美國無線通訊 (USM) 2002 Q4 法說會逐字稿

Good morning.

I would like to welcome you to the fourth quarter and year end results Telephone Data Systems and United States Cellular Corporation conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks there will be a question and answer period.

If you would like to ask a question during this time, simply press star then the number one on your telephone key pad.

If you would like to withdraw your question press the pound key.

Thank you, Mr. Steinkrauss you may begin the conference.

Thank you.

Good morning, everybody, as always, thank you for joining us.

We have a lot to cover today so we're going to take a few more moments in our prepared comments than we ordinarily do, but I think it will benefit everybody.

There were two releases that were rather lengthy.

The TDS release is 13 pages and the United States Cellular release is 8 pages so when you print them out make sure you have the entire release.

A replay of the teleconference will be available 1pm Chicago time and run through Thursday, February 6th.

The replay number is 800-642-1687 and the pass code, 7564994.

For international callers the number is 706-645-9291, same pass code.

This call is being simultaneously website on the investor relation section of the TDS website as www.teldta.com.

And will be available for the next two weeks.

As always, it's important for you to know that some of the discussions today either in the prepared comments or during the Q&A session may represent forward looking statements.

While these statements are based on the most reliable data available at the time, any forward looking statement involves certain risks and uncertainties that could cause the actual results to differ materially from those in the forward looking statements.

These risks and uncertainties are many and varied and can 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 filings with the SEC to get a better understanding of the company's operations and any changes there to.

The call is being recorded by TDS is 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 the terms.

If you're not getting notification from us regarding teleconferences or have changed your e-mail addresses, or if you would like to be placed on our list please e-mail me at the address on press release.

TDS and U.S.

Cellular will be speaking at several investment conferences during the quarter.

Both TDS and U.S.

Cellular will be speaking at the Legg Mason conference in New York on February 13.

Jenny Montgomery Scott is hosting a luncheon for me in Boston on February 24.

Telephone and Data Systems and U.S.

Cellular are appearing at the Raymond James conference in Orlando which I think commences on about March 2.

In addition I'll be visiting Des Moines, Columbus and Cleveland February 20th and 21st, and Kansas City and Denver on March 24 and 25.

These visits are sponsored by brokerage firms.

If you're in an area and you would be interested in a visit let me know and I'll put you in touch with the right person.

In the second quarter U.S.

Cellular and TDS are pleased to be presenting at the Lehman Brothers conference in mid-May in New York City.

Shortly after we released our earnings earlier this morning and before this call both TDS and U.S.

Cellular filed an 8-Ks.

The 8-Ks are simple wrap arounds of the earnings releases and put up in compliance with the new rules set forth by the SEC.

While the new rules aren't in effect until March 28 we thought it advisable to act in the spirit of the new regulations and file new 8-Ks for our year end results.

Both press releases were posted to the TDS internet home page this morning shortly after going out at the wire which was at 701 a.m.

Chicago time and U.S.

Cellular will post their release to their web site as well.

I will now turn the call over to Sandy Helton (ph).

Thank you.

I'd like to begin my comments this morning by highlighting some of our fourth quarter results.

And then I'll touch on a couple of other matters before turning the call over to Ken and Dave.

Our business units performed well in the fourth quarter.

Recording excellent operating results.

The fourth quarter was also one of notable events.

The successful launch and integration of U.S.

Cellular's new Chicago market and for TDS Telecom a milestone event as it surpassed the 1 millionth equivalent access line mark for the combined ILEC and CLEC operations.

The employees at both companies made these events and strong financial results possible despite a weak economy and a decline in consumer confidence.

Revenues at our core businesses, U.S.

Cellular and TDS Telecom totaled $816 million in the fourth quarter.

An increase of 21.6% from the the fourth quarter a year ago.

U.S.

Cellular posted excellent revenue growth of 25.7%, fueled by the addition of the Chicago market.

TDS Telecom revenues were up 11.2% due principally to strong revenue growth at both of our CLEC operations, TDS Metrocom and USLink.

