentel began reimbursing Sprint for national channel commissions and handset subsidies and receiving credit for related equipment sales. These items included in selling, general and administrative costs, cost of goods and services sold, and equipment revenues, respectively, totaled $3 million in Q1 2016.

On slide 14, I've shown the components of changes to adjusted Cable segment OIBDA. The positive changes include significant growth in high-speed data revenues or HSD of $2.4 million as a result of a nearly 10% increase in average customer. In addition, the HSD customers are choosing higher speeds of transmission that carry higher service charges.

Video revenues were up by $600,000 as the 1% loss of video customers was offset by increases in video rates driven by higher programming cost. Voice, equipment and other revenues are up by $200,000 driven partially by 9.6% increase in average voice customers.

Selling, general and administrative costs rose by $200,000 as a result of growth in commissions and advertising expenses. Network costs grew by $500,000 as a result of incurring additional costs to maintain the network. Finally, programming costs rose by $600,000 as a result of the increase in fee rates demanded by content providers.

On slide 16, I've analyzed the changes in the Wireline results between Q1 2016 and Q1 2015. Facility leased revenue has grown by $1.9 million as a result of increased fiber sales within our other revenue. Access revenues grew by $500,000, primarily related to growth as a result of having recorded an unfavorable adjustment to universal service fees in Q1 2015.

Other revenue grew by $300,000, primarily as a result of growth in high speed data service revenue. The cost of goods and services sold increased by $1.3 million, primarily related to the increase in fiber sales.

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

Thank you, Adele, and good morning, everyone. My prepared remarks begin on slide 17. We ended the first quarter with 315,231 postpaid customers, an increase of 24,153 in the past 12 months. We ended the quarter with 457,770 total customers. We continue to inch up our postpaid smartphone penetration to 83%. 96% of our smartphones are LTE capable with 76 also having enhanced LTE capabilities.

Slide 18 shows our gross and net postpaid activity for the first quarter. We had 17,356 gross adds, up slightly from last year. But even with lower churn, due to the larger base, we added fewer net adds at 2,719, down from 3,211 last year. We did see a small seasonal uptick in churn from the fourth quarter, but we're not concerned. Our port-in versus port-out ratio for the first quarter was 1.8 to 1, taking customers from all of the carriers.

Let me add a few more stat. Again this quarter, our net adds were higher value phone adds, not lower revenue tablets. We actually had a net loss of tablets in the quarter, so more than 100% of our net adds were phone adds. 26% of gross adds were subsidized plans, 45% on leasing, and 29% were installment sales. First quarter upgrades were light at 6.6% of the base with 36% selecting subsidized plans, 39% leasing, and 25% installment sales. As of March 31, 51% of our customers remain on the subsidized plan.

The enhanced "Cut Your Bill In Half" was started in November 2015, continued into the first quarter. The promotion has contributed to increased traffic into the stores, but only 26% of the gross adds took the promotion. And in most cases, the customers ended up paying us more than half price because we were able to upsell them the higher data bucket.

Moving to slide 19, we saw a continued decline in our monthly postpaid billed revenue per customer. Our average for the first quarter was $55.15, down $5.91 in the past 12 months, as more of our customers moved from subsidized plans and we continue to offer price promotions. We expect the decline to continue for the foreseeable future as our base continues to shift towards lease and installment sales. But with the increased data usage, we believe the trend will reverse and average revenue will start to increase.

Although average postpaid billed revenue per user was down almost 10% in the past year, because of continued strong postpaid adds, our total gross billed revenue for the first quarter shown on slide 20 only decreased 2%. As a result of the decrease in the settlement percentages retained by Sprint that Adele spoke of earlier from 22% to 16.8%, we actually saw a 4% increase in the net service revenues.

Prepaid stats are shown on slide 21. We had a net decrease of 301 prepaid customers as we continued to see a dramatic shift in our prepaid base from Virgin Mobile and Assurance to Boost. That trend for the past 12 months has resulted in a loss of just over 5,000 prepaid customers. 81% of our prepaid customers have a smartphone with 87% of the prepaid smartphones having LTE capability.

