AT&T Inc (T) 2006 Q4 法說會逐字稿

Good day, everyone, and welcome to the Dobson Communications fourth 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 performance in our reports filed with the Securities and Exchange Commission, including our annual report on Form 10-K, which we plan to file on or before March the 1st.

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.

Good morning to everyone on today's call.

We appreciate your joining us to discuss our earnings.

Our Chairman, Everett Dobson; our CFO, Bruce Knooihuizen; and I will be available for Q&A after our brief remarks.

I'd like to spend a few moments reviewing what we consider to be the most important achievements in our fourth quarter of 2006.

First, we reported 21,100 net subscriber additions in the quarter.

Our teams continue to generate both strong sales results and solid customer retention.

The combination of these has led us to achieve strong net subscriber additions once again.

Gross adds in the quarter increased to 145,800 as compared to 122,600 in the same quarter last year, reflecting an 18.9% increase.

But perhaps even more telling is the progress we continue to make in our distribution channels, exclusive of the reseller channel.

In fact, combined postpaid and prepaid gross adds increased 35.5% over the fourth quarter of 2005.

As we have seen throughout the year, this improvement is the result of a number of key initiatives that we implemented.

First, we continued to improve our network with the addition of new sell sites and technology, strengthening our quality performance in all key network metrics.

We also continue to benefit from the strong response to our statewide unlimited rate plans.

These differentiated plans continue to attract the high value postpaid customers to our locations.

Our overall improvement in customer satisfaction has also helped us to grow our gross additions as our customer base becomes increasingly more satisfied with all aspects of our service delivery.

Next, we strengthened all of our distribution channels throughout the year and this effort is paying dividends now on a consistent basis.

As we have discussed previously, due to the timing of our GSM reseller agreement with TracPhone, the reseller channel is down in the fourth quarter as compared to the prior year.

We expect this channel will begin gaining traction in the second half of 2007, when we anticipate TracPhone will begin selling GSM service under our new agreement.

After ticking up slightly in the third quarter, postpaid churn improved in the fourth quarter to 1.84%.

This was down from the 2.62% in the fourth quarter of 2005.

Here again, as we have made significant improvements in the network and continue to improve in each quarter, we have seen the benefits in our consistently low churn results.

For the year, we added 287 new sell sites, 85 in the fourth quarter alone.

We also added new technology that improves the reach and consistency of our network.

In fact, as of late January of this year, both our drop and our block call rates were less than 1%, significantly below the generally accepted industry target of 2%.

In addition to the network, we have continued to improve our customer experience with each interface with our organization.

Whether it's the customer's first experience when they walk into our stores or our agent's store to sign up for service, or subsequent experience through the bill they receive or customer service they require, we have improved our processes and practices to enhance each customer's experience with us.

These efforts have improved our customer retention and as of the end of the fourth quarter, 87.4% of our postpaid customers were under contract with an average contract length of 13.4 months.

While we were successful in exceeding our customer growth expectations, we were also able to continue growing ARPU.

Our fourth quarter ARPU of $49.92 was an increase of $3.82 from the fourth quarter in 2005.

ARPU increased steadily throughout 2006, driven primarily by our continued success in selling data services.

Data ARPU in the fourth quarter was $5.11 as compared with $2.90 in the fourth quarter of last year.

As new data products and services are developed, we expect this to continue to grow.

ETC funding was another key component in our year over year ARPU growth.

In the fourth quarter, ETC contributed $3.16 of ARPU as compared to $1.39 in the fourth quarter of the prior year.

The most significant portion of the increase came from our early 2006 approvals in Alaska and Minnesota.

While they are still opportunities for modest increases in ETC funding, we have received approval in the majority of the jurisdictions where we expect to be approved.

The conversion of our customer base from TDMA to GSM has helped us achieve our solid results.

As of the end of 2006, 93% of our postpaid customers were on GSM calling plans compared with 72% at the end of 2005.

At year-end 2006, 89% of our total base, including prepaid and reseller, were on GSM compared with 67% the year before.

We continue to migrate subscribers over to GSM from TDMA and expect that very few customers will still be using TDMA service by the end of this year.

Finally, we are pleased that in addition to our successes in the sales and customer retention efforts, we also grew EBITDA to 113.4 million in the fourth quarter, more than 18% above last year's level and margins improved by 130 basis points.

Even excluding our 2006 acquisitions, the year over year growth in fourth quarter EBITDA was still almost 15%.

Dobson's fourth quarter achievements were the culmination of a series of improvements we have been methodically working on over the last year.

In looking at our results, as compared to what we said we were going to do, I think you will agree that 2006 was a very successful year.

We originally expected to report 10,000 to 20,000 net adds for the year.

As we saw early success, we twice revised our guidance upward to our final goal of more than 40,000.

The fact is we added 71,400 net adds for 2006 and an additional 52,000 subscribers through acquisitions.

Gross adds were estimated to grow 5% to 8% over 2005 levels.

Despite weakness in the reseller segment, we grew gross adds 6.1% last year to 538,500 from 507,500 in 2005.

Our combined postpaid and prepaid gross adds increased 17% over this same time period.

Obviously, we are very pleased with our marketing plan and sales executions during the past year.

We originally guided to an ARPU range of $48.50 to $49.50.

