AT&T Inc (T) 2003 Q3 法說會逐字稿

Good day, everyone, and welcome to the Dobson Communications third-quarter 2003 earnings results conference call.

Today's call is being recorded.

For opening remarks and introductions, I'd like to turn the call over to Mr. Warren Henry, Vice President of Investor Relations.

Please go ahead, sir.

Thank you and good morning.

Today's conference call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These include, but are not limited to, statements regarding the company's plans, intentions, and expectations for '03 and '04.

Such statements are inherently subject to a variety of risks and uncertainties.

Actual results could differ materially from those projected.

We discuss the risk factors that could impact the company's overall business and performance in more detail in our reports filed with the Securities and Exchange Commission.

Given these concerns, investors and analysts should not place undue reliance on forward-looking statements.

Before we begin, please note that our financial presentation for the third quarter includes the results of operations for the two new Alaska properties which we acquired June 17th for the entire third quarter of this year but not last year, and that the acquisition of American Cellular is included only from the acquisition date August 19, 2003.

This is consistent with GAAP.

With that, I'll turn the call over to Everett Dobson, President, CEO and Chairman of Dobson Communications.

Thank you, Warren.

Speaking with us today, we have Bruce Knooihuizen, CFO, and Doug Stevens, our Chief Operating Officer.

Doug will follow my comments.

The third quarter 2003 was a quarter of significant accomplishment certainly at Dobson Communications.

We announced our plan to restructure and acquire American Cellular.

We completed that transaction.

American is now a wholly-owned indirect subsidiary of Dobson, making us the ninth larger wireless carrier in United States.

Also in the quarter, we signed a new five-year GSM roaming agreement with AT&T wireless.

We also signed a three-year GSM agreement with T-Mobile.

We now have the three national GSM providers all under long-term roaming contracts.

In the quarter, we announced the acceleration of our GSM overlay, which should be completed before March 31st of 2004 for all markets except Alaska, which should be completed in July of 2004.

During the quarter, we completely transformed and repositioned our balance sheet, giving us a much more favorable platform to grow this business for the next several years.

Since the beginning of the third quarter, we've experienced a dramatic, and I think, favorable transformation of our shareholder base.

Our total shares outstanding today are 139.4 million, with 111.5 million shares in the public float.

Daily trading volume has recently been averaging over a million shares a day.

In operations, once again in the third quarter, we lowered our cash cost per user by holding to ARPU fairly steady (ph).

On a consolidated basis, which is 100 percent of Dobson and 100 percent of American Cellular, we reduced CCPU from approximately $22.50 in the third quarter to around $21 per customer per month for the third quarter.

This enabled us to increase monthly net profit per subscriber by just over a dollar per subscriber on the year-over-year basis.

Meanwhile, sales improved appreciably from the second quarter to the third.

On a consolidated basis, our 93,500 postpay gross adds in the third quarter were 11,400 below that of a year ago but reflected an improvement of approximately 15,500 -- or 20 percent -- over gross adds in the second quarter of this year.

Before I turn the call over to Doug, I thought it helpful to summarize the Dobson Communications strategy.

First, we want to continue to delever the company, and while our balance sheet, amortization, and liquidity measures are very favorable for this business, we continue to believe getting the company leverage under 4 times EBITDA to is tactically smart.

Next, we want to grow operating income, EBITDA, and free cash flow on a long-term basis.

To that end, we'll take a very calculated, and yet, when needed, decisive approach to these growth objectives.

A good example of this is our recent roaming agreement with AT&T Wireless, the result of which will lower our cost for our customers who roam (ph) for many years to come.

In terms of roaming revenue, or the house select (ph) revenue, as it's sometimes called, we will be the preferred and exclusive provider for both TDMA and GSM service to AT&T anywhere in our footprint where AT&T doesn't currently have coverage -- once again, taking much of the risk out of the revenue stream, and yet providing a very nice margin for this business for many years.

Another example is our recently announced swap with Cingular, whereby we expect to receive Michigan 5 and $23 million in cash in exchange for our Maryland 2 market, further aiding us in strengthening existing clusters with less competition and better growth characteristics.

Next, our growth is very much dependent on our continuing to delever -- or excuse me, deliver superior customer service, a quality GSM experience for our customers, if necessary, and a continuation of the recent trend of an increasing gross subscriber additions -- all of which we think are attainable.

Finally, for the many new shareholders and bondholders at Dobson Communications, we welcome you to what we believe is a very exciting story.

This company, its management team, and all of its employees have accomplished a tremendous amount over the last year.

But recognizing our future value is dependent upon future results, I am confident that (technical difficulty) and determination will be given over the next year and beyond.

And thank you.

And with that, I'll turn it over to Doug.

Thank you, Everett.

Operationally, we remain on track with virtually all of our key objectives for the year.

As discussed previously, the primary objectives were -- continuing to drive aggressive sales and financial results, deploying the new billing and point-of-sale system throughout the company, overlaying GSM trailer (ph) networks and commercially selling GSM service in select markets, and meeting our WLNP guidelines and timelines.

I'm pleased to report another quarter of positive operating performance.

Gross sales on a consolidated basis, including 100 percent of Dobson and American Cellular, increased from 78,000 in the second quarter of 2003 to 93,500 in the third, a gain of 20 percent.

Again, we do report only postpaid gross ads.

In terms of the breakdown of sales by channel, there is almost no change in mix in the second quarter.

Of our third quarter gross ads, our retail stores contributed about two-thirds, and indirect sales to our agent channel were set (ph) to be another quarter of our sales.

Direct sales, which primarily involved business customers, continued to lag, but with the economy recovering, we believe this segment will strengthen.

On a consolidated basis, third quarter churn was 1.9 percent, at the low of our guided range for the year.

As we launch the first phase of the billing (ph) conversion in late July, we are naturally monitoring customer behavior to see if the conversion will have a short-term impact on disconnects.

Although we're only three months into the process, and the majority of our subscribers were converted only six weeks ago, so far we've seen minimal churn impact from the billing conversion.