Operating cash flow saw a decrease for the quarter down 9.1%.

U.S.

Cellular's cash flow decreased 9.8% year over year and in great part due to cost associated with the launch of the Chicago market.

TDS Telecom's operating cash flow was down 7.6% due to startup costs for Metrocom’s Michigan market.

Diluted earning per share from continuing operations, excluding gains and losses on investments, were 13 cents for the quarter compared to 76 cents in the fourth quarter of 2001.

This was a function of increased depreciation due to higher capital spending levels and higher interest expense.

TDS remains strong financially.

During 2002 we monetized essentially all of our positioned in Deutsche Telekom, Vodafone and VeriSign.

Total proceeds for the monetization were $1.63 billion and our largely reflected in the cash and cash equivalents of $1.33 billion on the asset side of the consolidated balance sheet.

U.S.

Cellular used the $106 million proceeds from its 10.2 million shares of Vodafone to help fund the purchase of the Chicago MTA.

And TDS paid down short-term debt.

There is a corresponding entry on the liability side of $1.657 billion under the caption prepaid forward contract, plus derivative assets and liabilities reflecting the value of embedded options in the monetization transaction.

The fair market value of the securities continues to be reflected on the balance sheet under marketable equity securities.

We still hold title to the stock vote the shares, and collect any dividends.

Finally, our deferred tax accounts include approximately $739 million which are related to the current market value of the securities which we monetized.

By using prepaid forward contracts for the Deutsche Telekom and Vodafone transactions, we have hedged the downside risk while providing for the potential of modest depreciation in the shares.

We are using the proceeds from these transactions to pay down debt and fund operational needs.

As well as to improve our liquidity giving us flexibility to pursue opportunities that can best build shareholder value over time.

In addition to our very strong balance sheet, TDS remains an A minus credit and we are committed to retaining our positive investment credit rating.

I'd like to mention here, unlike some other companies, we are not affected by the unfunded pension liability issue as TDS has defined contribution pension plans rather than a defined benefit plan.

To conclude I'd like to reiterate that we are pleased with the solid fourth quarter results as well as the results for the full year.

Particularly in light of the protracted economic slowdown.

We look forward to what promises to be another good year for Telephone and Data Systems in 2003.

I'll now turn the call over to Ken Meyers.

Thank you, Sandy.

Good morning.

Joining me today are Jack Rooney the President and CEO of United States Cellular, Jay Ellison, the Executive Vice President of Operations of the company, and Mike Irizarry the Executive Vice President and Chief Technology Officer.

It's my pleasure to have this opportunity to share with you the accomplishments of U.S.

Cellular in the fourth quarter.

It was a very busy time for us.

The team launched a CDMA 1X overlay in Washington, Wisconsin, and northern Illinois, upgraded the Chicago CDMA to 1X, built 164 cell sites across the country, and successfully launched the Chicago operation under the U.S.

Cellular name.

The Chicago launch required completing a building system conversion, opening 40 new stores and dealer locations, and transitioning customer service to our own associates.

The team did all this and still found time to add 160,000 net new customers while providing outstanding customer service to our existing customer base, which resulted in a post pay [churn] rate of 1.8% for the whole company.

As you can see, a lot of things went very well this quarter.

Before I go through the numbers, Jay Ellison, the Executive Vice President of Operations will provide a little more insight about the quarter.

Thanks, Ken.

In certain respects we had two different operations in the quarter.

We had our core markets continuing to execute the strategy that we started implementing two years ago and the startup of the Chicago business.

In our core markets, I would describe the tenor of those markets as good, not great, not of the level of two years ago but good.

Clearly the business is not as seasonal as in the past and that's a change I think is here to stay.

Wireless is now so widely accepted and so affordable it is not a special gift that people need to wait for the holidays to buy.

Growth in the fourth quarter surpassed last year's fourth quarter.

In addition, as you may recall, the third quarter was strong, resulting in a very different story from the first half of the year.

The launch of Chicago was really an amazing team accomplishment.

We closed the acquisition on August 7th and 97 days later we launched the U.S.