In August, we lowered our ARPU guidance range slightly to $48 to $48.50.

We ended the year at $48.48, only $0.02 below the bottom of the original range.

A number of activities and strong sales in plans such as our statewide unlimited plan helped us close the gap to the original guidance.

Looking at roaming revenue, we expected minimal growth based on 25% to 30% growth in minutes of use and an average yield of approximately $0.093.

Our minutes of use came in at the high end of our range and the yield is even stronger at $0.101.

Resulting in roaming revenue growing 9.6% over the 2005 level.

As a result of the factors above, we exceeded our origin fall guidance of 3% to 4% for total revenue growth.

Total revenue grew to 1.3 billion for 2006, an increase of 7.8%.

Our 2006 guidance for EBITDA was in a range of 435 to $445 million.

Many factors influenced our 2006 EBITDA.

We had more customers and higher roaming revenue than we expected.

On the other hand, ARPU was at the low end of the original guidance, and we had significantly higher commissionable gross adds.

Despite these and other mitigating factors, we successfully achieved EBITDA of approximately 438 million, which was well within our range.

Finally, we originally guided to free cash flow of 40 to $50 million with capital expenditures of 155 million.

We subsequently increased our CapEx guidance up to $170 million to include first-year CapEx for our 2006 acquisitions.

Despite the increased CapEx, we kept our free cash flow guidance unchanged.

The result was that we spent 162 million in CapEx and free cash flow came in at 43.3 million, both within our guidance range.

As I've said, we are very pleased with the Dobson team's performance this past year, especially as it related to customer satisfaction, profitable growth and creating value for our shareholders.

The foundation we have laid over the past few years not only contributed to the results we achieved in 2006, but sets us up to deliver even stronger results in 2007 and beyond.

We are very excited about the growth opportunities we have before us as 2007 gets underway.

For 2007, we expect net adds of at least 90,000 subscribers.

The progress we made in our sales and marketing areas is expected to continue in 2007 and TracPhone, selling our GSM product, should begin having a noticeable impact in the second half of the year.

Our programs to control and even reduce churn are ongoing, so we expect to see postpaid churn remain below 2%.

Seasonality should be consistent with prior years, with net adds lower in the first quarter and then strengthening throughout the year.

We expect total revenue to grow at least 7% for the year, compared with 2006.

In addition to the beneficial affect of strong subscriber net adds, we expect ARPU to stay strong due to the continued growth of data services.

Meanwhile, we expect roaming revenue will grow, but a lower rate due to the stepdown with AT&T and more moderate growth in MOUs.

We expect to see continued EBITDA margin expansion, which along with the growth in revenue, should generate EBITDA of at least $485 million for 2007.

This is a 10.8% increase over 2006.

We are continuing to add sell sides and traffic continues to grow in our network, so cost of service will continue to rise.

However, as we add more subscribers to our network, we also expect to see improvements in productivity.

Despite increased network costs and greater absolute sales and marketing costs to support the higher gross add expectations, we expect more of our incremental revenue to flow to our bottom line.

Finally, we are planning to spend approximately $155 million in capital expenditures in 2007.

That includes adding approximately 300 new sell sites to our network.

Additionally, that amount includes funding of our 3G market trial, but we do not expect to spend significant funds on 3G or on the AWS spectrum this year.

The net of all these goals should produce at least $90 million of free cash flow in 2007.

This represents more than 100% increase from the 2006 level, which itself was a 72% increase over the prior year.

Achieving these goals will require the entire Dobson team of employees to once again elevate its performance.

They demonstrated an exceptional level of hard work, accountability, and creativity throughout 2006 and before closing, I want to thank each of them.

Their combined efforts generated significant value for our shareholders in 2006.

I know many of them also benefited directly as shareholders.

Many Dobson employees have invested more than their valuable time, creativity, and hard work in this company.

I want to thank you for pulling together as a team and delivering such excellent results.

Speaking to all of our investors, we appreciate your support.

I want to assure you that we are just getting started and we will remain focused on shareholder value.

A year from today, I fully expect to report to you stronger growth and even better results.

Thank you very much and I will now turn the call over to Bruce for additional comments.

Thank you, Steve.

I would like to provide some additional specifics on the fourth quarter, including the impact of the acquisition of Highland Cellular.

Starting at the top of our income statement, our fourth quarter total revenue of $335.1 million was almost at the same level as the seasonally strong third quarter.

Of our fourth quarter total revenue, $9.8 million is attributable to Highland Cellular.

Apart from Highland, our local service revenue increased $7.4 million from the previous quarter.

This growth is attributable to both strong net customer additions over the last two quarters and strengthening ARPU.

Steve mentioned that we continue to grow data ARPU in the fourth quarter, which was key to the sequential and year over year growth in total ARPU.

ARPU grew by $0.76 to $49.92 in the fourth quarter, as compared with the third quarter.

Data ARPU grew by $0.77 bringing our monthly data ARPU for the quarter to $5.11 per customer.

Meanwhile, voice ARPU remains steady as compared to the seasonally strong third quarter.

We expect to continue to see growth in data ARPU, which should have a positive impact on overall ARPU in 2007.

Roaming revenue declined as expected from $87.4 million in the third quarter of 2006 to $70.1 million in the fourth quarter.

