AT&T Inc (T) 2005 Q2 法說會逐字稿

Good day, everyone, and welcome to the Dobson Communications second-quarter 2005 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, Vice President of Investor Relations.

Please go ahead, sir.

Thank you.

Good morning and welcome to our second-quarter conference call.

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

These include but are not limited to statements regarding the Company's plans, intentions and expectations.

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 second-quarter 10-Q.

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

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

Thank you, Warren.

I would also like to thank all of you for being on the call today.

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

We were very pleased with operating trends in the second quarter and in the past week the completion of our new agreement with Cingular.

In the quarter most in the key performance metrics of the business produced excellent results.

ARPU was again the highlight, increasing to $45.28.

This was $5.25 higher than ARPU in the second quarter of 2004 and $2.34 higher than the immediately previous quarter of 2005.

Our strong ARPU performance reflects three factors.

We continue to migrate our subscriber base to higher value GSM calling plans.

We are increasingly successful in attracting new customers to these same GSM plans, and we are maintaining our pricing discipline.

The GSM portion of our sub base grew to 741,200 GSM subscribers or 47% of our base at June 30, 2005, compared with 563,200 GSM customers at March 31, which was just over 35% of our subscriber base.

The value of our GSM voice and data services is driving our ARPU growth.

ETC funding came in at $5 million, as expected.

ADA (ph) ARPU increased to $2.18 per month, up from $1.85 in the prior quarter.

Postpaid customer churn improved slightly during the quarter, which resulted in the loss of total scribers being reduced to 1100 in the second quarter, compared with 18,800 in the first quarter of 2005.

Looking ahead, postpaid customer churn is probably the most challenging operating metric in the short term and for the second half of 2005, it is likely to be in the range of postpaid customer churn that we experienced in the first half.

As we migrate the remaining TDMA segment of our subscriber base, we will use a variety of promotions to encourage legacy customers to step up to higher value and higher priced GSM calling plans and these efforts are likely to cause churn to be higher than we would like in the short term.

Other than ARPU, the next most notable operating metric in the second quarter was roaming minutes-of-use, which increased 35% on a same-store year-over-year basis compared to the same quarter last year.

Cingular continues to grow its base at a very high level and to transition its legacy subscribers to GSM.

Cingular customers as Cingular has publicly reported, continue to increase average usage per month.

All of these trends contribute to the growth of roaming minutes-of-use on Dobson's GSM network.

In addition, roaming minutes-of-use different from Team Mobil customers increased appreciably during the second quarter of 2005.

As noted in our Friday press release, we have just completed the new consolidated roaming agreement with Cingular.

As a result, the new roaming rate structure was applied to the quarter, reducing roaming revenue and in collect roaming expense.

We're very pleased to get the long-awaited agreement completed.

It was a complex process, but both companies took the time to create a solid mutually beneficial long-term roaming relationship that should deliver significant value to our customers and shareholders.

One of the key benefits of the new relationship from Dobson's point of view is that it provides significantly more clarity on our roaming business long term, solidifying our relationship with the nation's largest GSM wireless Company.

The agreement is at least EBITDA neutral in our opinion in 2005 and beyond.

It creates an open network home-on-home environment designed to encourage growth and a better customer experience for both companies.

The agreement puts in place a multiple rate structure that better reflects our business today.

And finally, it provides a continuation of the exclusivity clause in the AT&T agreement, with minor modifications which should have minimal revenue impact if any.

Everett will provide additional detail on the agreement momentarily after we complete the review of the second quarter, and I am sure there will be plenty of questions about it in the Q&A.

During the second quarter, we continued to invest in the network, adding 50 cell sites, numerous radios, and in certain markets more back haul (ph) capacity.

We are focused on optimizing network capacity between TDMA and GSM as the calling traffic patterns evolve.

Network quality is a first priority in improving customer satisfaction and operating results, thus generating additional shareholder value.

Sixteen months ago, in February 2004, we stated that we expected to add 200 to 250 new GSM cell sites to maintain acceptable network performance during the TDMA to GSM transition.

Instead as of the end of June, 2005, we have built 320 new cell sites, reflecting the real world performance of GSM network equipment and phones, as well as increased usage, and we are not finished.

We will accept nothing short of a leadership position in our market in terms of network quality.

Consequently we expect to see slightly higher levels of CapEx in the second half of 2005.

Finally EBITDA improved in the second quarter of 2005 to 109.3 million, compared with 85.7 million in the second quarter of 2004 and 90.2 million in the first quarter of 2005.

As a result of this improvement in the underlying trends, we are increasing our 2005 guidance and expect to generate EBITDA for the current year in a range of 400 to 415 million.

Decisions that were made in the last several years have supported these significant increases in ARPU, access to a high-quality network, increased roaming traffic, and operating efficiencies that are driving increased EBITDA and free cash flow.

This in turn provides opportunities to reduce the level of debt on our balance sheet.

However, with all that said, I must add that our performance needs to improve in a number of key operating areas.

The U.S. wireless industry is consolidating and investors recognize that we have not yet fully capitalized on our growth opportunities in the industry.

Our markets are underpenetrated compared with the nation as a whole.

Dobson has an excellent opportunity to solidify a high-quality subscriber base, then resume growing that base with higher value GSM voice and data services with the support of our roaming partners, especially Cingular.

