AT&T Inc (T) 2006 Q1 法說會逐字稿

Welcome to the Dobson Communications first-quarter 2006 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.

Good morning.

Today's 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 and expectations.

Such statements are inherently subject to a variety of risks and uncertainties, and 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 the first-quarter 10-Q which we filed yesterday.

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, and good morning to everyone.

We appreciate all of you joining us on the call today.

Also participating are Chairman Everett Dobson, and our CFO Bruce Knooihuizen, both who will be available for Q&A after our prepared comments.

Over the past 12 to 18 months, Dobson Communications has been working diligently to improve a number of key areas of our business.

We initiated plans to increase ARPU, to improve EBITDA and margins, to strengthen roaming relationships with key GSM partners, to enhance our senior leadership team in the sales and marketing area, to improve our cost structure, to migrate our customer base to GSM, and to begin growing our subscriber base once again.

Throughout this time frame, we have shown improvements in most of these areas, as highlighted in previous conference calls.

The lone exception was in the subscriber growth area.

We are pleased to announce a continuation of these improvements with our first-quarter results.

Our first-quarter performance was in line with our expectations and set the stage for solid performance in 2006 as a whole.

Our results in terms of gross adds, sales mix, service revenue, roaming revenue, operating expenses, and EBITDA for the first quarter were consistent with our expectations.

Our performance on churn was particularly encouraging.

We reduced postpaid churn by 54 basis points to 2.08% in the first quarter, showing more rapid improvement than we had expected from the fourth quarter of 2005.

For the first time in six quarters, we reported positive net additions.

Based upon improved churn, we expect our net adds to be in the 30 to 40,000 range for 2006 as a whole.

Our success in managing churn starts with the continued improvement in network performance over the past year.

We have invested in network capacity and technology to assure that Cellular One customers have an excellent user experience every time they hit the send button.

This effort will continue as customers demand excellence in their network service.

Next, the quality and productivity of our customer care organization continued to improve during the first quarter.

You may recall that in the middle of last year we completely reorganized our care organization.

Specific customer care and related financial functions are now concentrated in individual call centers, and most of our call center staff have undergone additional training.

The reduction in churn shows that our call center teams are increasingly comfortable in their new customer care roles, from basic customer care, solving issues of handsets or explaining bills, to retention and collections.

We have upgraded and continue to upgrade our call centers' capabilities with advanced tools, including networking the call centers to better manage call traffic so they can respond quickly and effectively to customer needs.

In addition, we have rolled out compelling new products that help us boost retention.

For instance, the new statewide unlimited calling plan is a simplified, easy to understand product with which to begin the conversation with a potential new customer or a long-term subscriber who is considering signing a new service contract.

In terms of these established customers, we are initiating contact earlier to re-sign them, often four to six months before their contracts expire.

We are making sure that they understand the many products and services we have to offer and also how important their business is to us.

Another positive influence on churn has been the reduced negative impact of TDMA postpaid churn as that part of the base shrinks.

At the end of the first quarter, 75% of our customers were on GSM calling plans.

We expect to be approximately 90% GSM by year end.

We have also improved customer care and reduced churn because the entire effort is now organized and centralized under the leadership of a single executive, our Vice President of Operations Brian Boone.

Under this new structure, our expectations for excellent customer service are much better defined and accountability is more focused.

Finally, our entire workforce is now focused on one goal, Do the Right Thing for the customer and the Company; and this effort involves all of us at Dobson, not just our customer care organization.

Starting with the first customer contact in our retail stores, we are committed to delivering unparalleled customer service.

With new processes, training, and accountability, we are focused on meeting each customer's needs as directly and quickly as possible, whether that involves explaining a new calling plan or simply changing a customer's mailing address immediately in the store when the customer walks in off the street.

This is a much more satisfying customer experience than being told you must call the call center to take care of that.

So in summary, we're very pleased with our progress in reducing postpaid customer churn from 2.82% in the third quarter of 2005 to 2.08% in the first quarter this year.

We are committed to retaining an even higher percentage of our customers going forward.

As with recent trends in ARPU, churn should increasingly reflect seasonal influences, product mix, and other operating factors and be less affected by the remaining transition of our base to GSM.

Lower postpaid churn has justifiably received the most attention since we announced our preliminary results, but I would like to point out the significant progress we have achieved in other areas of the business since the beginning of the year.

We reported 125,300 gross subscriber additions for the first quarter, an increase of 2% over the fourth quarter of 2005 and 3% over the first quarter of 2005.

Postpaid gross adds increased 5% sequentially from the fourth quarter of '05 and by 9.6% from the first quarter of 2005.

First-quarter sales were in line with our expectations, and we expect to continue building sales momentum through the year.

As a result of our strong churn and gross add performance, we added 2,500 subscribers to our customer base in the first quarter.