We saw total managed net ads of 14,400 for the quarter.

We gave guidance three months ago of 32 to 42,000 Dobson net adds for the second half of the year.

Given the normal seasonal uptake in the fourth quarter sales and our more aggressive marketing stance, we still believe we can achieve the low end of that guidance.

Regarding the other management metrics that we normally discuss, we continue to see positive trends.

Weekend load (ph), cash cost per user on a year-over-year basis, and other operating metrics such as aging and accounts receivable and net write-offs, continue to be very strong.

Subscribers under contract and average length of contract continue to increase.

As of the end of the third quarter we have 67 percent of our subscribers under contract, with an average remaining length of contract at over 14 months.

This is driven by our sales channels' continued selling of 24-month service plans.

Approximately 60 percent of our customers in the third quarter selected the 24-month rate plan option.

In terms of where we stand on WLNP, or wireless local number portability, we are in the final stages of completing our workflow management system that will aid in tracking all ports as well as any fallouts or ports that need additional information to complete.

The new system will assist us in the porting inbound and outbound and the 2.5-hour suggested standard.

We said in the past that the first deadline in late November impacts only about 20 percent of our pops, but as a matter of fact, since these markets are less penetrated than our overall average, we're actually talking about 14 percent of our subscriber base being affected by the first deadline.

With the majority of our subscribers being under contract, our actual exposure on November 24 is more like 6 percent of our customer base.

More important than contracts, we believe the real key to retaining customers -- WLNP or not -- is to build a solid network, price our services competitively, and offer world-class customer service.

Customers are not looking to churn if they are satisfied with the service that they can give us -- that you're giving them today.

Based on our ongoing low churn, we do think we're focused on the right fundamentals.

Certainly being predominantly a rural operator gives us the benefit of observing what initiatives and strategies are deployed by other carriers.

The WLNP rollout schedule also allows us adequate time to prepare for the May 24th deadline when the rest of our subscribers will have the opportunity to port their number to a different carrier -- and more importantly, as well as customers from competing carriers having the opportunity to port their number to Dobson.

In any case, we are rolling out some new calling plans as part of our seasonal promotions, and we expect these to have a positive impact starting in the fourth quarter.

The new plans are an expansion of our current offerings.

As is customary this time of year, we will be increasing the aggressiveness of our marketing with added advertising.

I'd rather not expand further on the features of the new plans until they been launched, obviously, for competitive reasons.

I mentioned earlier our billing conversion.

I'd like to congratulate everyone in the organization who worked on the conversion, including our new billing partner, Convergys.

The team worked incredibly long hours, often through the night, and their dedication showed in how well the conversion has been implemented.

We launched the east region in July, and the rest of the regions in late September, with the exception of the two new Alaska properties.

At this point, more than 1.4 million subscribers are being billed from the new billing platform.

The two Alaska properties will be brought online by the end of the month.

I'm happy to report that the new bills from both conversions went out both timely and very accurate.

We've been through an entire thirty-day billing cycle on the new system companywide, and we've been very pleased at the performance and the results.

At the same time we converted our billing system, we launched our new point-of-sale systems throughout our retail stores.

Lifebridge (ph) was the key partner in this launch, and we've been very pleased with its success as well.

With the new billing system, we're now able to track nonrevenue, on-network, off-peak minutes of use -- or more simply put, our night and weekend minutes that are not billable.

Our previous system was not capable of recording these minutes.

Consequently, our average minutes of use per customer for the third quarter are higher than previous quarters.

While there is no revenue or cost impact, the combined revenue and nonrevenue minutes of use will show that our revenue per minute is more in line with other carriers.

As of September 9, Dobson adopted the CPI Consumer Code into its operating business practices.

This code was designed to help consumers better understand what they can expect from the wireless service provider.

The code gives clear guidelines on disclosure of rates and terms, coverage area, contract terms, minimum trial period for new service, response time to complaints from government agencies, as well as a few other solid business practices.

We believe that with many carriers implementing these consistent practices, the wireless user customer experience will be improved.

Before turning the call over to Bruce, I'd like to add that we're very excited about the retail launch of our next-generation GSM/GPRS service.

We've soft launched, meaning no advertising, in three markets already -- our New York cluster that includes Poughkeepsie and Orange County, New York, as well as Erie, Pennsylvania, and Youngstown, Ohio.

We will initiate advertising of these products later this month in those three properties.

Our sales force of competent personnel are going through the customary training and learning curve that comes with new product launches, but initial feedback is very favorable.

The remainder of our markets in the comp (ph) United States are being rapidly built out with GSM technology by our engineering team, and will be commercially deployed throughout the first quarter and early second quarter of next year.

The Alaska network build is scheduled to be complete during the late second -- or during the second quarter of '04, with commercial launch immediately following.

Our primary GSM handset vendors for launch will continue to Nokia and Motorola, with additional vendors being added as needed to keep our product line differentiated and competitive.

We will be offering picture phones and data services via GPRS later this month, with an expanded data offering scheduled for first quarter of 2004.

With that, I'd like turn the call to Bruce Knooihuizen.

Thanks, Doug.

I'd like to note a couple of items regarding our financials, some of which Everett, Doug, or Warren have already mentioned.

First, with the completion of the American Cellular exchange offer, beginning August 19, American's results are now consolidated into Dobson Communications.

We have included in the backup tables a breakout of American, including the pre- and post-August 19 data.

Secondly, the Alaskan properties we acquired from AT&T are in our results for the full third quarter.

Again, we closed on that transaction in June of this year.

Third, in the current quarter we have reflected a onetime $28 million expense associated with the refinancing of our debt.

We will book additional amounts in the fourth quarter as we complete the refinancing.

And finally, on our balance sheet, pursuant to FAS 150, we are reflecting our two public preferred securities -- the 12-1/4 and 13 percent instruments -- as debt.

Along with this change, the income statement will reflect dividends on those securities as part of our continuing operations right below interest expense, rather than after net income, as it was reflected in previous quarters.

Our series F preferred stock will continue to be classified as it has in the past.

Now onto our refinancing activity.