Continued improvements in turn should result in increased customer satisfaction and the creation of additional shareholder value, and we are committed to realizing that goal.

Now let me take a few moments to outline the key focus areas for the balance of 2005 and into 2006.

Our number one priority for the operating team is to improve customer satisfaction.

To accomplish this objective, we will focus on several areas of our business.

First as I have stated time and time again, we must provide our customers with the premier network experience in our markets.

To date, our network team has done an outstanding job managing the challenges of balancing capacity between our TDMA and GSM networks.

This will prove to be a challenge for us until our customer base is predominantly GSM.

To that end, we will continue aggressively migrating TDMA customers to GSM through the remainder of the year and have made some modifications to our program in an effort to accelerate migrations further.

Customer experience on our networks should continue to improve as we move toward 70% of our base being GSM at year end and as we are able to allocate more spectrum for our GSM network.

In addition to strengthening our migration efforts, we will focus on particular markets that require additional coverage cell sites to keep up with customer demands and requirements.

Our customer base is shifting and increased usage by both Dobson subscribers and those of our roaming partners make it imperative that we strengthen coverage in our markets.

As part of our marketing efforts, we will also be developing a customer lifecycle management program to provide us with a structured and disciplined approach to talk to our customers on a regular basis.

Customer lifecycle programs focus on a proactive structured outreach plan that is designed to improve retention and to drive additional revenues through upsell plans.

My previous experience has shown that with this approach a provider can positively impact revenue as well as help reduce churn and solidify customer loyalty.

Finally, we are in the midst of improving a technology used in our customer call centers.

Most notably we should have IVR technology implemented by the end of the third quarter.

IVR technology allows us to get the customer to the right person who can solve the customer's problem accurately and quickly without having to transfer that customer.

This should help improve our service levels in our call centers.

I am confident that we can and will improve customer satisfaction as we aggressively migrate more of our TDMA customers to GSM; improve our coverage and overall network quality in our markets; proactively talk to our customers more frequently than ever before; and utilize technology to improve the customer experience with our call centers.

These four actions are designed with one thing in mind, improve customer satisfaction and reduced postpaid churn.

While we have indicated that churn in the second half of this year will be similar to the first half, I expect our postpaid churn to improve in 2006.

Our next area of focus is to improve our subscriber growth.

To date we have made significant progress on gross additions as you have seen with the sequential improvement in the past quarters.

I believe we can continue to profitably increase gross adds as we progress through the remainder of 2005 and into 2006.

The Company is positioned very well in its markets.

As you know, the underpenetration in our markets provide us with a great opportunity for growth.

Our rate plans are very competitive and will assist facilitating our growth.

As we move forward we will focus on the following to help drive increased sales.

We will continue targeting high value GSM customers who are attracted by our national plans.

We will enhance our current sales organization by providing more channel support and development.

Each distribution channel will play an important role in our sales strategy and we will add resources as necessary to provide better program development and support.

We will strengthen our business-to-business channel in particular, targeting medium-sized business accounts in our markets.

This represents a great opportunity for improvement and we expect to become the carrier of choice for high-value business customers in our markets.

We recently launched an ad campaign focused on improving the perception of Dobson operations, networks, and products, especially national offerings.

We have witnessed increased traffic into our retail locations and view the advertising campaign as a catalyst for this increase.

We will continue to advertise with this approach to help awareness and to support our promotional offers.

The third key focus area is to keep improving ARPU.

To that end, we will continue to focus on selling high-value national GSM rate plans.

They are competitively positioned and have proven to be compelling to targeted customers.

As mentioned previously in my comments, we will continue to aggressively migrate TDMA customers to higher value GSM plans.

And we are launching an improved data offering complete with the new brand and new packaging in late third quarter.

Our current price plans and our new data offerings combined with the consistently improving network should allow us to maintain the upward trend in ARPU.

Finally, we are focus on taking cost out of the business whenever possible and prudent.

We have taken numerous actions to date, most notably consolidating call centers, and these actions have proven effective in controlling the increase in operating costs for the Company.

Continued diligence in managing our operating costs will be a key priority as we move into the second half of 2005 and into 2006.

So in summary, we are focused on four key initiatives -- improving customer satisfaction toward the end of reducing customer turn; profitably growing our subscriber base; continuing the ARPU improvements; and proactively managing our operating costs.

Improvements in performance should deliver the types of results that will justify our shareholders' confidence in the Company.

I thank you for your continued support and interest.

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

Thank you, Steve.

Steve touched on the success we have seen in revenue and Everett will be discussing the new roaming agreement with Cingular, so I will limit my comments to our operating expenses followed by capital expenditures and our liquidity position.

Operating expenses were 188.4 million in the second quarter, compared to 181.6 million in the preceding quarter, a 3.7% increase.

The cost of service component of operating expenses declined from 72.3 million in the first quarter to 69 million in the second quarter.

The decrease is attributed to a decline in incollect costs of 7.5 million due to lower rates in the new roaming agreement.

These reductions were partially offset by increased costs associated with additional cell sites and costs associated with new features.

Costs per gross adds dropped in the second quarter to approximately $382, a slight decline from the $390 level reported in the first quarter.

This reduction was achieved by increased productivity through higher gross adds.