On slide 22, we see the impact of the shift to Boost. We continue to have elevated prepaid churn at 5%, but we are building a base of more attractive Boost prepaid customers reflected by the increase of $2.14 per month over the past 12 months in the average prepaid build revenue. The result has been a more profitable prepaid business.

Network staff is shown on slide 23. We have 556 cell sites, 95% have a second LTE carrier at 800 megahertz, 35% have three LTE carriers with two at 1,900 megahertz and one at 800 megahertz. We continue to launch to 2.5 gigahertz with 61 sites on the air. Subject to having spectrum available, we'll meet our goal of having all 125, 2.5 sites on the air in 2016. 92% of our data traffic is now on LTE. The volume of data grew 19% in the first quarter and has grown 69% in the past 12 months.

Our average speed is approximately 5 meg, but where we have 2.5 sites, the speed ranges up to 40 meg. We continue to have low dropped and blocked call. We have fiber to 236 cell sites, 189 of our own, four to NTELOS sites, and 43 to others. We've added 21 year-to-date and plan to add a total of 52 in 2016, 27 in our legacy area and 25 in the NTELOS service area.

Our Cable segment continues to grow. RGU growth of 5,456 is shown on slide 24. On January 1, we purchased Colane Cable in Southern West Virginia. The Colane network passes approximately 8,000 homes. We got 5,005 total RGUs broken down between 3,299 video RGUs, 1,405 data RGUs and 302 voice RGUs. Colane offers speeds only up to 6 meg and just launched voice. So, once we complete the upgrade of the network late this year, we see good upside opportunity in both data and voice.

For the first quarter, excluding Colane, we saw the same continuing trend of increasing data and voice RGUs, but a decline in video RGUs. The 1,046 video RGU decline was accelerated by two events in addition to the industry trends of customers going over the top. First, we had our annual increase passing on programming costs and re-trans fees of over $5 per month and we made a decision not to continue to carry AMC and extra channel.

We lost approximately 300 customers due to AMC. To avoid the complaint that we took advantage of our customers, we made the decision to rebate the AMC programming cost savings to our customers with a recurring credit for 2016. Net of the Colane addition, we added 1,737 data RGUs and 318 voice RGUs.

Average monthly cable revenue per RGU and per customer is shown on slide 25. We continued to see significant increase in revenue. The increase per RGU is $4.43 and $7.59 per customer. The increase was driven by the video price increase in January to offset the increase in programming costs and the continued increase in data ARPU as customers continue to purchase faster Internet speeds with larger data allowances.

Slide 26 shows the number of homes passed, where we can offer each service and the penetration of each service. The numbers reflect the trends I've just discussed. An interesting side note, we now have more voice customers in our Cable segment than we have in our regulated telephone operations.

Wireline operations are shown on slide 27. As previously announced, as of October 1, 2015, we no longer require our regulated telecom customers to have an access line to have DSL. This change has resulted in a short-term accelerated decline in our access lines. Virtually, all the access lines lost are customers that continue to purchase Internet service from Shentel. Without the bundle discount, each of these customers are paying at least $10 more for their Internet service. We also started offering 15 meg up to 101 meg by cable modem service on October 1. And as of the end of the first quarter, we had 624 sign up for the higher speed cable modem services.

Slide 28 shows the first quarter fiber lease revenue broken down between affiliated and non-affiliated. You see the total grew by $2 million with the growth of both affiliated and non-affiliated revenues. We had a good quarter in non-affiliated fiber sales with $7 million of new contracts signed in the first quarter of 2016. We continue to have great success in e-rate sales to school systems on our fiber network.

Our estimate of 2016 capital spending on slide 29 has not changed from the numbers we shared at our year-end earnings call. We have committed instead approximately 25% of the 2016 non-NTELOS CapEx for the first quarter.

Let me conclude by giving you an update on NTELOS. As reported, we got FCC approval on April 15, which was the final approval required. We anticipate closing the transaction on May 6. The delays in getting the approvals has been frustrating, but it has allowed adequate time to plan for the transition. We've had great cooperation from NTELOS and Sprint. The senior management of NTELOS will be departing at closing, and we will immediately start selling Sprint service out of the NTELOS stores. We expect that the upgrade to the NTELOS network will continue without any delays.