We have had a busy summer of restructuring, refinancing and simplifying our balance sheet.

I thought it would be helpful to spend a minute recapping the events of the summer and the improvements to Dobson Communications.

In August of this year, we completed the restructuring of American Cellular.

Through that transaction, Dobson Communications now owns 100 percent of that entity.

In the restructuring, the balance sheet of American was reduced from 1.6 billion of debt to approximately 900 million, reducing its leverage down to 4.4 times.

In addition, we eliminated all bank debt, aside from a small $30 million facility, which has the effect of not only eliminating the bank's maintenance covenant requirements, but we've also eliminated any required debt amortization, allowing us the utmost flexibility.

After completing the American Cellular transaction, we turned our attention to refinancing Dobson Communications' balance sheet.

In this project, we issued 650 million of new 8-7/8 senior notes, and negotiated a new 700 million credit facility, of which 150 million is an undrawn revolver.

In addition, Dobson has the ability to raise an additional 200 million in this credit facility under certain circumstances.

The proceeds from these two offerings were used to pay off both the Dobson as well as the Sygnet credit facilities, redeem the Dobson Sygnet 12-1/4 senior notes, and to redeem approximately 250 million of the Dobson 12-1/4preferred stock.

And obviously, we've combined the Dobson and Sygnet operating units as one.

While these two transactions did not have an impact on Dobson Communications' total leverage, we reduced required amortizations over the next three years by over 500 million.

The required amortization had been 1.3 billion under the old structure, and it is now a total of 800 million, or a reduction of 170 million annually, under the new structure.

In addition, our cost of debt including the preferreds was reduced by 40 basis points to an 8.4 percent effective yield.

So now, as a consolidated company post our refinancing, we've brought our net leverage through our preferred stock down to 5.2 times.

Our cost of levered capital has been reduced by 40 basis points, and we have reduced required amortization over the next three years by $500 million.

Secondly, we have also made great strides in increasing the float and liquidity of our stock.

Through various transactions, we have increased the number of shares held by the public from more than 20 million shares to more than 110 million shares currently.

Our daily average volume has increased from 250,000 at the end of last year to 1.5 million shares over the last two months, with minimal impact in the market.

Approximately 40 million shares were redistributed from a concentration of three shareholders to over 50 new funds.

Finally, I'd like to talk briefly about our capital expenditures.

At (ph) the end of the third quarter, we have spent 146 million in the combined Dobson and American markets.

Of our 17,000 cell sites, 275 were loaded with our new GSM technology.

By the end of this year, we expect to spend total capital of 225 million to 235 million with a GSM signal available on 575 cell sites.

Much of the capital spend in the fourth quarter will be for cell sites that will turn on GSM in the beginning of next year.

As Doug has mentioned, we have begun initial GSM offering in some of our regions.

We are on schedule to complete the GSM overlay by the end of Q1 next year, with Alaska scheduled to be completed by Q2 of next year.

And with that, I would like to open this up for any questions.

Thank you.

Thank you, sir. (OPERATOR INSTRUCTIONS) Rick Prentiss, Raymond James.

Wanted to focus on a couple of items -- number portability, USF, and some other items.

On number portability, I was pleased to see that your amount under contract has gone up quite a bit.

Can you talk to us a little bit about what is the termination fee in case somebody does decide to leave and break a contract, and what your experience has been, historically, if people have been breaking contracts or not is the first question?

Yes, I'll be happy to answer -- this is Doug.

Our termination fee is based on the number of months you have left on contract, and we charge a flat $20 per month of remaining contract months.

So if you have six months left under contract life, you can get out of that contract for $120.

And to be honest, we see very little of the payouts.

People prefer to ride them out.

I mean, the facts are -- you can tell by our churn being relatively low.

I think their pretty happy with the service.

And so long as we keep providing quality service, they don't have a real need or desire to pay a premium to get out of that contract term.

Okay.

So I'm curious -- have thought about, but we haven't seen a whole lot of specifics yet as far as -- will there be any separate fees to port somebody from one carrier to another.

Can you break out for us how much of your ARPU today is kind of regulatory fees and how much of that is for number portability?

And would you expect to be charging a separate fee if someone does request to leave your network?

Right now, we have it all lumped into one regulatory fee.

And that regulatory fee for the bulk of the company is $1.26 per month.

That, obviously, is not just portability.

That also has in there E-91 (ph) and host of the other mandates that come with the services that we provide.

So -- and part of the contract with Sygnet prop (ph) is it is a little bit less now -- it's 50 cents right now compared to the rest of the company at a buck 26.

Okay.

And would you expect to be charging a fee if someone does request to be ported?

At this point in time, we are not planning on doing that.

We are rolling that into the regulatory fees we have out there right now.

And one question that seems to be swirling around in the marketplace is expectations of -- will carriers -- let's call it eat the termination fee?

That if someone were to come in to you and say they wanted to leave operator x and come to your network and they were under contract -- what's the math you go through in deciding -- would you pay for that extra cost on top of a normal CPJ -- or is it something that doesn't make math sense to you?

At this point in time, we would expect customers to fulfill their obligation.

I think that's kind of the way we look at it.

They did sign a contract with us.

We gave them something for that contract term.

And so it would be our expectation that consumers would -- and I think most customers look at it the same way.

They did sign for 12- or 24-month service contract, and we don't anticipate that being a big item.

As people want to move around, they've got an option through their early termination fees that are in there.

I think ours are reasonable.

So we're going to continue to work real hard at providing good quality service and hope that very few want to leave anyhow.

Sure.

And just kind of coming from a standpoint of do we expect the Armageddon that some people have kind of forecast out there -- it doesn't seem like it from our sense, given the number under contracts, the average life left, and the termination fee.

I think consumers maybe would act rational, which is also kind of I guess what I'm hearing from you.

Yes.

Okay.

On universal service fund, can you update us on -- as far as outset (ph) goes -- I noticed out there in the database that you are starting to show up in some areas -- particularly Oklahoma -- as getting closer.

But just an update on kind of that process and when you think we might see some make it to the financials?