Net equipment costs in the second quarter were 22.1 million, an increase from the first quarter of 18.8 million.

We continued to see high levels of customers migrating from TDMA to GSM phones and handsets subsidies.

The majority of the (technical difficulty) migration costs continue (technical difficulty) amortization of this item on a new income statement line item titled gains on disposition of operating assets.

This line item is included in operating income right before depreciation and amortization but after EBITDA.

We expect a complete sale approximately 56 additional towers by the end of 2005.

In the second quarter, total capital expenditures for DCC were 43.7 million.

CCS subsidiary capital expenditures were 28.8 million and 14.9 million at American Cellular.

This brings the year-to-date total to 76.3 million.

In the second quarter, 50 new GSM cell sites were added, 24 in the American markets and 26 in the Dobson cellular markets.

As mentioned in our press release, because of the significant higher levels of GSM usage than anticipated, along with adding certain cell sites to improve quality, we now expect that we may spend closer to $150 million for the year in capital expenditures.

At the end of the second quarter, Dobson's cash balance on a consolidated basis was $247.9 million, which includes $77 million from the tower sale.

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

In the third quarter we expect to use 50 million of our cash for the previously announced exchange offer.

We are on schedule to complete the exchange offer early next week.

Now we will have Everett walk you through an overview of our new agreement with Cingular.

Thank you, Bruce.

Let me first start by reminding everyone that AT&T Wireless/Cingular merger created the opportunity for Cingular and Dobson to take a fresh look at our roaming and operating relationship.

After several months of discussions where both parties searched for a mutually beneficial future, I am pleased to report that we have achieved just that.

While I obviously can't comment for Cingular, I can talk about some of the important elements from our perspective.

I will also point out that many of the specific terms are of a confidential nature.

The single most important element of this agreement is the benefit to our respective customers.

It consists of a multiple rate structure that is designed to facilitate growth for both companies and is not a disincentive to roaming.

Other key element of the agreement include -- first. we have agreed to continue offering home-on-home roaming in areas where our networks overlap, thereby assuring a more robust network and better customer experience.

The agreement is extended by approximately one year to mid 2009.

Next, the agreement provides for a mutual lowering of rates.

We estimate the effect of the rate changes will be at least EBITDA neutral to DCC as well as each of our two operating subsidiaries, DCS and ACC.

These rates are retroactive to the beginning of the second quarter and therefore are reflected in today's earnings release.

While the rates themselves are confidential, I can report our blended incollect rate to Cingular is being reduced by approximately 50%.

I cannot comment on the new Cingular outcollect rates specifically, but I can give you an estimate of our companywide outcollect yield after giving effect of the new Cingular agreement.

We estimate that our out collect yield in the last three quarters of 2005 will be approximately 13% below the outcollect yield in the first quarter of 2005, which was $0.135.

Roaming yield in the second quarter 2005 therefore was $0.118, reflecting the impact of the new agreement on total outcollect yield.

Beginning January 1, 2006, we estimate that our total outcollect yield will decline 18% as compared with the last three quarters 2005.

Beginning January 1, 2007, we expect a mid single-digit percentage decline in total outcollect yield compared to 2006.

Beginning January 1, 2008, we expect another mid single-digit percentage decline in total outcollect yield compared to 2007.

Lastly beginning January 1, 2009 through midyear 2009 when the agreement would expire, we again expect mid single-digit percentage decline in (technical difficulty) total outcollect yield as compared to the previous year 2008.

Once again this is our estimate of our total Company outcollect roaming yield based solely on the new Cingular agreement.

It does not attempt to estimate any rate changes that may occur from other service providers.

As we have indicated in the past, one of our objectives is to lower roaming rates, both outcollect and incollect while remaining EBITDA neutral in the process, thus exchanging roaming profits for local profits.

We estimate that this agreement does just that in the amount of 30 to $35 million annually.

On the issue of exclusivity that was (technical difficulty) agreement, there is a continuation of (technical difficulty) There are some minor modifications as it now applies to the new Cingular that we believe would have a minimal impact on outcollect revenue.

On the issue preference we have agreed to mutual preference to the term of the agreement in 2009.

As most of you are aware, one of our operating subsidiaries, American Cellular, had a right to buy back at fair market value certain overlap assets that were created as a result of the Cingular and ADS merger.

As part of his new agreement we have agreed not to exercise that right.

Finally I want to touch on a couple of provisions that are new.

First as part of this agreement we have the right to acquire 10 MHz of 1900 spectrum over 1.1 million POPs of our existing footprint in Ohio, Pennsylvania, for an amount of $6 million.

I can also report that we expect to exercise that option and complete that purchase in the near future.

We also have an option that must be exercised within 90 days to lease 1900 spectrum covering an additional 1.5 million POPs again over existing 850 footprint.

The option can be exercised on a market-by-market basis.

As most of you are aware, because of the dual band nature of GSM wireless devices, 1900 MHz spectrum over 850 spectrum can be very complimentary especially in high traffic areas.

Lastly this agreement provides for a payment of 7.8 million for settlement of prior claims against AT&T Wireless.

The settlement also provides for formula-based payments to be made to Dobson through mid 2008.

We estimate the payment amount to be approximately 1.5 million per quarter for the last two quarters of 2005 and will likely be 1.5 to $2 million per quarter from 2006 through 2008.

