美國無線通訊 (USM) 2002 Q2 法說會逐字稿

Good morning. My name is Brook. I'll be your

conference call operator today. At this time I would like to welcome everyone to the Telephone Data System. And the

second quarter conference call. All lines have been placed an mute to prevent any background noise. After the

speaker's remarks, there will be a question and answer period. If you would like to ask a question during this

time, simply press star and then the #1 on our telephone key pad. If you would like to withdraw your question, then

press star and two on your telephone keypad. Mark Steincroft, vice-president of corporate relations at

TDS. Thank you. You may begin your conference.

Good morning, everybody. Thanks for joining us once again this. Sandy Helton, executive

vice-president of TDS, Jack Rooney executive vice-president and finance CFO at U.S. Cellular and executive finances

staff operations and CFO with TDS Telecom. A replay of the teleconference will be available today starting at 1 o'clock

Chicago time until Wednesday July 17th. The replay number is 800-642-1687. The pass code is 4818052.

This call is being simultaneously webcasted on the investor relations section on the TDS website at

www.TLDA.com and will be available for the next two weeks and thereafter will be archived on the website. The

information on the summary operating data pages of the press releases changes almost every quarter these days as we add

new information so be careful to view that. And realize that the format and some of the content might have changed.

As always, it's important for you to know that some of the discussion today, either in our prepared comments or during

the Q and A session are representative of forward-looking statements.

While these statements are based on the most reliable data available at this time, any forward-looking

statements involves certain risk and uncertainties that could cause actual results to differ materially from those

in the forward-looking statements. These risk and uncertainties are many and

varied and can and do change from quarter to quarter and are noted in the press releases. Investors and any other

interested parties are strongly encouraged to read the company's annual report as well as the filings of the SEC to

get a better understanding of the company's operations and any changes.

This call is being recorded by TDS and is copyrighted material. It cannot be recorded or rebroadcast

without Telephone and Data Systems' express permission. Your participation implies consent to our taping. Please

drop off the line if you don't agree to these terms. If you're not getting notification from us

about the teleconferences or have changed your e-mail address, please contact me and we'll get you all set up.

Also, if you have some suggestions how we can more effectively get information to you or you have some

suggestions about additional information you would like to see in our press releases, please give me a call to discuss

it. At this time I usually try to remind that TDS

and U.S. Cellular will be speaking at investment conferences later on this fall. The two that are coming up immediately

TDS presenting at the Morgan Stanley conference in Florida, September 9 and 10. I don't know which date we're

presenting quite yet. And both TDS and U.S. Cellular are presenting at the UBS Warburg conference November 11 through

13. Also, if you're in the Chicago area or

Madison area and you would like to meet with management or business units, all of whom we make available to the

investment community, we'll make that happen. Press releases were posted to the TDS home page shortly after

going out over the wire and U.S. Cellular post their releases to their website as well. I'll turn the phone call

over to Sandy. Thank you.

Thank you. Good morning. I'll quickly review the highlights. All three of our business groups

posted improving month to month as we move through the quarter. Some of this is typical seasonal. It's a little

too early to say if the trend reflects some improvement in economic conditions but hopefully that's the case for the

most part our operating results are at or slightly better than expectations. Fortunately it was a business as usual

quarter the details of which Ken and Dave will cover in a few moments. Revenue totaled 724 million dollars in the

quarter an increase of 12.5. Solid revenue growth of 8.7 in service revenues with significantly higher equipment sales

which Ken will explain in his remarks. U.S. Cellular recorded improved year-over-year average revenue per unit or

ARPU due entirely to hire retail service revenue this is the second quarter in a row which it improved year to year. TDS

Telecom revenues were up 17.4 percent with growth bolstered by the acquisition of [course communications] and

exceptional growth of 77 percent in the operation of TDS Metrocom. Cash flow increase the 6.1 percent to 246 million

dollars. Operating cash flow like revenue growth due to hire expense, the cost of funding TDS Metrocom expansion.