Cellular brand in Chicago with all the infrastructure in place to support our brand promise of customer satisfaction.

In those 97 days, we introduced exclusive dealers into the market, and expanded our company owned stores there been improving the quality of the selling experience.

We expanded and upgraded the network putting in 1XRTT and adding 20 cell sites by launch and 27 total cell sites by year end.

We hired and trained a whole now customer service team to serve our Chicago based customers and completed a billing system conversion as well as the ancillary systems around that.

That was underway when we acquired the market.

Then we blanketed the market with advertising that introduced the question - Does your wireless company provide you with customer service?

The reception we received in Chicago market was very encouraging and started out fast and grew throughout November and December.

Customer awareness grew quickly as did our customer base.

Besides adding new customers we also converted many existing customers to the new U.S.

Cellular rate plan moving them off of old [PrimeCo] rate plans.

By year end we had shifted the prepay mix in Chicago from 35% of the customer base at the time of acquisition to only 22% of the customer base by year end.

One key to our success was the introduction of local and regional plans that capitalize on our Midwest footprint.

We were able to do this because of the rapid deployment of CDMA in Iowa and Wisconsin which Mike Irizarry, our Executive Vice President of Engineering will discuss.

Mike?

Thanks.

Our original plans for 2002 were to implement CDMA 1XRTT across our Iowa network.

That was a network overlay covering about 500 cell sites.

Then, with the acquisition of Chicago, it became necessary to get that done and pull forward plans for Wisconsin and northern Illinois from 2003 to give our Chicago base customers a large and meaningful footprint and let our Iowa and Wisconsin customers utilize our new Chicago system.

Therefore, instead of a 500 cell overlay in Iowa, we actually completed an overlay of almost 1100 cells in Iowa, northern Illinois, and Wisconsin.

At the same time, we also upgraded the Chicago system from CDMA to 1X.

In completing these projects we had two overriding imperatives.

First, the implementation of 1XRTT could not negatively impact our existing TDMA customers.

And two, the new network had to be significantly better for the customers at launch.

We met both of those requirements and did so at investment levels below our original expectations.

Going forward we are planning on implement 1X into New England and Oklahoma this year, and finishing our program in 2004 Now let me turn the call back to Ken to review the results for the quarter.

Thanks, Mike.

Turning to this quarter's results, the company added 160,000 net new customers as a result of a strong reception in the Chicago market and growth in our core cellular markets.

The growth in the core cellular markets surpassed the 82,000 net new customers added in the fourth quarter of 2001.

At the end of 2002, the company served 4.1 million customers and 18.5% increase over year end 2001.

This increase is the combined effects of adding 310,000 customers through marketing channels during the year and 332,000 customers added through acquisitions.

This larger customer base and a 6.1% increase in average revenue per customer combined to drive a 24.6% increase in service revenues.

Service revenue totaled $575 million for the quarter.

The increase in average revenue per customer is coming from retail revenue.

Which has increased $3.18 or almost 9% above the same period last year.

Meanwhile, roaming revenue in total grew 2% year over year.

However, it drops about 13% on a per customer basis in the [inaudible] calculation.

We attribute the increase in retail revenue per customer to a change in pricing rolled out in the second quarter of last year, increased minutes of use by our customers, and a change in promotional strategy that is focused on higher rate plan.

This is the fourth consecutive quarter in which retail revenue per customer has increased on a year-over-year-basis and the third consecutive quarter in which total average revenue per customer has increased year over year.

Systems operations expensed show a 29.7% increase, which includes the effect of Chicago for a full quarter.

Looking at the drivers of this expense reveals that cell sites and service are up 33% year over year and the combination of growth in average minutes of use per customer and customer growth produced a 78% increase in total minutes of use on the network.

Before talking about marketing costs and costs per gross add, I need to talk about the accounting changes mentioned in the press release.

In this quarter, we moved amounts paid to dealers as relates.

Relates paid on new activations were previously recorded as a marketing and sales expense.

While rebates paid on retentions were recorded with our retention expense in G&A.