We were very pleased to return to positive net adds overall, but equally as pleased with the strength in postpaid.

We went from losing a significant number of postpaid customers in the third and fourth quarters of last year, 34,500 in the third and 28,000 in the fourth, to breakeven in the first quarter of 2006.

We exited the first quarter in March with our strongest postpaid month, and the early second-quarter trend continues to be positive.

ARPU was $46.76 for the first quarter of 2006, almost $4.00 higher than ARPU for the first quarter of 2005, and $0.66 higher than ARPU for the fourth quarter of last year.

First-quarter ARPU reflected seasonally lower usage, but also included additional ETC funding gain in late January.

Total ETC funding for the quarter was $11.9 million.

Data ARPU increased again to $3.34 for the first quarter of 2006, compared with $2.90 in the fourth quarter of 2005 and $2.56 in the third quarter.

Data ARPU in the first quarter of 2005 was $1.82.

Roaming traffic got off to a fast start in the first quarter, as we reported 566 million minutes of use, an increase of 43% over the first quarter of 2005 and a slight decrease from the fourth quarter of 2005.

The level of first-quarter roaming traffic and the average yield of $0.097 were consistent with our expectations for the quarter.

I would like to note here that our guidance for the year is 25% to 30% growth on roaming traffic on a year-over-year basis.

As a result of our strong achievements, we reported first-quarter EBITDA of $92.5 million, again in line with our expectations.

This represented an increase of 2.6% over the first quarter of 2005.

In addition to the operating results from first quarter, let me touch briefly on some of the other important activities that we have worked on throughout the quarter.

We announced four agreements to acquire new property since the beginning of the first quarter.

Those markets are the Texas 15 RSA, West Virginia 7, and the Nome and Kodiak, Alaska, markets.

Each of these acquisitions fits the criteria that we have used in the past.

They are adjacent to our existing operations in those areas, have solid spectrum positions, provide for added growth opportunities, and provide the opportunity for us to capture more of our minutes on network.

These are attractive strategically and financially, and Bruce will provide more detail on them in his commentary.

We have also continued our strategy of strengthening our overall spectrum position with the closing of the T-Mobile spectrum purchase which was previously announced last year.

This acquisition gives us an additional 10 megahertz of spectrum over 3.4 million Pops.

With this acquisition, we now have at least 35 megahertz of spectrum over 52% of our Pops.

Upon completion of the Texas and West Virginia acquisitions, that number will increase to approximately 54%.

With respect to the upcoming ADWS spectrum auctions, we have said on prior calls that we may participate.

In fact, we filed a short forum application or Form 175 with the FCC yesterday; and we will keep our options open.

We would be focusing on spectrum that would improve our existing footprint.

As we have stated in the past, we will focus on value and approach these auctions prudently.

In the event we choose to participate, American Cellular would be the bidding entity we would use.

In closing, I would like to say as pleased as we were with the Company's first-quarter results, we look at the first quarter as the first leg of a long race.

No one on our team is declaring victory, and we're all extremely focused on elevating our performance going forward.

We are all excited by the many opportunities and challenges that lie ahead of us.

Thank you all for your continued interest, and with that, I will turn it over to Bruce.

Thank you, Steve.

Consistent with past practices, I will briefly discuss certain financial highlights and I will try not to repeat the items that Steve has already touched upon.

First, our operating revenue for the first quarter was $287.6 million, which was a decline of $6.6 million from the fourth quarter, but an increase of $15.8 million from the first quarter last year.

However, we have seen continual increases in service revenue this quarter from both the first and fourth quarters last year.

This growth has been attributable to the growth in ARPU that Steve talked about.

Our customers are now averaging approximately 596 minutes of use per month as compared to 494 MOUs in the first quarter of last year and 589 minutes in the fourth quarter of last year.

The 2005 MOU numbers are revised from previously released data, but this correction has no impact on any other previously released operating or financial results.

Roaming revenue on the other hand increased from the first quarter last year due to strong year-over-year minute growth offsetting a significant reduction in roaming yield.

But first-quarter roaming revenue was lower than the fourth quarter due to seasonally lower mix on top of the lower yield.

Total operating expenses for the first quarter were $195.1 million as compared to $181.6 million in the first quarter of 2005 and $198.5 million in the fourth quarter of 2005.

The reduction from last year's fourth quarter was achieved despite Dobson Communications beginning to expense options in the first quarter this year.

Within operating expenses, cost of service declined slightly from $77.4 million in the fourth-quarter 2005 to $76.1 million in the first-quarter 2006.

We saw slight increases in areas such as [in collect] and network expenses, but they were more than offset by lower costs associated with full and feature costs.

CPGA was up slightly from $435 in the fourth quarter of last year to $439 this quarter.

