AT&T Inc (T) 2005 Q1 法說會逐字稿

Good day everyone and welcome to the Dobson Communications first quarter 2005 earnings results conference call.

Today's call is being recorded for.

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

Please go ahead.

Thank you.

Good morning and welcome to our first quarter 2005 conference call.

Today's conference call may 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.

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 including our first quarter 10-Q, which we intend to file later today.

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

We had noted in past calls that we are in discussions with Cingular about possible consolidation of our roaming agreements.

Since we have not yet achieved a final conclusion, our comments today on those discussions will be minimal.

With that, I will turn the call over to Steve Dussek, CEO and President of Dobson Communications.

Thank you, Warren.

I also would like to thank all of you for your interest in the company and for being on our call today.

Everett Dobson, and our Chairman, and our CFO Bruce Knooihuizen are also on the call and available for Q&A after our brief comments.

I will comment on our first quarter operations.

Given the fact that I joined the company in mid April, I will rely on Everett and Bruce in the Q&A period to address some detailed questions about the quarter.

My first 30 days at Dobson have flown by.

I have spoken with board members, employees, customers and others who share their views with me about our company's growth opportunities as well as their perception of our strengths and weaknesses.

I've been very encouraged to hear how positive and enthusiastic everyone is about the company, our markets and our commitment to improve shareholder value.

Again, these discussions have reconfirmed my conviction that Dobson has a solid base of operations, excellent markets with potential for growth, a strong network, a talented team of committed people, and a very bright future ahead.

As I said last month, my first priority will be a focus on further improving the operations side of the business, so let's begin with a look at our continued progress in the first quarter of 2005.We were very pleased with operating trends in the first quarter with the exception of persistent high churn that resulted in a net loss of 18,800 customers With this exception, the team's focus on driving and improving the key metrics of the business is producing what we believe are excellent results.

ARPU continued to strengthen in the first quarter increasing to $42.94, compared with $38.83 in the first quarter of 2004, and up $0.77 from fourth quarter of '04.

This represented the fourth consecutive quarter in which we have increased ARPU, and it again reflects the continued migration of our subscriber base to GSM calling plans and also that our new customers are coming on the GSM network as well.

The GSM portion of our sub base grew to 563,000 customers at March 31st, just over 35% of our subscriber base.

This compared to 26% at December 31, 2004, and 18% of our base at the end of the third quarter last year.

GSM is without question the primary driver in our ARPU growth.

We have gotten some help in the past year from a modest increase in regulatory fees and from new ETC funding.

But when you strip out these contributors, Dobson still increased its organic ARPU by more than $3 in the past 12 months.

The GSM strategy is clearly on track and is producing the expected results.

As we've said in the past, we expect to continue seeing positive trends in ARPU through the remainder of the year.

We should approach two-thirds of our customer base being on GSM by the end of the year.

Higher ARPU corresponded with a 13% increase in service revenue over the same period last year and a 2% increase over service revenue in the fourth quarter.

While we are very pleased with the improvements in the ARPU, it is clear that we need to grow our subscriber base.

Roaming revenue was very strong in the quarter with MOUs up 23% on a same store year-over-year basis.

This exceeds the rate of growth in our guidance for the year.

However, we would expect this to fall more in line with our roaming partners' MOUs growth.

Cingular's continued success in adding subscribers, 3.1 million added in the last two quarters is obviously supporting the growth of our roaming revenue stream.

As Warren stated in his comments, we are in discussions with Cingular about a possible consolidation of our roaming agreement although we have not yet achieved a final conclusion and can't predict when that might occur.

Our ability to comment further is limited.

However, Everett will be available to address specific questions about this issue later.

On the cost side, Bruce will provide additional detail, but I would simply like to note that the uptick in gross subscriber additions in the quarter to 122,000, compared with 99,600 in the first quarter last year, and 112,300 in the fourth quarter of 2004, was reflected in higher equipment, selling and marketing costs.

The fact that we continue to lose customers overall, highlights the challenge of managing churn back to more historically typical levels.

Post paid churn was 2.43% for the quarter compared with 2.35% in the fourth quarter last year and 1.9% in the first quarter of 2004.

We announced last month our plans to close our Frederick, Maryland call center and we are taking a number of other steps to strengthen our customer care operations to make them more responsive and more effective.

As we stated on the last call, we are committed to doing a better job in the area of customer attention and customer satisfaction remains our number one priority.