Roaming traffic equaled 719 million minutes of use in the fourth quarter and the yield was $0.097.

While the fourth quarter MOUs seasonally declined from the third quarter, they were 23.1% higher than the 584 million MOUs in the fourth quarter of 2005.

On a normalized basis without Highland, MOUs still grew 20% in the fourth quarter compared with the fourth quarter of 2005.

As we look to 2007, there are many factors that could positively affect our roaming revenue.

We expect that AT&T will continue to add wireless subscribers and that their subscribers will continue to increase their average usage.

We expect that T-Mobile's customers will also continue to increase their average usage as T-Mobile expands the base after their phones that work on our 850 megahertz networks.

As Steve mentioned, we will continue to add sell sites and improve the overall network.

Finally, we expect data roaming to contribute to continue to grow.

Offsetting these positive influences to some extent is the decline in the out collect roaming yields related to the stepdown in January 2007 on the AT&T rate which should be comparable to what we saw in January of 2006.

Now I would like to provide additional color on operating expenses in the fourth quarter.

Cost of service was 94.6 million for the fourth quarter of 2006 compared with 88.8 million in the third quarter of 2006, an increase of 5.8 million. 1.9 million of the increase is due to higher in-collect expense.

In-collect expense was $24.2 million in the fourth quarter of 2006 compared with $22.3 million in the immediately previous quarter.

Consistent with our comments on the last call, in-collect MOUs per sub continue to grow in the fourth quarter, but at a lower rate than that had in 2005 and earlier 2006.

In 2005, our customers increased their off network usage 5 minutes on average from the third quarter to the fourth quarter.

In contrast, in 2006, we saw only a 2-minute increase on average between those same quarters.

The remainder of the increase in cost of service was network cost related to the inclusion in the fourth quarter of the Highland acquisition, which was not in our third quarter results and the additional sell sites added in the second half of the year.

Selling and marketing expense was 43.9 million for the fourth quarter of 2006, up from 42.2 million in the immediately previous quarter and 35.8 million in the fourth quarter of 2005.

The increase in postpaid and prepaid gross adds more than accounted for the fourth quarter increase.

From the third quarter of 2006 to the fourth, cost per gross add declined by $10, from $434 to $424.

In the fourth quarter 2005, cost per gross add was $451.

Handset subsidies continued to run at about the same levels we saw through the first three quarters of 2006.

General and administrative expense for the fourth quarter 2006 was $49.4 million compared with 47.5 million in the third quarter.

We have held G&A expense reasonably flat over the last few quarters.

The sequential increase in the fourth quarter, again, is primarily due to the inclusion of the Highland acquisition and a slightly higher bad debt expense as compared to the third quarter.

However, as we said in our press release, bad debt is down substantially from the fourth quarter 2005.

As Steve said, we were pleased with our full-year 2006 EBITDA, ending with fourth quarter EBITDA of $113.4 million.

This was an 18.5% increase over EBITDA of 94.7 million in the fourth quarter of 2005.

EBITDA margins in the fourth quarter also improved, increasing by 130 basis points to 33.8% compared with the fourth quarter of 2005.

Capital expenditures were $45.5 million in the fourth quarter of 2006 bringing full-year totals to $162 million.

For the year, we spent 102.2 million in DCF and 59.8 million in AmCell.

The successes we saw in our EBITDA growth and the control in capital expenditures were keys to our almost doubling free cash flow generated in 2006 versus the prior year.

Again, as Steve mentioned, we generated 34.4 million in free cash flow for the fourth quarter, raising our total 2006 free cash flow to 43.3 million.

As noted in our guidance, we expect to more than double free cash flow in 2007 compared with 2006 levels.

Again, for 2007, we expect at least $90 million in free cash flow.

Please note that our 2007 free cash flow guidance includes interest and dividends this year of approximately 240 million, but does not include any anticipated refinancing.

Finally, at December 31, 2006, our balance sheet included a total of 126.5 million in cash, restricted investments, and short-term investments. $2.6 billion in total debt and $135.7 million in preferred securities.

Our year end 2000 debt -- our year-end 2006 debt and preferred stock outstanding increased from year-end 2005.

The $104.1 million in additional debt primarily reflected the financing of our spectrum purchases in the AWS spectrum as well as acquisitions.

In addition to the cash on our balance sheet, we ended the year with $125 million in remaining availability on the American Cellular credit facility and 75 million at DCF.

On a pro forma basis, adjusting for the acquisitions we made this year, our 12/31/06 net debt leverage ratio was 5.51 times.

Including our Series F preferred stock, our ratio was still below 6 times at [5.18] times.

In terms of our long-term growth strategy, Dobson ended 2006 with a strong balance sheet and sufficient liquidity to fund its continued growth.

As we stated in yesterday's press release, we are also pursuing plans to refinance substantially all of American Cellular's debt in the near future from the proceeds of a new, con convertible indebtedness.

We can't comment much beyond this statement at this time except to point out, as you might surmise from the language, that we are focused on some combination of new debt and bank facility financing at the American Cellular level.

With that I would like now to open this conference call to questions.

Thank you.

[OPERATOR INSTRUCTIONS] We'll take our first question from Jonathan Atkin of RBC Markets.

Please go ahead.

Yes, good morning.