It's an '04 event.

We haven't really indicated yet at what point in '04 and what states.

We are pretty actively moving forward in all states that we think that we do have a shot.

Unfortunately, it's hard to describe.

You really don't receive -- you really don't anticipate nor do you know when you're going to receive the revenue until you actually start to receive it.

In other words, the state regulatory process is slow and somewhat surprising in terms of how they go about it.

But again, it's an '04 event.

Kind of like making sausage -- it's good once it gets done, I guess.

Thanks, guys.

Those, by the way, were all good questions.

We appreciate them.

I think we have -- just so everybody understands, we have been reluctant in the past to limit the number of questions.

Obviously, a lot of companies ask for one or maybe two questions.

We're going to continue to not limit the questions.

But just everybody, if they can, be mindful of trying to move it along so everybody gets the chance.

Phil Cusick, Bear Stearns.

I have a bunch of questions, but I'll limit myself to just a couple.

It's mostly on clarification stuff.

Could you start off and talk a little bit about the net ad guidance of 32 to 42 in the second half?

It sounds like you are sticking with that.

Can I take it to mean that October and the first half of November have gone well?

And that's, again, just the Dobson properties, not the Amcell for that 32, 42?

I wouldn't say we're ready to disclose how October and November have been.

But I think, as Doug said, we're -- the seasonal impact continues -- or the seasonal impact in the fourth quarter is as we expect.

We expect to get at or near the low end of that previous guidance.

Second of all, can you give us the total roaming minutes of use both at Amcell and DCEL, and maybe if you could break out Alaska for us, as well?

I don't know that we have that in front of us currently.

It very well may show up in the Q (ph).

How about just the total roaming minutes across the company?

(multiple speakers) We do have the total.

The total roaming minutes on a managed basis -- so this would assume (multiple speakers) that we had ACC for the full period.

I've got about 440 million minutes for the quarter.

Okay.

So that looks like -- overall, the rate stayed pretty strong, but the MOUs didn't come up at the level that many of us have been expecting.

Is that correct?

What -- I'm sorry; which rate are you talking about?

The overall roaming rate held up pretty strongly.

Actually the yield came down.

Again, what I gave you on the minutes assumed we had ACC for the full quarter.

And actually, the yield came down -- as we talked about the new contracts we signed, the yield was closer to about 18 cents.

I get at 18.5 cents at 440.

Does that make sense?

That make sense.

And then maybe you could just talk about any trends from Alaska versus maybe California in terms of seasonality and things like that?

Alaska is very seasonal, as you might expect.

It -- you know, the strategy in Alaska, as well as elsewhere around the country, is to increase access for a -- and, obviously, increase minutes without increasing hopefully the value proposition, ARPU, and profitability all in.

And as such, we've been able to -- over the last couple of years, anyway -- create less of a seasonal impact on the local business.

And that's -- the same is true in Alaska.

And Alaska does have a higher ARPU to begin with.

It also has a higher cost structure to begin with.

But on a roaming basis, Alaska is relatively small -- very small, in fact, in terms of the roaming minutes and dollars associated with it -- albeit it is very seasonal, as well.

Maybe one more and then I'll let go.

In terms of 2004 guidance -- any changes to that?

Maybe the range of EBITDA, given this quarter?

We haven't -- we're going to go through the budgeting process.

We're going to see what the fourth quarter is.

And we're going to address any changes.

We released some very high level guidance on '04 several weeks ago now.

But we typically look at the end of a fiscal year -- calendar year, in this case -- before we expect or want to release anything concerning the following year.

And that puts us into February, and I expect we'll have a fresh look and be able to give a more clear indication of our thoughts and beliefs at that time.

Matt Tyson (ph), Credit Suisse First Boston.

I will try to be relatively quick here.

I have three questions.

First, just as a follow-on to the prior question.

So you're not going to provide today the breakout between the American Cellular roaming that's used and the Dobson Cellular roaming that's used?

I don't think we have it in front of us.

We may be able to provide that in the Q (ph).

Okay.

So -- but -- is -- as we look at the roaming sequentially at Dobson cellular, it's safe to assume that the majority of the falloff there is due to Alaska being included for the full quarter as compared to a falloff in rate?

Yes, that is exactly right.

Okay.

And then secondly, on LMP -- you talked about and gave a little bit more clarity as far as exposure from a subscriber standpoint at 14 percent on a total Dobson Communications basis.

Could you just break that out between American Cellular and Dobson Cellular?

I would need to do some math on that.

But it is not dramatically -- it's not tilted one way or the other, I guess is a fair way to say it.

It's probably real close to half and half.

And then, finally -- I'm assuming that the EBITDA guidance that you've given out for the full year -- you remain comfortable with that guidance for your '03?

For '03, yes.

Ethan Schwartz, CRT Capital Group.

A couple of questions.

First, what were total minutes on both the Amcell network and the Dobson network, including Alaska, this quarter?

The total minutes on our network were about 1.6 billion.

That's including Amcell and Alaska and everything?

That's including Amcell for the full quarter, Alaska, it includes the home minutes as well as roaming minutes on our network.

Okay.

And that's also post any new minutes you learned of because of the billing switches and so forth --?

That is correct.

Second of all, it looked as if G&A came in somewhat higher this quarter.

Was something going on there?

Or -- you never really hit close to 40 before.

Compared to last quarter?

Compared to last quarter, including -- I mean, I would assume that a little bit of that was California (technical difficulty) discontinued ops (multiple speakers) anything unusual in there, including related to the refinancings and so forth?

No.

Almost all that increase was due to Alaska now being in those results for the full quarter.

And then finally on the roaming yield -- where should we look at it coming down to in broad strokes within sort of four quarters forward?

You've sort of gone from the 21 or 22 range down to about 18.

Where do you peg it four quarters forward?

Well, I think with TDMA, you're going to see it continued to drop a little bit between now and next year, mid-next year.

And then it'll start to stabilize for several years.

With GSM, it's going to start at a lower base.

But again, in GSM, we're not going to have the stepdown-type approach that we have experience with TDMA.