Our teams have worked together over the past month to assure that we don't lose any momentum. Currently 58% of the non-overlap NTELOS sites have been upgraded to LTE. Network vision sites have been delivered and are being installed. We will start to migrate existing NTELOS customers to the Sprint back office before the end of May. As you recall, we will be able to upgrade all of the NTELOS customers with an [iPhone C] or newer with a new SIM card, but will need to exchange all the other NTELOS customer phones.

The 300,000 Sprint customers in the NTELOS area will require no migration efforts. We provided some guidance on our last call for the cost of the NTELOS customer migration of up to $80 million along with our previous estimate of other one-time transition and deal costs of $80 million. As we continue to refine our estimates, we now believe that the total cost of transition deal cost and the customer migration will be between $130 million and $150 million, down from our initial estimate of $160 million.

I'll now turn the call back to Adele.

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

(Operator Instructions) Ric Prentiss, Raymond James.

Couple of questions on the Wireless side if I could. On the gross billed revenue slide, I was interested in the bad debt, seems that it's dropped quite a bit from year-to-year but discounts and credits have gone up. So can you talk a little bit about those two items within the gross billed revenue, please?

On the bad debt, as you know, we control our own decisions on bad debt and have continued to keep a handle on that and just feel like just good attention has kept that down. As far as the credits and adjustments, that's always seasonal. We do -- if we offer any kind of promotion that gives a discount in the service fee, it does come through that account. So, when we do some promotions, there have been some credits running through that, but it is not anything that we expect to be recurring.

Okay, and then, obviously now the new Sprint agreement is in place, so it's moved some items around with the travel revenue and then the Sprint National Channel. Help us understand a little bit, will there be seasonality in the Sprint travel like is typical with the roaming business or is it different and then the same question on the national sales channel? How should we think about those costs, now we have the first quarter of season actuals?

The travel revenues of $1.8 million come in two forms. One is the retail travel revenues of [$1.25 million] a month, and that has been set for the first three years of the contract. The variable piece is the wholesale revenues that amounted to about $517,000 in the quarter. So that will be seasonal.

And then, how about (multiple speakers)?

You asked about -- certainly the commissions cost and the handset subsidies net of equipment revenues will vary according to the gross adds.

The one thing that will change is that travel will go to $1.5 million a month on a recurring basis for 36 months or for three years, once we close on the NTELOS deal. So, it was $417,000 a month for the first three months of this year but will go up to a $1.5 million per month with the closing of NTELOS.

You're absolutely right. I misspoke that. The $1.25 million is the $417,000 roughly a month that Earle spoke about, so it's $1.25 million for the quarter, $417,000 a month.

And then it jumps up when you close NTELOS?

Right, both of these (technical difficulty).

Both the wholesale and the retail?

Right. As far as obviously the national commissions once we have the customers migrated or add customers onto the new relationship.

And the final question from me is, can you update us a little bit, I think you said, Sprint has 300,000 subs in the territory. Is that the latest number from Sprint in the territory as we look towards May 6 closing, and any indication you can give us as far as how many NTELOS subs you expect to come over on that May 6 time frame, just we can kind of jump-up model correct?

Neither have announced their first quarter numbers yet. So, we don't feel comfortable giving a specific number and we've just used the 300,000, that's kind of the same number we've used all along. But expect that we can provide those information once they've announced their numbers.

Barry Sine, Drexel Hamilton.

I want to start off kind of continuing talking about the NTELOS integration and I know from talking to you folks that the extra time in getting approvals has given you more time to plan and you're in pretty good shape, once May 7 -- the sun comes up on May 7. Can you give us your 30-day plan. With those first 30 days, what if I was a customer walking into your store or if was an NTELOS customer, what would I see? What are you doing for that first 30 days to kick it off?

Barry, this is Earle. We're going to try to do a very soft launch -- the information that we're providing to the NTELOS customers is that they don't have to do anything day one. Their phone is going to work, they are going to continue on their same price plan, but the only thing that really is going to change as we are going to be upgrading all of their phones to allow them to have access to the Sprint LTE network nationwide. NTELOS customers don't have access to the LTE network today, but they will on day one after close.