Diluted earnings per share was a dollar 25 cents an increase of 40 percent compared to 89 cents a year ago object a

comparable accounting basis. Please keep in mind that TDS received in telecom in the quarter. During this quarter we

monetized the majority of two of our equity positions at TDS, 2,361,000 shares of [Vesera] were monetized in a 5 year

variable prepaid forward transaction on May 7. Forward and cap prices for this transaction were 8.82 and $11.47. The

purchase totaled 18.9 million dollars. Taxes on any gain are deferred until maturity.

At U.S. Cellular, 10,245,000 of [Votaphone] were monetized in a similar manner on May 16. Lower end cap

price with $28.6. 160 million are anticipated to be used to partially fund the PrimeCo acquisition. Again a very solid

quarter based on the hard work of our 9800 associates. Our ongoing focus on the very best customer service helped

deliver excellent operating results in the first half of the year and we are confident it is the wing strategy for the

second half of the year and the years to come. Let me turn the call over to Ken Meyers.

Good morning and thank you for your time

today. Second quarter earnings release that U.S. Cellular issued this morning includes a whole page of key business

metrics as well as the income statement of the second quarter and the balance sheet of June 30. I will spend a

few minutes putting those results in perspective instead of repeating the information you already have.

First, this quarter we saw an increasing in total average revenue per customer from $47.26 in the second

quarter of last year to $48.48 this quarter. This improvement was driven by an in crease in retail revenue per

customer that averaged $37.93 this quarter. That's $1.28 increase own a year-over-year basis. This follows a

concerted efforts by the company to increase retail revenue by focusing or marketing initiatives on higher rate plan.

This is the second quarter in a row that retail revenue has grown on a year-over-year basis with the

current quarter's increase large enough to offset the expected decline in roaming revenue. Second, we saw

strengthening demand throughout the quarter. April was weak there a customer growth perspective. May improved and June

was even stronger and achieved internal targets that were set nearly ten months ago. While it's too early to tell

just where the economy goes next the last month has been encouraging.

Third, as sandy mentioned equipment revenue was up sharply year-over-year and sequential basis. This

reflects a change in the company's distribution plan. And is more reflective of what we would expect going forward.

This quarter we implemented a program to in sent our dealers to buy their phones directly from U.S. Cellular. This

allows us to ensure the quality of handsets that our customers receive and increases or purchasing power with our

vendors. The effect of this program is to increase

both equipment costs and equipment revenue. It has negligible effects on cost per gross ad. It added 391 is

above our targets. Clearly lower ad volume affected us while at the same time we did increase advertising in the

second quarter to support some new pricing plans. Also, this calculation includes all of our marketing costs.

Including amounts spent on future product offering such as data. These more future oriented costs added about $12 to

cost per gross ad this quarter. We plan to test 1X product offerings this

quarter in one of our existing CDMA markets and year on schedule to roll out CDMA by year end.

With respect to the PrimeCo acquisition we continue to make progress. We have a team working on

integration and launch. We have cleared Hart, Scott, Rodino, closed $250 million bank line and monetized our

Votaphone holding this quarter. We hope to place some long-term debt and close the acquisition during the third

quarter. Now, with one half the year gone there are

three turns of that developed. While deman has strengthened each quarter it has been weaker than originally expected.

As such we are now targeting to add 260 to 280,000 net new customers this year. This excluded the effects of any

acquisition including the pending PrimeCo deal. And reflects the slower growth we have seen so far.

Second, cash flow continues to grow nicely. However, lower than target the customers the second half

will have a slight effect on revenue and cash flow. Based upon our revised targets for customer growth with your tar

getting the operator cash flow in the 670 to 690 million dollars, the 710 million dollars range we were looking for

earlier this year. Finally, we see little current effect on capex since our CDMA conversion is a main driver and this is

on track. In fact, if we could, it would seed up this conversion process given its compelling economics.

As I said last quarter we will update or targets for the effect of the PrimeCo acquisition once it

closes. At this time due to the uncertainty as to the closing date just not possible to quantify the current

calendar year effect. Recapping, we saw respectable pickup in

growth in the quarter adding 30 percent more new customers this quarter than in the first quarter of this year. Second

total average revenue per customer increase the slightly on a year-over-year basis despite a decline in the absolutely

level of running revenue. An increase in retail revenue per customer was the main driver behind this result and this

continues a trend we saw last quarter. Customer loyalty remained high as evidenced

by our 1.7 percent postpay churn rate. These last two factors drove 176 million dollars of operating cash flow.