While we made progress in reducing our overall handset subsidy this quarter, and while TDMA and GSM migrations declined, the related savings were offset by retention cost for GSM customers coming out of contract and an increase in compensation and agent commission levels.

The results of all these efforts helped lead to the increased level of postpaid gross adds and the significant reduction in churn.

At the end of March, 84% of our postpaid customers were under contract, with an average contract length of almost 14 months.

This compares to a year-end 2004 level of 71% under contract and an average contract life of 13 months.

As Steve mentioned, at the end of the quarter, our subscriber base is now approximately 75% GSM.

On a postpaid basis, it is closer to 80% GSM.

Finally, general and administrative expenses declined by approximately $4.7 million in the first quarter as compared to the fourth quarter last year.

SFAS 123(R), the non-cash expensing of stock options, was implemented this quarter, resulting in $1.8 million of additional expenses, most of which is classified in G&A.

This cost is more than offset by primarily by a reduction in bad debt, which is directly attributable to our effort in collections and reduced involuntary churn results.

All of this resulted in EBITDA of $92.5 million, which was $2.3 million higher than what we achieved in the first quarter of last year, despite more gross additions and the expensing of options.

Capital expenditures for the first quarter were $31.3 million.

CapEx at DCS was $20.3 million, and at ACC we spent $11.0 million.

We ended the first quarter with $179.5 million of cash and investments on our balance sheet; $2.5 billion in long-term debt; and $135.7 million in preferred securities.

In the first quarter, we completed the redemption of the remaining 12.25% and 13% preferred issues; so there is zero outstanding at the end of the quarter of these securities.

For the quarter, we produced approximately $24 million of free cash flow after CapEx, interest, and dividends, and working capital.

We also recently announced the refinancing of our current $250 million first priority senior secured floating-rate notes, which we expect to complete over the next few weeks.

Finally, we have announced a number of smaller transactions.

Steve has addressed the strategic importance of these acquisitions to our operations.

The four announced acquisitions, Kodiak and Nome in Alaska, Texas 15, and the most recently announced transaction, Highland Cellular in West Virginia, will be purchased for an aggregate amount of $122 million.

In terms of the financial impact, this translates to a purchase multiple of just over 6 times forward EBITDA.

For 2006, these transactions should have minimal impact on EBITDA due to the timing of the expected close dates.

However, first-year capital expenditure needs will be approximately $15 million, which would increase the total Dobson guidance from our original $155 million of CapEx to a new $170 million of CapEx for 2006.

The two Alaska acquisitions, purchased for a total of approximately $2 million, will be purchased through DCS using existing cash.

The other two will be purchased through American Cellular.

At American, we anticipate using a combination of cash and issuing additional debt, most likely in the form of a senior secured instrument.

We would expect any additional debt to be structured whereby free cash flow from the operations can be used to retire the debt at or near par.

Since we expect positive EBITDA going forward, any additional borrowings would have a minimal impact on our credit statistics.

With that, I would now like to open this session to Q&A.

Thank you.

(OPERATOR INSTRUCTIONS) Tom Lee with JPMorgan.

Congratulations.

At least I was -- I am still pretty shocked at the cost control you guys demonstrated in the quarter, so I had a couple of questions.

One, we saw an absolute reduction in your expenses from Q4 to Q1.

I was hoping you could just give us a better idea of how much of this could we attribute to G&A, maybe some flowthrough from the call center consolidation, etc.

Then the second part, it relates to migrations.

Because I know you had talked about the fact that you are seeing migration levels slow.

So I'm wondering, is the 68,000 the high water mark for the year for migrations?

If it is, could you just give us an idea to think about parameters for the handset upgrades that are coming in the installed base?

Thanks.

Let me talk a little bit about some of the costs and what we saw in the first quarter.

Most of the absolute cost reduction from last year fourth quarter to this year did come in G&A.

The biggest piece of that was the uncollectible expense.

It has dropped quite a bit.

As our overall churn rate has dropped, our involuntary churn has dropped significantly as well.

And as you know, involuntary churn leads to bad debt.

So obviously that is a great accomplishment for our part.

We always look for strong cost controls.

In terms of some of the other areas, particularly cost of service, I would expect to see those levels increase throughout the year, primarily due to the fact that we continue to add cell sites, we continue to get additional minutes on our network.

As you know, particularly in the second and third quarter, roaming is quite a bit higher from a seasonal standpoint, so you can expect that line item to increase because of that.

Now we will have more revenue as well in those this time periods, but the costs will go up.

Generally, we have seen some great things happening in our call center consolidation.

Most of it has to do with the way we are operating the business in terms of the customer service and retention.

So I think a big part of the savings you are seeing in our call center consolidation is actually translating towards a lower churn rate and better customer retention.

Great.

Could you guys hit on the migration?

