AT&T Inc (T) 2004 Q1 法說會逐字稿

Good day everyone and welcome to the Dobson Communications first quarter 2004 earnings results conference call.

Today's call is being recorded.

For opening remarks and introductions I would like to turn the call over to Mr. Warren Henry, VP of Investor Relations.

Please go ahead, sir.

Thank you and good morning.

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

These include, but are not limited to, statements regarding the company's plans, intention and expectations for 2004.

Such statements are subject to a variety of risks and uncertainties, and actual results may 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.

Once again this quarter our financial presentation as explained in yesterday's press release and 10(Q) is affected by the June, 2003, acquisition of the two new properties in Alaska; the August, 2003, acquisition of American Cellular; and the mid-February, 2004, acquisition of Michigan RSA5.

Results of the acquired properties are included in our first quarter 2004 results, but not in those for the first quarter last year.

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

Thank you, Warren.

On February 18th, we gave an investor conference in the New York that lasted some 3.5 hours and contained 121 pages of slides.

At that time we wanted the investment community to have a complete and comprehensive overview of our business.

While acknowledging it's only been 2.5 months since the conference, I am pleased to report our view of the world and this business has not changed.

We have not shifted our strategy nor changed our focus.

We continue to believe that our future shareholder value is largely dependent upon our ability to grow subscribers and increase the profitability of those subscribers.

We further believe that our commitment to an recent overlay of GSM technology is our catalyst toward achieving our financial objectives.

Roaming revenue will continue to be a meaningful cash-flow source to us, however it is not our growth engine.

In fact, our strategy has been to effectively trade roaming profits for local profits.

In February, we outlined numerous goals and objectives that are important to us in 2004 and beyond, and we continue to be on track to meet those goals.

More specifically, I thought I would address some of our most important initiatives in more detail.

Starting with our GSM overlay, which for the Continental U.S. was completed as-planned on budget before April 1 of 2004.

For Alaska, we continue to be on target for an end of June completion.

Moving now to the initiative of attracting new subscribers.

As we said in February, we expected that it would likely be well into the second quarter before we started to see improvement in growth adds.

Given that our local GSM loss for the majority of our company occurred on April 15, and our new add campaign was launched, in the few weeks after that, it is still too early to meaningfully measure any changes in sales production, although as Doug will point out in more detail, we are confident in initiatives for increased sales volume that we have or will have rolled out.

I can, however, point to a few bright spots that are measurable.

First, churn continues to be in line or below expectations.

In fact, it trended down from January to March within the quarter and remained down in April.

Second, the take rate of GSM versus TDMA service in the markets we've launched is somewhat higher than expectations, trending now right at 60% of post pay add.

Our prepay adds will continue to be on TDMA. for the foreseeable future.

Third, our current TDMA customer base is converting to GSM at a faster pace than we expected.

Since our local launch in mid-April, we have averaged about 750 TDMA to GSM migrations per day.

There are a couple of implications to this migration.

First, virtually all migrations fall under our current retention plan, which, simply put, means we will subsidize a new phone in exchange for a new one- or two-year contract for those out of, or close to out of, contract.

But we do not subsidize customers who are not out of contract in order to simply obtain migration.

As we said in February, we believe GSM subs will carry about a $6 ARPU improvement over a TDMA subscriber, and we continue to believe that.

And now moving on to the subject of ARPU, in February we indicated we expected all in ARPU to increase $1.25 to $1.75 over 2003 on a pro forma basis considering recent acquisitions.

In the first quarter on this basis, we were actually down by 75 cents, which is a little below our plan, so we clearly have some ground to make up.

But we continue to believe the trend is favorable, in addition to the improvement we will see as we migrate over time from TDMA to GSM, we continue to believe USF funding could be in the $12 to $15 million annual range, and that some of that could begin flowing by year end in the range of $500,000 to $1 million per month, which of course will increase ARPU as well.

Moving now to roaming revenue.

When looking at the relevant issues about roaming, there are essentially three things that have significant impact: AT&T minutes, Cingular minutes, and the blended yield.

In the first quarter, yield was on plan, AT&T was below expectation and Cingular was above expectation.

So all in, roaming was pretty well in line with what we expected.

In analyzing those three elements into the future starting with yield, no surprise here given 90% of our traffic is under contract at fixed rates, therefore we are highly confident in our roaming yield remaining at approximately 14 cents for the year.

With respect to Cingular, we are encouraged by the current trend in Cingular subscriber growth and customer usage, and while we did in fact expect Cingular's minute growth to be a healthy 20% year-over-year, it is in fact trending somewhat above that.

AT&T on the other hand is trending below expectations, driven in large part by their negative net adds in the first quarter.

As to what to expect for the rest of the year in total, our view really hasn't changed in that we should be slightly negative to slightly positive on a year-over-year MOU growth basis.

However I should note that if you're looking at quarterly changes, we expect MOUs in the second quarter to be negative on a year-over-year change basis, compared to last year, and by the fourth quarter of this year we expect to see a slightly positive increase.

With respect to 2005, we continue to believe an 8 to 12% increase off of '04 is attainable.

However, this is largely dependent on the direction and success that AT&T has over the next three quarters.

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

Thank you, Everett.

At our mid-February investors conference, I identified four primary operating objectives that we would focus on throughout the year.

In the first quarter, we made considerable progress in implementing our strategic initiatives.

The first objective, as Everett said, was to complete the overlay of our continental U.S. networks with GSM, GPRS in late March.

We did in fact get it done.

We overlayed GSM, GPRS in every cell site, one for one, and we are progressing rapidly at this time in overlaying our networks in Alaska.

The Alaska network will be turned up GPRS and EDGE capable.

The remaining properties will be upgraded with the EDGE software in the June, July time frame.

Our second key objective was to keep post-pay churn at 2% or below, which we accomplished in the first quarter.

A number of achievements point to a continuation of this favorably low churn.

First, as Everett said, we are migrating a large number of TDMA customers to GSM, slightly more than half of the 11,300 GSM subscribers that we added during the first quarter came by the way of migration.

From March to April, the pace of GSM gross adds continued to accelerate, up more than 150%.

GSM you migrations from March to April were up threefold.

We are not promoting upgrade now in our advertising, there simply appears to be a good do deal of pent-up demand among our customers for the new technology.