Finally our CDMA conversion overlay program is on schedule. Thank you for your interest this morning, now let me turn

the call over to have Dave [Witworth], TDA Telecom.

Thanks, Ken. Q2 businesses, ILEC equivalents grew 2.1 percent for the second quarter

excluding the effect of acquisition is which solid growth in difficult economic period. In addition to the internal line

growth we continued to increase penetration in our key vertical services and products including dialup and high

speed intended and long distance. Specific to our LD product we continued to use global crossing for the service.

However we have contingency plans in place in case service becomes problematic in the future.

MCI WorldCom represents one of the larger long distance provides for our customers. We would

typically have 10 to 12 million dollars. We have been monitoring this situation for sometime and will continue to

keep this account current. In the events of bankruptcy there would be some recourse in the pooling brothers. In

the event they are no longer able to provide service, their customers would simply move to another long distance carrier

including possibly our own on a going forward basis. 1 million dollars of which relating to the

first quarter. These revenues are included in the network access and long distance revenue category. This much

resulted from the correction of an error reported by the FCC recently. We had contemplated this corrected level of

funding in our business plans for 2002 and it has always been part of our guidance. Total ILEC revenues were up

operating cash flow grew 10.5 percent in line with our line. ILEC customers both dialup and high speed increased by 6,000

in the quarter. The market available covers 44 percent of our ILEC access lines and they serve 6600 customers. When

added to those served in our see lack markets brings the tomorrow to 16,500 customers. Continue to add market share

and crisply ILEC equivalent lines increased 22,400 an increase of 72 percent. Nearly 77 percent for the quarter

while cash flow losses were on plan. We have seen slightly higher levels of churn

during the last two quarters primarily for nonpayment. We have recognized these results and have put procedures in

place to manage it. During 2002 we are continuing to roll out the service expansions in Michigan that we began last

year as well as deeper penetration in our other markets. Capital expenditures for 2002, 130 million dollars in the

ILEC business excluding acquisitions and 55 to 65 million in the CLEC business, we are scaling back the CLEC pricing for

fiber and much lower costs from construction contractors. Of our previously announce the acquisitions in New

Hampshire, the MCT access was finalized on May 31st and contributed to one month, revenues of 1.3 million and

operating cash flow of 600,000 in the quarter: Closed on July first and therefore had no impact on the quarter. We

expect revenues of 10 to 12 million dollars and operator cash flow of 4 to 5 million dollars in the second half of

2002 for these acquistions. Capex associated 2 and a half to 3 and a half million dollars for that same period. And

integration for these two operations is going well. Turn it back to Mark.

Brook, we're ready to go into Q and A

whenever you are.

If you would like to ask a question, press the star and the #1 on your key pad. We'll pause for just a

moment to compile the roster. First question Rick Prentice with Raymond James.

Good morning, guys. A couple questions

for you. First, Ken, the renewed or updated guidance of net ads to 260 to 280,000, does that include both external and

internal customer ads?

I don't know what you mean by internal external. Those are all internally generated through our

marketing channels. It does not include any effect of pending acquisition. I talked about the acquisition at

closing.

Didn't you have some accesses or some small markets that increase the customer account.

We did but those are not in that number.

That is true internal customer ads.

That's correct.

Next question on cost per gross ad. You

mentioned 12 dollars in the quarters had to do with future data service. Had there been any of that type of spend

tires in the last quarter.

Very very little. We started building that group this quarter.

All right. And any hints you wanted to

give us as far as the 1X trial, how you'll be pricing it?

Not at this point in time. It is strictly much more of a functionality test looking at some blue applications as

well as other alternatives.

Not a marketing test, just more how does the work and how do people adapt to it.

That's right. There's a lot around the customer data

that needs to be worked out.

All right. And then lots of other potential speculation of licenses coming on to the market.

What has gotten their directory business, sales, indication of interest. Any interest in buying parts of Qwest,

wireless business or any other wireless licenses out there or if so how would that be approached given the current

capital markets.