Yes, in terms of the migrations, as you know, we had said we expect to be somewhere between 80% and 85% in a total basis migrated by the end of the first half of this year; and between 90% and 95% by the end of the year.

We still think that those numbers are very achievable.

You know, the migrations obviously will slow down at some point as you continue to get further and further into that base.

Great.

If I could just follow-up with that, Steve, I know you had mentioned in the past that you guys thought the goal for churn would be sort of low 2% range, or that it was very achievable for Dobson.

I guess when you look at your postpaid base this year, when you start applying a lower churn rate, you're going to start to see an absolute increase in the number of postpaid customers.

Could you just give us some insights on if you think that sort of thought process is correct; and maybe when we could start seeing positive postpaid subscriber growth.

Well, I think what we have said in the past, Tom, is that -- and we still believe -- that we would return to what we would consider more historical levels of churn.

You know as you said, we have seen some solid progress on the postpaid churn level.

We think there's additional opportunities for us there, and that we would expect to see with those additional opportunities -- and conversely, the improvement on the gross add mix in the postpaid area -- that we should begin to see growth in the postpaid sub base.

But in terms of putting a number to where churn goes, again, it is challenging to do that.

We are very focused on what has got us to this point.

We continue to believe there is opportunity to further improve that through our focus.

But to your point specifically in terms of postpaid, we would expect that the postpaid growth would -- we'd begin to see that as we progress through the next part of the year here.

Congratulations, guys.

Great quarter.

Michael Nelson with Stanford Group.

I have two questions regarding your sales and marketing strategy.

Can you talk about what impact you are seeing from your unlimited plans and how the take rates look?

Also have you seen any meaningful impact from your RadioShack channel yet?

When do you expect that channel to provide meaningful results?

Thanks.

Thanks, Mike.

First, on the statewide, the statewide unlimited plans are doing exactly what we intended them to do.

That was improve and drive additional traffic through our locations.

In their construct, they are simple, they are easy to understand, and they are easy for our sales reps to sell, and certainly easy for the customer to understand in terms of what is offered.

In terms of what percentage of our mix that is, as I have said in the past it is less than half of our gross subscriber additions are coming on these plans.

So they are having the desired impact in terms of driving additional traffic in and helping us shift the mix to more of a postpaid mix.

In terms of the RadioShack agreement, the first quarter the impact there was not substantial.

We are still working through a lot of the details, in terms of the training and getting the RadioShack personnel up to speed.

We would expect that over the next couple of quarters to start to see some improvement.

But it was not a meaningful part of our sales mix in the first quarter.

Great, thanks and good luck.

David Sharret with Lehman Brothers.

Just first on the subscriber growth side again, apart from the impressive churn, Just wanted to dig in on the gross adds side.

Your guidance in the fourth quarter was for 10% to 12% growth in gross adds.

You saw that in postpaid; maybe not overall.

Just do you still think that guidance is achievable as you look for the next couple quarters?

Where will that outperformance come from on gross adds?

Will it be more on the postpaid side, or will you see more contribution from prepaid?

Then maybe just on the ARPU side, you talked about there was -- as we calculate it, if you strip out USF, there was a decline sequentially from the fourth quarter in terms of ARPU.

I guess just some of the factors there, you talked about usage; but unless I am looking at it wrong your minutes of use I thought were up quarter-over-quarter.

Just the drivers to get from the $47, $46.76 level up to your guidance range of $48.50, $49.50.

Thanks.

This is Steve.

Let me talk about on the gross adds side.

Our guidance is the same.

It remains the same on gross adds.

We believe as the -- we implemented the statewide plans about the middle of the -- we implemented them internally towards the end of January and really started promoting them in the first -- or excuse me, in the second part, middle of February.

So their impact to the fourth quarter was not -- it was about half of the quarter.

So in terms of the guidance, again we're sticking to the guidance.

We believe that the gross adds growth will continue.

And that both the post and the prepaid quite frankly in the first quarter were up both sequentially and year-over-year, so we would see there is still some growth in the postpaid but also in prepaid.

Resellers were actually off quarter-over-quarter.

So our growth, we see it will come from all channels, but we expect that postpaid and prepaid both will support the guidance that we have given.

In terms of the ARPU, you're absolutely right, David.

If you back out ETC, ARPU actually went down a little bit from the fourth quarter to the first quarter.

Historically, that is typically what we saw.

While the minutes were [off] slightly on a per customer basis in the first quarter, there are a lot more on the GSM plans that have a little larger bucket.

But ARPU still is a very seasonal type item, and so as you look out into the second and third quarter, we would expect that the ARPU will increase.

The raw ARPU without ETC will continue to increase as more and more of the minutes are outside the bucket minutes, even with the new GSM plans.

Now in terms of that in the first quarter we also, as we may have mentioned before, had a promotion for a partner plan that ran out in the first quarter.