Because we are requiring new one or two-year contracts with these migrations, the average length of contract at the end of the first quarter was 14 months, compared with just over 12 months at the end of 2003, and we now have 69% of our customer base under contract, up from 65% at the year end 2003.

Obviously this bodes well as we move toward second [inaudible] deadline on the 24th of this month, which I'll discuss in greater detail later.

Our third key objective for the year was to increase our total of prepaid and postpaid gross subscriber additions 12 to 15% over the total of 398,000 that we had for 2003, that's pro forma for 2003 and 2004 acquisitions including NPI which is schedule to close in the June time frame.

In the first quarter, we did continue to see lower TDMA sales versus what we expect the combined TDMA/GSM results to be, combined postpaid and prepaid gross adds were 84,700 for the quarter.

The first quarter tends to be the weakest of the year for gross adds and more importantly, we rolled out the balance of our markets with GSM retail throughout March and into early April, so our strongest selling performance should be in the remainder of the year as we achieve traction with our more aggressive advertising, and as the attractiveness of our GSM handsets, calling plans, and data products become better known in our markets.

Finally, our fourth key objective of the year was to increase ARPU by $1.25 to $1.75 per sub.

We actually experiences a slight decline in the first quarter, but again we have minimal impact from GSM sales and migrations in the quarter.

Looking forward, in addition to incremental GSM sales, potential increases in regulatory fees, and USF contributions, we expect to see data beginning to contribution to the revenue stream in the late second quarter.

As part of the current GSM promotion, for the first two months of -- the first two months of data service are free.

We will have more of the cycle data points on ARPU to share with you on the second quarter conference call.

Now let me give you a little more color on what we've accomplished since we last reviewed our objectives in mid-February.

As of March 1, we began selling our new GSM handsets and calling plans in the Minnesota, Wisconsin and Maryland properties, specifically we had GSM product in stores with new collateral, new pricing, and limited GSM advertising.

On April 1 we broadened the GSM roll-out to the remainder of our Continental United States properties.

Finally starting April 15, we launched our new print, radio and TV advertising focusing on GSM handsets, rate plans, and data servicing including picture messaging and other data features.

The current advertising spend is much heavier than normal with a focus on radio, network and cable, cable TV as we target a younger audience for our subscriber growth.

We also now have our new prepaid pricing in place and are starting to see the desired results in increased ARPU and gross adds as well as a reduction in the prepaid churn.

Please note we are still selling prepaid on the TDMA platform, and we expect to launch our GSM prepaid in the August time frame.

As for the other GSM products that we discussed in February, we launched the EVO [ph] phone in a box product in mid-April, the no contract, no credit check go-phone type product.

We are still on target to expand our wireless internet services offering, along with Blackberry and other similar devices early in the third quarter.

We also expect to have EDGE PC cards in our stores in that same time frame.

In terms of GSM handsets, we currently offer nine handsets manufactured by Nokia, Motorola, and Sony Ericsson, and we will approximately double that number by the end of July, including three additional manufacturers.

What have been the early results, and these are obviously very preliminary in terms of receptivity to GSM in our markets, we had 11,800 GSM customers at the end of March and nearly 40,000 at the end of April.

In April especially in the markets where we had launched GSM, our GSM gross adds were roughly equal to TDMA.

Therefore, we are even more confident that GSM sales will be 80% of total sales or better, well ahead of the original November target.

Again, this only addresses the sales mix, not the increase in store traffic that we anticipate.

Long-term we believe the trend in migrations and GSM gross adds bodes well for ARPU.

So far we are seeing GSM ARPU from the early adopters of about $50, again without any contribution from data.

While the percentage of total sales and migrations were better than anticipated, the overall store traffic from March through April has remained fairly static.

We do expect this to improve as the advertising is in the market longer and the sales force grows, and product knowledge and confidence with the new technology.

In terms of the roll-out of GSM Alaska, our network overlay is ahead of schedule.

We will start testing this month in Anchorage and we plan to deploy retail in our Alaska markets in late June or early July.

Finally I'd like to note that we're obviously focused on second deadline for WLNP in two weeks.

We have expanded our automated WLNP porting [ph] process.

It is more automated today than it was at the time of the first deadline in November, so we are not efficient in cost as well as meeting the porting guidelines.

We have expanded WLNP headcount at our porting center in anticipation of the remaining 85% of our markets being compliant on May 24.

The port in to port out trend remains unfavorable, but the volume is still minimal and not enough to significantly impact churn.

The second round of WLNP involves less competitive markets, and we now have a full complement of GSM products in our lower 48 properties and will have in Alaska by early July.

Consequently we are better positioned to compete, and hopefully turn WLNP into a net positive on a go-forward basis.

Before I turn the call over to Bruce, I'd like to recognize the tremendous effort made in the past few quarters by Dobson team both in the field, the regional VPs, the sales and management staffs, and call center organizations, as well as the staff here in Oklahoma City.

They have worked countless hours to position to us capitalize on our future growth opportunities.

We've accomplished a variety of key strategic initiatives in the billing system conversion, to the GSM overlay, to sales training of new handsets, to integration of new properties in Alaska and in Michigan.

While we aren't finished, we are well-positioned to begin translating all this labor into subscriber and earnings growth in the remainder of 2004 and beyond.

With that I'll end my comments and turn the call over to Bruce Knooihuizen.

Thanks, Doug.

There's just a few more areas that I'd like to spend some time reviewing this morning.

First I'd like to go into a little more detail from the operating results that neither Doug nor Everett have covered.

Secondly I'll briefly talk about capital expenditures, followed up with a discussion of our recent credit facility amendment and concluding with our cash position.

As most, if not all, of you are aware our financials are presented on a GAAP basis.

That is, we exclude from current and historical operating line items the results of properties we sold or traded using discontinued operations accounting.

Unfortunately, we don't get to include the properties we are receiving until the actual date of the close.

And prior periods are never adjusted for these acquisitions.

As active as Dobson Communications has been, it makes it difficult to compare one period to another.

For that reason I will try where appropriate to put the numbers on a same-store basis.

Most of the information I'll share with today can be found either in the current press release, or referenced from our February investors meeting, slides of which are still on the Web site.

These results as I discuss them do not include the upcoming NPI acquisition, which we expect to close in June.

Beginning with total revenue, the consolidated operations reported 233.8 million in the first quarter of 2004.