Was wondering, for the subscriber guidance, roughly, what portion of the 90,000 plus would be postpaid versus reseller or prepaids?

You mentioned the TracPhone seasonality, but wondered if you can provide a little bit more color about the postpaid component of that?

Thanks, John, this is Steve.

I would tell you that as we look into '07 and look at our subscriber growth, we fully expect all three of our primary channels to continue growing.

Both on the postpaid, prepaid, and in the reseller channel, we expect those to -- all three to grow.

We've been very happy with the growth of our postpaid and our prepaid and with the signing of the TracPhone agreement at the end of -- or during the fourth quarter of last year and the anticipated second half performance that we think they'll generate.

We would look at all of the channels as being, continuing to grow, in terms of the absolute numbers, we'll split them out, but we fully expect all three channels to continue to grow.

Okay.

Also, was wondering if you had any thoughts on the 700 megaHertz auction's competitive impacts or ramifications, as well as on the device side plans for offering 3G-capable handsets?

Well, on the competitive side of the 700 megahertz auctions, as it pertains, I'm sure the question is maybe around the overbuild potential.

Certainly, you would never say never that that wouldn't occur, but we have some strong reasons to believe that it would be difficult decision for someone to make.

Primarily because there are still a lot of -- there's not certainty around how the spectrum will be used , when it's going to be available, although it's looking more and more like they're talking about an August auction, there's still the clearing aspect that has to be addressed, and on top of that, the reality of rural markets is it's better, economically, to build 700 than 19 or the AWS spectrum, but it's still a challenge to do that and I would tell you that from our relationship with AT&T and our situation that today a substantial portion of the traffic is going through our high traffic tiered rate structure, so we think it's a very difficult decision for them to make in the build versus buy decision, primarily because today they're getting some pretty attractive rates in that rates structure.

So while we would never say never, we think there's a very compelling reason to continue to buy versus build, and we also think -- our track record and our ability through our relationship with Cingular, now AT&T has been we've proven we've been able to negotiate win-win types of agreements.

So while it certainly is a potential threat, we view it as something that's a very difficult decision for them, because there is a very attractive economic plan that's to continue to buy that service.

So the other side of that is if you look down the road from our perspective, that's a 2009 -- mid-2009 potential impact, if there is one from the time that it gets awarded and then cleared and then built, it's down the road a ways.

But again, we think that the nature of our relationship with Cingular, our track record with them, and the attractive economics that are there today provide a pretty compelling reason for someone in their shoes to make the buy versus build decision.

Thank you.

And then on the devices?

Can you repeat the question?

Yes, yes.

Plans for selling 3G phones, even though you may not have it in your infrastructure for purposes of roaming out of your footprint, would you be selling some of the same HSPA phones that Cingular is offering?

In terms of the 3G, as we've announced before, we're going to do a test in one of our markets this year and as part of that test, we'll look at a lot of the different devices as well.

And that will play a big part into ultimately how soon and how thoroughly we want to include those devices.

Certainly, if there looks like there's some opportunity, we'll include that as part of our process, but I think that's a decision we'll make later this year as we do our trial.

Thank you very much.

And we'll take our next question from Ric Prentiss of Raymond James.

Good mornings, guys.

Good morning, Ric.

Nice end to '06 there, and glad to see the guidance would be at least monikered with -- brings back some memories there.

First question for you is on the net add side.

Steve, I think you said that you expect to see very few TDMA customers by year-end '07.

So does that mean that the 90,000 net add guidance already assumes any kind of flushout or any cleanup of that last remaining vestige of TDMA baked into it already?

Again, Ric, as we migrate customers over to TDMA to GSM, those do not get included in our net add count, that's part of our subscriber base.

I don't know if that's what you're thinking about?

Well, if you've got about, let's call it 100,000 TSMA postpaid customers left, which, I think ballpark probably is close.

If as you get to the end of '07 that number is much closer say, to zero or very small, that implies that you've moved them over and that you've either done enough gross adds to more than make up for people that did not migrate over that left the company -- just a way of saying, you expect to be very little TdMA year end, and yet still have net adds of 90,000?

Absolutely.

That's right.

Just wanted to make sure.

We were wondering, if Cingular started charging that $5 extra to TDMA customers to try and force people off by that February '08 time frame.

So your 90,000 is saying, yes, we expect to be very little TDMA and still do 90,000 net?

Yes, that's a net add number inclusive of all that activity.

Okay.

The second question is on the HSDPA and the 3G stuff.

I know you said you're going to just trial it in one market.

Can you give us a little insight of what you think the cost is to build or overbuild with HSDPA in that one market and do you think the pressure from Cingular given the 700 auctions might be an '08 capital spend to put in HSDPA, or is that maybe an '09 event?

On terms of the cost, as we continue to move forward, those costs keep coming down.

Our trial is not a significant cost to us this we're doing this year.

From a market demand in terms of AT&T going forward, yes, I think we would expect that there might be some adds on our part in 2008.

Again, we would expect, as we said and as we saw with our TDMA and GSM conversions that you stop spending some money on one technology as you increase spending on the other technology and that should help mitigate some of the costs associated with putting in the new technology.

the other part of that, Ric, too is that the TDMA to the GSM was a ubiquitous overlay.