Because of the nature of the claims, there will be an allocation of settlement payments between our operating subsidiaries, therefore DCS will receive approximately 91% of the claims and ACC approximately 9% of all payments to be made.

And with that I would like to open it up for questions.

(OPERATOR INSTRUCTIONS) Phil Cusick, Bear Stearns.

(technical difficulty) I wonder if we can talk a little bit about 3G and UMTS going forward?

Was there anything in the Cingular contract or do you have any thoughts on building UMTS in a few years?

There is -- I guess the way to describe it is there is a continuation of a clause that we had in the AT&T contract that essentially has an agreement to agree if you will, on UMTS.

In other words, if we can agree on rates and a bill schedule, we will be entitled to receive preference for UMTS.

The other thing I can report, there are no obligations on either party, no responsibilities on either party, but there is a right to preference subject to an agreement on rates and a build schedule.

(technical difficulty) any idea when you might start to think about building that out?

I don't know that we're prepared at this point to talk about that, unless Steve's got a view on that.

I think we are kind of assessing all of the issues and all the facts around the industry and what Cingular does with respect to that.

Okay, and the second quick one.

On the Alaska USF situation, can you just update us there?

I think I'm probably would be closest to that and let me give you the short answer.

There is not a lot to report on it.

We expect it, if at all to be an '06 event.

Okay, thanks a lot.

Wayne Cooperman, Cobalt Capital.

Congratulations.

It is a pleasure to be on a call when things are getting better instead of worse.

Actually Phil asked my questions so I'm going to pass to the next guy.

Rick Prentiss, Raymond James.

A couple quick questions for you.

On the roaming agreement, can you walk us through how you expect it to be EBITDA neutral?

And on the payment, is that going to be included in your EBITDA, the 1.5 million per quarter or is that not included?

The short answer on that is yes, it will be included in other revenue, equipment and other revenue I believe.

The first part of the question is it is EBITDA neutral -- we estimate it to be EBITDA neutral as compared to the agreements that were in place prior to the renegotiated or new agreements.

And it is that simple.

There is no other explanation on that really.

And that also on roaming, you mentioned Cingular still is probably the predominant carrier you are receiving it from and that T Mobile was -- I guess the word you used was appreciable I guess for the second quarter '05.

Can you update us a little bit on the percentage you are seeing from T Mobile and is that from 1900 spectrum or are you starting to see T Mobile jump on the 850 side with their selling full frequency handsets?

Rick, this is Steve.

What we have seen year-over-year is we have seen the T Mobile minutes grow I would say significantly.

They have probably grown in the 75 to 100% range.

And still in terms of our total base, it is a small percentage, but we have seen it increase and we're happy with that increase and we expect to continue to see that going forward.

The final question for you is on CapEx.

As you look at CapEx and you talk about improving the network which I agree is probably the best way to keep attacking churn, what are your thoughts as you look out into the future years on how any more cell sites you will need as you migrate more customers to GSM and to (indiscernible) minutes going up?

I'm just trying to get a sense of where CapEx stabilizes versus the increased guidance this year to 150 million?

Yes Rick, I can't really give you an answer in terms of what we might see going forward other than to tell you that we're going to continue to invest prudently and where necessary.

But we're not talking about guidance beyond 2005 on this call.

Okay, good luck.

Romeo Reyes, Jefferies & Co.

Okay, just a few questions actually.

On the Cingular deal first of all, can you give us a sense of the overbill protection that you have here?

I know you had some overbill protection in some of the agreements that you had previously.

Can you provide -- I don't know if I may have missed it when you went through it but if you could give us a sense of if there is any overbill protection or if you are giving that up in exchange for having certainty on the rates?

Second question is on the marginal ARPU on the GSM customers, if you can give us a sense of where that is coming in?

Thirdly on CPGA, it seems like it was relatively low this quarter but yet your migrations were relatively high, so I'm trying to figure out what you did this quarter that allowed you to drop CPGA?

And then the breakdown on cash at DCC, DC CPCS?

And very lastly, on MOU use for DCS and (indiscernible)?

I will take the easy one.

The overbill protection we have coined the term exclusivity with respect to that in the past.

That does continue through mid 2008 and it is with minor modifications as we have described it.

We believe it to have minimal impact on revenue.

On a couple of your other questions, you had a question regarding the CPGA and how we had the slight decline in that and that is really just a function of doing more gross adds with a lot of fixed costs embedded in our distribution channels.

On a postpaid basis, we did close to 88,000 gross adds in the second quarter versus about 77,000 in the first quarter.

So you can see that we have had quite a few more gross adds with some incremental increase in costs but generally the fixed costs are being spread over a wider base.

Is there sort of a onetime element to that CPGM on the migration side, Steve?

Or the $100 that you are talking about -- or I'm sorry, Bruce -- the $100 you talked about on migrations.

You said $100 you would have to incur anyway in order to incentivize a customer to stick with you for another year or two years?

It is an incremental cost every time a migration across and that $100 is basically the phone subsidy.

And we try to treat our existing customers at least as well as we treat new customers, and new customers that sign agreements get a subsidy on the phone set.

And so our existing customers would expect no less.

So each migration costs us about $100 primarily through that phone subsidy.