Essential to churn reduction is Dobson's continuing investment in network improvement.

We have constructed 270 new GSM-only cell sites since January 1, 2004, 48 of which were added in the first quarter of this year.

We have also installed additional radios, base stations and switches.

We have worked very hard to optimize network capacity between CDMA and GSM as calling traffic patterns evolve.

Network quality, based on the latest wireless technologies and quick responsiveness to customer needs, will be essential to improving our operating results and thus generating additional shareholder value.

Let me end my remarks on the most positive note.

EBITDA improved to $90.2 million, up 8.5% from the same quarter last year, and 3.6% higher than EBITDA in the fourth quarter of 2004.

This was an excellent start in achieving our 2005 goals.

Our teams achieved this by first selling our GSM products at solid high value price points, by helping more customers understand the value in our new handsets and devices like the BlackBerry, and also by managing our cost effectively and prudently in all non-sales and marketing areas of the business.

In conjunction with higher roaming MoUs, these efforts help the company perform at a productive level in the first quarter and set the tone for additional improvements through the remainder of 2005.

As a result of these efforts, it is reasonable to assume EBITDA is trending toward the high side of our guidance range of 345 million to 365 million.

We will continue working with our three key constituencies to make this happen.

I'm still meeting with employees who are the key to our success.

It is our job in management to be very clear in defining our growth strategy and provide resources that they need to attract, acquire and retain customers.

Dobson's employee team will have what it needs to achieve our common goals starting with a high quality state-of-the-art network.

And we will hold everyone accountable for a high level of performance and productivity.

This leads to the second key constituency - our customers.

We will make sure that Dobson Communications provides its customers with value, quality and reliably consistent service day in and day out.

Almost every department has what I call daily moments of truth with our customers.

For the sales staff it's assuring that the customer gets the handset and the calling plan that fits their needs best.

In customer care, it's resolving customer issues quickly to the customer's satisfaction so that they are delighted with each experience.

In our IS and billing department, it's delivering an accurate, understandable and timely bill each month.

And for engineering, it's the satisfaction that the customer feels when they can rely on their voice and data services to work consistently and well.

Finally, I believe that as we take care of employees and customers, we will succeed in creating value for our shareholders and investors who have invested in our future.

Improvements in operations will be reflected in the appreciation of Dobson's equity and a lower cost of capital as we finance the future growth of our business.

We are committed to achieving that goal.

Again, I'm honored and pleased to be here at Dobson in my new role as CEO and President.

I'm excited about all that has been accomplished and where we are going together as a company.

I thank you all again.

And with that, I'll turn the call over to Bruce.

Thank you, Steve.

Today I will first focus on additional detail in our operating results followed by a brief discussion regarding capital expenditures and then ending up with our liquidity acquisitions.

Starting with the operating results, total revenue increased to $271.8 million in the first quarter of '05 from $264.9 million in the fourth quarter of 2004.

As Steve noted, a number of positive trends that we began to see last quarter have continued into the first quarter of this year.

Looking first at service revenue, despite a loss of subscribers, we saw service revenue increased in the current quarter to 206.1 million as compared with $201.9 million in the fourth quarter of 2004.

As Everett pointed out on the last call, we are having good success in converting our base from TDMA calling plans to higher revenue generating GSM plans.

In terms of total customers, 35% were on GSM plans at the end of the quarter.

As Steve said, that is up from 26% of the subscriber base that was on GSM at the end of the fourth quarter.

This transition, in part, has enabled us to increase ARPU from $42.17 in the fourth quarter of 2004 to $42.94 in the most recent quarter.

As we saw last quarter, despite the negative impact of seasonal effects, our ARPU again increased sequentially quarter-over-quarter for the fourth-consecutive time.

As compared to the same quarter last year, our ARPU has increased by more than $4, $3 of which is what Steve called the organic growth.

ETC funds contributed approximately $3 million to the first quarter service revenue.

We have received additional approvals effective in the second quarter that will add approximately 1.5 million additional revenue to our service revenue.

Data continues to grow and represents $1.85 of our ARPU in the first quarter compared with $1.14 in the fourth quarter last year.

GSM customers are averaging close to $5 of data revenue per customer.

We are pleased with the roaming revenue of $53.4 million, which was relatively flat as compared to last quarter, but up 17% on a same-store basis from the first quarter last year.