This compares with a same-store basis revenue of 260.5 million in the first quarter of '03.

Of the total consolidated revenue, local service revenue increased approximately 1% to 181.7 million.

This reflected a 3% growth in the subscriber base, offset by a lower ARPU.

And as both Everett and Doug mentioned earlier, despite the decline in ARPU, we are encouraged by the results we are seeing in GSM ARPU.

The slight increase in service revenue is more than offset by the expected declining in roaming revenue.

Roaming minutes of use were approximately 303 minutes for the quarter.

This was flat as compared to the MOUs in the first quarter of 2003.

The roaming yield, however, declined from approximately 23 cents to 14 cents; consistent with contractual reductions.

You may remember that our consolidated roaming yield in the fourth quarter last year was about 17 cents.

Based on seasonality, mix, and contracted rates, we expect that the first quarter yield will remain relatively stable throughout this year.

Roaming now represents approximately 18% of our total revenue.

On the expense side, cash cost per user, or CCPU, was $21.49 in the current quarter, as compared to a year earlier when on a same-store basis the CCPU was $21.14, and a fourth quarter level of $22.70.

While CCPU was slightly higher than Q1 of last year, we saw considerable improvement from the fourth quarter.

Some of that improvement is sustainable, while in some areas we may see costs on a per sub base increase, at least temporarily.

Let me spend a moment on the two main components of CCPU: cost of service, which includes the cost of our network as well as in collect costs; and general and administrative costs.

In our February investors conference, we stated that we expected cost of service to achieve low single-digit improvement over the $13.90 per month per subscriber we experienced in 2003.

Our first quarter results came in considerably lower than that at $11.90.

But despite this great result in the first quarter, for the year we expect to come in much closer to our guidance level.

In collect costs were at a seasonally low $4.19 per subscriber, versus our full year guidance of $4.50.

Likewise, our network costs, which also came in below guidance, will increase on a per subscriber basis as we continue to deploy the EDGE technology and add cell sites.

Further we were able to record a one time credit of approximately $2 million in the first quarter for termination fee reductions that we had been vigorously negotiating with one of the arbach's [ph].

The second major components of CCPU, general and administrative costs, we stated our expectations that this cost per sub would increase 5 to 10% in 2004 from 2003 year totals; but would it decline from the fourth quarter '03.

Our full year 2003 costs were $8.60 per subscriber and the fourth quarter 2003 was $9.50 per subscriber.

The first quarter of 2004 came in at $9.30, an 8% increase over the overall 2003 levels.

In particular, as compared to the fourth quarter, we saw improvements in billing costs and a positive trend in bad debt expense.

In addition, the fourth quarter contained a true up for increased tax assessments in our Kentucky market.

These savings were partially offset by increased costs for processing WLNP, which we discussed in our February investors conference.

The final expense category is cost per gross adds, CPGA.

In February, we said we would spend for the year $328 per gross add and an additional $75 per gross add for retention costs.

On a seasonally adjusted basis, we expected to spend roughly $350 per gross add in the first quarter.

Of the total 43 million we spent on total selling equipment expenses less equipment revenue, approximately 31.6 million was for subscriber acquisitions.

This translates to approximately $370 per gross add, as compared to the expected $350.

While this cost is higher than expected, the cost should come down as we increase pre- and postpaid gross adds.

The remainder of this category is for retention.

The $75 per gross add for retention costs provided in the investors conference equates to approximately $9 million in the first quarter.

Our actual retention costs were closer to 11.5 million.

In the first quarter, we saw higher costs due to our efforts to aggressively pursue a higher base of subscribers under contract prior to the next phase of WLNP, which Doug talked about, and to a lesser extent higher handset subsidies for customers moving from TDMA to GSM.

We will continue to monitor this cost closely.

We are seeing an acceleration of the number of customers switching to GSM.

We believe this migration to be beneficial to the company, and we have negotiated for lower priced handsets going forward to help manage this cost.

Net of all this, our EBITDA on a consolidated basis came in at 83.1 million for the first quarter of this year.

Switching over to capital expenditures, Dobson Communications spent approximately 40.6 million in the first quarter.

Of that amount, 25.4 was spent in Dobson Cellular Systems, and the remaining 15.2 was spent at American Cellular.

The GSM overlay was completed in the lower 48 states, and we are on track to complete the Alaska overlay by the end of the second quarter as anticipated.

In addition to the overlay, there were 31 new GSM cell sites added in the quarter: 15 in the American Cellular properties, and 16 in the Dobson Cellular markets.

We are well on our way to meet the projected 200 to 250 new cell sites, the majority of which should come on line over the next few months.

Consequently, we are staying with our original guidance range for full year 2004 capital expenditures of $110 million to $140 million.

Moving on to the balance sheet, we announced yesterday the approval of the amendment to the Dobson Cellular Systems credit agreement.

This will allow us greater flexibility over the next three years, while still keeping in place the additional liquidity this agreement provided.

Dobson Communications ended the quarter with 142 million of cash on its balance sheet.

This is down 66 million from the 12/31/03 balance.

For a seasonally low cash generating quarter, the company produced approximately 33 million in unleveraged free cash-flow.

Interest, dividends, and debt amortization amounted to approximately 77 million.

Nonoperating cash items include a net inflow of 32 million from M&A activities, and the use of 54 million for debt repurchases.

I would now like to turn the call back to the operator for any questions.

Thank you.

Thank you.

Today's question and answer session will be conducted electronically. [Caller Instructions].

We'll take our first question from Rick Prentiss from Raymond James.

Please go ahead.

Good morning, guys.

A couple questions for you.

On the retention costs, I think you mentioned that the actual in the quarter was about 11.5 million versus, back from your February guidance, it would have been about 9 million.

What do you think going forward we should expect to see and what percent of the base actually did upgrade, whether it was GSM or otherwise in the quarter?

Rick, this is Bruce.

In terms of the upgrade in the first quarter it was actually relatively small to what we've been seeing since the April 15 time frame when we rolled it out to all the markets.

In fact the migrations for the first quarter were under 10,000 so it's a small amount in that quarter.

We did have a lot of upgrades still on TDMA which attributed to a lot of that cost being higher in the first quarter.

As Doug mentioned, we've increased our subscriber base under contract to 69%, and length of the time period.