I think we have been clear that our strategy is to strengthen the footprint where we have presence to look at I

markets where aren't as strong and move out of them. Speculation as to any individual transaction is something

that I just can't engage in.

Sure. And then the long-term debt market conditions or what's -

We want to get the quarter behind us. And yeah, the

market hasn't been the most favorable environment over the last 60 days.

All right. Good luck, guys.

Your next question comes from Ken [Enwright]

with MSS Investment Management.

Good morning. Sandy, two questions. Metrocom, it's my opinion since the deal has been announced

that $10 of the value ascribed just to the debt portion of Metrocom has been input in the deterioration of TDS stock

and nothing ascribed to the asset ledger, additional deterioration has come from does this change the rules of

strategy? My question is this, can you put some

parameters about what Metrocom will be in terms of much financing need over the next years? How much you're willing

to spend, what you won't spend and just a change in the strategy.

Are you referring to PrimeCo or Metro -

I'm sorry. The whole question is about

PrimeCo.

All right. I think as Ken has indicated, once we expose the PrimeCo transaction we'll be given more

definitive expectations the near term and revenue cash flow needs are. I can simply say that we have reviewed the

acquisition and we believe that it's returning a greater than cost of capital return.

I just want to add one thing. We keep on talking

about the rural strategy. And as sort of a one of the guidelines of setting the strategy, I don't think we've ever

defined the strategy for this company as a rural strategy. In fact, significant parts of our operating income

and revenue come from metropolitan areas like Milwaukee and Madison. And the future of this company isn't tied to

serving the the, necessarily, serving only a rural areas of this country.

Okay. The second question is just, in

terms of closing the loop on the Deutchtel and VoiceStream. By my estimation, DeutchTel after tax proceeds represent 28

percent of the current market capitalization. An astounding number. Can you talk about any progress in what is going

on? You've made progress in [Votaphone]. Anything going on with the DeutchTel and in terms of closing that loop and

bringing the proceeds back to the shareholder.

Well, I appreciate your recognition that we have acted on the strategy that we described before. In terms of

monetizing the Votaphone for PrimeCo acquisition which we believe is a very good operating investment. And that will

be the way we look at our marketable securities portfolio going forward in terms of trading the expected value in the

securities for a higher value in operating.

Do you have any opinion on the prospects for DeutchTel that are different than the market seems to

indicate?

Well, I think we have been very constructive on DeutchTel and we have the stock have felt that the stock is

undervalued but we clearly acknowledge that in the past there was a higher price that exists today. But we do have

expectations that the price will go up for Deutch Telecom.

Your next question (inaudible) with (inaudible).

Great. A couple of questions on the TDS side. Can you characterize the access line growth, not necessarily

just VGE but the much actual line growth. The Metrocom side, the line ad is a little bit lower than what we were

looking for. Can you give us an idea of what is going on on the competitive front. You're actively looking at some of

your - looking at some of the ads and bad debt expense and trying to control some the churn there. What exactly are

you doing to scrub the customer base? Thanks.

Sure. Well, internal line of growth was about that 2.1 percent. If you look at just physical line count growth

was about 8/10 of a percent. That relationship is consistent. It looked a little stronger than. Relative to

the Metrocom part of the growth is due to nonpay. Primarily all of it. All they we have competitors in the market that

we're in. Those tend not to be our biggest issues. It tends to be nonpay I. It's primarily on the residential

side. So what we're doing is working to make sure that our credit scoring techniques are indeed correlated with our bad

debt experience and making whatever corrections we need to do to make sure that we're able to identify that early on in

the process. And that's probably what has impacted the

line growth a little bit in the month. We're not going to keep those customers around for an extended period of time.

The other thing, we accelerated that process so we get to those customers quicker. If the churn would have been lower

we would have had a little birth higher line growth.

Do you think you've completed that process or something we should see for another quarter or 2.

I think we've got most of it under our belt. The

economic conditions certainly have some impact in terms of it but I think we're cracking down on it a little harder.

One last question on long distance pricing are you

seeing any significant drops, and how about bids from other carriers? Thanks.