That basically gave certain subscribers a free partner for three months.

So that will not -- will only partially be reflected in the second quarter; and obviously in the third and fourth quarter won't be in those numbers at all, which increases ARPU.

We continue to expect to sell more and more data features, which continue to grow and add to ARPU.

So in terms of where our ARPU is in the first quarter, it is overall a little bit higher than the fourth quarter; the raw ARPU without ETC was a little bit lower; but we expect that to grow, again through the elimination of some of those or the run-off of some of the promotions, through the seasonality of the ARPU, as well as continued growth particularly in the data area.

Thanks for that, Bruce.

I had just one follow-up on that point, just in terms of USF, the $11.9 million you talked about.

Is that a good run rate?

Does that reflect the full quarter of Alaska and the other wins you had announced, ETC certification you announced in January?

Then maybe just one other strategic question, I don't know if you guys can address.

Just you have done a lot of -- you have been pretty active in terms of M&As.

You mentioned just the landscape as you see it right now.

Are there potential opportunities, the criteria you're using as you think about valuation, and how you think about funding those in terms of cash versus equity going forward?

Yes, in terms of that first one, the 11.9 had two months of Alaska and Minnesota in it, so a run rate is really closer to about $13 million on ETC.

In terms of the acquisitions, Everett?

Yes, this is Everett, I will give you a little bit of reflection on that.

As Steve said, the acquisitions that we have announced over the last few months met a very strict criteria.

To answer your question, are there others out there?

The answer is probably yes; there are a handful of what I would call smaller operators that are adjacent to or within the areas that we operate that we are constantly looking at.

But they need to meet the criteria we established, which are adjacency or close proximity; we like to see upside potential; we very much like to see a consistent technology platform such as GSM; we like 850 spectrum.

We like less -- we like more -- like the operations to be more rural in nature and less competitive as a result.

We like to see a well-run operation.

Frankly, the Highland Cellular was a good example of that.

I have a high degree of confidence in the management team there and what they have been able to accomplish.

That is always nice to see in an acquisition, because certainly the transition (inaudible) risk associated with transitioning an acquisition are certainly high for an operation that you don't have a lot of confidence in.

So there's a fair amount, and we are consistently looking at them.

Great, thanks, Everett; thanks, guys.

Pat Dyson with Credit Suisse.

I guess, Bruce, just first to you.

On the -- you talked about the new financing at the AmCell level.

Could you just maybe give us your thoughts as to how that new financing, likely I guess in the form of a credit facility, impacts your thoughts -- if there is any impact on your thoughts -- as to refinancing the AmCell 10s?

Then the second question will be on the operational front.

I guess this will be to Steve.

Just on the roaming guidance, you reiterated the roaming guidance of 25% to 30% but you're obviously well ahead of that in the first quarter.

Maybe just give us a sense as to how we should expect roaming to track throughout the year.

Are you positioning yourself to maybe be at the high end of that guidance given the strong first-quarter performance on roaming?

Thanks.

Let me first talk about AmCell.

I think we have been pretty consistent saying we would love to refinance those notes when it makes sense over to AmCell; they're a 10% coupon to us.

Certainly, that will be determined in a great part on the markets and what is economically feasible and adds value to Dobson before we would do that.

Any financing that we put it -- and we are not talking about necessarily large amounts -- but any additional financing that we put in we would certainly try to make sure we had flexibility to attack any of the high-cost portions of our debt structure including the AmCell bonds.

So our feeling is still the same.

We would love to refinance them at the right time at the right price; and anything we do won't jeopardize our ability to do that.

At least that would be our intent.

Just a quick follow-up on that would be, what is the right level of cash you think should be on the balance sheet at AmCell, given the fact that you're obviously growing cash there now?

Well, we have not given out specific numbers.

But to your point, we are growing cash flow at that entity, and we do have the ability to downstream money from the parent company if we need to.

We have a little cash up there.

I'm more interested in not just the raw amount of cash that we have but the flexibility that we have got around other sources of cash, whether it be credit facility, whether it be the availability of reaching cash from the parent company.

But the important issue is the one that you have stated; and that is from growing cash flow.

Pat, this is Steve.

On the roaming question, you're right.

We still expect that our guidance of 25% to 30% year-over-year growth will be solid.

We saw in the first quarter year-over-year growth at 43%.

Hard to imagine that rate certainly continuing.

As we look forward, in terms of where we fall in that range, we are comfortable with that guidance, the 25% to 30%.

But in terms of where it falls in there, it is early in the year.

This is a seasonal nature of the roaming and usage in general, makes it a bit premature to be talking about where it falls in the range.

But we are comfortable with the guidance that we have given and feel that that 25% to 30% is where we will fall.

Okay, fair enough.

Thank you.