So as minutes grow from GSM -- and that's an interesting point, because we really haven't received any GSM minutes to date.

And I suspect both AT&T and Cingular, some 50 (ph) percent of their subscriber base, we believe, is currently GSM.

So as we roll out our GSM network, those subscribers will be able to utilize our phones -- our network, and thus our roaming volume should benefit.

So on the TMA (ph) side, for example -- is it kind of a mid teens level where it sort of starts to taper out?

Or is it low teens, or -- can you give me some sense?

I don't know that we're prepared to discuss that in that terms just yet.

Kevin Roe, Roe Equity Research.

Doug, can you give us an idea of the GSM commercial coverage in terms of pops covered, where you expect -- where you are now, where you expect by year end?

The pops covered right now are probably in the 10 to 15 percent range.

And that is where we're going to be from a commercial standpoint by year end.

We have got the markets built out completely that we're going to have ready for commercial.

Actually, that's not true; we've got some others that are -- there are some types of (ph) properties coming up.

But we won't commercially launch anything else this quarter, only because of what goes on in mid-November on -- it's so busy, anyhow.

To try to deploy new technology would be a little complex.

So the buildout of sites (ph) I think will be about a third of all of our sites deployed with GSM by end of the year.

And the 10 to 15 percent of the pops being commercially launched -- that's going to happen -- that's going to be achieved by year end, but right now it's zero -- you haven't launched any --?

No, that 10 to 15 has already happened.

We're not advertising yet.

They're soft launched.

We're going to start advertising in those three properties later this month.

But we are -- the product is being offered for service today in the retail stores.

Got it.

When contrasting the operational performance of the Dobson subsidiary and the American subsidiary, there's -- obviously continues to be a big gap.

What have you identified as being the primary reason for the lack of EBITDA and revenue growth at the American subsidiary and how that can be addressed in the near- and longer-term?

I don't know what -- I hadn't really focused on American not growing.

It did have, you know, a couple of quarters where its ARPU declined a little bit, but since then it's come back.

I think Dobson and American both should grow, and we expect them to grow in a very similar manner.

If you look over the last three years, particularly, you have seen both of the companies over that timeframe grow in an almost identical manner -- albeit one might speed up or slow down, as the case may be, in various areas.

But generally speaking, we operate the markets identically.

And we expect them to grow almost in an identical manner.

Okay.

Everett, since I've got you -- sort of a bigger picture question -- rural consolidation's on the minds of many -- can you give us an update of your philosophy of rural consolidation, if it's necessary, and what role Dobson may or may not play in that?

Well, I don't know that it's -- wouldn't characterize it as necessary.

I do think there is likely to continue to be consolidation.

If you look at, particularly, some of the smaller operators -- and I don't want to point out anyone -- but I think it would be very difficult today if you are a single- or two- or three-market operator to be prepared to deliver on the next generation of technology, to deliver LNT (ph), to compete against other broadband type offerings in the next generation.

And God forbid you have five or six or seven competitors in your market.

So it is a challenging environment.

We are very fortunate that we've got enough scale and scope to be able to address all of the things that I just mentioned -- and I think do it very favorably.

So I think there is -- there will be a continuation of consolidation for that group.

When you look at the possibility of some of our peer groups consolidating, I think there is certainly that possibility.

I think it's been theorized and discussed a lot lately.

But I don't necessarily think it is necessary, or it's required, or that we gain tremendous from it, because there's not a lot of overhead that would be eliminated in a transaction that involves a lot of the peer group (ph).

There's some.

No question.

And it would be helpful.

But it's not -- it would not be a dramatic influence on the valuation.

Daniel Moore, CJS Securities.

Couple of quick questions.

Cap-ex -- your guidance all-in for Dobson and American Cellular for the full year is the lower end of the range.

Is that it a timing issue?

Will there be a little bit more of a buildup in the first half of next year?

Or is that just a true reduction in guidance?

No, for the most part that's just a true reduction in the guidance.

We are seeing very little slippage from this year into next year.

Okay.

And drilling down a little bit, the EBITDA guidance for the full year -- I think it implies in Q4 about a range of 106 to 123.

Can you get us a little bit more color in terms of -- I know you said you were comfortable with that.

Are you comfortable with sort of the midpoint, the lower end of the range, or any more color that you might have there?

We really don't have any additional color, other than we're comfortable with the range right now.

And you know, the fourth quarter -- obviously so much is dependent on a number of factors.

A number of our markets are very seasonal in terms of usage patterns.

Obviously, the Christmas selling season has a big impact in where we might end up, as well.

So there are a lot of factors right now that -- I hate to suggest we'll be the top or bottom end of that range.

Okay.

Just in terms of marketing expenses, you mentioned obviously, you'll have a little bit of a ramp for the holiday period.

And then as you start to deploy GSM, would you expect to see a continued ramp over the next few quarters?

Will (ph) we look kind of on a -- kind of look backward as to the normal seasonal pattern and marketing expense?

I think that it would be -- traditionally, you can look back on historical data.

I do think it may be a -- we may spend a little bit more in the fourth quarter this year because of all the things going on.

But it's not going to be dramatic.

And if I could clarify one thing, also -- the question was what was the split of markets that are going to be affected by WLNP.

And I said about half.

It's really tilted a little bit to Dobson -- I'd say about two-thirds to Dobson, about a third back to American.

Closer to the pop count.

And that's primarily driven by the Youngstown property and the property up in Maryland.

Ken Leone (ph), Standard & Poor's.

Yes.

I wonder if you can give us guidance in terms of the fourth quarter on not only Dobson but what the net subscriber additions will be, and also in terms of EBITDA?

You wanted it broken out between Dobson and American?

Yes.

We have not previously done that.

But again, I don't -- as we've said, we are prepared to say that we don't expect anything significant or materially different in terms of the way we operate the businesses, nor any of the -- nor anything impacting one of the subs -- subsidiaries or the other.

LNP, obviously, as Doug said -- it's going to affect American a little less.

But again, we don't expect a lot of impact from LNP in the fourth quarter.