We typically don't talk a lot about our pricing in

terms of that. I think our rates are very reasonable. I don't think there's been a lot of movement in that area.

Okay. Great, thanks a lot.

Your next question comes from Will Power with

Robert Baird.

Good morning. A couple questions for Ken. First with regard to the he revised net edition guide. What

do you expect the drivers to be in the second half of the year. In part an economic recovery. It still looks to me

that the net addition guidance assumes the sending half of this year strong, any additional color along those lines and

then any color around the minute of use trends. I assume that's the fact for the higher ARPU, whether they're

increasing offpeak or any color there would be helpful.

With respect to the first question, in terms of ad growth, yes, we are expecting the second half of this

year to be stronger than the first half of this year. Last year was kind of anomaly where that didn't happen is the

first time we've seen that. And we've always looked at this year and expected to see a second half that is stronger kind

of economy underneath it. That's still our expectation. In terms of minutes of use, minutes of use,

for our customers averaged 280 minutes in the quarter. That's up from 215 in the second quarter of last year. When

we look at, that one minute of use offset work as percent of total are still running in the eight percent range that

they - that they have now for about the last two years. As minutes of use grow per customer the total

units off network grow but the total percentage the usage it's not change. Peak, off peak, really varies dramatically

by market. And the demographics underneath the market. There are markets that are more influenced by college

populations that clearly have a much bigger offpeak usage than other,. On average we are seeing more minutes offpeak

in terms of the mix peak, offpeak, than we have. That continues to evolve as people are now using their phones

more throughout the day instead of the relatively concentrated usage that used to happen right around certain

peak hours.

Okay. Thank you.

Your next question comes from Ned [Sacker] with Thomas Weisel.

Good average. Good numbers, ladies and

gentlemen. Part of the question, can you tell us how far along you are in that process, theme roll out. Percentage

of the pops covered or the subscriber base at this point.

Where we're at right now, is going into the decision approximately one-third of our markets were covered with

CDMA and two-thirds with TDMA. Our target was to get the state of Iowa converted this year. Which would mean we

would put an overlay system on top of the whole TDMA network throughout. That's our plan. We are on target to do that

before the end of the year. In terms. Percentage of pops it would get us

to, I don't have that number. He know I spoke about that before, especially when we made this decision. I can dig it

up.

That's fine. I would like to follow up with you on that: The other question I had, the improvement

in retail revenue is that a change in plans or just more usage on the part of customers? What is driving that?

Also, could you comment on the current competitive environment within your territories that things are getting

more promotional, less, what have the trends been across the quarter, etcetera.

Clearly over the last year, they are - there are more

minutes in the various packages that are available out there at any given price point. But I think the big change over

the last year has been the focus of our marketing promotions and all of our initiatives at rate plans at $35 and higher.

So yes, minutes of use are up but it's more a matter of where you focus our marketing efforts.

We're trying to put a maximum value in the higher rate

plans. To tract our customers and competitive situation, it's kind of hard to say that a business which is 100

percent promotional can get more than 100 percent promotional.

Okay. Are there any trends of late that

are worth note?

I don't know that I've seen any major trend. I guess the way I described the sense of the market is that the,

it's still a very promotional market. The rate of decline in some of the pricing packages has slowed.

Thank you very much.

Your next question comes from Roger Zack with

Cafe' Financial.

Thank you. I have a few housekeeping questions. U.S. Cellular, Ken, if you can mention about

what the churn rate was for the quarter. I late to make you repeat it, could you just go through the CBGA, the reason it

was a little bit above your plan. The TDS side, the capex mentioned for the acquisitions on the 2 and a half to 3 and

a half million, is that included in the total 120 to 130 for the ILEC operations and also if you can tell us what the

total U.S. Cellular for the quarter was.

Let me start. Churn for the all-in 1.8 percent is the number. Per gross ad, I said there were three different

things in there, one type, there's no - that's higher than we expected. Underneath that, we've got with one of the

lower volume. 2, one the lower volume. 2, we did some more advertising to support some price plans that were rolled out

early in the - early in the second quarter. And third, we are starting to invest in the marketing area around a data

group that's something we hadn't been doing yet. Where we were TDMA wasn't appropriate yet. Now that we're doing

that, that's driving some marketing dollars. All marketing dollars are in cost per gross ad. We're seeing that about

12 bucks in this quarter.