We reported approximately 395 million roaming minutes of use for the first quarter, a 23% increase on a same store basis over last year's first quarter total of 322 million of MOUs.

Roaming MOUs are trending rapidly to GSM.

Approximately 70% of our roaming traffic is from GSM compared with 56% last quarter and 43% in the third quarter.

Roaming yield for the quarter came in at a blended $0.135, in line with our expectation.

Operating expenses were $181.6 million in the first quarter compared with 177.9 million in the immediately previous quarter, a 2% increase.

Among the key components of operating expenses, cost of service increased from 69.9 million in the fourth quarter to 72.3 million in the first quarter of 2005.

This increase is attributed primarily to higher incollect costs.

In addition, we have also experienced increased costs by enhanced features to our customers.

As one would expect, with higher ARPU and a higher percent of our customers subscribing to nationwide plans, off network usage has increased and thus incollect expenses increased by approximately 1 million quarter-over-quarter.

This increase in incollect MOUs was partially offset by a decline in the average price per incollect MOU that we pay to other carriers, principally Cingular.

We saw an increase in the costs for buying enhanced phone services or features including handset insurance and data services such as web browsing, ring tones and other data products.

These services typically involve revenue sharing agreements with revenue at least offsetting the cost.

Cost per gross add including retention costs dropped in the first quarter approximately $50 from the fourth quarter last year.

This was achieved by producing more gross adds while holding our selling costs relatively flat from last quarter.

Selling costs increased approximately $1 million or 3.5% from the fourth quarter 2004 while gross additions increased by almost 10,000, an 8.6% improvement.

Net equipment costs in the first quarter were 18.8 million, a slight increase from net equipment cost of 18.2 million in the fourth quarter of '04.

We continue to see high levels of customers migrating from TDMA to GSM plans.

Handset subsidies continue to run close to $100 per handset.

G&A in the first quarter dropped back down to a more normalized level.

G&A of 44.8 million in the first quarter compared favorably with the 47.8 million spend last quarter.

You may remember in the fourth quarter, we noted that this line item included a one-time accrual for higher professional fees.

Adjusting for that item, G&A expenses were relatively flat sequentially.

This brings us to EBITDA, which was 90.2 million for the first quarter versus 87.0 million last quarter and 83.1 million in the first quarter last year.

EBITDA margins were up slightly to 33.2% for the first quarter as compared to 32.8% margins achieved in the fourth quarter last year.

We are beginning to see the leveraging of the GSM investment that increased our cost throughout 2004.

In the first quarter, total capital expenditures for Dobson Communications were $32.6 million.

DCS capital expenditures were approximately 24 million with the remaining 8.6 million in CapEx at American Cellular.

In the first quarter, 48 new GSM cell sites were added, 24 in American markets, and 24 in the Dobson Cellular market.

The difference in the first quarter CapEx reflected additional investment by Dobson Cellular in switching facilities, backhaul capacity and E91 deployment.

At the end of the first quarter, Dobson's cash balance on a consolidated basis was $190.2 million.

This is an increase of 50.3 million from the end of year balance. $39 million of that increase was the change of certain marketable securities to cash, and the balance was an increase of an $11 million from operations.

In addition, we currently have the full availability under our $75 million revolver.

These balances do not reflect proceeds from our pending to agreement to sell 563 Dobson and AmCell towers for a combined price of 87.5 million.

We expect close on the majority of the cell sites in the later part of this quarter with the balance being completed throughout the rest of this year and some amounts possibly rolling into early 2006.

That concludes our comments on the company's first quarter results.

We would now be happy to address any questions thaw you may have.

Thank you.

Thank you [Operator Instruction] First we will hear from Phil Cusick with Bear Stearns.

I wonder if we can ask a couple of question.

First, you just mentioned the E911 rollout.

Last quarter you talked about needing about $30 million in spending this year on CapEx for that E911compliance and the SEC put out an order recently that sounded like it might save you some money there.

Any thoughts?

In terms of the E911, based on some renegotiations with some of the vendors, we expect that to come down quite a bit, from $30 million probably into low the 20 million.

In terms of delaying deployment, we don't anticipate any delay in deployment on that.

Now, that $10 million that we'll save on E911 will go back into other network improvements, so you can still expect total CapEx to be about what we had said it would be in the year.

And that was about 140, right?