So a lot of the push in the first quarter was to get people that were getting to the end of their contracts back under contract.

A lot of those customers, the majority of them in the first quarter, stayed with TDMA.

As we go forward I'd expect that we will see a significant drop off in migration -- or retention costs attributed to TDMA and most of those customers will be migrating.

For costs going forward, a lot of that depends on the success of the programs, but what I would suggest is I think the first quarter is probably a high-end number.

Again, as we go forward we expect that the lower handset prices should help significantly for us.

AT&T when they made the change current quarter to let GSM customers roam outside, can you update us a little bit of what you've seen in April and May so far from the impact of AT&T letting their customers roam off on to other people's networks like yours without charging them?

Well, in certain markets it certainly helped.

We have not seen a significant -- what I'd call an overwhelming significant improvement from that occurrence, but clearly in certain markets it did change the dynamics some.

I think what -- what will shift it dramatically is when the new rate plans that AT&T adopted start to take hold.

To remind everyone, first of all AT&T has not been certainly as successful as Cingular in selling GSM, although we think that will start to shirt.

And furthermore the old plans under GSM did not include our territory so the new plans on April 18 that they began selling will, do in fact include our territory for at least the national plans, and we think the national plan will comprise a significant portion of their sales effort.

So it's all out in the future but, yeah, it should be a positive trend.

Speaking of the future, final question for you.

We were having some meetings with BellSouth and Cingular the other day, and they were mentioning that Cingular wants to move beyond EDGE and looking at UMTS, and would look to its roaming partners, such as yourself and Western Wireless to maybe consider putting in UMTS equipment so that Cingular's customers could roam on to your networks.

Any initial thoughts on that?

Obviously it's nothing this year probably, or next year, just kind of your thoughts on your interest and the CapEx that might be involved.

Yeah, I think UMTS is certainly is on the radar screen, or will be on the radar screen, as we look out beyond, let's say, '05 or so, but it's still a little early.

I'm encouraged that obviously Cingular is planning that far in advance, Cingular and it's owners BellSouth and SBC.

UMTS can be a very complementary technology to GSM.

It is something that frankly is -- the benefit to us, obviously, in the future would be to expand our traditional voice and 2.5 G data products to more of a broadband delivery.

I think it would require us to have at least ten megahertz of spectrum in those markets that we deploy it, so that's the business plan in the making.

It's still a long ways from anything that we certainly have drawn any conclusions on.

But clearly we are encouraged that Cingular is pointing in that direction.

We think that UMTS is the logical next generation that will be competitive with TDMA, EVDO [ph] and others.

We probably -- if you started to further develop the business plan, I think you'd probably look to our major metropolitan areas as being the most likely and most cost-effective and most cost efficient to initially deploy it.

We don't see a lot of quote, wireless broadband competition in many of our rural markets.

I think the pace may be a bit slower there, but certainly we are encouraged by Cingular, and as you mentioned we're encouraged that Cingular would look toward ourselves and others to compliment their product.

Great.

Well, good luck, guys.

Thank you, Rick.

Our next question, Stephen Flynn from Morgan Stanley.

Please go ahead.

Good morning.

Couple questions.

Number one can you talk a little bit about American Cellular?

Talk about some of the trends there?

We've seen EBITDA margin really deteriorate over the last couple quarters there.

Wondering if there's any one time or non-recurring issues on the cost side with American Cellular.

And then also, I heard you reiterate '04 CapEx guidance but not sure if you reiterated '04 EBITDA guidance.

If you could address that, that'd be helpful.

Thank you.

I'll take a shot at the EBITDA guidance and let you guys try to answer for Am Cell.

We did not reiterate '04 EBITDA guidance.

We did talk about the specifics of the components, if you will, that will go into the EBITDA guidance.

And as we said, we don't see a material change or even a significant change in any of the areas of the business.

We are currently on track to execute under the plan we've established in February.

So I'll certainly leave it at that.

But someone can . . .

I'm sorry.

So you still feel comfortable with the 390 to 425.

We are not changing the EBITDA guidance.

It is still on the table.

We're not pointing in any one direction beyond the EBITDA guidance that was out there in February.

Okay.

Great.

And American Cellular?

Yeah, in terms of just the general trend in some of the margins, actually we are seeing a lot of the similar things in both Dobson Systems as well as American.

And a lot of the trends margins have come down.

A big part of that is a direct function to what we're seeing in roaming revenue, both in terms of some of the minutes not growing as quickly, but more importantly the yield coming down substantially in the early years.

Now hopefully over time, if you remember, some of that trade-off of roaming profits was for lower in collect rates, and hopefully over time we'll see that that was the right rate off to make as our local subscribers become more profitable going forward.

There were a couple of other smaller things that affected American directly.

The one item I had mentioned earlier is the fact that on a property tax standpoint American was hitting Kentucky with new procedure for assessing taxes there that actually had a significant hit on G&A and will continue as we go forward.

I'm sorry.

Could you quantify that?

So that was in the Kentucky property of American Cellular, your taxes were a few million dollars higher?

On the fourth quarter we included -- how much was it in the fourth quarter?

About a million?

A million four higher in the fourth quarter.

Of that, approximately half a million was an adjustment for prior [inaudible], but you can still see that that was higher going forward.

Other than that, I think that the other general trends are really falling in line with what we're seeing in Dobson.

Steve, this is Doug.

The only other thing I will add to that is the ARPU in American Cellular certainly is lower than at Dobson, and we clearly believe there's an opportunity there with GSM and the data products we're launching to move that back up.

So that is where there's an awful lot of focus right now, is fixing the ARPU trend to getting that back up to where industry standards are.

Okay.

Great.

And then just one final thing on Am Cell, have you come to any conclusions with regard to Cingular's non-Kentucky overlap, and American Cellular and your rights to purchase those properties?

No.

We're still having discussions, and we expect that to continue for the foreseeable future.

Okay.

Great.

Thank you.

Thank you.

Our next question, Ethan Schwartz from CRT Capital Group.

HI.

Couple of questions.

First let me follow up on American Cellular.

It seems to me that roaming minutes were up slightly year-over-year there, backing out from what seems to have happened at Dobson apart from American Cellular.

Is that correct?

Yes, that's correct.

Very slight.

I think they were up 1% and Dobson was down 1%.

Okay.