But what we're going to start doing is communicating to the customer, letting them know that over the next 18 months, they will need to migrate. We're going to encourage them to set an appointment, so that they can come in on an orderly basis. We are adding 80 positions within our stores that will be dedicated just to migrating the customers, although any other employee in the store could help if they're available. But obviously there are a few people who walk in, who want to migrate and so we will address them as they walk in in the door. But I guess the important thing that we are basically saying both publicly and internally is that there is no rush for the customer to do anything.

I know you're not giving guidance on this, but I am assuming it's your expectation as you convert those customers over that on average, you'll get an uplift in revenue per subscriber by bringing them into the store and walking through the sales process?

Well, that's our hope and we've talked about this before. We are looking at this as a cup being half full and that we're going to get an opportunity to talk to each customer. We'll be looking at their current price plan, their current usage patterns and hopefully we'll be able to have an opportunity to get them into the right price plan, move them up into bigger data buckets and because the customer is going to have the choice, they can either stay on their current price plan or they can select any one of the current Sprint price plan, and based on some market research that we've done and some questions that we're asking of customers, we are encouraged because a fairly good percentage of NTELOS customers would consider adding an additional line as part of this migration. So, I think we will see a lift in revenue.

Okay, that's helpful. I wanted to turn over to your fiber footprint. The focus is always on wireless with you guys. You have a pretty sizable fiber footprint in your territory. You've talked about adding that going a little further I think down route 81 and doing more fiber to the tower. I wanted to ask about your enterprise sales efforts going after, for example, banks that may have facilities across the region, government agencies, and if I could, perhaps you would not say somebody like Lumos is a little more dedicated on enterprise sales of a fiber network. I don't hear a lot from you and I'm assuming there is some going on, but can you just update us on enterprise sales of that fiber footprint?

We do have a dedicated sales organization. Obviously, it's not as big a percentage of our business as fiber is for Lumos, but we did $22 million of new contracts last year. We did $7 million of new contracts in the first quarter. So, we continue to go after those exact kind of customers, whether they are regional banks, medical, we've been incredibly successful at school systems and e-Rate. If you look at the school systems that we have on net are working to put on net, and looking at our fiber footprint it's pretty impressive.

We're going to continue to accelerate that. We are actually adding a couple of new sales people this year in our fiber sales group and so we see a good opportunity to leverage that fiber that as we've said over and over again is so critical for us from a strategic standpoint as far as our wireless and cable business, but because we do have more than adequate capacity, we're able to sell it to third parties with very nice margins.

Last thing I wanted to ask you about again shifting gears over to the cable segment is you've continued to talk a lot about programming costs what's going on there. So multi-part question if I could on programming. First of all, could you give us a heads up, what do we have in terms of additional AMCs out there, do you have any other big programmers, would you have expirations of contracts coming up and just from a general perspective, do these companies like AMC, do they even realize that they are not on the air anymore, and you obviously have a smaller footprint when I came down for the shareholders meeting. I didn't even realize they went to watch a baseball game and you don't carry the Nationals because Mason, obviously, you haven't worked a deal lot with them, so just a general question on programming.

I'll answer your second question first. Does AMC notice, the answer is yes, they do. Chris French and myself are Head of customer service and our Head of programming were targeted earlier this year when the walking dead season started. They actually were redirecting our customers who were coming to their website. And they were encouraging them to write an email to us telling us to put AMC back on. So, the answer to your question is definitely yes, they do know. We are not a significant percentage, but when you take us plus the other members of the co-op that dropped the programming, there were 100s of 1000s of video customers that are no longer getting the AMC channels.

On Mason, which is the regional sports channel that does carry the Washington Nationals and the Baltimore Orioles. We do not carry them, once again because of cost. They require us to dedicate two channels year-round just in case the Orioles and the Nationals are playing at the same time. In most cases, there is no programming on those channels. And when they are not carrying of a baseball game, often times they're just running ESPN SportsCenter and so it just doesn't make sense for us to dedicate resources and pay several dollars per month per customer 12 months of the year to carry that regional sports channel. As far as programming coming up this year, probably the biggest one that's coming up this year is NBC Universal; obviously that one would be very difficult to drop. But, we're not hearing the same kind of high increases from the bigger guys than we have from the smaller programmers in this cycle. The other thing that we don't have coming up, we don't have any re-trans, renegotiations this year, that will be in nextyear event.