Ric Prentiss with Raymond James.

Nice to see the positive net adds, again; a lot of hard work to get you there; that is nice to see.

A couple questions.

I want to follow-up on some of the ones that were asked earlier.

On the ARPU side, you mentioned how you are still looking at the $48.50, $49.50 kind of range for ARPU.

Is that for an average for the year?

Or is that the exit of the year, kind of fourth-quarter number?

What are you thinking the trend is on ARPUs, and what does that guidance imply?

That really is the average for the year.

From a typical seasonal pattern, we expect to see ARPU increase in the second quarter over the first quarter; and then increase again in the third quarter over the second quarter; but then have a slight decline in the fourth quarter.

Okay.

Then I assume if you look at the mix, if you strip out the USF, given that you had the big bump in first quarter on USF, almost two-thirds of a Alaska and Montana, if you look at local voice versus local data, what do you think the trend lines are on that?

Is local going to continue or voice going to continue to slide down a little bit, and data is going to more than make up for it?

Or is there a pickup in the usage, in the overage, like you talked about?

Certainly in the near term, we will see pickup in the voice from usage, (indiscernible) break in their bucket over the next couple of quarters.

But we also do expect to see data to continue to grow.

Okay, then I will circle back on the M&A front.

A couple questions there.

Bruce, I think you mentioned that the total price of $122 million implied about a 6 times multiple for EBITDA.

At this time of year I am not sure what forward means.

Does that mean '07 EBITDA that that is a multiple of?

Or is it next 12 months?

Or what are we looking at when you're saying it is a 6 times multiple?

Yes.

No, I am looking at it from our close date going forward.

So it is basically '07.

The largest transaction won't close till the end of the year, towards the end of the year.

Got you.

On the roaming side, to follow up on what some of Pat's questions were, where are you at as far as a percent of your roaming minutes coming from T-Mobile?

I know they have been increasing pretty dramatically their percent of 850 or dual frequency handsets; and I guess you haven't been able to roll out a whole lot of that spectrum purchased from them yet, obviously.

What we have seen, they continue to steadily increase in terms of the overall percent of our roaming MOUs.

They are just approaching 9% of the total of roaming minutes.

So one would expect there is some nice upside there as we look out to maybe the future years, about what T-Mobile could be driving to you from a roaming perspective.

Well, we certainly went into this with the thought that they would increase their roaming on our network.

So we share the same thought.

[Better] getting it to come online.

Okay.

Great, good luck, guys.

[Matt Engelhart] with [Sanctity Advisers]. 1

I have a couple questions about gross adds.

First, approximately what percent of your gross adds come from family plans?

Is it closer to 20% or 25%, or is it more like 40%?

Then how much has this changed year-over-year?

Then the second question would be -- is it correct that family plans are not allowed on your unlimited plans?

On the second part of your question, there is a partner allowed on unlimited.

They're allowed on unlimited, the statewide unlimited, but the cost of those, where the $50 is the cost of the statewide unlimited, you can get a partner for $45 on that plan.

So they're allowed on the statewide unlimited for $45.

Then the first part of the question, approximately --?

What percent of the family plans?

Yes.

And has it changed much year-over-year?

It hasn't changed much year-over-year.

It is very closer to your 25%, 30% number than the upper range that you gave.

That includes what we are calling partners; that includes the partners on the unlimited, which are a significantly higher dollar level.

Okay, great.

Thank you.

Kevin Roe with Roe Equity Research.

Two questions.

First, following up on the roaming, you probably saw T-Mobile's numbers this morning.

Their MOU was 1,013 minutes, up 30 minutes sequentially.

So just sort of big picture, I guess you have expectations for that to continue to grow.

But can you give us a sense of where you expect -- if it is 8%, 9% today as a percent of your roaming minutes, do you have an expectation where it will be, let's say, year-end as part of your overall roaming revenue guidance?

We haven't really talked about what percent of our total roaming, but we do expect that T-Mobile will continue growing at a faster rate than Cingular.

That is about as specific as we have gotten on it.

We love seeing those kinds of minutes that they advertise.

Certainly that helps us when they roam on us.

Right.

I apologize if you have already given these numbers; but have you given any specific GSM metrics that you have in the past?

For instance, I think in the past you have mentioned churn was running under 2%;

ARPU $5 above TDMA; do those still hold?

The churn does, and as we get further into this TDMA base and as it shrinks, as I mentioned on the call last time, you start to see that delta decline slightly.

So we would expect that to occur as we go forward with this last 15% or so of the base that we expect to move over by the end of the year.

Now in terms of the rate of that growth, going to $5 slows, but it is still accretive to ARPU in terms of those customers coming over.

Just not at the same level.

It is getting -- as you get down to that last couple hundred thousand customers, our approach is being a little bit more measured in terms of how we move and what offers we give to get them to go over.