And the roaming figure you gave for Cingular, minutes of use up 30 percent, is that apples to apples or is that the affect of including American Cellular in the most recent Q1 but not in the earlier period?

No, that's apples to apples.

That's apples to apples.

And just so everybody's clear, we did the best we can to effectively, at least in our verbal presentation, tie back to our investor conference on a same-store, apples to apples basis that we gave you in February.

And then for this quarter, can you give us a rough estimate of the percentage of roaming minutes that were TDMA roaming minutes from AT&T in markets in which Cingular has GSM, or that were Cingular TDMA roaming minutes in markets where AT&T has GSM?

In other words, I'm trying to back into the percentage of your roaming minutes, at least in this quarter, that you might see move to Cingular and/or AT&T as the case is, as they move to GSM and start to prefer one another?

I don't know how we'd back into that in all honesty.

I think if I could point you to any one thing, we expect to Am Cell minutes to grow slightly faster than Dobson, because Dobson has been overbuilt in GSM, and as the migration occurs then we expect Am Cell to carry a little bit more of the growth than does Dobson because of that.

Is the danger number, as far as minutes that you might be losing -- 20%, or is it 30%, anything that sort of --

Slightly.

Excuse me?

Slightly is what I said.

Slightly is the number, is the term.

It would be unfair for us to try to give you a 20 or 30% number right now, but I do believe slightly, Am Cell will go slightly faster than Dobson.

I meant the percentage of the minutes in total that are, sort of, in danger at Dobson and at American.

I know the TDMA minutes, as they --

There's no minutes in danger.

We don't receive GSM minutes where we compete against AT&T, we don't receive GSM minutes where we --

Let me try to get at it another way.

I'm trying to go back to this issue that arose in the presentation where you showed, I forget what the precise figure was, but markets in which AT&T has coverage, but not Cingular, or Cingular has coverage but not AT&T, and therefore as both sides started to prefer one another's roaming, presumably a certain chunk of your minute pool would go away.

That's the number I'm trying to get at.

Could you refresh what that estimate might be?

Yeah.

If you'll refer to my earlier comments, if I can find them here, on roaming, we for the year, we said that we expected roaming minutes to be slightly down to slightly positive.

We saw essentially that in the first quarter.

I also said in my comments that we can expect the second quarter to be negative, slightly negative.

And we expect by the fourth quarter that minutes, and again, speaking only of year-over-year growth, minute growth, to be slightly positive.

Now that takes into account all things, including any areas where we compete against Cingular and AT&T in GSM, where we don't compete against Cingular and AT&T in TDMA.

To your point, there are a couple million POPS [ph] in that category, a few million POPS in that category.

A couple more market specifics on on American Cellular.

I'm looking at maps that Cingular and AT&T filed with the FCC for Kentucky and for -- in particular for New York state, and there's very heavy coverage of Cingular north of New York City to Poughkeepsie.

Can you give us a sense what have percentage of American Cellular's AT&T roaming comes from those corridors?

In other words, is a high percentage that would be expected to go to Cingular over time?

I don't have the percentage in front of me.

First of all let me make sure you understand that in that area we think we are going to be a net winner, not a net loser, because we believe that Cingular will choose to roam on the AT&T New York network as opposed to -- effectively their joint network with T-Mobile.

So we believe that'll end up being.

When that happens, then we will be the beneficiary of additional roaming minutes from Cingular.

Additionally that market, if there is a competing network, that market does fall under the buy back rights that we have.

So to the extent that that -- that that network is subject to that, we expect to exercise that.

So we don't believe that we're at risk for any traffic loss, and in fact we think we'll gain traffic in that market.

Just so I understand, that whole coverage that's shown on the map is really T-Mobile owned spectrum rather than Cingular owned spectrum?

Correct, well, it's actually -- I think it's called their factory network, if I'm clear on it.

It's public information and it is available.

But that network was created, it was originally built by T-Mobile.

At the same time Cingular built, obviously Cingular had the Los Angeles network and they are effectively co-oping that network or that ownership between the two.

I am not completely clear as to the structural ownership and the percentages there in, but I am confident that over time, particularly given our contractual obligations to own that network -- or that area without competition from whoever AT&T merges, with that we will enjoy a benefit there.

Okay.

It's shown as split 15-megahertz, 15-megahertz between Cingular and T-Mobile on their filing, so I think they own [inaudible].

That network is included in that area.

Okay.

Thanks a lot.

Our next question, Raj Patel from Farallon.

Please go ahead.

Hi, guys.

A couple questions.

You mentioned you expect the yield to stay constant for the rest of the year.

Can you walk me through that, as I think everybody on the call would expect GSM minutes to continue to rises, especially as your GSM network is up for the rest of the year?

Yeah.

The short answer is that there's not a significant difference between GSM and TDMA rates.

In fact with Cingular they're identical, AT&T is slightly -- GSM is slightly below TDMA.

So when you consider all -- and we do consider -- we have considered a migration impact it does have, we do have some reduction in our yield over the next -- if you look at our investor presentation in February, we do have a reduction in our yield over the next three or four years, that is driven in some part because of the GSM migration.

Where we are impacted by that is only with AT&T, and given their migration has slowed somewhat, it has effectively slowed that reduction in yield.

But even the yield itself is very -- the change is very minimal.

Okay.

Couple other things.

You mentioned current advertising, and when you launch in these -- or as you've launched in these new markets to be heavier than normal.

What kind of increment are we talking about here?

For the second quarter, we are expecting to spend over normal spend about $800,000 per month, incrementally, and we're looking at that right now for a three-month period.

So about $2.5 million you're talking about?

That's correct.

Okay.

And two last things.

The new prepaid pricing plans, can you walk through those?

And I'm going to ask you one more time to go through your answer to Steve Flynn's question on EBITDA, just to qualify that guidance statement.

Okay.

Well, I'll take the guidance.

We have not updated guidance, so in effect if we felt like there was a significant change in the guidance that we gave in February we would alert you to that.

We do not believe that to be the case, so --

So that's basically reaffirming guidance then?

Well, we're not updating guidance, so I guess it's fair to say we believe in the guidance.

Okay.

And then the prepaid pricing?

What we did on prepaid pricing was we actually took the monthly amount up, on average by about $5, but we loaded in more minutes.

So what we were charging prepaid minutes was in the low 30s, we dropped that down to the low 20s on a per minute basis.