So American Cellular -- just on EBITDA service (ph) margin trends -- would you expect, then, an improvement over the next two quarters, or that would take time?

Actually, I think on the EBITDA, we do have that spread out.

We gave American guidance for the whole year being 189 to 195.

And so you can work through and get Dobson based on that, because we gave that as well.

Sam Martini, Cobalt Capital.

Back to -- start us (ph) -- cash from operations what was that for the quarter?

Pure cash?

Pure cash.

Pure cash from operations was about positive 32 million.

And cash balance as of today -- a month and a half after the quarter end -- is that still around 220?

Well, around the same number.

Cash has not moved materially.

Okay.

Can -- what are we going to do with that cash, do you think, going forward?

Obviously, there's restricted payment language in both of the new indentures, as well as the legacy 10-7/8.

What are we going to do about these preferreds?

Can you guys give us some color on the negative?

I mean there's a pretty big negative carry (ph) -- you guys are producing cash -- steady-state cap-ex would make you meaningfully free cash flow positive starting sort of, say, early to mid '04.

How can we -- can you give us any update?

I mean, I'm assuming you're not selling stock down here -- with the stock down 12 percent, 7 dollars -- what are your guys' thoughts on continuing to reduce your cost of capital going forward?

Yes.

I think there are a couple of questions there.

First question is -- what are we going to do with the preferreds?

When we look at our capital structure, the two preferred -- the 12-1/4, 13 percent -- obviously, jump out of the page as being our highest cost component of our debt.

And certainly, we would like to continue reducing our cost of debt, taking out some of those high-priced pieces of paper.

And so obviously, they're a target of ours if we can get them back at the right price in the right time frame.

So I will just state right out that in terms of improving our balance sheet, those are certainly targets -- obvious targets.

And there's a lot of means to do that.

The 12-1/4 currently are callable.

We have about 100 million -- a little over 100 million left on those securities.

Our 13 percent, which are not cash pay yet, but they are picking (ph) -- they have become callable early next year.

And so we have some opportunities with that.

(multiple speakers) In terms of our cash -- yes, we had 220 million.

Is that the right balance of cash to have on our books?

When we look at our cash balances, certainly we want to keep some reserve -- some is at (ph) different entities.

Do we have some opportunities to use some of that cash to buy securities?

Absolutely -- I think we do.

And that is something that we'll look at.

What about buying the 10-7/8 in the open market?

I mean, it's still yielding 8.5 percent, it's still a pretty -- far better than a point in the quarter (ph), which you're probably earning today?

It all comes down to -- dependent on the security that we purchase, it all comes down to the economics.

What is the best return?

Because we certainly don't have enough cash to buy all those securities.

Fair enough.

Billing conversion -- do you think the shakeout from the billing conversion is behind us at this point?

Any shakeout that we would expect to see?

Bills are out, they're timely, they're accurate, we've had a thirty-day cycle --?

Early indication has everything going as planned.

I mean, there were no surprises that came out of this thing.

And we are extremely pleased where we sit right now.

I think the first bill is the hardest to get past that.

You certainly -- your risk is mitigated tremendously.

And I think that's where we're sitting right now.

Okay.

And then just finally back to the seasonality of Alaska -- can you give what Alaska's roaming minutes -- do you happen to have what it grew from '01 to '02?

Well, the problem with that is what is roaming to AT&T in those periods you discussed is dramatically different than what is roaming to us today.

If you can understand -- today we own it, and AT&T's roaming will be roaming on us (ph) -- what AT&T owned, AT&T did not roam on AT&T.

So it's not -- you really can't compare prior years when you look at roaming on Alaska.

I mean I think that everyone is trying to get at the same thing, which is clearly roaming minutes if you use correlatives (ph) -- is lower, and clearly the offset to that is that service revenue is up, which should take seasonality out of the business.

So I think if we're at a 131 of EBITDA for the quarter, which seems like a sort of steady-state number, typically Q3 has been the seasonally strong roaming quarter, which bloats EBITDA relative to other quarters.

How can you help us in analyzing the recurring cash flows to understand what seasonality is left in the business, given this Santa Cruz Alaska swap?

I mean, it seems like it would be dampened -- but to what extent?

I don't know specifically how much more I can offer right now.

I can give you some of my thoughts on how we run the business and how we're trying to position this business.

We have been very active in trying to, through swaps, position ourselves to have more clusters, higher profit margin, more successful local operations.

Alaska certainly fits that bill.

We did -- I think a couple of points to note, in the third quarter -- excuse me, from the second quarter of '02 to the third quarter of '03, we had a significant increase of roaming minutes between those two quarters in just sequential volume.

Third quarter of '03, we had double-digit growth off of that higher roaming volume.

So roaming minutes are continuing to be very significant.

Despite that -- or I guess, as a part of that, we've been able to increase the length of contracts with our roaming partners.

We've been able to add roaming partners.

We have been able to deliver to GSM, albeit the results are yet -- or the minutes are yet to come -- that will enable us to track those minutes for several periods.

And in terms of running the business, we have been increasing -- as I said earlier, we've been increasing the access fee, putting more minutes into the plan on the local side.

And as you look at our business, I think -- what was it, 27 percent of our revenue came from roaming, which means, obviously, 73 percent were local in nature -- and a very high margin, a very nice margin.

So we're going to continue to do what we've done, and provide guidance in the manner and in the way we have.

And hopefully by February of next year when we release our year-end result, we will have a much clearer picture for '04.

But today we're going to stick with the guidance that we previously issued.

One last thing -- I apologize for the flurry of questions.

But roaming yields down 22.5 percent -- clearly, we had two hits from Alien in July.

Is it safe to assume that we won't -- that this is the last sort of big stepdown?

Obviously, there's annual stepdowns going forward in December and July and next -- in the immediate December and July, most notably.

But we shouldn't see such severe stepdowns going forward.

Is that fair, or --?

Well, we do have a stepdown from Cingular in the fourth quarter of this year (multiple speakers) -- in December of this year.