So.

But I would -- I think your assumption is right on the GSM churn and in terms of the $5 delta declining slightly as we move forward.

Great; thanks, guys.

Patrick Comack, with Zachary Investment Research.

What was the postpaid ARPU in the quarter?

Can you refresh my memory in terms of what the fourth quarter ETC ARPU was?

Second, when you purchase a company, does that company you purchase automatically inherit the preference that you have with T-Mobile and Cingular?

Finally, you must have decent visibility to (indiscernible) ?

We couldn't hear you, Patrick.

I'm sorry.

Do think you can grow a postpaid base in the second quarter here, based on your visibility so far in the quarter?

Thanks.

Okay, in terms of the ARPU, we didn't release postpaid ARPU only this time.

I know we had in the past.

Keep in mind, in our subscriber base only about a little over 10% of our base is reseller and prepaid.

So we are still talking about -- and the upper 80% of our base being postpaid.

So the other ones have more of an impact on it.

In terms of ETC, ETC in the quarter of our ARPU is about $2.67.

Okay.

Answer the preference question?

The short answer to the question is, it depends upon whether it is an asset sale or stock sale, certainly.

But typically even in a stock sale there is a clause that requires or allows for the negotiation in the event of a change of control.

I can't -- so the answer is there is no automatic assumption of the preference in this case when we acquire a market.

I can tell you in the four markets that we have announced recently, four acquisitions we have announced recently, all of those acquisitions consist of what is essentially areas that neither T-Mobile nor Cingular have material operations in.

Essentially areas that they need a GSM network.

So again, in terms of criteria, we like to see that.

We like to see areas where we are the only GSM provider or will likely become the only GSM provider in terms of their roaming relationships with us.

On your fourth part of your question, Pat, with respect to when we grow the postpaid subscriber base, when you look historically, as I said in the commentary, from the third quarter of last year losing almost 35,000 customers, to where we broke even in the first quarter, it was certainly I think terrific progress.

As we move forward, as I said, we expect to grow that base.

Whether it happens in the second quarter or third quarter remains to be seen, but we feel good about our ability to grow the postpaid sub base.

Good deal.

Just a follow-up.

Cingular just cut a deal with Alltel, and they are basically telling Alltel where to put GSM radios in their legacy footprint.

So since these properties that you're buying don't inherit the preference, you do have some competition now in areas outside your footprint, right?

Or do you discount the competition from Alltel putting in GSM radios in this legacy footprint?

I think the answer is that we have an outstanding relationship with Cingular when it comes to fulfilling the needs that they have for roaming purposes.

It is customary upon an acquisition to sit down with Cingular and discuss the terms and conditions long-term.

Historically we have been able to garner the preference that is important.

So we obviously did our due diligence in these transactions and we're highly confident that we will get -- we will meet the expectations that we have set out for all those acquisitions.

Okay, thank you.

Phil Cusick with Bear Stearns.

I think that the local business really showed an inflection point this quarter.

You can hear from the tone of the questions that people are being forced to understand that, sort of across the board.

That is great.

What I would like to get into a little more detail on is, through the first quarter, can you give us an idea of what churn did in the January, February, and March?

And also an idea of what we have seen since?

I am just trying to not get too excited about 2Q since it is typically a seasonally lower gross add quarter.

But you have got the push from new marketing efforts sort of offsetting that.

I'm trying to think about 2Q.

Can you help us out a little bit?

Typically, we don't break out the quarter in terms of the months, how churn performed in a given month.

I just would reiterate our point about continuing our focusing on continued improvements as we move forward.

I think that the important part to understand about churn, too, is that now that we have kind of gone to that 75%, we will approach 80% of our base being on GSM by midyear, you kind of take out that negative impact of churn from the TDMA base over time.

It now settles into what may be viewed as more seasonal impacts to churn and operational impacts, and so a little bit more where it's predictable or in line with what we have seen historically.

But in terms of breaking out the sequential churn statistics, we don't typically do that.

But we're focused on continued improvements and believe that we have the opportunity to continue improving.

So to address your churn question.

And what was the second part of your question?

The second part, maybe you could just give us an idea, if the churn comes down through the quarter; and then give us an update on 2Q, what you have seen so far?

In terms of churn?

Churn and just the overall business.

The business (inaudible) we feel good about where things are.

We are continuing as I said our focus on our churn and growing our base, and growing the gross adds.

It is early in the quarter.

Again we will address the second quarter at the end of the second quarter, but we feel good about the progress we have made and feel good about the progress continuing.

Great.

Finally, maybe you can just give us a little bit of thought on bad debt.

It seems like it came down substantially this quarter to about 2% of revenue.

How low has this been in the past before you sort of went through the transition?

Was it in the 1, 1.5 range?