Okay. Great: Capex relative to any access is.

The capex is not included in that original amount.

USF all-in from all different sources would be about 22.

Next question Todd Rosenbloom from (inaudible).

One, the roaming revenues although they

are down year to year, popped up a little bit sequentially. I wonder if that's more a seasonality things or sock is

turning although I doubt it. And then exposure to WorldCom, you mentioned the receivable that's out there, I you need

about 10 to 12 million, doing what general communication is doing which is writing off some of that as bad debt.

First question on roaming that is definitely a 00:59:18 seasonal trend. One we've seen year in and year out. Second quarter picks up in terms of total minutes of use 00:59:25 versus the first quarter. 00:59:27 >>ANALYST: Okay. 00:59:28 >>UNKNOWN SPEAKER: I think the issue on WorldCom, it does represent a relatively large access provider for us. Probably the only 00:59:35 solution is either to write it off or not. There's really not much in going part way. We'll watch it at close as we 00:59:44 can. 00:59:46 >>OPERATOR: Your next question comes from David [Paulisano] with Stevens, Inc. 00:59:51 >>ANALYST: Hi, guys. Your all-in churn was 1.8 00:59:56 percent. What do you think it will be going forward once you bring in all the PrimeCo customers, a big percentage of

them are prepaid.

1, as we look at PrimeCo, on the front end, I don't - I'm not able to give you a number. The reason I'm not is depends

on when it comes in and what the mix is. Early on, we will have the prepaid customers that are there. Which already

been fade for that are generating revenue, generating margin. And we expect to continue to support them.

Going forward, we would expect to support that product line but focus more on traditional wireless

offerings so over time that mix will shift. It will shift to a post paid type of business, that's what our plan is.

With that shift in postpaid business and the introduction of our level of service to this

market we would expect to see their churn rate improve in terms of how it plays through the mix, it's really a matter

of a numbers, in terms of the number of customers when we get it based upon where we're at right now, that would be

about 10 percent increase in our commercial.

Okay. Thanks. On the CBGA going forward over the next couple of quarters will we be seeing

something similar to the 12 dollars you talked to about earlier.

I think the $12 is in there but some of the other

components of that improve.

1.9 on TDS. Of the CLEC operations. Can you give us a better feel for the trend in EBITDA going

forward when you think it starts trending down significantly toward EBITDA positive?

Our plan would be that TDS Metrocom would be EBITDA

positive for the full year. Not in a significant way but it would be EBITDA positive next year and free cash flow

positive the year after that.

In '04.

Yes.

Your next question is from Mike Valejo with Legg Mason.

I have a couple of questions. When you're

indicating that CBGA is going to show some improvement, can you give us some sort of bracketing on what's going to

happen there. The ARPU which obviously was much better helped by inbound roaming. What do you expect to see with

those two, if you can give us some numbers that would be a great help to be specific.

All right. I can't give you specific numbers. As

hasn't happened yet. But based upon the expected volume that we're looking at in the second half, I would expect to

see cost per gross ad trend down closer to where it was in the first quarter than where it was in the second quarter.

With respect to average revenue per customer, you are really talking about two separate components that go

into that number. One is the roaming revenue side which really has got nothing to do with or customers backup

divided by our customers get this number and our second one is retail.

With respect to the retail side of it, based upon what we're seeing in the current environment I would

expect to see year-over-year improvements in retail revenue again in the next couple of years.

Roaming, I think that we've talked about overall roam that we expected total dollars to be coming

down on a year-over-year basis. What we're seeing this quarter, it was down about 5 million dollars on a

year-over-year basis, where sequentially, though, you'll get into the seasonality where second and third quarters are

your highest roaming traffic period. We should see that seasonal trend continue.