What we're hoping to do with that was two things, we wanted to drive more traffic, reduce churn, and increase our ARPU by having the higher monthly amount that people will select now, and up to this point it's been positive.

Okay.

Great.

Thanks, guys.

Our next question, Kevin Roe from Roe Equity Research.

Please go ahead.

Thanks.

Regarding the tremendous progress you've had in getting more GSM gross adds as a percent of the total than had you expected, I believe you said the number was 80% by year end was what you were expecting in February, and now you are at 60%.

Is that correct?

Close to -- yeah, right at 60 percent.

That seems like a significant change in -- relative to an expectation.

Should that not have a positive impact on churn and ARPU relative to the guidance you gave in February?

For instance, the 2% guidance you gave on -- the low 2% guidance on churn, we're at 1.9% for the quarter.

Given that trend should it continue, will we not see churn, for instance, below 1.9% for the remainder of the year?

All thing being equal, emphasize that, if we continue to have the migrations, particularly the migrations from GSM -- from TDMA to GSM continue at the current pace, then we would expect to -- by the end of the year to be a quote ahead of pace on ARPU.

That's a pretty big if.

Because I think what we're -- what we are suspecting that we're seeing today in terms of the migration is a bit of a pent-up demand.

Some of the early adopters, some that were waiting for the color screen camera phone that were the early adopters of the GSM migration.

With respect to churn, any time you increase your subs under contract as we did from 65 to 69 percent in one quarter, and the average life of our contract, from 12 to 14 months, those are favorable indicators of churn.

We do have, quite obviously, we do have WLNP coming out in a few weeks weeks, for 86% of our company.

So that's always a factor that weighs in on it, but all things being equal and, again, that's not easily said, but ARPU as we said is in fact trending based upon the conversion alone or the migration alone, ARPU should be trending in a positive direction.

And likewise with churn, you're exactly right weighing in, of course, WLNP.

Taking that another step, assuming that trend continues and we see those impacts on ARPU and churn, is it fair to say that the higher ends of the original EBITDA guidance is more achievable?

I think that's not, I'm not saying that.

I haven't really, I'm not prepared to even comment beyond the original -- the actual guidance.

I think there's some -- obviously, there's some big-ticket items in there, including roaming, some of the cost elements.

On an annual basis as we've said, as I said in my comments, we saw 75% reduction in ARPU in the first quarter.

So on an annual basis, getting to -- simply because we're trending in the positive correction does not mean on an annual basis that you move the needle a significant amount.

It takes awhile to significantly move the sub-base.

Obviously we are at 40,000 GSM subs, but that's on a 1.6 million base.

It's going to take some time, and I think there's other influencing factors that are bigger ticket items, when you start to analyze the EBITDA guidance for the year.

That's helpful.

One last quick follow up.

At the conference in February, you mentioned Dobson's continued interest in looking at potential acquisitions similar to the deals you've done over the past year.

Are there still opportunities out there?

Can you give us your updates on your M&A appetite?

Yeah, there's obviously, we believe there continues to be opportunities.

We do not have anything to update.

We are obviously anxious to close on NPI, which the previously announced transaction in the next -- hopefully in the next 30 to 45 days.

Beyond that we're still looking at all of our strategic options, and really don't have anything to report right now.

Great, thanks, Everett.

Thank you.

Our next question, Daniel Moore [ph], DJS Securities.

Please go ahead.

Thank you.

Just turning to the balance sheet.

Obviously, you've got a little bit more flexibility with the second amendment, but, Bruce, what do you see as your options here to refinance a good chunk of the obviously high interest debt on the balance sheet, particularly with interest rates potentially starting to tick back up here over the next couple quarters?

Well, I think our view really hasn't changed much from two months ago.

I think that when we're looking at our balance sheet, we need to consider not only the capital markets and our opportunity to go to the capital markets, but also our current securities, what are callable, what aren't callable.

I would say that we will continue as we have in the past to try to make progress on our balance sheet in whatever opportunities exist for us.

Sometimes what exists is our opportunity to refinance.

Sometimes what exists is our opportunity to use some of our cash.

Again, sometimes we nibble at it and sometimes big opportunities come up.

So without getting into any specifics, I think the same kinds of things you've seen in the past from us, we'll continue to strive to do, where it makes sense to use some of our cash and by some of our securities, we will do that.

If there is an opportunity to do a bigger refinancing to take out some of our high cost debt, we will do that as well, but I don't have any specifics that a I'll share with you at this point.

Okay.

And, Everett, at the risk of kind of harping on this, maybe you can give us a little bit better sense, I know you haven't given any quarterly guidance, obviously, and you haven't changed your guidance for the full year.

Looking at Q2, should we view Q1 as kind of a trough for EBITDA, would you expect some improvement going forward from here, or given the lower MOUs in Q2, on a year-over-year basis, do you think we could see a little bit of a decline further?

I think you can see improvement Q2 over Q1.

We would be significantly disappointed if we did not.

And we continue to have a strong seasonal influence on not only local -- or not only roaming usage but local as well.

So assuming the natural and normal seasonal trends that we experience in growth in minutes, yes, we would expect Q2 to be an improvement off Q1.

But we did see a significant growth or a significant influx of roaming minutes last year from AT&T, and as they went through that their subscriber management program beginning in what appears to be in the fourth quarter of last year, a lot of that base, if you will, left.

So we don't expect to see the kinds of growth in minutes that we traditionally experience in the second quarter, off of a normal base, because the base in fact was in large part reduced significantly.

So that is effectively driving our belief as to the year-over-year change in the second quarter.

Now, as you flow into the fourth quarter, as we all know, the AT&T effectively moved off a lot of minutes in the fourth quarter alone.

That established, we believe a smaller base or reestablished a base.

So we would expect that, those minutes to start to grow in the fourth quarter.

Again, we're relying on Cingular's minutes to continue to grow.

I will caution, and it goes without saying, perhaps, we are anxious to see AT&T's results the next three quarters.

We obviously would not fair too well if AT&T continues to lose 350,000 subs per quarter.

But we are cautiously optimistic that their new program, their new competitive rate plans will turn that around.

That's helpful.

One quick follow up.

On the incremental marketing and advertising expense, roughly 2.5 million as talked about in Q2, do you expect to maintain those levels in Q3 and Q4, or ramp up a little faster, or is that a pretty good run rate going forward?