These re-classed amounts are now recorded as reductions to equipment revenue.

Neither of these affect the bottom line but the second one, the move of retention rebates out of G&A into equipment discounts affects your ability to calculate cost per growth add off the financials.

Further, this rebate accounting requires the rebate to be recorded not at the time of activation of a new customer, rather at the time phones are sold to our dealers.

Therefore, we've had to record in 2002 estimated future rebates to dealers for phones still in their inventory.

This was a $5.5 million expense for the year.

Going forward, the recognition of what I call an inventory or distribution loading cost, may cause variations in cost per gross add from quarter to quarter.

Notwithstanding these changes we will continue to manage the business based upon actual costs per acquisition and we'll continue to calculate and report that number, as we have this quarter, on a basis consistent with prior years.

The difference is that it will no longer be calculable just off the face of the financials.

Having said all that, cost per gross ad for the quarter computed the same way we always have, was $369 per ad, This compares to $357 in the same quarter of 2001 and $343 in the third quarter of 2002.

Included in this figure for the fourth quarter are all of the advertising costs related to the brand launch in Chicago, as such we are very pleased with this figure.

The company produced $136.6 million in operating cash flow in the quarter.

That's operating income plus depreciation and amortization.

This amount was significantly impacted by cash costs of launching the Chicago market.

The Chicago operation reduced consolidated cash flow by about $43 million in the quarter.

Below the line, we had some $16.5 million of losses against various investments.

The largest one is related to an interest in a partnership that we had to divest since we operate a competing cellular system in that market.

This divestiture occurred by withdrawing from the partnership and just getting back the capital balance.

For the quarter, the company reposted earning per share of 17 cents compared to 38 cents a year earlier.

Earnings per share before the loss of investments were 35 cents a share in the current quarter versus the same 38 cents in the fourth quarter of 2002.

Capital spending for 2002 totaled $730.6 million and included the CDMA overlays discussed earlier, plus the construction of 437 new cell sites as well as system enhancements and capacity increases.

All in all, it was a strong finish to the year.

Looking forward to 2003, we expect a year much like 2002 from an economic standpoint.

Economic uncertainty runs high.

Also, the competitive picture is made more uncertain given recent management changes in many companies.

Against that backdrop, our results for 2003 will include Chicago for a full year and we expect to launch service in a few new markets during the year.

These new markets include Omaha, Nebraska, St. Joseph, Missouri, and three smaller markets in Oklahoma.

Taking these factors in account we are targeting to add 425,000 to 475,000 net new customers in 2003.

At midpoint, this would be a 45% increase from the 310,000 added this year and represent about 11% year over year growth in customers.

At that level of customer growth we are targeting service revenues of $2.4-2.45 billion.

At midpoint this represents a 15% growth rate.

Our cash flow targets for 2003 are $695-720 million.

Or about a 12% growth to midpoint.

Obviously, these figures are affected by our Chicago launch and the inclusion of Chicago for 2003 versus just five months in 2002.

Finally our capital expenditure targets for the year are $600-630 million which at midpoint is a 15% decrease from our actual 2002 level.

With that, I'm going to turn the phone call over to Dave Whitwood (ph), the Executive Vice President of Staff Operations and CFO at TDS Telecom and wait for your questions.

Dave?

Thanks, Ken and good morning everyone.

I'm pleased to have an opportunity to share the operating results for TDS Telecom.

We were encouraged by our performance for the year and that results of 2002 fell within the six guidance ranges we provided.

Focusing specifically on the quarter for our ILEC business, revenues were up 2.6% for the quarter and the ILEC operation produced operating character flow of $75 million.

The operating cash flow declined slightly from Q4 of 2001 because of a number of positive one-time items in that quarter causing a difficult comparison.

Axis line equivalents grew 9 tenths of a percent for the fourth quarter, excluding the effects of acquisitions.

Access lines not adjusted for voice grade equivalents declined six tenths of a percent.

The largest declines in access lines are declines in Centrex service, with the increase subscriber line charges, some business customers are migrating from Centrex to high capacity lines, typically ISDN PRI facilities.