Correct.

Another question for you.

On ETC, can you talk about where the additional 1.5 million is coming from, and is that 4.5 million in Q2 going to be sustainable for the rest of the year.

The additional 1.5 million is going to be in the AmCell market.

It is sustainable for the foreseeable future as far as the ETC funding is concerned.

Great, finally just one quick thing.

Everett had said recently and it might have been last quarter, I think, that he expects a $5 to $6 overall improvement in ARPU from moving to the new plans.

Its looks like we're about halfway there.

Should we expect to continue at this pace and reach that $5 to $6 over the next year?

Well since Everett is sitting here;

I guess I can answer it.

Yes, I think the trend is very positive in that area.

I really think that if you look out at the migration path we're on, and all things being equal and the all things in this case is price and competition in our markets, the trend is certainly positive in that direction.

Thanks.

There's a lot of good news on this one.

Thank you.

We'll now hear from Anthony Klarman with Deutsche Bank.

Thank you.

Two questions.

First, the roaming minutes of use have been, I think, much better than we had expected.

I was wondering if there was anything you could point to on the Cingular AWE side?

Are there minutes that you continue to get from the AWE side of that company, in particular that you had anticipate being phased off through the changing of preference or one of the other agreements?

What's really driving the MOU holding in on the roaming side as well as it has?

Well, let me take a shot at that as well.

The short answer is the roaming minutes are up because Cingular has done well in its efforts to grow its subscriber base.

It's also average usage per subscriber is up a little bit as well.

In terms of the technology issues, we still have, I believe, roughly in the neighborhood of about 8% to 9% of our traffic are in areas, total traffic are in areas where we're receiving TDMA traffic, TDMA revenue in areas where Cingular has a GSM network, and so that phenomenon has been occurring for the past year.

In other words, as they migrate from GSM to TDMA, from TDMA to GSM, that traffic is moving over to their own network, so the growth you're seeing and have seen for the last couple quarters is despite that.

So essentially we continue to see good growth, that net -- a percentage of that so called overlap market has come down.

There certainly are those minutes out there.

Other than that, there's not any real as we reported, 70% of our traffic is now GSM, so other than that, there's no real technology shift, or market shift that will affect roaming in the future.

But, I guess, is that 8% or 9% something that you weren't even counting on still getting at this point?

Were the estimates in the guidance that you are preparing assuming that that 8% to 9% was already gone by now?

Well, no, not necessarily.

I think I'm a little bit surprised that the number is still as high as it is.

I'm surprised that the TDMA traffic has hung in there as much as it has.

But there is a migration going on and it's a path that's on a fairly consistent pace right now.

Ultimately, it will go through that, but what you are clearly experiencing is a growth in the overall GSM minutes that is more than making up for the loss.

In all honesty, those lost minutes on the TDMA side because of that that shift over to their own GSM network, those lost minutes are well past 50% complete.

Almost by definition, theirr 70% complete, with 70% of the traffic now GSM.

But I am little bit surprised that there is as much TDMA traffic as we are experiencing the good news that there is more GSM traffic than we expected, probably.

Final question could you talk a little bit about the Alaska market?

The CDMA operator up there has been showing very strong subscriber growth.

I'm just wondering what the competitive balance has been like in that market.

They have been very aggressive in bundling wireless with their wire line platform, which seems to have bearing, be bearing some fruit for them.

I guess if you go back to the end of 2004, you guys had announced a resale arrangements with GCI communications, which doesn't look like it really has gotten off of track yet .I was wondering if you could discuss the environment in Alaska and what the competitive balance is there.

I'll take the operating questions and we will let Steve answer some of the vision future questions.

But Alaska has been a little bit rocky the last year or so, to say the least.

We struggled through some transition issues when we acquired the market from AT&T in Alaska Anchorage.

Additionally, the GSM overlay has, you know, we've had some network issues throughout all of the Dobson market.

The good news is we started to see trend or churn trend down the first quarter from Alaska.

Sales have actually been pretty good in Alaska.

Churn has been problematic but the trend in the first quarter was certainly favorable.

Alaska is a very competitive market, as you know, with ACS, they've done a good job with the CDMA and leveraging of other resources and assets they had.

I will note that Alaska is a much less competitive market on balance than any of our other markets that we operate in.

It is a higher cost market and very difficult to build out a network and operations, and therefore, there is somewhat of a barrier to entry.