Your other question was the GSM ARPU versus TDMA ARPU and again we're continuing to see basically similar differences than we saw earlier and that is the $5.00 to $6.00 range.

As Steve mentioned though, we are starting to see data ARPU increase a little bit as well in that.

So we are continuing to see that same trend.

Any other questions? (multiple speakers)

I can give that answer.

There is 86 million at the Dobson Cellular operating entity; there's also 86 million at American Cellular, There's 3 million at the parent and there is 73 million at the new wireless investment company we set up about a quarter ago.

And then the breakdown of MOUs between DCS and ACC (ph) and also CapEx?

I don't know if you have readily available.

It was 311 minutes at DCS and 205 million minutes at ACC; 28.9 million in CapEx at Dobson Cellular and the rest at ACC.

Thanks a lot.

Pat Dyson, Credit Suisse First Boston.

Following up on your comments around roaming, previously you talked about -- I appreciate the detail on outcollect going forward -- but previously you talked about incollect and expectation for the year of around $0.10.

I guess two questions first on that point would be what should be our thinking going forward with incollection?

Should we start to think about it as half of the $0.10?

And could you give us what incollect yield was for the second quarter?

I guess secondly on roaming, if you think about the guidance you've previously given the 8 to 10% up on the year-over-year basis for '05 obviously your tracking well ahead of that.

Do you care to put a percentage number on what the full year '05 expectation should be at this point?

Let me try to start on the incollect discussion.

The Cingular agreement calls for or provides for a 50% (ph) reduction in the incollect rate that we pay to Cingular and therefore I don't have results for the blended rate that that will create, but it is probably in the 6.5 to 7% range.

It kind of depends on the nature of the call traffic going forward.

But yes, you can certainly model that in.

It is designed, this agreement is designed to significantly lower our incollect expense and therefore make us long-term more competitive and more profitable in our local business, we believe.

What was the second part of the question?

Firstly just to follow up on that -- is that -- should that be a flat rate going forward, that 6.5 to 7?

Yes, I would think.

And absent other agreements or other new agreements with other providers that would serve that would lower the rate in that would be relatively flat going forward on a per minute basis.

And so was that the rate roughly for the second quarter?

Yes.

Then the second question was just on -- do you care to put a percentage expectation on roaming MOU?

It’s obviously had a pretty ridiculous run for the first half of the year and you are guiding to trend continuing.

Should we expect to continue to see this type of 30% year-over-year growth?

I think what we saw in the second quarter was certainly a bit surprising in that Cingular's minutes in total grew and we got certainly we continue to expect to receive a fair share of those minutes -- a relative share of those minutes.

But we certainly saw in Cingular's case not only subscriber growth but usage growth on those subscribers.

So in terms of how you can model or predict, that is the leading indicator.

And it has been fairly true to us, in other words, as Cingular minutes grow, our roaming revenue from Cingular grows.

Okay, I've got two additional questions quickly.

First on the preferreds, that exchange is coming to a completion here shortly.

What is your plan for the balance of the preferreds?

Do you have 30% of the 12 and 13 that will stay out there?

And then secondly there's some assets that Western Wireless Alltel has been forced to divest.

Could you give us just a comment around the attractiveness of those assets to Dobson?

This is Bruce.

I will handle the question on the preferred.

As we have said in the past and as our initial exchange offer had we're looking to take out 100%.

I think as we look forward, we're going to look for opportunities to do something with the additional preferreds.

We do not have any specifics at this time we can talk about, but I think true to what we have been saying for a number of quarters, we will look at opportunities across our balance sheet to improve our position from where we are.

And Pat, with respect to the Western Wireless Alltel, I don't think it would be prudent for us to comment on the attractiveness or any other traits or anything about those properties at this point.

Okay, thank you.

Arianne Mueller (ph), Credit Suisse Asset Management.

A few questions, the main one on your EBITDA guidance.

I'm struggling to understand how you are not raising it a lot more than this given that first of all you are tracking at 199 for the first half.

Second of all, your roaming agreement looks pretty favorable given everything you have said and we don't really expect much in the way of subscriber losses.

So I wanted to see if you had comments on that?

And then I have some quick follow-up questions.

Just quickly -- this is Bruce again -- on our guidance, one of the areas that Steve talked about where we are going to put some emphasis is through the migration from TDMA to GSM.

And so that will be a significant item or could be depending on how successful we are.

Likewise he had mentioned that gross adds we anticipate to be a bit higher in the second half of the year, which is also an additional cost.

We are putting some additional towers and infrastructure in place.

And when you look at all those issues, that leads us to believe that the guidance we gave you is the appropriate guidance.

Likewise as Everest mentioned, there is some onetime nature items in the second quarter on the settlement with Cingular.

Not all of it is onetime but there is a piece of it that is onetime.

Those are all little pieces that will affect our guidance.

Certainly we will strive to try to a beat our guidance but we feel that the range we gave you is a solid range and that is what we are expecting to see.

And a quick follow-up.

The ratio of traffic coming in as opposed to going out of your network, was it two-thirds, one-third or twice as many minutes roaming outside than inside?

How is that tracking these days?

In terms of minutes it is a little bit more than two to one just slightly more than two to one; two minutes coming in for every one minute going out.

Okay, so not much change there.