We continue to maintain these customers on our network and in most cases provide them with the PBX equipment as well, but they do adversely impact the line count.

Access minutes of use year over year declined by 2.3% on a same store basis primarily as a result of wireless substitution, greater use of the internet and general economic conditions.

We supplement the internal line growth with increased penetration, our [P Vertical] services and products, including internet access, long distance, and calling services.

Long distance customers increased to 197,500, a 57% increase.

DSL customers increased to 9,100 accounts over 300% improvement.

We rolled out ten additional DSL markets in the quarter, which with acquisitions brought the market in which DSL is available up to 35 in more than 50% of our ILEC access lines.

These ILEC DSL customers when added to those served in CLEC markets, brings our total to 20,900 customers.

As a reminder, during the year, bad debt write offs due to the global grossing and MCI WorldCom bankruptcies, net of settlement recoveries totaled $9.5 million with $7.1 million in our ILEC and $2.4 million in the CLEC business.

We continue to monitor these situations and post petition accounts are staying relatively current.

Our CLEC operations continued to provide solid growth and demonstrate successful execution of our business plan..

CLEC equivalent lines increased 99,300 an increase of 52% over a year ago.

CLEC revenues increased 53% for the quarter.

UNEP continues to be in the regulatory spotlight.

Our Metrocom business model is 100% on switch, therefore not dependent on the total UNEP pricing.

We do have approximately 35,000 of our lines at USLink on UNEP pricing and plan to continue moving customers to our facilities and reduce dependencies on UNEP.

We would expect a decision from the SEC that would reduce UNEP over some transition period.

None of our ILECs have any of these arrangements with other CLECs.

Despite difficult economic conditions, we expect modest growth and continued profitability in our business for 2003.

Revenues in our ILEC business are anticipated to be in the range of $635-640 million.

And $210-220 million in our fast growing CLEC operation.

Operating cash flow in our ILEC business is anticipated to be in the range of $305-315 million while our CLEC is anticipating an operating cash flow loss of $10 million to break even.

Capital expenditures for 2003 in the ILEC business is targeted at $130 million, plus or minus, and $40 million, plus or minus, on the CLEC side.

Our 2002 CAPEX of $168 million was below our guidance of $175-195 million.

Some projects originally planned for 2002 are included in the 2003 forecast.

And now I turn the call bark to Mark Steinkrauss.

Thank you, Dave.

Thank you everybody for their comments.

We know that took a little longer than usual but we thought it was important to hear all the facts.

At this time I would like to remind everyone in order to ask a question, please press star then the number one on your telephone key pad.

We will pause for just a moment to compile the Q and A roster.

Your first question comes from Ric Prentiss.

Good morning guys, how are you all doing?

Good luck on the stadium naming rights.

We've had good luck so I wish you well with that.

A couple questions, for you, Ken.

The 2002 estimate of future rebates for the dealer channel, the $5.5 million you mentioned.

Yes, sir.

Does that affect EBITDA or are you considering it a non cash charge?

No it is in operating cash flow.

So that is in the operating cash flow.

Yes, it is.

Now, did that hit fourth quarter mostly because it looked like year to date, first three quarters EBITDA was matching up year to date first three quarters previously.

2.5 of it is a fourth quarter affect.

The rest of that 5.5 is an earlier affect.

So that was in EBITDA.

As far as the impact in 2003 is there any additional quantification of how much that affected your guidance or is it thought to be kind of run rate built in by them?

Well, with the exception of, you know, inventory loading kind of quarter to quarter, I don't think it's going to have a material effect for the year.

But it may cause quarter to quarter perturbations.

Second question on your guidance next year for CAPEX, 2003 guidance for CAPEX, $600-630 million.

As we look out longer term, because obviously there's still a lot of CDMA overbuild in that number, what's your view as far as what CAPEX to revenue should look like as a percent of revenue once you've rolled out the 1X network and have a decent amount of 1X hand sets in the network?

I'm not prepared to answer that at this time.

The big unknown is really the whole minutes of use dynamic that goes into that.