And this, we believe, has the ability to be more of an incremental opportunistically-driven investment as opposed to a must-do across the board.

So just a portion of your pops, maybe half or something like that would at most probably get the overbuild, the 3G?

That remains to be seen.

Then a final question.

Bruce, I know you can't talk a lot on the refinancing, although we've been waiting for this to occur.

Glad to see you getting out there pretty soon it sounds like.

Any thought on what the rates you're looking at what might be or what kind of leverage we should expect Dobson's target to be like in year-end '07, year-end '08?

Where do you see leverage headed?

Well, again, we're focused on reducing leverage, which comes primarily through right now the growth in our EBITDA.

In terms of anticipated rates, your guess right now is as good as mine.

You can look at the marketplace.

We really can't comment beyond that, though.

At least the rates have been still pretty stable for you with the yield curves out there.

Great.

Well, good luck with that, guys.

Thank you.

We'll take our next question from Phil Cusick of Bear Stearns.

Hey, guys.

Good morning.

Good morning, Phil.

I wonder if you could help us walk through, one, what the roaming rates should do in the first quarter from the fourth.

And then second as the new properties come on, I know you're building out Texas and Alaska, what should those do to costs and revenue as we walk through the year?

Thanks.

Well, you should see in the overall yield standpoint, you should see a similar decline in the first quarter this year to what we saw last year, because we have similar kinds of declines in our rate structures.

Last year it was in the middle single digit declines from the fourth quarter to the first quarter.

Okay.

Then what's the timing do you expect for Texas and Alaska, either roaming traffic or actual subs coming on?

I'm sorry, what was that?

The recently-acquired properties in Texas and Alaska.

Yes.

When should roaming traffic be coming on from those?

I believe we've seen some costs going into them already, when should we start to see revenue?

We should start to see roaming from that as well.

We've built those markets out, so we're starting to see that already.

Maybe just a quick one, also, on the data ramp.

It seems like it's really going strong.

Can you give us an idea of what people are taking there and it seems like the trajectory is very quick.

Do you think it can rise by another couple bucks in '07?

In terms of what people take, we've got our data packages, the $10 and the $20 packages and $25 packages.

Which they're about roughly 35 or 40% of our gross adds are taking a package.

So the other piece of our data improvement has been we began charging for the SMS Mobile terminated as others have in the industry.

So we began that in the fourth quarter, and that helped on the trajectory.

We continue to see that moving upwards.

Where we are relative to the rest of the industry, we believe there is still solid trajectory as we move forward.

Whether it's -- what the dollar amount is, we don't kind of mind it, but we feel that the data ARPU will continue to grow and it's been a pretty consistent ramp sequentially quarter over quarter.

We stay strongly focused on that and expect that that will continue to rise.

Is the traffic still mostly text-based?

And I know you launched BlackBerries at somewhat late in the year as well, is that helping?

We've had BlackBerries for a while now, the BlackBerries have helped and text certainly is a large part of that.

Ring tones, launching, ringback tones and things of that nature.

We have other services that will help drive additional growth in that ARPU.

Okay, guys.

Thanks.

You're welcome.

Our next question comes from Jonathan Schildkraut of Jefferies and Company.

Good morning.

Thank you for taking the questions.

A couple.

First, can you tell us what the GSM transitions were in the fourth quarter?

And then maybe provide a little outlook for us for 2007?

And also, could you talk about the integration efforts with Highland?

What systems are you targeting for integration?

Were there any integration costs in the fourth quarter, and do you have any integration costs embedded in either your operating guidance costs for 2007 or your CapEx costs for 2007?

I'm sorry, the GSM transitions--?

The migrations.

The migrations?

Is that what you're referring to?

Yes.

As I said in the comments, we ended the year that we're just at under 90% of the base, the total base being on GSM and 93% of our postpaid base being on GSM.

Are you looking for an absolute number of migrations?

That result embeds growth on the growth adds side, on the GSM side, also some churn on the TDMA.

I'm just wondering how many subscribers you were able to migrate from TDMA handsets to GSM?

In the fourth quarter, was roughly 25,000.

On the Highland and the acquisition front, in terms of the integration costs, a big part of those costs were the initial building, particularly in Texas and Alaska, building out the network, and that took place last year, in 2006.

Additional costs are really immaterial in amount.

We've incurred some of those last year and will continue to incur some of them this year, but they're going to be immaterial.

All right.

Thank you very much.

You're welcome.

And we'll take our next question from Ana Goshko of Banc of America Securities.

Go ahead.

Thanks very much.

First a couple housekeeping.

I wanted to know what Cingular was as a percent of your roaming revenue in the quarter and also what your subscriber MOUs were in the quarter?

And then secondly, just bigger picture, I just wanted to hear how you're thinking about a potential for expansion of your footprint, in particular with participation in the 700 megahertz auction, or any potential opportunities for additional acquisitions.

On both those fronts, are you thinking more -- looking for a contiguous expansion, if it becomes available, or would you consider actually looking at adding a new cluster, for instance, I know Suncom recently stated that they're going to explore a sale of their North Carolina area properties.

Is that something that you would seriously consider?

Let me answer just a couple of the first questions.

In terms of our subscriber MOUs in the fourth quarter, they ran about 680 minutes per subscriber.