I thought you were starting to sell the Razr (ph).

Did that just start or have you been the concurring those costs you mentioned a $100 handset subsidy and as such on the Razr, do you have other handsets that you expect to subsidize more?

Well, (inaudible) about selling the Razor and I don't believe we are selling that currently but if we are, I will have to get back with you.

But my understanding was we were not selling that at this point.

Okay, and quick other question.

Why did the minority interest loss increase that much in your income statement this quarter?

The minority interest.

I will have to get back to base and say it is a function of how well the three properties that we have are doing.

We have partnerships in just a few of our properties and as they do better, the minority interest will go up.

But if there is something else I will have to get back to you.

I don't think there's anything else (inaudible).

Okay, thank you.

Shilfa Nuran (ph), CSFB.

I was just trying to understand your intention on the 6% convertible preferreds?

Do you still intend to defer payments on these preferreds?

Have you decided, or --?

That is something that the Board has not made a decision on, so we really can't comment on that at this point.

Do you know when the Board does take a decision, will it be in September, around the same time last year when you did it?

We will let you know when our Board acts.

Okay, thank you.

Avi Benus, JP Morgan: A couple questions.

First just on the roaming agreement, I wasn't quite sure in terms of the exclusivity language that you discussed.

Is the deal -- is there one roaming agreement now through '09 as opposed to before where ANCEL (ph), DCEL, had different agreements?

The answer is yes.

It is one unified total agreement that effectively is the new Cingular and the Dobson agreement.

Great.

Okay.

My second question I guess in terms -- Steve, you have been there now over that 100 day's plus that you talked about before.

Do you have the management team and staff in place that you're looking to do or are there more changes do you think to come?

Well, as I told you earlier in previous calls, we are currently searching for a Chief Marketing Officer and I am currently searching for a Senior VP of Sales.

Both of those searches are underway and going well and I would anticipate getting those folks in in the near term.

Okay, good.

And the last question to follow up on some of the capital structure things.

You still had some high coupons 10 7/8 that are callable and now that you have put up some good numbers and the bonds have traded up, have you given any thought maybe to coming back to the bond market, try to refinance some of that higher coupon maturity?

We're looking at all kinds of things, as we always do.

And we will look to reduce our overall leverage.

We will look to reduce our cost of capital.

We will look at all kinds of things and we will let you know what's to decide what course of action to take.

Good.

Thomas H. Lee, JP Morgan.

I just have a couple of qualitative questions I wanted to ask you.

One, just on Steve's comments on cost savings and sort of operational issues with Dobson, can you just give us an idea of like from an operating perspective, are your products a lot more competitive today because they're GSM?

And I guess describe whether or not you think you are starting to regain some share in Alaska or how you are doing?

Secondly with regard to roaming, I guess one of the things I still was not clear from all the questions asked is can you just describe or provide some color on the nature of your relationship with Cingular?

I guess the general impression I think most investors have had is that this has been an adversarial relationship, But looking at the agreements and the asset options here, it strikes me that in a way this looks a lot more like a mutually beneficial partnership.

So I was just curious, could you describe the nature of the negotiations with Cingular or the nature of the relationship?

And I wasn't totally clear but just to put out an obvious question, are you replacing essentially the eight agreements that exist between Cingular and AWE (ph) with this new agreement?

Let me take this.

This is Steve, let me take the first question.

With respect to Alaska, without specifics I will tell you that we are very pleased with our recent performance there.

We are very excited about the future that Alaska holds for us.

And we have made significant improvements in our network and our sales and our ports are, in our view, trending favorably.

And we are again very bullish on Alaska and what it holds for us in the future.

So with respect to our products and competitively priced etc., we feel that our line of products and our lineup of plans are very competitively priced and positioned and serve us well moving forward.

So we are very happy with those as we stand.

I'll turn it over to Everett to (inaudible) issues.

I think hopefully this agreement speaks for itself in terms of the relationship.

It does provide for a lot of what I would call relationship type concepts and clauses.

Beyond that I can tell you that on a personal level, the teams at Dobson and Cingular have a great, great working relationship.

I can also tell you that the success of this new agreement with Cingular depends in large part on the ability of our network and roaming teams to deliver a quality of service.

It is not about rates.

It is not about the relationship.

It is frankly about our ability to deliver quality.

As you clearly understand, a lot of network's responsibility in terms of coverage growth and coverage expansion and improvement rests with Dobson particularly in the overlap market.

So that is what will drive the success.

Beyond that the teams -- there was obviously a lot of discussion, a lot of hours spent in discussion discussing concepts and the actual negotiation of the agreement.

Beyond that I think the teams enjoy working together and I think we will deliver a quality network and a quality service in the future.

In terms of the eight agreements, there are no longer eight agreements.

There is one agreement effectively, one agreement between Cingular, the new Cingular, and Dobson Communications.

So all provisions that we have discussed apply to the new agreement and apply to Dobson.

Great, and just to follow up on Steve comments about product, I know that within -- Steve has been on board since April.

I would love to hear why it is Dobson stocks are on the ability of Dobson to improve distribution or ways to enhance gross adds or channel.

In other words, what are some of the physical things that the Company is contemplating to really improve its footprint or distribution footprint?