Clearly, we had said that we thought that 2002 would be our peak year given the markets that we had.

Having gotten a lot of that behind us this year you see the sizable drop off and as we continue to roll out CDMA we expect to see future efficiencies.

Final question for you.

Pricing trends, it's been a very interesting topic of late.

What's your view built into this revenue trend as far as what you think our [RPU] should look like?

What are you seeing in your markets as far as competitive pressures on [RPU]?

As I said, we set our targets based upon the current environment.

Not expecting a dramatic change one way or the other.

We, with our focus on higher rate plans and our whole promotional strategy, we're looking to see [RPU] hang pretty close to where it's at.

The year over year improvements the first three quarters aren't something I'm banking on to continue for the rest of the year.

But I think we want to continue to build off of that.

Okay.

Certainly the charter plans and the removal of the 40 bucks for a thousand minute plans -- have you seen those plans come out of your markets as well?

Sprint talked about it and AT&T was talking about it?

Yes, we have.

Thanks, guy.

Your next question comes from Mike Balhoff.

On the ILEC side I noticed expenses spiked up fairly significantly.

And I wonder if you could give us an idea where -- it goes up about $8 million sequentially and I was a little surprised at that.

Is there something extraordinary in there?

Why is it that the margin deteriorated sequentially?

Well, I think there's a couple different issues, Mike.

One of the issues is, if you recall in the third quarter we had recognized recoveries or a reduction in bad debt expense relative to the settlement recoveries we got from global crossing and WorldCom so it made third quarter a little light.

That operating expense was recognized in the second quarter primarily as the bankruptcy and then the recovery was in the third quarter.

There weren't really anything unusual.

There certainly is some cost relative to integrating some of our new acquisitions but that would be the primary issue.

Dave, could you give us a sense, also, about the line losses which were more than I expected and I think it's more than what we're seeing at a couple of the other rural carriers that have been out there, [Alltel] and [CenturyTel].

They did not seem to find the same kind of erosion that you’re reporting, especially the substitution factors.

Well, I think there's a variety of different issues as I described it, Mike.

We do see some loss relative to second lines.

That was obviously an impact of our own sales in terms of DSL.

That's part of the value equation for that customer to remove that second line, in many cases.

Or the impact on cable modems.

We do see some reductions associated with Centrex.

We lost several thousand lines this quarters alone relative to customers who previously were Centrex customers who moved to a minimal number of PRIs.

So in terms of the physical line count, that certainly is an impact.

And that [foot] charge has a huge impact there.

Dave, can you give us a sense of what's going on at TDS Metrocom?

Again the expenses were a little higher than I had modeled there?

Is it just simply the Michigan markets that is accounting for the bump there?

There is some impact certainly in the Michigan markets.

You know, we are working on some advertising blitzes and incurring some of those expenses in the fourth quarter.

We did bump up our bad debt expense a little bit in the quarter to make sure that we were comfortable with where we were at.

But it's primarily the new market launches and the expenses associated with it.

One final question that relates to the wireless side.

Obviously you've had a fairly aggressive promotion in place in Chicago.

How long -- can you give us a sense?

My estimate was it was about 4 cents a minute which is obviously pretty aggressive if I’ve calculated that right.

So that might be wrong.

If so, please tell me.

How long do you expect this to continue that you have this aggressive promotion in place?

Mike, that promotion that you're talking about, which was our launch pricing, it ended as of January 31.

And, yes, customers used all of their minutes you would come out at that rate.

But as we have seen -- as we've watched that we haven't seen that happen.

So what is the per minute number in reality that you're seeing right now?

The effective rate per minute, I can't give you because it's too early.

With a lot of ads being late November and early December since we didn't launch until November, I don't think I've had enough of a database to give you a realistic number yet.

Okay.

Thank you.

Your next question comes from Ned Zachar.

Good morning, everybody.

A couple questions.

First of all I'd love to hear you talk, I think probably Jay is the best person, to talk a little bit about what your drive tests are showing with call quality and footprint quality in the Chicago area?