Yes, this is Bruce.

Historically, we had seen bad debt at right around 2% of service revenue, and we are still higher than that.

Can it come down to the same, as low as those historical levels, when you've got a little bit more prepaid?

That we will see.

But certainly historically we have seen it around 2%.

Great; thanks again, guys.

Ric Prentiss with Raymond James.

I had a couple follow-ups I didn't hear anyone else ask.

On the network side, obviously the TDMA base is declining pretty quickly, 90% GSM by year-end.

Remind us again of when the costs can come out.

Have you already been starting to take some of the TDMA cost out of the network side and the customer care side?

Or is that something we have to wait to, I guess, '08 when the full turndown of TDMA by Cingular, your roaming partner, and maybe yourself happens?

Second question is on the M&A side, Everett, maybe for you.

With the auctions coming up, does that maybe kind of close the window on M&A activity until after the auctions are over?

And Bruce, the $15 million CapEx increase;

I missed what that was for.

Okay, the $15 million CapEx was first-year CapEx on the acquisitions that we're closing on, the four that we talked about today.

So going forward, the CapEx for those would typically be less than that; but you have got some onetime items to build out networks.

In terms of the -- I'm sorry, what was the first question again?

The TDMA turndown.

In terms of that, we constantly take costs out.

For instance, as circuits drop in TDMA use, we either take that them out or convert them over and use them for GSM.

So that is an ongoing process that we have been engaged in and will continue going forward.

There will be some system left up.

As you know, the TDMA does support our analog requirements, and so we will keep some.

It will probably just be a skeleton system by the time we get to 2008.

But that is part of our ongoing efforts, is to continually pull those costs out as we see the traffic switch.

Okay.

On the M&A window?

The easy answer is if both participants, or both -- if the acquisitions target is also in the auction, then certainly communication is precluded.

On the other hand, if the target is not in the auction there is no prohibition.

So does that answer?

I guess.

I would expect a lot of the target acquisitions, [about] adjacent, 850, maybe a lot of those guys did not register for the auctions quite possibly.

I'm sure there's going to be some; we will obviously look at the public notice when it comes out and adjust accordingly.

Great, okay.

Good luck, guys.

(OPERATOR INSTRUCTIONS) Jonathan Schildkraut with Jefferies & Company.

Most of them have been asked and answered, so I will just kind of jump into some questions on the subscriber growth.

I guess, once a quarter on the call somebody says that management is being too conservative; and I guess I will take that role this time.

I look out at the numbers in terms of gross adds, implied churn at the GSM and TDMA subscriber base.

In order to kind of get to the 40,000 range on net adds for the year, there is an implication that churn actually will go up through the course of this year, come back down towards the end of the year, in contrast to kind of the trends that management is talking about.

Could you provide a little color on that for us?

Yes, I think I have said a couple times throughout the call that we would expect -- we are continuing the work that we focused on and working on improving our service to customers, and thus of course the corresponding churn rate.

But now with the TDMA base converting, now being about 75% GSM, that aspect of it is lessened.

As we go forward, we will look at churn more seasonally, where in the past and historically you have churn come down in a quarter, it might pick up slightly in a quarter going forward, but not to the extreme that we have seen in the past.

So I would like at the churn continuing to improve.

We have stated that.

We believe that we will continue to seek further improvements.

But I would say that the trend would look more like it has in the past; and could be and would be more based on seasonal impacts as opposed to the migration impact that we have seen in the past.

Great. could you talk a little bit about TracFone?

I believe they are your largest reseller partner, and that they are largely if not completely TDMA as it applies to your network.

Are you working with them in terms of having, at least in terms their adds, start to be GSM?

Is that already in place?

Is there any effort to work with them to convert their subscriber base over to the new technology?

They're TDMA; you're correct, they are TDMA today.

We have had discussions about getting a GSM agreement in place.

Nothing is in place today.

We have had those discussions, working with them.

So that is the current state of affairs with TracFone.

Great.

Last question.

You had given some free cash flow guidance earlier.

I guess it was kind of 40 to $50 million; that was back in late February.

I am wondering if that is still the free cash flow guidance or if there is an updated outlook.

No, that is still the guidance.

I know that we did close to $24 million this quarter.

But we will start seeing some additional cash needs from a cash basis to pay for some of the CapEx.

For instance, a lot of the CapEx that came in, in the first quarter, is accrued as CapEx but the actual cash payment will be paid in the second quarter.

Okay, great quarter.

Thank you for taking the questions.

That concludes our question-and-answer session.

At this time I would like to turn the call back over to senior management for any additional or closing comments.

I would just say again, thanks to all of you for participating.

We look forward to reporting to you on further progress in the Company as we go forward.

Thank you.

That concludes today's conference call.

Thank you for your participation.

You may now disconnect.