But beyond that, yes, you're right to assume that the stepdowns that you see and you've experienced are -- will be basically the major, material stepdown, all things being equal.

I'd like to have another stepdown of the same nature we had, if we can create as much value to this franchise and this business that those stepdowns did.

Keep in mind we stepped down Alcollect (ph) roaming rates at the same time we dramatically stepped down end-to-end collect (ph) expense rates that we are charged.

That was a very rare occurrence when we were able to do that and get as much value, long-term value, as we were able to receive.

But to answer your question -- you have seen -- on the -- if you want to look at Alcollect -- yes, you've seen the -- (multiple speakers)

So I guess stepdowns are behind us.

Mel Stewart (ph), Garnellan (ph) Financial.

Mr. Stewart, your line is open.

Please go ahead with your question.

Sir, you may want to depress your mute button.

Hearing no response, we'll move on.

Dennis Sweeny (ph), Grotovin Research Partners (ph).

I just wanted to ask a follow-up question on the regulatory fees and your ARPU.

Has that been pretty much steady-state for the past few quarters?

We implemented the increased regulatory fees about a quarter and a half ago.

Well, a portion of it.

Yes.

We were -- yes, that's right.

We stepped -- we increased it about a quarter and a half ago.

We've had regulatory fees out there for several years (multiple speakers)

Yes, we had -- we went from roughly 50 cents to $1.25, $1.26 (multiple speakers) couple quarters ago -- or a couple of months ago, I guess (multiple speakers) May of this year (multiple speakers) in the second quarter.

And do you have any plans going forward to roll that back to 50 cents?

To roll it back?

If our regulatory expense are rolled back, we would.

But I don't see that happening, quite frankly.

Right, okay.

And then you mentioned your -- the value creation on the reduction of in-collect/out-collect.

And I was wondering if you could -- if you have that in-collect/out-collect ratio on a per minute or an expense basis?

You mean ratio in terms of -- ratio to what?

The ratio of the minutes roaming on to your network as opposed to your subs roaming -- (Multiple speakers)

Yes, sure -- it's a little less than 2 to 1.

We're getting 2 out-collect minutes for every 1 in-collect.

Consolidated --

On a -- yes, managed basis.

Okay, great.

And then one final question on the billing system -- how many subs did that get applied to?

A million 4 as of right now, approximately.

Out of the million 6.

Okay, great.

And I was wondering if you would share anything you learned about your usage patterns in terms of daytime?

I mean, I know you just got daytime versus nighttime info now.

And I was wondering how that broke out, and what -- maybe across the entire company -- what total minutes of use were just home minutes -- per sub, that is?

Anyway, while -- Doug is looking for that.

I think it's a good point along those lines to say what we were very pleased to -- I shouldn't say discover, but what we were very pleased from the billing conversion, we were pleased to find out that we didn't lose any subscribers, but we in fact -- we were billing the subscribers that we thought we had, and in an inaccurate (ph) manner before.

There was not any really dramatic shifts or changes to our subscriber base from one billing system to the other.

And I think in my experience, and most of it (ph) would suggest that that's somewhat rare -- to go through a billing conversion without -- with as little impact as we received, as we had.

And now -- back to the question.

We were running about 250 minutes of use.

And we're going to see that run -- and what we expect, because what we're seeing right now is the change in only the east regions.

The rest of the regions come in -- assuming their behavior is comparable, we would expect to see the total minutes of use go to about 400.

Phil Cusick, Bear Stearns.

Hey guys can you hear me?

Thanks, I just wanted to go back to the roaming minutes.

I think we've covered the yield, and I think Sam got that pretty well.

But from 397 to 440, we had been seeing 20 plus percent increases in roaming minutes year to year until this quarter for quite a while.

And with a 12 percent increase based on your 440 -- I'm wondering what's changing?

Alaska has come on this quarter -- and maybe you can help us out in just a general number as to what number of minutes are coming from Alaska -- but it seems that you're losing minutes.

Is that the overbilleds?

Are we losing minutes somewhere else?

Is the seasonality gone?

Should we be looking at more in the 12 percent going forward in terms of year to year increases -- is what I am looking for.

Let's take a step back.

I think you were probably offline when I raised the issue a few minutes ago, but from the second quarter of '02 to the third quarter of '02, we had a dramatic and significant increase in minutes.

Since the third quarter of '02 through the third quarter of '03, we've seen pretty consistent sequential growth that is in line with what you expect -- with what we have seen -- or what we historically have seen.

But we had that sudden impact in the growth in the roaming base from Q2 of '02 to Q3 of '02.

So what you saw in the third quarter, and you have seen for the last -- what you saw in the third quarter is a growth off of that one time -- the first quarter we've seen a growth off of that significant uptick in roaming traffic a year ago.

And in low single digits, I think, is pretty decent growth off of that base.

Now, I will comment, I will state the obvious -- AT&T and Cingular have been trend -- we don't receive GS -- we didn't receive any GSM traffic in the third quarter.

It was all TDMA.

AT&T and Cingular have both started migrating, transitioning their base from GSM -- or TDMA to GSM.

So if it's 15 percent, then there's 15 percent -- presumably, there's approximately 15 percent of usage that is not -- that has yet to be delivered.

When we roll out GSM, we expect those minutes to start to flow.

Beyond that, you have to factor in how AT&T has done in the market, how Cingular has done in the market.

Cingular had a very good quarter in the third quarter in terms of net adds.

AT&T had a slightly less impressive quarter.

So as you look out, you need to analyze not only how they do in terms of the number of subscribers that they add, but also -- perhaps even more importantly -- you need to try and determine what the usage of those subscribers is.

Is it going to go up?

Is it going to stay flat?

I think most would argue that the usage -- generally, across the board, the usage from cellular to wireless subscribers is going to go up pretty significantly.

Are those subscribers going to roam?

Most -- not all, but most.

I think that's a lot of color.

But if there's anything else that I can add, I'll certainly be glad to.

Sure, in talking about the sequential -- and I understand where you're coming from -- in '02, 2Q to 3Q, we saw 18 percent increase. '03, it was about 19.5, and this quarter was about 11 -- a little under 11.