Secondly, I think someone on the call mentioned that the investment levels were lower than they had anticipated for the build-out of 1X across the footprint.

I'd love to know how much less you would have to spend.

Whether that was driven by decreasing in equipment pricing or more efficient labor usage, if you will.

And lastly, a question for Ken, on subscriber ads, the guidance is certainly higher than what we were looking for in 2003.

And if you kind of do the math with [RPU] as is, guidance on revenue looks a little low.

A, am I doing my math correctly?

B, if I am, are we looking for more lower retail revenues or lower roaming revenues?

This is Mike Irizarry.

I'll take the two questions, one related for drive testing and the other on the build outs.

We had an independent company baseline our Chicago market on two occasions last year and what we found in terms of call blocking, quality, and drop calls it was right at the top of the heap of all the carriers in the market.

So we're very pleased with the performance of the network based on independent baseline drives.

Also, from a more traditional view using switch statistics that is common in the industry we're seeing call blocks and drops well below what we had expected and has a lot to do with the fact that we've upgraded the network to 1X and have a significant number of our minutes on the 1X network where you do see better performance.

In terms of the costs of the build-outs.

We are seeing some savings there.

At this point it's probably around $20-25 million range and that is primarily due to better pricing with our equipment vendors.

And better management of some of the resources we brought in to help get the stuff installed and optimized.

Okay, Ned, do you want to repeat your other question?

The last one is if you look at the guidance for subscribers in 2003.

It's aggressive relative to what we expected.

If I flow through current [RPU] levels versus that increase in subscribers, as far as guidance is concerned, you end up with a revenue number that's quite a bit higher than guidance.

So I guess the question is am I doing the math correctly?

If I am, it implies a drop in [RPU] for 2003 and is that driven by lower expectations on roaming or on the retail side?

You've got a couple of different dynamics there.

Number one is we're looking for minimal growth in roaming revenue, which over our larger base automatically results in a lower total average revenue per customer.

When we look at the retail side we think it holds pretty well for the year.

You've got some perhaps difference in the timing of the adds but I think the biggest part of it is going to turn out to be the total [RPU] doesn't hold because of the impact of roaming dialers being relatively flat on a significantly larger customer base.

Terrific.

Thank you.

Your next question comes from Roger Becks (ph).

Yes, a question for Sandy.

Trying to get a better understanding on the balance sheet on the way the monetizations are really being recorded.

Can you just explain I think you actually might have done it in the opening statements, the difference between the size of the derivative asset and the actual cash that was received in the monetizations?

The second question, should I be looking at this by saying if you're recording I guess a loan of $1.5 billion, but effectively you have the stock or the cash to basically offset that loan, and in reality what you really have is cash minus the deferred taxes, what the incremental gain is to TDS at the corporate level?

Okay.

Let me answer the second question first.

And, yes, you're absolutely right about you have to look at the net effect on the balance sheet.

And it is complicated accounting.

So just to go back and to point out the things which I think really you pointed out in your second question.

You see the marketable security line is $1.9 billion.

And that reflects the fact that we actually have seen an increase in the price of the shares subsequent to the various monetizations that we have put into place.

And you see over under the prepaid forward contracts the $1.656 billion which reflects basically the loan obligations that is tide to the monetization transaction.

In the cash and cash equivalents the $1.33 billion reflects the fact we have paid down some short-term debt and we used some of the cash for operating purposes that basically that's where the proceeds went.

And then you see the derivative liability of about $61 million on the balance sheet and that just reflects the ongoing accounting that we have to do for the valuation of the put and call elements of the monetization.

Okay.

So basically then just the real net effect is you have a much larger cash balance, if you want to be conservative you back out the deferred tax liability and maybe some of the derivative liability as well from the $1.3 billion.

You got it.

Thank you, sandy.

Sure.

Your next question comes from David Janazzo.

A number of carriers during fourth quarter reporting have talked about prepaid.

I know you gave a data point about prepaid in the Chicago market.

Can you go over the overall strategy with regard to prepaid.

And then provide a blended [churn] number for the fourth quarter?