Okay. All very helpful, Earle. And Adele, I notice the Q is out, so thank you.

It is, I thought that was particularly important given the changes in the relationship with Sprint.

Thank you.

Amy Yong, Macquarie.

Thank you and good morning. A couple of quick questions. I guess when you called out the $130 million cost number coming down from $160 million, can you just talk about what buckets of cost items we should be thinking about. And then just a couple of things on the wireless segment. When we look at the control channel, it was 33%, coming down from 39%, what should the normalized rate be? And does it change with NTELOS? And then my second question on the wireless segment is that net loss you saw on tablets, is that largely as a result of promotions from Sprint rolling off? Thank you.

You want to take that, the wireless questions first Earle.

You asked a lot of question there, so if I missed them, please let me know. As far as the control channels, Amy in the past before we went to leasing and installment sales, we had a number of third-party local sales agents, who had direct relationships with us, and when that was the case we were seeing about 50% to 55% of the sales came from our stores and from these third-parties. Once we now have moved, where the majority of the sales are on lease or installment sales, we now have setup those agents to have a direct relationship with Sprint, because it just works better if they're going to do installment or leases to have the direct relationship with Sprint. So rather -- those same group of companies are selling for us, but they now fall into the national and regional group, and so that's why you see the 50% to 55% drop into the mid-30%.

If you look -- we always see this is kind of seasonal with the percentage of sales out of our stores being the lowest in the fourth quarter and then kind of bumps around in the other three, but I think generally you would see about a third -- 35% of sales coming out of our stores. As we do take on the NTELOS area, we expect that percentage to be higher and the reason for that is just the sheer number of NTELOS stores. As you probably know NTELOS had no national or large regional third-party selling for them as we do, so when we move to the NTELOS area, we're picking up the Best Buys and the Walmart, because of our Sprint relationship, but NTELOS had 34 stores, Sprint had seven. And so, we'll have over 40 stores, and so with that many stores relative to the geography there, we expect the percentage will be 45% to 50% of the gross adds will come out of the stores.

With respect to the cost, looking at two buckets of cost, the first that we announced the original $80 million to $85 million included things such as of the transaction fees, including banking, legal, investment bankers and so forth, and you've got the severance costs of the NTELOS [people] that we're letting go, all the early termination fees that we have on the duplicate cell sites, the duplicate backhaul and so forth. So, those are the primary drivers to the original bucket of expenses.

The incremental expenses related to the delays in migration are primarily related to all of the back office expenses that we had originally hoped Sprint would assume almost immediately. So that includes things like maintaining the NTELOS customer care organization, their billing organization and a lot of the other back office areas that support those, like IT, for instance. We also have new handset costs while all we have to do for the iPhones is buy $5 SIM card. For the Android phones, we will end up replacing a significant number of those phones over time. I think those are the primary drivers.

Can you just talk about the net loss in tablets?

Amy, we've have always kind of deemphasized tablets. We actually have a very different commission plan for our people, if they sell a phone service versus a tablet. And even when Sprint has been running tablet promotions, we have not always joined in, we do have the option whether to opt in or opt out on certain promotions. It's not that we don't like tablets, we just don't want to be focusing on only adding tablets. And in this quarter, we didn't do anything deemphasize tablets, it just happened to be because we didn't have a program to be putting tablets into the market, just normal churn we lost a net of our tablets.

David Dixon, FBR Capital Markets.

Thank you. Good morning Earle and Adele. Quick question for you. Yes on the differentiation, I wanted to ask a big picture question on differentiation just the opportunity in the wireless segment going forward. When you look at the RootMetrics results that came out showing that Sprint's got some good strength and momentum in about 15 markets now with speeds above 20 megabits per second. And then we look at what competitors are doing, they're adding quite a bit to their low band spectrum portfolio in an incentive auction coming up and Shentel in contrast has got plenty of 2.5 GHz to play with, with the focus on High Power UE that we're pushing through 3GPP, that spectrum is going to behave a lot more like 1.9 GHz with about a 30% gain in coverage. I think they're expecting at China Mobile and SoftBank and the estimates that we're seeing there in the tests. So, how do you think about the greatest opportunity to differentiate going forward? Do you see any opportunity to deploy 2.5 GHz beyond like [islands] coverage? I think you mentioned 125 sites. Is there an opportunity to really increase that significantly? And do you see a greater opportunity versus the threat from more low band that your competitors will have relative to you versus the high band that you could perhaps deploy more broadly?