Thank you.

That has not been finalized yet.

I think what we wanted to is see what impact we get, when you look at the other carriers out there and the spending that they're doing right now, we had to increase our visibility in the marketplace.

We've got to advertise enough to make sure that we get our fair share and then some, and so that'll be reviewed as we get in this.

We want to see what the impact is.

If there's value in the extra spend, if there is, then certainly we would probably take a hard look at doing that on an on-going basis.

But that certainly is, we just started it in the month of April.

So I don't want to be premature in saying what we'll do third quarter.

Okay.

Thank you.

You bet.

Our next question, Mike Plancey [ph] from Blaylock & Partners.

Please go ahead.

Yes.

Could you just remind us what the new covenants are in the amended bank facility?

The amendments primarily just set new levels for the leverage ratios and for the fixed charge ratio, and modified slightly the excess cash-flow requirements of when we can sends cash up to the parent.

The new agreement, the amendment, by the way, was attached to our Q. So that is available to look at.

Thanks.

Our next question, Michael Weiner from Banc of America.

Please go ahead.

Hi.

Two questions and one of them will be beating that dead guidance horse a little bit more.

First, obviously it's only been a couple weeks since you introduced the advertising campaign in the markets and pushing the GSM product.

Is there anything you can speak to about impact results, increased traffic?

Is there anything going on as a result of the launch of the marketing campaign?

Yeah, Michael, it has been out there for effectively a little over three weeks in select markets, a little less than that in others.

As I said briefly in my comments, up to this point we have not seen any dramatic changes to our traffic.

I would also say I'm not sure that comes as a big surprise.

I think when you've been in the marketplace and viewed as the TDMA technology predominantly focused on local rate plans and then you change that, I don't think that you can change behavior overnight.

I do think it's something that grows, and it will get better as we get the message out there.

But there was no immediate impact.

It's not like we put the adds out there and we saw people lined up in the stores, as I would certainly have liked to have seen, but I don't think that was unexpected either.

Okay.

And just back to the guidance question.

Everett, you seem to have essentially said the guidance exists it's out there.

You seem to be stopping short of reaffirming it.

It seems that the company, having done 83 million in the first quarter, you think about the increased add spend in the second quarter, potentially longer if it works.

And then think about the expectation or hope and anticipation of better gross add performance, which obviously brings with it an up-front cost and a long term pay out, if you will, if those subscribers stay around.

It doesn't on paper look as though the company is on track, as well as the roaming expectations in the second quarter, on track to get to that 390 level for the full year.

Am I missing something?

Is that because roaming may come in below expectations or --?

Well, it's a combination of things.

It's the fact that you're increasing your marketing spend in the second quarter.

It's the fact that you are hoping and expecting gross adds are going to improve, which bring with it, obviously, the cost of acquisition, you're migrating customers more quickly, which will brings with it a cost.

It sounds from various things that are going on that the effect -- if you are successful, if the gross adds do pick up in the latter part of the year, that will bring with it a cost, that will make it harder to get to that [inaudible] lower end of guidance.

Gross adds don't have nearly as much to do with it as ARPU.

ARPU is the -- is what I would characterize as the big ticket one that will influence EBITDA more so than anything we are talking about right now.

Even more so than roaming.

Roaming had, when you consider, if AT&T as an example, if we miss roaming minutes expectations by 5%, and then consider the margin that those roaming minutes carry, roaming volume is not going to have a significant swing on EBITDA.

It'll have some -- more of an impact on revenue, but less of an impact on EBITDA.

But what will influence our EBITDA for the year is ARPU trends, and, again, as I said, we think that we are certainly on track.

We think by the end of the year we may have a chance to be above our expectations for the latter part of the year; for the balance of the year, then we're probably in range, but there is some -- you said there are some -- certainly some things that we are expecting to see and I want to see and you want to see and everyone does.

But in terms of our guidance, the reason you call it guidance obviously is because it's futuristic, it's out there, there are no certainties.

We believe it.

We are operating to that plan.

We continue to operate our business in the manner that we described.

If that's not casting it in stone and giving you more comfort, I don't know what more to do, except to tell you how we run the business in as much detail as we possibly can.

Okay.

Thank you.

Our next question, Sandy Liang from Bear Stearns.

Please go ahead.

Hi, there.

I'm wondering if you can review the economics of your prepaid customer in terms of what's the CPGA of that customer, what's the ARPU and churn, what's been been recently, and where do you think it's going by the ends of the year?

And also the same for your reseller customers as well.

Okay.

The ARPU on prepaid has been in the $24 range.

We are anticipating that with this new change it to be in the upper 20s to low 30s.

The churn on prepaid sub was just over 10%.

So it was higher than what we wanted.

That's why a lot of these changes went into play.

The ARPU wasn't as high as we wanted, and churn was unfortunately too high.

The most recent month's churn was down into the mid to upper 8s, which is still not where we desire it to be, but clearly moving in the direction that we want.

The ARPU out of resellers and churn, our ARPU range is in the $5 to $6 range, closer to 6, actually.

And the churn on those, in the 6% range.

In terms of the cost side of those, the CPGA on the -- on either one, they're very minimal.

There's a little bit of a cost on the prepaid, but it's under $20.

So the pay back period on that from CPGA is very short.

Obviously from the reseller standpoint there's no CPGA.

That's all borne by the reseller.

On the CCPU, again, the reseller, very low cost on that.

Obviously there is the incremental cost of our network, which we talked a little bit about in general.

But in terms of G&A type cost, you just really have some management costs at the reseller, but we don't have the customer service, we don't have the collections and the billing and all those other costs that are associated with your own subscribers.

On the prepaid, again, we have a similar types of costs from network that we have for all of our customers, but here, too, on this G&A side there is some costs associated with our customer service, but that's limited as we've seen from a historical stand point, and obviously there is no uncollectibles associated with them.

So that's the real positives in terms of those folks.

Okay.

And on CPGA, when you say $20 CPGA, is that -- that's just variable CPGA, right?

Yes.

So therefore, there's no subsidy and very little commission?

Well, there is a little bit of a subsidy.

That's the variable piece.

A small commission piece.

I mean, the range on CPGA on prepaid is going to run between $20 and $35.

Okay.