In terms of the Cingular traffic on our network from a roaming standpoint, Cingular still represents roughly 80%.

In terms of how we look at the expansion or potential expansion, I think you can go back to the recently concluded AWS auction where we acquired the rights and the spectrum to build out some adjacent markets to our clusters.

How we look at it, primarily, is that where there are opportunities in adjacent markets to our clusters where the economics play out positively for us.

So we look at that primarily first and foremost.

You wouldn't rule out other opportunities if the economics are favorable.

As it relates to 700 megahertz, if the AT&T Cingular folks and the T-Mobile folks are involved, there's a probably chance that we may as well be involved.

That's how we would look at any potential involvement there.

In terms of acquisitions, as Bruce said, we work very hard to improve our leverage ratio.

We are not opposed to acquisitions if they can be done at the right multiples and favorably, so we're not -- we never say never, but we're very prudent about the way that we look at acquisitions, and we will continue to look at them in that vein.

And is Suncom something that you would consider?

It would be an addition of a new cluster?

Well, we can't make a comment on what we consider or not consider.

There's a host of usual suspects.

We'd look at all of them in an economic vein and what we could -- how we could improve our economics as a result.

Whether it's that particular entity or any other, that's how we would -- the discipline that we'd put against it.

Okay.

Thank you very much.

You're welcome.

We'll take our next question from Thomas Lee of JPMorgan.

Please go ahead, sir.

Hi, guys.

How are you?

By the way, I know everyone's been congratulating you, but it's unbelievable how different Dobson looks today than two years ago.

It's a completely different business model with a lot of growth.

So congratulations to you guys.

Thank you.

I just wanted to follow-up on a couple of questions, because it really got me sort of thinking about your guidance and what you're saying about '07 and where there could be pressure points, et cetera.

For instance, on your subscriber guidance of 90,000, last year -- so for '06, if you excluded TracPhone and reseller altogether, your net adds were 85,000.

So in other words if TracPhone is just zero impact in '07, you're talking 5,000 additional net adds from your postpaid prepaid mix.

To me that sounds conservative, especially because TracPhone historically did 25,000 a year net, so it's a delta of 30,000.

In other words, if you took your 85,000 from last year for postpaid, prepaid, plus add TracPhone at the historical level, you're well over 100,000.

So A, it seems to me that you're being awfully conservative on the unit growth, again, but of course that's fine because it's still a bill improvement from last year.

And then the second thing is, I believe this is correct, I know that when you signed your modified roaming deal with the former Cingular that your in-collect rate was going to be level, and I just wanted to confirm, is your in-collect rate going to be unchanged beginning with the stepdown in January?

So I guess I'm just trying to think about your modeling expense on your in-collect costs.

Finally, as an adjunct to that, your $1.9 million increase in the fourth quarter, how much of that is attributable to Highland, and Highland at -- maybe not at the optimized rate, because those phones may not have been completely GSM or on the right preferred roaming list, et cetera?

Thanks a lot.

That last one, Highland, fortunately when we made that acquisition, fortunately the vast majority of their customers were already on GSM and the incremental impact on the Highland is very small on that particular component, a little bit of it.

From a rate standpoint, you're right that the rates are basically the same.

There are no stepdown, contractual stepdowns.

One thing that could affect the rate a little bit is data usage.

That's not really -- it's in the numerator of the number, but not the denominator when you look at minutes, that could affect it a little bit, but you're basically right.

Were there other questions, or is that?

The first was more of a statement, an observation.

Actually, do you mind talking about that first question, though?

Well, no.

It was a long-winded question.

No, it was a well-put statement.

I look at our guidance, I reiterate the points you made, we feel very good about the progress we've made, we feel very good about where the Company sits today and we feel that our strategies are the right ones and they're working.

If we reiterate that on our guidance, we have said at least 90,000 net adds.

That guidance is our guidance and that's the guidance.

But it is at least 90,000, Tom.

Okay.

By the way, given the 25,000 migration that you noted, your TDMA to GSM, it implies that your GSM churn is about 1%.

Does that sound right?

We don't break it out, Tom, but--.

I think it's incredibly low, so.

Well, thank you.

Yes.

We'll move on to our next question from Susan Lee of Credit Suisse.

It's actually Pat Dyson.

Hi, Pat.

Two questions.

First, can you give us any sense of data roaming.

You've commented on the last couple calls how it's been a contributor to roaming revenue growth.

Bruce, can you give us any sense as to as, say, a percentage of roaming revenue, what data roaming is and also just your thoughts on what you expect data roaming to contribute as we look out to '07?

And then the second comment, again, to you, Bruce, it's an open-ended question, but just your thoughts on the balance sheet.

You still have some high coupon debt that is out there and a bunch of it becomes callable in the next nine to 18 months.

Any comments around that would be helpful as well.

Sure.

Let me answer a couple of questions those questions.

In terms of data roaming, it's in the 10%ish range of the revenue, so it's growing quickly.

In terms of the balance sheet, we announced the AmCell restructuring and we will continue to look at the other elements of our balance sheet as well.

When and if we've got something that looks attractive, we'll do something at the time.

But, yes, we will continue to look at those things, absolutely.

Another couple of questions in there, but I think -- were there?

Yes, maybe back to the data roaming item, any thoughts as to where you would expect that to grow as a percentage of roaming revenue in '07?