As I said in the comments that we are first and foremost we're bringing in a senior leader of sales that will help address a lot of this and secondarily, I talked about in my comments the need to really enhance and support the existing channels and put more of a channel focus on our distribution model.

So those are two key things that we are planning and will do here in the near term to help us take the existing channels, make them more productive than they are.

I also talked about the business-to-business side in our direct efforts.

I think we had some pretty good opportunities in those -- in that channel and that goes hand-in-hand with the prior comments about doing things necessary to support the channel and improve it.

So I think you'll be seeing more effort from us in the channel approach in doing more things to focus there.

And that -- did you address what is happening with the Cellular One brand?

No, it is part of the disposition process that Alltel is going through with respect to the Western acquisition.

Okay.

Great, thanks.

Sam Martini (ph), Cobalt Capital (ph).

A few questions, mostly this.

Can you repeat the schedule on the roaming, Everett, over the next -- starting I think July '06 through January '09? (multiple speakers) The declines, I'm sorry.

Obviously they will be a transcript that we can make.

Let me try to give it to you.

There be a 13% reduction in our estimated total outcollect yield beginning in the second quarter for the balance of this year, beginning in second quarter of '05.

And that again, that is for the total yield, that is the effect that Cingular has on the total yield.

Beginning January 1 of 2006, as compared to the final three quarters of '05, there will be an 18%, an estimated 18% reduction in the outcollect yield.

Essentially from January 1, '07 through the end of the agreement in mid 2009, we expect mid single-digit declines on an annual basis (multiple speakers)

Just so I am clear, the 13% reduction in outcollect is off of what -- I'm confused as to the base that that is off.

That is off the total Company outcollect yield in the first quarter.

Of Q1 '05 per the adjustment?

Correct.

What present of your incollect is to Cingular today, Everett, roughly?

The vast majority.

I don't know what it is but it is a very large percent.

Of incollect.

So when you said that total incollect -- incollect costs to Cingular was 50% reduced, that is affecting the vast majority of your incollect costs?

Yes.

Unfortunately I reference that on a minute basis.

Unfortunately the other incollect expenses are relatively high (multiple speakers) relatively high numbers.

Can you give the incollect costs in dollars for the quarter?

Do we report that?

I think it is in the release.

If it is not -- I don't know -- if we haven't released it, we are probably not prepared to release it yet.

Okay, just two other questions.

G&A was up a fair amount year-over-year.

Is it reasonable to assume that it is going to stay in or around -- anything odd in there?

Is it 49 million sort of the right range?

In the second quarter we had 2.8 million accrual for the costs associated with closing our call center.

So that 2.8 million is a onetime cost.

Okay, so adding that back closer to kind of a 111 million run rate? 112?

And just --.

Wait a minute.

Sam?

If you look at our second quarter G&A cost, that includes 2.8 million, so you have to back that 2.8 million out of the second quarter G&A costs.

I understand.

And then just a conceptual question for either Steve or Everett.

On data ARPU at $2.00, it seems like that is a great opportunity with a lot of other carriers, multiples higher than that.

Is that -- in terms a your data, you've talked a lot about migrating to GSM plans and minute usage increasing the buckets and people are starting to talk more.

But data lagging by $1.00 to $4.00 a month in a lot of cases, is that a big part of the push or is the initial push minutes and getting people to talk more national plans?

Or are you really driving a lot of the ARPU appreciation off of this sort of data gap?

This is Steve.

The closer some of the combined effort of all of the voice improvements and the improvements in data and -- the $2.18 that we recite is against the base, not -- just the GSM base, which is significantly higher.

And (indiscernible) our plans in late third quarter to in essence relaunch Star Data service into the brand and then internally as well and externally and clearly put a new focus on it.

So we envision an upward trend on our data take rates and our data revenue as a result.

And then just one last question.

I apologize for the questions but, Everett, the Cingular agreement seems like a very good agreement for both parties.

Can you give us any color?

It seems like this agreement has been a long time coming on the complexities of it.

It seems like a very good agreement for both companies, as it should be, and I am curious what took so long?

What was the big part of the debate?

I think it is safe to say that -- as I've has said the past, there was really nothing driving a new deal except that both parties wanted to take a fresh look at things.

And there was not a deadline.

There was certainly no threat or obligations on either party to enter into a deal and that probably as much as anything created the timing that we talked about.

So hopefully as we described it hopefully the answer is we wanted to make sure we got it right.

And hopefully this deal will prove to be just that.

Sound like a very good deal for both companies.

Hopefully.

Time will tell.

As I said, it will become a good deal if the roaming experience that Cingular receives and the roaming experience that Dobson receives on Cingular's network, that is what drives.

It is all about the quality and the incentive for us to bring quality into our network as a result of this contract.

That is what will make it successful.

And your rate with Cingular, the incollect rate is flat through '09?

That is correct.

Nice job, congratulations.

Aaron Rickles (ph), CIBC World Markets.

Most of my questions have been asked and answered.

I guess just one quick one.

In terms of the migration from TDMA to GSM, I think you had talked about maybe getting a little bit more aggressive with that going forward.

I think you talked a little bit of an uptick in churn.

Can you just speak towards I guess the general philosophy and are you looking at it a little bit more differently now or are you seeing a final push to get everyone on to GSM or is this sort of a onetime thing?

How is that really looking?