And in terms of --

And the promotion that we're running on the handset price we have going at that point in time.

And if you look at the mix of your gross adds, I mean, 68,700 for postpaid, and 16,000 prepaid, would you take the rest -- the fixed portion of CPGA and allocate it to the two different products?

Is that, is that a decent way to look at it?

Advertising.

I'm sorry?

Yes, I think that's reasonable.

Okay.

And how sensitive is your ARPU this year going to be, or your ARPU outlook to the mix between prepaid and postpaid?

Is that tracking how you were anticipating when you were budgeting at the beginning of the year?

Thus far it is, thus far we're right on plan in terms of the mix.

Okay.

Thanks.

Our next question, Rachel Golder from Goldman Sachs Asset Management.

Yes, good morning.

Actually this is a real quickie.

Could you update us on what your availability under your most restrictive restricted payments basket is?

It's, from an availability to upstream cash to the parent company it's just a little over $90 million on the most restrictive.

Great.

Thank you.

Our next question, David Zorib [ph] from Hawkshaw Capital Management.

Please go ahead.

Good morning.

Everett, could you just reiterate or clarify -- I want to make sure I understood the earlier question about yields already being at 14 cents, and you said that they were, TDMA and the GSM yields were essentially the same at this point in time.

I'd just like to better understand when you look at the agreements under each of the American and Dobson properties, is it the case that the AT&T, TDMA, and GSM yields are roughly the same in each property, or did you mean to indicate that when you look at the blended base, your GSM rate roughly approximates your blended TDMA rate, and so for it to be 14 cents for roughly the rest of the year, it essentially depends on the mix of minutes in each of the properties and by carrier?

The answer to the question, first of all, Cingular is the big, is the growing minutes, particularly in GSM, Cingular and TDMA rates are identical.

As that growth continues in the so-called effect of the shift is more mitigated, AT&T has a higher GSM rate -- excuse me, a higher TDMA rate than it does GSM.

Given AT&T is transitioning slower and selling fewer than that has effectively mitigated the rate.

But on balance, if you look at the quote, the exercise in terms of the yield, where you way in all carriers, and including AT&T and Cingular and even the others, which have some impact, particularly given that they are at a higher yield, then we are, as I said, highly confident that the 14 cents is approximately where we end up for the year, even though we were at that rate in the first quarter.

Okay.

Great.

That's helpful.

And then given that about 10% of MOUs came -- roaming MOUs came from GSM during the quarter, and just looking back at the presentation from February, it looked like the forecast for the year-end was going to be close to 15%.

Is there any change in the way we should think about that number given that we're already pretty close to that 15% after one quarter?

Yeah, I think you can certainly look at it that that may be a little conservative.

But, as I said, what we are experiencing that, I don't know if we said this or not, but Cingular GSM minutes are higher than expected.

Cingular total minutes are higher than expected.

So, yeah, the minute growth that we're seeing is in GSM which is great for us.

We want to build minutes on our GSM network as we bring down minutes on our TDMA network.

That creates a much more efficient platform for us to sell minutes off of.

So that's a benefit to us.

And we expect that 15 or 16% may be a little conservative at the end of the year.

Great.

Just one last clarification for Bruce.

On the store for store numbers, I apologize if I missed this, but Q1 '04 we know that the local business was about 181 and roaming was about 42.

You said that year-over-year pro forma was about 1 -- I guess by my math was about 179 on the local, you said that this year was up about 1%.

I'm getting to about 70 million on the roaming side.

I don't know if you actually gave out that number, but is that about right?

That's about right.

Okay.

Great.

Thank you very much.

[Caller Instructions].

We'll take a follow-up question from Ethan Schwartz from CRT Capital Group.

A follow-up question on the American Cellular market again, I'm sorry to beat this horse, but Cingular just bought NextWave's spectrum, moving up to Poughkeepsie, so my assumption is that they are going to build that out.

Do you have any understanding from them whether they intend to build out that market or not?

Well, as I said earlier, we have a buy back back right from AT&T in the event that AT&T merges with Cingular.

Obviously, we expect that to happen, in the event that AT&T merges with Cingular, then any assets that are in that overlap area, we have a right to buy them.

We expect that that is an enforceable contract and that's it.

It's part of the contract.

I think the buy back right covers systems, not spectrums.

Can you at least tell us in your negotiations with them whether you clarified whether they think you have the right to buy back any spectrum that they own up there?

It includes the system as it comes with the spectrum.

It doesn't include spectrum -- raw spectrum if the system that hasn't been built.

So have they agreed with you that, can you tell us basically what they say you have the right to buy from them?

In all honestly we really haven't gotten into that area of the discussion yet.

It's a little premature.

Our next question, Bruce Cripe [ph] from Deephaven Capital.

Please go ahead.

If I heard correctly, you said you presently have the ability to upstream $90 million.

Is there a current cash position at the holding company as well?

Is there a current cash position at the holding company?

Yes.

Yes, we have some cash at the holding company.

And that would be?

It's roughly 70 million.

And I appreciate your efforts to address the guidance issue on the EBITDA, but let me ask a more simplistic question.

Are you as confident now in the guidance that was given as when you gave it?

I think any time you get further into the year you have more visibility so, yeah, we're -- obviously if we'd have seen a significant major reduction in roaming minutes in the first quarter that would have impacted it.

Was that a yes or a no?

If we'd have seen a significant impact in ARPU in the first quarter that would have impacted it.

So, yeah, we have more visibility and, therefore, we believe that the guidance is -- at least attainable as it was in the first quarter -- or as we saw in February.

We are not a lot into the year.

We are only two and a half months.

And a lot of the initiatives that go through that we talked about are initiatives that are just now being rolled out with respect to increased gross adds and increased ARPU as a result of migration and other initiatives.

So I'll take that to mean that you are at least as confident.

Yeah --

Thank you very much.

Next question Yu Ping [ph] Lee from Putnam Lovell.

Please go ahead.

My question has been answered.

Thank you.

And there are no questions remaining.

Therefore, I'd like to turn the call back over to Mr. Dobson for any additional or closing remarks.

Thanks for the participation, the questions.

We, as always, stand ready for additional follow-up questions.

And with that, we'll see you next quarter.

And ladies and gentlemen, this does conclude our conference today.

We do thank you for your participation.

You may disconnect at this time.