Not that we will break out publicly, no.

But if it has been a growing element.

Okay, thank you.

We'll take our next question from Michael Nelson of Stanford Group.

Please go ahead.

Yes, thank you.

Thanks for taking the question.

Can you talk about the potential for margin improvement?

Aside from scaling the network and spreading your fixed costs across a larger subscriber base, what are the largest opportunities for margin expansion and when do you forecast the timing to sunset your TDMA network and what are the potential cost savings there?

Thanks.

Well, I think that's one of the areas where you mentioned outside of just scale where there's opportunities to gain some margin improvement.

Certainly, as we continue to take usage off the TDMA system, we constantly reconfigure that network and try to get out any costs that we can as quickly as we can.

Consistent with what we said in past conferences or calls, Cingular has announced that they'll turn their system down in February of next year.

We're mandated by the government to keep ours up and running because it's our analog system, until at least that date.

As we get towards the end of the year, if our plans are as we expect that we'll have very few customers on our system.

If we see analog and TDMA minutes from a roaming standpoint are dwindling down quickly, I would think that we'd probably turn it down early next year as well.

We'll watch the usage on it throughout this year and into early next year before we make that final determination.

In terms of the absolute dollars, we've not really given out absolute dollars in terms of savings when that network is turned off, but there obviously will be some additional dollars that we'll save once that network is turned down.

Great, thanks a lot.

You're welcome.

[OPERATOR INSTRUCTIONS] We'll move on to our next question from Todd Rethemeier with Soleil Securities.

Thanks.

A lot of my questions have been asked and answered, but maybe you can just tell us what percent of the gross adds this quarter came from the unlimited plans?

It's been pretty constant, Todd, in the 35 to 40% range.

Okay, so that didn't change?

Nope.

Okay, thanks.

And we'll move on to Kevin Roe of Roe Equity Research.

Thanks.

Good morning, gentleman, and also congratulations on the numbers.

Thank you, Kevin.

Following up on the M&A questions, are there more transactions like Highland out there, and would you be averse to doing a materially larger transaction, or is the size of a Highland your sweet spot?

And secondly on TracPhone, given the deal we signed this past quarter, why is it taking until the second half for them to start ramping up the GSM sales?

Kevin, this is Steve.

I'll address the second part of your question.

We signed the agreement with them in the middle of last year.

Obviously, it's a very, very busy time of the year for them.

That's their really -- the Christmas and holiday season is very challenging for them and to introduce anything new, their thought was to wait until they got through the retail season.

So they're working with our teams on the launch plans and in terms of when it gets launch versus when you start to begin to see solid results, we may launch sooner, but we're looking at it really being a second half impact.

So I think it's really more of a timing of when the deal was signed close to the heavy season for them than introducing anything new and operational changes, it could have been disruptive for their model and we expect the hit back to us could be in the second half, but it clearly could launch before that.

Okay.

Tim, this is Everett, on the M&A front, Highland is certainly the kind of transaction we really do like.

It's the right kind of size, it was accretive, it was well-run, a good solid GSM network in an area that was adjacent to our existing footprint.

There are, I would characterize a handful of markets that fit that profile, most of them are probably smaller than Highland, but there are a handful every year that come to market and we certainly take a very serious look at them.

We do like markets that are contiguous and adjacent and complement the existing regional footprint.

In terms of the larger transactions.

As Steve said earlier, we're going to be very value-oriented, we're going to be very protective of our balance sheet, and we'll certainly look at anything that we think's an opportunity, but I don't know that there's anything out there that's a must-have for us right now.

If it looks accretive and strategically important to us, I'm sure we'll take a very hard look at it.

Thanks, Everett.

We'll move on to Sandy Liang of Bear Stearns.

Can you just remind us what the EBITDA was at Highland, and if you look at your guidance in 2007 and you net out Highland, what kind of EBITDA growth are you looking for on a percentage basis?

On an apples to apples basis excluding Highland, the growth rate is probably in the 7% range.

Actually, all the acquisitions, I think what we had commented that incrementally on a full-year basis they're worth about $20 million of EBITDA.

Obviously we had some in the last year, so it's not incremental into next year a full $20 million.

Okay.

My other question is if you look at the size of the Company today and with a five-year planning horizon, given the opportunity in upstate New York, how big do you think your footprint can be in, say, three to five years from now with the growth opportunities you have, either spectrum that you own or a spectrum you could possibly buy at auction given your leverage constraints?

Well, let me take a shot at that.

It's really difficult for us to be able to identify the size that we might become because the spectrum we acquired in AWS is very attractive, very attractive value given where we bought it and the proximity to our adjacent footprint.

We haven't yet formalized our growth plans with respect to that spectrum and any other spectrum.

Needless to say we're closely monitoring what T-Mobile does and what Cingular/AT&T does on that front.

We're certainly going through a strategic review all of our options around the buildout of adjacent markets and otherwise.

So when we have a more formal plan in place, then you'll be the first to know.

We'll certainly present it to the public.

But until then, I think it's best that we talk specifically about the growth and the business as we present it here today.

Great.

Thank you very much, guys.

And we'll take our next question from Jonathan Atkin of RBC Capital Markets.

Just a quick follow-up on Highland.