Long term, Alaska is a very exciting story for us.

We're very optimistic about the prospects of being very competitive against ACS and I think just the near term or recent improvement in our network and our results would bear out that long term, we're very excited about Alaska.

Thank you.

We move to Romeo Reyes with Jefferies & Company.

Good .

I just quick questions on the MOUs.

Can you give us the growth, maybe the absolute numbers for both the AmCell and the DCS side for, I don't know if you reported it, Q1 in '05 and Q1 of '04?

That's the first question.

Secondly, with respect to the ARPU at AmCell it seems like it trails the DCS fairly dramatically here.

What's the difference with that ARPU difference?

Is there more competition in the AmCell market?

Do they have less or fewer national plans or there is something else going on there with respect to the ARPU?

Thirdly, with respect to the rate of migrations you, I think you migrated north of 90,000 customers for the quarter.

Do you expect that stay at that level or do you expect to accelerate that?

Okay.

Let me get a clarification. the first question on minutes, are you talking about roaming minutes between AmCell or DCS?

Yes.

For DTS, the first quarter roaming minutes were 239 million for American Cellular.

First quarter roaming minutes were 156 million.

What about a year ago?

A year ago, the American Cellular minutes were 124 million, and the Dobson minutes on a same-store basis were about 200 million, little bit short of 200 million.

And that's on a same-store basis.

On a GAAP basis Romeo, that's 179.

In terms of the migration, on GSM migrations, you're right, we did about 92,000 migrations in the first quarter.

We think that that's probably reflective of what we will see going forward.

It could go up or down a little bit depending on a lot of factors including what kinds of plans or promotions are in the marketplace at the time, but I think it's probably relatively reflecive of the level we will see going forward.

In ARPU, the difference is the heritage of American.

We acquired American back in 2000 and had a lower ARPU than the Dobson market and it's trended lower, albeit, it has trended in line with Dobson, in other words, when Dobson trended up, so has American, when Dobson trended down so has American.

But it's always had a few dollars less in ARPU than has Dobson.

As we migrate to GSM, it's still trending lower but its growth in ARPU is almost identical in terms of dollar improvement in ARPU and I would expect that trend to probably continue as the migration is completed.

Can you give us a sense of what the GSM ARPU is?

Sorry if I missed this number, but did you give a GSM ARPU? 35% of your customers are on GSM, what is the difference between the 43 that you reported for the consolidated entity versus what it would be on just GSM - for the GSM customers alone?

We are not reporting that and have not broke it down and do not have the information in front of you.

But suffice it to say that GSM ARPU is substantially ahead of TDMA ARPU and that's where the improvement is coming from.

The cash, can you give us a sense of where the 190 million in cash is and the different entities that hold that cash?

Yes.

DCS has about $75 million of cash.

ACC has about $35 million of cash, and the remainder, which is a little over $75 million, resides at the parent company.

Is there anything at DC PCS?

I'm sorry, what?

At the PCS subsidiary, is there any cash?

Yes.

At PCS, there is probably $3 to $4 million.

Is that right Richard?

None at PCS anymore.

Zero at PCS.

All right.

Thank you.

We'll now hear from Vascar Putta (ph) with First Albany.

Good morning.

First of all, congratulations on some good numbers in a clearly difficult environment.

My question is -- can you touch a little bit on the future trend in network operating costs, specifically I was alluding to the fact that as more and more subscribers, I mean the subscriber mix skews more and more towards GSM, some of the costs of maintaining two parallel networks, one on TDMA and one on GSM, are supposed to be phased out.

Is that something that is supposed to happen starting sometime this year?

Do you expect it to happen starting in 2006?

Generally, levels phase out will take place in '06.

Having said that, we did talk a little bit about our expense level cost of service.

Last year, we saw quite an increase in cost service from the first quarter to the fourth quarter.

This year, you will not see that kind of increase since we've got the core of the GSM assets in place, but in terms of the substantial savings from phasing out TDMA, that is really an "06 issue.

But for the rest of the year, you are pretty much looking at a flat expense compared to first quarter or do you think that will actually increase as it goes on?

It will increase for a number of reasons.

We are still adding cell sites, so that will cause the cost to go up little bit.

Likewise as part of our cost of service, incollect, which is the cost of our customers using someone else's network will increase particularly in the second and third quarte,r a lot of that is seasonality.