It has been a concerted effort over the past to get people moved to the higher GSM plans and we see no reason to back off of that strategy when as we said, at June 30, we are at 47% of the base being GSM.

The changes that we are talking about are modifications in allowing and opening it up for more people to be eligible for migration today than perhaps they were in the past, and that is tied to contract terms and how far along they are in their contract.

So we are going to continue down the path we are going with those modifications and plan no at this time any additional incentives or to move people beyond that.

So we are happy with our progress to date and we look to continue it with these modifications.

I think you had talked about like an end of '06 finally getting it over there and maybe shutting down the TDMA networks early '07.

Is that still a fair timeframe or has that changed at all?

By the end of this year, as Steve mentioned, we will have close to 70% of our base on GSM, so there is not a lot left on TDMA as we go forward.

In terms of the TDMA network growth, we will try to shut that down as quickly as we can.

They will also be influenced by the amount of roaming traffic we still receive on TDMA.

So whether that is '06 or '07, it will probably be in the '07 timeframe but it won't be dictated on both how many customers stand, how much roaming traffic we are still being at that time.

That's great, thanks.

Sandy Liang, Bear Stearns.

Just about getting back to the EBITDA neutral, 2006 and beyond, were you talking about over the term of the agreement?

Like is that front-end loaded where EBITDA might be lower in 2006 but higher in subsequent years?

Also I'm wondering are there assumptions regarding the proportion of your gross adds that are now going to buy national plans?

Are you assuming that your gross adds are going to improve because you can now sell more national plans?

The easy part on that one is we have been selling national plans prior to this agreement.

So I don't think this in of itself will not change the marketing plan.

Steve and team I'm sure have a lot of things in mind on the marketing plan, but this rate agreement will not change immediately, change the marketing.

It will if you do follow DCS and ACC, obviously, and I know you do, ACC is the bigger beneficiary on the incollect reductions.

But even at ACC we had been marketing national plans, but it will improve the profitability enough long-term -- I think that is where we sense the market is going.

It is more to national plans.

And it certainly puts us in a strong position with respect to that.

In terms with EBITDA neutral as it compares to the outer years, the answer is very simply we think it is at least again, comparing to the agreements that were in place prior to the new agreement, we think that it is at least EBITDA neutral in 2005 and all subsequent years through 2009.

Is that in aggregate for 2006, 2009 or is that --?

That is per year.

My question was for 2006 through 2009 when you say EBITDA neutral, you mean collectively --?

No.

That is per year.

That is per year, okay.

So 2006 the same is would or would have been?

Yes.

What kind of roaming MOU growth are you assuming and has that changed at all given that roaming has been pretty robust?

Obviously it was higher than we expected in the second quarter.

I think our guidance probably reflects that it will continue at a fairly accelerated pace for this year.

We are certainly seeing minutes as I said this agreement certainly -- there is no distance in that we believe to restrict roaming in any way and frankly I think our view is the minutes will continue to be at or near where they are right now for the balance of the year in terms of percentage growth.

And in '06, '07, and '08, have your assumptions about roaming MOUs growth changed a lot or changed at all, just getting back to the EBITDA neutral statement?

I know it gets confusingly when we talk about '06, '07, '08, but it depends more in those years on our assumptions relating to the mix between outcollect and incollect because we have a mutual lowering of the rate.

The gains, if you will, even with this neutral basis is dependent upon our assumptions being reasonably accurate on how many incollect minutes we produce versus outcollect minutes Cingular sends them.

But based upon our belief and our assumptions today as we know the world, we believe that we can be EBITDA neutral in each 2006, 2007, 2008.

One last quick one.

What exactly was the amount of non-recurring items related to your roaming agreements that were in the second quarter EBITDA number?

In the second quarter we booked 7.8 million of the settlement.

Of that second quarter probably about 5.8 was what I would call prior period settlement amount and that gets you back close to whatever it was saying about seeing 1.5 to 2 million per quarter as you move out towards '08.

So in the second quarter, the 5.8 million prior period relates to prior to the second quarter?

Yes.

So that was truly non-recurring and then there was about 1.5 million, 2 million of recurring which just continues through the life of the settlement, right?

Through the life of settlement which is through mid '08.

Thank you very much.

Jason Kohl (ph), Linden Advisers.

Thanks for that.

I wanted to get color on the 6% convert preferreds.

Does the Board have a (technical difficulty)

Did we lose him.

Apparently did.

Lori?

My question is on the 6% convert.

You talked about the Board having to make the decision so that assumes that there is choice that the Company had as to whether to pay or not?

It does.

The Board has a number of choices, yes, whether to pay cash, whether to pick, or whether not to declare the dividend.

Those are the choices we have.

Got you.

So the recent transaction does not -- my understanding was that the recent transaction with the other preferreds resulted in the Board having to declare either pick or cash.

It is not requiring that, no.

In fact, you can go back and read the exchange agreement and it does have some covenant changes in our existing preferreds and you can go back and you can look through those.

Okay.

We will come back to you on that.

Thanks a lot.

That concludes our call today and on behalf of the team here at Dobson and everybody in the room, we want to thank you all for your interest and your continued support and we look forward to talking to you next quarter.

Thank you.

This does conclude today's conference.

We thank you for your participation.

You may now disconnect.