Is the integration essentially complete, or what are some of the highlights as it pertains to integrating that property?

A big part of it has already been accomplished from a branding, they're already branding one, and some of the rate plants.

The remainder of it is transitioning their billings system over to our existing billings system, and that should be completed in the second -- early in the second quarter of this year and we're working through that now and expect that that should go smoothly from all the things that we've done to ensure that.

Thanks.

And we'll take our next question from Patrick Comack of Zachary Investments.

How you doing, guys?

I was just noticing that the gross adds in retail postpaids in the 4Q were kind of light and I noticed that the equipment subsidies were a little on the low side in a very competitive industry where they are given away handsets for free everywhere.

Hence, I'm trying to figure out what my post -- retail postpaid net add number should be in '07.

You put up an excellent churn number in 4Q for retail postpaid.

I'm not sure you could do better than that.

Maybe you can inform me if you can or not, but if I keep turnaround 1.9%, I personally think gross adds and retail post paids will be down year over year.

You have like three competitors in each market on average, I believe.

So you didn't really -- and then -- so if we get more competitive, you slash prices in reaction.

I'm just noticing that in your guidance, kind of change from last year where you qualify ARPU as stronger rather than putting an absolute number on it.

And in the gros add number, it's a total company number.

I hear a lot of TracPhone language.

Maybe you could tell me, are you going to add, are you going to have higher year over year retail postpaid gross adds?

And can you improve the retail postpaid churn number?

Let me -- just a couple points.

First with respect to retail postpaid gross adds light in the fourth quarter, the past five quarters, that's our strongest quarter.

It was up substantially from the same quarter in the prior year.

So we don't view it as light, we view it as very solid performance and continuing on the track that we have been on for the last five quarters.

With respect to the growth of retail postpaid, as I said earlier, we expect the channels all to continue to grow in 2007.

We don't break those out, but we do expect all of those retail postpaid and reseller to grow.

In terms of where postpaid churn can go, as we said, we expect it to remain below 2% as we move through the year.

So we, again, in our opinion, very strong that our channels are going to grow.

Okay.

So you answered a prior question where you said all your prepaid, wholesale, and postpaid are all going to grow year over year.

I thought that was in net adds, that's gross adds as well?

Yes.

Our gross adds -- yes.

Okay, very good.

Thanks.

And we'll take our next question from Donna Jaegers of Janco Partners.

Thanks for taking my question.

I just had a quick question.

In the press release you talked about refinancing American Cellular's, all their debt, I missed the earlier part of the call.

But is all that debt callable?

The covenants on that debt are a lot more restrictive, I believe, so could you run through what kind of covenant relief you're getting with that?

And also what sort of savings are you looking at because it's going to cost a little more money to file separate Qs for American Cellular?

There's a lot of questions there that I'm restricted from answering at this point.

But in terms of the securities that we have at American Cellular, we currently have $900 million 10% bonds.

They actually become callable in August of this year.

They're not quite callable yet.

The balance on the debt is primarily bank debt, which is callable at any time.

And I really can't comment on savings or changes in the covenant package at this point in time.

Okay.

Thanks.

You're welcome.

Ladies and gentlemen, at this time, we have one question remaining in the queue. [OPERATOR INSTRUCTIONS] We'll take a follow-up question from Mr. Ric Prentiss of Raymond James.

Please go ahead.

Hey, guys.

A question that didn't seem to come up.

On the unlimited plan, I think in the past you've told us what kind of percent of minutes were off net specifically to that.

Is it still something -- I think it was in the teens if I remember right?

What we had modeled in our profitability model that the actuals were coming in well below that and that has not changed.

And the model was mid-teens or something like that?

That's a fair range, yes.

Okay.

And then on universal service fund, were there any one-timers in the universal service fund that tick up a little bit?

It looked like the absolute value would put it north of 15 million in the quarter.

Just wondering if there were any one-timers in there, should we expect that to continue throughout '07?

And any update on any changes to the USF regulation or legislation?

There were no trueups in the fourth quarter.

Well, in terms of the USF regulation, there hasn't been any updates or changes other than the joint Board continues to study and meet and will ultimately make a recommendation to the FCC.

I think the nature of the process is it will be a while before we have anything definitive to report on that.

But the Democratic congress, do you think that slows things down or changes what might have happened with a Republican congress?

I don't necessarily get the sense that that's going to have that much of an impact.

The process is certainly very political and there are a lot of rules, states, and Senators that are weighing in on the process, but I don't necessarily know -- I don't believe that it's a partisan issue right now.

It might become, but it certainly doesn't appear to be right now.

Certainly probably slows it down, given the changes up there?

Yes, it's slowed a few things down, probably one of them.

Great, thanks.

It appears there are no further questions at this time.

Gentleman, I would like to turn the conference back over to you for any additional or closing remarks.

Thank you very much.

Again, we would like to thank all of you for your participation today, for your continued support.

Rest assured that our team, our full management team, and our employee base are intensely focused on delivering even better results in 2007 as we've outlined.

Thank you again for your support and for your questions and we'll talk to you after the first quarter.

Thank you.

And that concludes Dobson Communication fourth quarter 2006 earnings results conference.

We thank you for your participation and ask that you have a wonderful day.

Please disconnect your line at this time.