And so it seems that, as people said before, the seasonality is coming out.

We just hadn't expected it to come out to this level.

Yes, and I don't know what the expectations were, but again, you're growing off a much larger base -- 25, 30 percent growth when you're talking about over 400 million -- approximately 400 million minutes in the quarter is difficult to sustain.

As we -- again, as GSM starts to transition, we expect an uptick to that.

I think, over time, we'll see an uptick to the VoiceStream (ph) minute.

We have quite clearly gotten out of two high-profile roaming markets.

So you need to factor that in.

When you look at California, you look at Maryland 2, those were -- California 4 and Maryland 2 were the top two roaming markets in the company for the last several years.

And as you look at our financials on a prospective basis, those two markets will no longer be a part of this company.

Rachelle Elberg (ph), JSI Capital Advisors.

I couldn't hear you clearly when you said what percentage of your base of subscribers is on contract at the end of the third quarter -- was it 57 or 67?

67.

Six seven?

(multiple speakers) Those are on two year.

But under contract it's closer to -- no, it's 67 percent under contract.

And what we signed up in the third quarter on two-year contracts was -- about 60 percent of our new adds in the third quarter signed two-year contracts.

All right, so 60 percent of the net adds in Q3 are on two-year contracts.

And at the end of the quarter, two-thirds of the base is on contract in general.

Actually, 60 (ph) percent of the gross adds signed two-year contracts

Rick Prentiss, Raymond James.

One quick follow-up.

Cingular had a presentation today to analysts at the BellSouth analyst day, and they talked about not just their GSM rollout and how they're looking to bring down costs, but also that they're going to be launching a push-to-talk product expected in the first half of next year.

How does that affect your business?

Is your roaming contract with Cingular -- is there any stipulation that you have to match what they have done on the push-to-talk launch when they do that next year?

And if so, is there any capital expense to you or any additional roaming revenues?

The answer on the first part is no.

There's no obligation to match (ph) them on that.

I will say this, that we are -- we will be trialling (ph) a push-to-talk offering ourselves in the first quarter of next year, and expect to -- if it goes favorably, which we see no reason that it wouldn't, we expect to follow in the footsteps of Cingular to launch our own push-to-talk.

In terms of roaming minutes or -- let me put it this way -- there's nothing in the roaming agreement that differentiates a push-to-talk minutes from a traditional voice minutes.

If you look at Nextel and Nextel partners, when they launched their nationwide direct connect, that was actually a nice added boost to their ARPU was offering the nationwide aspect of push-to-talk.

So that's where I was kind of coming at it from is -- if Cingular is going to launch push-to-talk on a GSM platform and you're going to provide roaming services, is there some upside above and beyond like normal roaming then -- similar to what Nextel saw?

Yes, I mean -- you know, I thinks it's a long way between today and having what I'd say the non-Nextel operators, including ourselves, have a significant and material impact in push-to-talk business.

Nextel has -- give them a lot of credit.

They have done a tremendous job in going after that business and creating a niche in that area.

And I think as we look out for the next few years, it's upside for us.

There's no question it's upside.

But to suggest that today that -- from roaming volume, particularly -- that because of success of Cingular or AT&T perhaps in that line -- we will start to see an uptick.

I hope we do.

But it remains to be seen, I guess.

With what you have done so far in the trial, any expectations of what the capital requirements would be if you were to expand that trial to your whole area?

What kind of price per pop, roughly, is this solution looking at?

Is it software-based, is it switch-based?

Just kind of -- a little more color on what the push-to-talk cost might be, if you could?

Yes, I don't think we have anything concrete today.

I think it would be relatively minor -- nominal.

And it is -- as I understand it, it is mostly software-based.

Okay.

And similar to the solution Cingular is putting out there?

I can almost assure you it will be identical to what Cingular is trying to do.

I mean, if you look at Cingular's operations and Dobson Communications, they are very similar in terms of our -- first of all, our strong belief that 850 spectrum is superior.

And we try to utilize the 850 spectrum as much as we can.

We develop our system, our architecture, our whole engineering in a very similar manner.

If I could say one thing, that if the launch is occurring, we expect it to be -- the trial in the first quarter of next year.

And the reason it didn't happen -- we're going to trial it fourth quarter.

We're waiting for an 850 handset to be able to have the functionality, the push-to-talk on GSM.

And that is forthcoming.

We expect to see those early next year.

Dennis Sweeny, Grotovin Research Partners.

I think you mentioned earlier that you were looking to put some new plans out there for the fourth quarter.

I was wondering if you could talk about what's new about them?

Larger baskets or -- what's changing?

I knew you were going to ask that question.

They are new, and I guess -- I don't want to get into specifics, because they have not been rolled out yet.

But I would say two things about them.

The analysis that we have put out -- what we expect to happen with these plans is A, incremental gross adds, B, higher ARPU, and C, at least the real ARPU that we have experienced off our current rate plan offering.

So I think some people here would actually -- you hear "new rate plans", you immediately think they're going to drop prices and load up (ph) a bunch of minutes.

What we're doing is we're going to modify some offers that we have and put out some brand new ones that are pretty exciting offers for us.

And based on what we expect to happen, it is all about incremental gross adds, yet maintaining our real ARPU.

That's the bottom line of what we're targeting.

But we think it'll be ARPU-accretive, not negative to ARPU.

Real ARPU by the weight is defined as gross ARPU less the end-collect, or our cost of our customers to roam.

Gentlemen, we're standing by with no further questions at this time.

I would like to turn the call back over to Everett Dobson for any closing or additional comments you would like to make, sir.

Well, obviously, we appreciate the attendance -- particularly all the new shareholders and bondholders we have.

We recognize we've had a whole new base of owners of this company.

And we welcome you, we welcome your calls and your questions.

We stand ready -- all the team at Dobson stand ready to take follow-ups.

So once again, we appreciate your time, and look forward to the next call.

Thanks.

This does conclude today's conference.

We do thank you for your participation.

You may disconnect at this time.