David it's Earle. Couple of things, number one, one of the advantages that we are having by the -- of retaining NTELOS is that we're picking up their 1900 spectrum. So, when you look at the amount of 1900 spectrum that we have, we're going to have a very deep amount of spectrum at 1900 and we built our network dense enough that we have very good hand off at 1900 MHz. Obviously the 800 MHz has helped in building coverage, but as we continue to add more and more sites for capacity, it just helps. As far as the 2.5 GHz, we are starting out as you said using [islands], but our [islands] are pretty big. I mean we're talking about kind of from our standpoint they are our metro areas. We are doing Harrisburg, we're doing York, we're doing Hagerstown, Winchester, et cetera and when you look at the coverage it's not only the downtown areas of those, but it is the suburbs and I use that word loosely of those areas. You look at many of our cell sites, many of our cell sites are truly rural areas with not a lot of density and so we'll continue to monitor it and there may be some opportunities for instance, where there is a lot of activity for us to drop in some 2.5 GHz spectrum, but we really don't see it as being ubiquitous but we will continue to use the 2.5, where we have even in-building or on small size, where shopping malls and stadiums and that sort of thing, where we think we continue to need the capacity, so we're feeling pretty good about where we are, and I think from our standpoint what has really been our differentiation as much as anything today is that we stayed ahead of the capacity. When you look at the fact that our average customer is consuming 4.5 and to 5 gigabytes a month, that is significantly higher than what other carriers are reporting.

And so, I think what we're doing is we're giving the customer a great data experience all the time. And part of it has just been our philosophy since day one to stay ahead on capacity. And as you know because you watched this for quite a while, I mean we've been having healthy increases in CapEx every year focused on capacity just so that we can make sure that that really is the differentiation between us and our competitors.

One of the thing that strikes me though is going forward adding capacity once you got the 2.5 is an order of magnitude lower to add more capacity incremental.

No question. And so, we will have a very rich position on 2.5 that we'll continue to use to make sure that we give the customers the best experience we can.

I wanted to switch across to an update, if you could, on the progress of improvements in the network coverage around your network edge. I think that's one of the things that has been a challenge in the past, is just those gateways in and out of the region, what's been happening on that front?

Things are continuing to improve, but not nearly as fast as we'd like them to, I mean, which is opened your comments on as Sprint has done some -- a lot of work and has improved a number of their markets, but they're still focusing primarily on the inside of the beltway areas. Although, we continue to work with them and focus on areas where we have particularly weak hand-off areas, but as we've talked about before, we have had discussions and continue to have discussions with Sprint about expanding our footprint. And we're hoping that maybe some of those areas get addressed by expanding our footprint rather than waiting for Sprint to build.

And on that point too, how are the discussions going with Sprint, they have a new team in place now dedicated to working with rural partners on opportunities to build together or do some more deals that could increase your scale. Have you seen any signs of that started to kick-off in terms of discussions, specifically with Shentel or is that perhaps a little early?

We were having some preliminary discussions, but I think all of us decided we needed to get through this closing before we opened a new round of discussions, but we have had informal discussions about it and I'm optimistic that we'll be able to do something fruitful for Shentel and for Sprint.

Okay. That's great to hear. Thanks.

Hamed Khorsand, BWS Financial.

Hi. Good morning. Just a few questions from me. First off, do you expect that with the new cable modem offering that you could see an increase in ARPU similar to what you realized last year in your cable business with customers transitioning?

There's no question that we are seeing that in our Wireline business. We've just got a much smaller base and I think that's the thing to kind of focus on here and in our cable segment, we passed almost 180,000 homes with cable modem. In our Wireline business, we cover about 16,000 homes with the cable plan. And so, I think as a percentage, we'll see similar growth, but the absolute numbers will be smaller. But we're already seeing even in our DSL customers, we're seeing them drop lower speeds and move to higher speeds. And so, I think this is just kind of across every broadband platform, customers are demanding more capacity and higher speeds, because they are just doing more and more data. And so, I think we're going to continue to see even without any specific price increases, we're going to continue to see our ARPU increase from just demand on the customer side.