Could we turn over to the ILEC operation

and get some sort of sense of what the normalized numbers are. Could you give us a sense of what the EBITDA in the

quarter was without course and without the New Hampshire acquisition. I've got line growth, I'm assuming New

Hampshire is 19.2 in the quarter and 44.1 for chorus. So it looks to me like I've got 0.3 or 0.4 percent growth which is

a little bit different than what you're indicating but maybe my numbers are wrong. I'd like a sense as far as line

growth goes. If you have any sort of sense of what kind of substitution there is in the wire line operation for

wireless or broadband or whatever it happens to be. Thanks.

Sure. We added in the quarter, MCT represented about 19,200 equivalent lines. Represented 18,800 traditional

lines. The growth ends up being for the quarter about 2,000 on an internal growth basis which that is it 8/10th of one

percent comes in. From a margin perspective, if you strip out the impacts of Chorus and strip out the impacts of MCT,

growth in EBITDA and revenues the margin stayed at exactly the same at 50.3 percent. It grew about 3.7 percent,

something like that.

What was growing 3.7 percent?

Revenues and cash flow, he can including the effect of those acquisitions.

Your next question Greg (inaudible) from Loop

Capital Markets.

Most of my questions have been answered. Are you guys on the CLEC side using uni for anything, you're

primarily facilities base but is there any uni -

At TDS Metrocom we're 100 percent switch. We do lease unbundled loops for our access to our customer and some

small business customers but you're talking about a Uni model. Right. We do lease the line.

That's the from -

That's from SBT America tech.

That is that plan to do that at all, lowering

charges?

Not really. The uni rates are negotiated with the carrier. All that factors into the general pricing but I

don't think there's anything on the horizon. I think, though, that there is more discussion in the industry about

UNIs which is renting or switching the whole element. We do some of that is US Link and then over time we migrate those

to a facilities bank. But that is a much smaller component.

Your next question comes from Glen Waldorf

with UBS Warburg.

One additional question for Dave following up. Are you seeing any substitution at the ILEC level in

terms of technology or any other forces there.

Yeah. It's difficult to put your finger directly on it. Certainly we know that customers our own customers who

take DSL oftentimes that a substitution in terms of a second line, we know that's the case. We know that in some cases,

especially in some the more remote and vacation type areas, wireless certainly is a substitution in many cases, not

probably the worst thing that can happen to us. But awfully hard to predict where it is.

At the same time, I would say that our more rural focus does have little different thing. We don't have

the large apartment complexes, things like that. The more transient younger work force type that typically are more

committed on the cellular side. It's a little different composition of our customers.

Can you quantify for us what the second

line penetration is?

They're running about 13.3 right now.

Which is consistent. Just can you also touch on how your marketing features to your base. You've

had some good penetration long dance. Can you give us some color on that how much is organic versus acquired long

distance ads.

We've continued to be successful in putting in long distance customers. Some of that is our good marketing,

some the of it is some the tactics that some of the other LD providers are doing to our customers and they become

frustrated. We've done the traditional consumer type stuff. Billboards and there's and that type of stuff.

We do offer a promotion that if a customer does indeed take our internet service and long distance

product we give them a discount on their internet servicing and that helps to tie customers together. Features tends to

be something once customers understand how they can use them and make them part of their life, they're real receptive to

it.

Great a higher level question for sandy. Just in terms of what is happening in DeutchTel, do you have

any insight in what is going on there. What do you think about monetizing that stake, how long will it take the stock

to go back up to a level where you consider monetization?

Glen, I'm afraid I'm just like you reading the papers about what is going on in Germany right now. I

don't have added insight with regard to the current topics of discussion. And what we do is every as I mentioned we do

continue to look at what we think the expected appreciation in the stock is, and other investment opportunities. And we

look at that on an ongoing basis.

Well, thanks very much. Good quarter.

Thank you.

Your next question comes from Colette Fleming with UBS Warburg.

Hi. Actually, Mark Carney. A couple

housekeeping items. Did you, Ken, did you guys launch any further PCS pops, we calculated about of a million

nonoverlapping PCS pops were launched as of last quarter were there any new markets?

No.

The percentage the handsets you guys sold,

I know you said you are starting to sell your own for the purchasing power: Numbers historically have been 55 to 60

percent. Did you give the percentage?

I don't understand the question.

The percentage of the handsets that U.S. Cellular sold typically through your stores is 55 to 60

percent. Could you give me the percentage for this quarter?