As they go to national plans, you will see a little bit more of that kind of cost.

Finally, in the second half of the year, we'll start reflecting the leased cost associated with the towers as we complete the transaction on some of the towers.

Okay.

And my second question is with regard to ETC, I mean the USF funding.

You mentioned the USF funding is going to stay from about $3 million a quarter to about $4.5 million starting second quarter.

Did you currently apply for any more, apply for ETC status in any more states?

Do you expect the USF funding to go up even from the $4.5 million starting in 2006?

Well, in terms of other applications, yes, we do having other applications in Currently, for instance, we're not getting any ETC in Alaska, and that's a state where we have an application, and then there are other opportunities throughout our company where we're looking for additional ETC money.

The chances or the opportunity of getting the money for next year is questionable, but most likely it will come in next year if we do get additional amounts.

We do have application in other locations.

All right.

Gentlemen.

Thanks a lot.

That's all from me.

You're welcome.

We will hear from David Sherritt (ph) with Lehman Brothers.

I want to follow up on the roaming side.

One question just in terms of the percentage of increase you saw in the fourth quarter versus the first quarter, you were up about 10% year-over-year up to 23% in the first.

I'm trying to get a sense if that will continue to increase during the quarter. maybe where you exited the quarter, do you have a sense of where April has come in, or are you north of that 25% or is that a good run rate for where you exited the quarter?

The thing I probably ought to point out about the 20% growth.

The short answer to your question is that we don't expect that growth to continue as Steve said in his comments.

The conventional view is that our roaming minutes will grow in line with the industry's minute growth, which is closer to the 10% level.

We did see a 23% jump in Cingular's minutes as a result or principally around the reduction or the decline in minutes that we received from Q4 of '03 and the first quarter of '04 from primarily where AT&T where AT&T had their subscriber management program and so their minutes were way below expectations during that period.

And therefore, you know, after seeing Cingular acquire AT&T, it kind of reversed some of their operating tactics and strategies, this quarter was the beneficiary of it.

As you look into the second, third and fourth quarter, minutes from last year were relatively -- had come back, if you will, and were relatively strong, so we certainly don't expect to see 23% growth.

That's helpful.

Thanks Everett.

Just one follow-up.

You talked about the roaming discussions and those are clearly ongoing.

What about the discussions about acquiring overlapping Cingular assets in your AMCell footprint.

Any update there?

Yes, they are obviously in the same discussions, so the same comment holds that we are having discussions and that we expect them to continue, and we will report back when we have an agreement.

Are they independent discussions or they are in fact combined and one would be, they would be done together?

Well, they are being held with the same people in the same meetings, so I guess they're combined in that context, but our discussions includes a multitude of issues and that certainly is one of them.

If it's possible if you could break out maybe just some of the metrics for just what these assets are, if you can.

If you can't, I can understand, the subscribers, maybe the amount of tower sites and population and average spectrum position Cingular has in some of those markets?

No, it would be difficult to give you meaningful color around that giving the state of negotiations, and that's all.

I'll have to defer until we get something done on that.

In terms of your cash position at AmCell, the $35 million plus the additional proceeds coming from the tower sell, you'll basically sit on that cash until you have a sense of whether the discussions pan out?

We will address, cash use buy anything, according to many opportunities in the future, and certainly you realize, the AmCell buyback rights and negotiations, things that would weigh in on that.

Just one last housekeeping note, what is the restricted payment capacity within the AmCell, subsidiary under the --

On AmCell, it's negative still.

Okay.

Thanks.

Bruce.

Now move to Kevin Roe with Roe Equity Research.

Thanks.

Two questions.

One for Everett, I believe on the last quarter, you stated that any Cingular new agreement would be EBITDA neutral.

Is that still your negotiating intention?

Yes..

We're still expecting an EBITDA neutral agreement for certainly 2005.

Once you get beyond that, it's difficult to measure any revised agreement with the current one because of the expectation or the uncertainties surrounding their minute growth, our minute growth and so forth.

But certainly in '05, we do expect an EBITDA --e expect an EBITDA neutral agreement compared to the current agreement that's in place.

Steve, on migration, the 92,000 number, is that having any stress on your customer service operations?

The reason why I ask is on the World Cellular call this morning, they attributed much of their churn increase to challenges on the customer service center from spending too much time on the phone with people explaining new GSM handsets, et cetera?