Do you think that last comment is true for the cable business as well?

Absolutely. We are continuing to see every month customers migrate to higher speeds and when new customers come on, they're coming on at higher speeds than what we would have seen a couple of years ago.

Okay. And on the wireless side, can you speak about the competitive landscape where your net adds aren't performing as well as last year?

There really is no specific area. As I mentioned, we were at 1.8 to 1 as far as porting, that was down from the fourth quarter, we were over 2, but still we're taking a share from every carrier and so I don't think there is any particular weakness, it's just we really didn't have a new promotion in the first quarter. Sprint's promotion was a continuation of Cut Your Bill In Half from fourth quarter and I think it gave us a good boost in the fourth quarter. It carried into the first quarter of this year, but the other part of it is that we did -- we had a net loss of tablets in the quarter. So, if we had had some kind of a tablet promotion or push-tablets, we could have had as many or more add this year, but not necessarily the same average revenue ads.

My last question is from, where do you see the floor as far as the wireless ARPU for the postpaid subscriber?

I really don't know where that is, two things if you kind of look at the rest of the industry, T-Mobile is in the mid 40% that's a significant difference from where we are. I don't believe that we're going to see that kind of a drop. But, I think that, that is kind of the floor today and for the industry is kind of where T-Mobile is. And I think there's a lot of moving parts there, you've got that shift, the subsidized plans to the non-subsidized plans, you have price promotions that are entering and exiting the market all the time, and you've got -- the counter to that is customers are using more and more data.

The fact that our data usage almost went up 70%. I wish we had 70% increase in customers where we didn't, so what that's showing you is the existing customers are continuing to use more and more data, and as customers hit and exceed those data buckets, we're going to start seeing overages. So, I guess the word is optimistic that we may see a continued decline for a couple of more quarters, but at some point in time, as customers fill up the buckets that they have bought, they either going to have to buy larger data buckets on a recurring basis or they'll have overages.

At 70% increase in data usage you saw, was that in relation to customers buying higher capacity plans, or was it (inaudible)?

That's just absolute usage on the wireless network was up 70%.

What I am trying to get is, like how many of your customers are hitting that threshold where they should be upgrading or they'll be soon going over the plan limit.

I don't have that percentage right in front of me, but it's probably at least 25% or close to or exceeding. I know that on the cable side where we do have data allowances and we notify them, 5% of our customers are exceeding the data allowance every month and in addition to that customers are upgrading to bigger buckets, so that they don't hit the data allowances.

Ric Prentiss, Raymond James.

I want to get one other question if I could. Adele, you have that chart where you gave the waterfall on the cable TV year-over-year. Could you do a similar one or help us understand what the quarter-to-quarter difference was in cable OIBDA?

Are you're referring to slide 14, Ric?

Exactly, the slide 14 was year-over-year change where OIBDA grew nicely in the Cable segment from like $5 million to $7 million. I was just wondering, quarter-to-quarter 4Q15, I think was about $8 million and then it dropped a $1 million from 4Q15 to 1Q16, just trying to understand the dynamics of that change?

I'm not prepared to do that off the top my head, but I can work something up for you, certainly.

That will be great, because obviously -- [primarily] the price probably go up as you talked about how the annual price increase went up as well. So, would just help understand a little bit as far as the quarterly change there, that will be great?

Certainly, even on slide 14, you can see the video revenues went up $600,000 and the programming costs went up $600,000. So, consistent with Earle's advice on this subject before we are going to increase our billing rates to cover all of these increases in costs. So, we maintain our absolute margin if not our relative one.

Right, just help to understand little bit more of the quarter-to-quarter changes in there, so if you could look into that --

Understood, yes.

This concludes today's Q&A session, I would now like to turn the call back over to Mr. Adele Skolits for any closing remarks.

Thank you for participating. I'd like to invite you to let me know if there are additional details such as what Ric just mentioned that you'd like to see in the future. My contact information was provided in the press release.

Ladies and gentlemen, thank you for participating in today's conference, this does conclude the program. You may all disconnect. Everyone have a great day.