Are you talking about the channel ads or were you talking about actual handsets going through?

The channel ads, I guess the number - this

number we usually track. I think you also mention that the you're also trying to sell more handsets to your retailers.

So if you can help me out with each of them.

In fact, channel ads is the number you used to use. And the channel really haven't changed dramatically in the

last quarter. The number there you're looking for now in terms of total equipment sales is one I don't have in front

of me that we'll have to dig out.

Okay. Great, thanks.

Your next question is from Marty [Dropkin] with CSSB.

Hi. I want to dig in a little bit more

on the ILEC KLine ads. I realize that you said it's start to trend a little bit better throughout the quarter and you

saw an uptick in June. Are you seeing that same kind of steady base or even an increase in the first couple of weeks

that you've seen in July. And are you seeing it across any particular customer bases? Is it more residential or

business or any particular geographic areas?

I don't really have any insight in the first three weeks in July, Marty. I think there is certainly some

impact in the ILEC business. Certainly one the tools we have relative to collection is disconnect. I think in

tougher economic times a customer will live with that disconnects for a long period of time. Customers start

recovering and start getting their phones reactivated that things are coming back from an economic perspective.

You have seen customers turn off, turn

it back on?

Yeah. Businesses that contract or expand a little bit. We are primarily a residential focus. 70 percent of

our focus is residential. There's no one particular area or geography or demographic segment that is any different than

any other.

Okay. On your capex forecast, slight, but you've raised your ILEC a little bit. Along those

lines, 70 million dollars for the first 6 months, you're on a trajectory do - far below the number you gave for the

quarter. You think there's a chance you fall below that or enough spending in the second half.

The summer tends to be our higher spend period

especially in the second quarter where we take on materials and things like that that are used for the simply

construction season. I think there's a little bit of room around the ILEC capex it's relatively broad I realize.

There's always a chance we could run a little bits under that.

Could you break the 42 million between

ILEC and CLEC?

Sure. For the 42 million we had fourth quarter 25 million related to the ILCA business. About 15.7 related to

Metrocom and the rest was US Link.

Okay. On DSL, did you trade any new marketing initiatives on the big increase or any promotional

activity?

Obviously, we continued to do that. Word of mouth helps a lot in terms of it. We've had a very aggressive

program where we've captured information about customers who have expressed an interests prior to us launching the

product and we were able to work those. It is one that does sell well by word of mouth. Customers are seeing it.

We do leverage off of advertising that's done in urban areas, our customers that see the TV spots in their

particular market come to us and ask about that particular service. We're running kind of a normal promotions but

nothing extreme in terms of significant. We're not giving away motion of service or anything like that.

Nothing different there. Just word of

mouth and catching on a little bit.

Yep.

Okay. Finally, the 2 million increase in USF, one million was the first quarter, the other million

on a recurring basis or just one time.

No. Recurring. About a million a quarter.

Your next question comes from Bill Moore with Hamilton Investment Management.

Hi. Good morning. I want to follow up on

the financing status for PrimeCo. I know you had sold the Votaphone shares and in process arranged some bank lines I'm

trying to find out where we stood in the whole purchase price.

We have entered into a new bank revolving credit

agreement, 250 million dollars. And so if we look at the end of the quarter now, we have most of the 500 million

dollar revolving credit agreement the company had in place available plus the additional 250. But our financing plans

also had us going to the market for some long-term debt. We are now waiting to let this news get out there and see what

the market has available right now. As you know, it's been a relatively ugly market over the last couple of months,

especially in the Telecom arena but that's still part of our plans.

The contingency plan is for existing credit

facility.

Yeah. Again, we have our existing one as well as the new one. But we would like to see some long-term debt

underneath that.

Have you had any discussions in the rating industries? I know there was some much contingencies on the

new bank line, and your rates on those lines.

We talked for the rating agencies, in connection with the original announcement of the deal. And at that point in

time they both came out and affirmed.

Great. Thank you very much.

At this time there are no further questions.

Thanks, everybody, for joining us on the teleconference today. Ken and I will be available later

today in our offices. Have a good week.

Thank you. This concludes the conference. You may now disconnect.