No, I wouldn't say it is a major contributor.

Churn has a number of components to it and reasons, as you well know.

This isn't a major factor for us.

You know, we have other issues in churn that we are addressing, but this isn't one, Kevin, that is contributing in great numbers to our churn.

What would you say then stressing some of the points in the organization, so, you know, I would go back to our point of two-thirds of our base being on the GSM network at the conclusion of 2005.

Okay, thanks guys.

You are welcome.

We will now move to Steve Flynn (ph) with Morgan Stanley.

Hi.

Good morning.

Did I hear correct?

Did you actually say there was there was no cash at the DCC PCS entitity as of the quarter end?

That is correct.

There is no cash in that.

Okay, can you talk about why is there any way to move cash back outside the 8-7/8 restricted group back to DC PCS or maybe why you moved that back into the restricted group?

Well, in fact the $75 million $72 million of that of the parent group is unrestricted in terms of the 8-7/8 notes so we didn't move money back to the restricted group.

It is still considered unrestricted.

Okay, great.

Just with an update with regard to the preferred securities, any plans to try and take those out or anything to talk about what you plan to do with the preferred security?

I think, like Everett was saying earlier, we will continue to look at opportunities to improve our balance sheet and opportunities use our cash to improve our balance sheet, but we don't have any specific plans for any particular securities at this point in time.

We'll just look at the market and see where the opportunities are.

Okay, great.

Thank you.

[Operator Instruction] We will now hear from Avi Vanis (ph) for JP Morgan.

Hi this is actually Peter Fitzpatrick (ph) calling in for Avi.

I was just wondering if there are any other additions to your management team that we should expect in the near term, and then secondly on the hand set subsidies.

Did I understand you correctly in saying that GSM handset subsidies were around the $100 mark, and if so, when do you see this trending down, and how does the subsidy level stacking up against your competitors

This is Steve.

Let me address your first question and then I will ask Bruce to take the second part.

With respect to additions to the management team, I have spent a lot of time in my first 30 days looking at this and one of the areas that stands out that I believe we can augment the team that's there in place will be in the area of marketing.

So one of my initial priorities to do just that, by bringing in a senior level marketing executive to help augment the team that's in place and help us really build on the overall marketing approach, you know, from the company, so, you should expect to see someone join the ranks in the senior level marketing capacity.

In addition to that, I think it's safe to say that I will put in place a senior level leader in the sales area as well and help us focus on the further development of the channels, and with a very, very clear focus on the channel development.

So, those are two areas, you know, out of the gate that you should expect to see some additions to the team.

Okay, and, on the handset subsidies issue?

Yes on the handset subsidy, we're working hard trying to bring that subsidy down, and I think we should see some gains as we go forward.

We're constantly trying to negotiate new and lower prices.

People are constantly bringing out new phones that are lower priced but I would say through the balance of this year, you might see some improvement, but it's, I'm not sure what you are referring to as the industry standard, but I think you will see some improvement through the year, but don't expect huge amounts of improvement on that front.

Okay, maybe just one final question.

In the Alaska market, it sounded like you were having some transition issues there.

I was wondering if you could maybe elaborate on what some of those issues are and kind of how you foresee addressing those going forward.

Both by and large, the transition issues have been addressed.

We had a billing issues when we acquired the market from AT&T a couple of years ago now.

AT&T botched up a transition relating to their billing platform.

We did have a settlement with AT&T where they were liable for a portion of it, but we saw a significant spike in churn as a result of that.

Beyond that, as we migrate -- as we migrated last year GSM or from TDMA to GSM, we felt some stress at the network and spectrum and we've added ten megahertz of spectrum in Alaska since then.

We've added a lot of cell sites, we've groomed the network, improved the network.

I think if you look at the network today, it is significantly improved over where it was late last summer and even into the fall.

So, again, as I said earlier, we are cautiously optimistic about our efforts in Alaska for the balance of this year.

Thanks very much.

We will now here from Jay Davis (ph) with CRT Capital.

Good morning, question on roaming minutes.

What percentage, I guess, of the roaming minutes would you say come from AT&T Wireless or Cingular, in markets where they just haven't integrated their network?

Well, we are still getting a healthy balance, I don't have the numbers in front of me we are still getting a healthy balance from the so-called AT&T side of the house, but Cingular has, for the most part done a -- what I call, a normal market migration by simply preferring the Cingular platform for new subscribers and that's effectively causing a subscriber shift more toward the Cingular side and therefore, those customers fall under the Cingular roaming agreement, but we certainly still see a healthy number of AT&T subscribers as well.

Thank you.

We will now hear from Jeff (inaudible) from CIBC World Markets.

Good morning.

I was wonder if you could tell me the mix of post-paid subscribers you added in the quarter that were on national rate plans versus local.

In terms of the gross adds, actually, we're seeing the national plans continue to grow and a little over 60% of our gross adds are on GSM national plans and the balance, for the most part, are what the GSM plans, but the national percent has been growing.

Sorry; that the cumulative figure?

Is that the gross estimate for the quarter.

Okay.

What would the cumulative balance be?

Low 50's, I think it's like 52, 53%.

Okay.

I'm sorry.

Did you mention a CPGA for the quarter?

CPGA is about $425 for the quarter without retention costs.

Okay and then more there are any USF revenues in the ARPU.

Yes, that was $3 million for the quarter.

Okay.

Thank you very much.

You're welcome.

We will take a follow-up question from Romeo Reyes.

Yes, on the Cingular GSM TDMAA agreement, Everett, it seems to me that, I guess price is negotiated through that deal, and that the rates were cut to about $0.06, $0.65 a minute.

Can you give a sense of what is different between this properties and other properties for options for Cingular, but give us a sense of why your rates per minute on GSM are not going to be that low, and secondly, can you give us a sense of what the difference is between TDMA and GSM minutes.

You don't have to give us specific numbers, but can you give us a sense as to whether it's 30 or 40% higher on TDMA versus GSM?

I will address the last part first.

GSM roaming minutes reflect 70% of all roaming minutes.

What about rates?

Oh, rates.

GSM, TDMA are fairly close, there's not a lot of difference between the two.

In terms of this the dynamics of where the roaming agreement might come out in the future, it would be very difficult to say.

I will point out that the circumstances that we are in are -- you probably couldn't compare to anyone else, frankly.

We have a contract with bothAT&T and Cingular, contracts with both that drive the roaming agreements.

They are longer-term contracts through the end of June 2008, on the rates anyway.

They are actually longer than that with respect to the roaming agreement with Cingular, so it's very difficult to consider the circumstances that we are in versus anyone else including Triton or others.

As I said in the past, and I think it's still the view of the team, including Steve and the whole Dobson team, and that is that we would -- we would, over the course of time try or prefer to trade, if you will, roaming profits for local profits, and the simple mechanism for accomplishing that is to lowering both the rate that we collect from Cingular as well as the rate that we pay.

That is an objective that we have had that we continue to have.

So we would hope that when we do have an agreement reached that we can report that we have a lower outcollect stream, but a corresponding lower incollect stream as a result.

So if that suggests we lower the GSM rates that we charge, we hope that's the case, because with that comes a lower incollect rate as well.

What is your incollect rate right now?

I'm sorry, incollect yield?

Collect expense or --

We did not disclose that, and are not going to disclose it, are not going to disclose it.

I think we have.

Have we disclosed our incollect cost per subscriber?

Last time you said it was $0.118.

Okay.

It's been trending down a little bit.

It has not had any, what I'd call, major step-down.

I think we have disclosed that our incollect costs per subscriber is in the $4.70 per sub range in the most recent quarter, in the first quarter.

I think we can talk in those terms.

Obviously, that's a fairly significant and, you know, a fairly significant number in our ARPU.

It is a number that has been trending up despite slightly lower rates.

The good news is that is trending up because we are driving ARPU up, we are driving ARPU through national plans much higher.

So the delta or the gap between rising ARPU and rising incollect is actually greater.

We are actually getting margin expansion, if you will, in that area, so, but over time, I'd like to have-- I'd like to have both.

I would like to have a rising ARPU stream and declining costs or incollect cost per subscribers.

We believe that can be accomplished through the that with the negotiations with Cingular and others for that matter, not just Cingular.

I think I've got this about as clear as mud right now.

Anything further?

Mr. Rejes.

That's good.

Thanks a lot.

And there appear to be no further questions at this time.

Okay.

We appreciate again your interest in participation on today's call.

And we look forward to speaking with you again at the end of the second quarter.

Thank you.

That does conclude today's conference.

We thank you for your participation.

Have a great day.