The one reason I pointed out the prepaid in Chicago particularly because when we inherited this property it clearly was a very heavily based prepaid.

Our focus as a business in our core markets which we wanted to integrate into the Chicago operations was to focus on post paid and hence delivering those new portfolio rate plans.

Nevertheless we are all in our markets now we have integrated we're looking at our prepaid product line.

It does hold merit, we feel, in the market place.

And we're going to take some of the learning from the new operation and try to incorporate that throughout the enterprise.

So we are in our marketing organization going to look at our prepaid product line.

Looking at what Chicago offered and looking at some other models that we feel would be very viable to introduce to the market place in particular with us now having OTA capabilities and things along those lines.

So it clearly is a product that has a place and I think it will also offer some additional growth opportunities beyond what it's traditionally been known for in the credit challenged environment.

Prepaid today represents about 5% of the total base in the company.

And as we have talked about this before, when we look at our prepaid product line, it is a profitable product line because we have a very different cost per ad around that.

When we look at that product, that's what it all comes down to.

If you have the right cost per gross ad, you can still make money on a product -- from 78% -- you can't make money on it if you have got a cost ad that's more like your average post pay contract business.

The question in terms of total all [in churn] for the company in the quarter, it's about 2.1%.

Thanks, guys.

Thank you.

Your next question comes from Will Power.

A question on the wireless CAPEX side.

Primarily with regard to 2003 guidance.

But can you give us -- maybe I missed this -- but can you update us with the total 1X coverage in terms of overall pops at the end of 2002.

As we look at '03 guidance I know you have some new markets that you referenced for plans to build out, can you break down the CAPEX in terms of new market CAPEX versus what's going to be allocated to 1X and I guess the remainder of kind of capacity, et cetera, any break down there would be helpful.

Thanks.

Well, first of all, the actual number in terms of the percentage of our market to the population in those markets that now has 1X gets swayed significantly when you add Chicago into the calculation now.

It gets close to 70%.

Okay?

In terms of the breakout for next year versus new market capacity or CDMA upgrades I don't have the information at the fingertips here.

It's also difficult with the 1X and CDMA rollout to differentiate between capacity and improvement.

When you put the 1X into the CDMA markets you're automatically increasing capacity as well as improving the service.

When you put it into your TDMA markets it is also absorbing minutes of use that would otherwise be needed for your TDMA markets.

Okay.

Well if I can ask a question on the [RPU] front for the U.S.

Cellular business, can you provide an update in terms of percentage of your subscriber base that's on national rate plans?

Has that changed as a strategy?

I know it hasn't been a focus in the past?

Do you see that as an opportunity to increase or do you continue to not focus on that as many some of your competitors.

First of all the percentage remains very small.

I think it's something around 3% the last time I looked.

It hasn't changed dramatically.

Yes, it's a way to increase [RPU].

However, the it goes against our strategy around customer satisfaction.

I mean one of the ways you can increase [RPU], or effective yield per minute is to sell that rate plan to someone that quite frankly doesn't need it.

Our whole strategy around customer satisfaction says that we spend time to understand how the customer really going to use the phone and make sure they are in the right rate plan for their usage.

So that at the end of the day we may wind up getting something less per customer in [RPU] but we tend to keep that customer a heck of a lot longer.

When you look at average revenue over the lifetime of the customer that's as good as any.

Okay.

Thanks.

Your next question comes from Frank Louthan.

Good morning.

You mentioned USLink and I did have some lines.

Any plans for that?

What are your thoughts there?

And then do you have a breakout of your line losses from possibly from your own DSL cannibalization and from second line?

Give us some color on that.

Thanks.

Sure, Frank.

We do have some plans.

We did step up the CAPEX a little bit at USLink in 2000 as well as in 2003 to install some additional co location sites.

Right now we have about 20% or so of our customers as USLink that are on switch.

Probably by end of the year we'll get it to the 30% range.

We are actively moving the customers there.

And reducing dependency on UNEP.

From a line loss perspective, we did increase DSL significantly in the quarter and most cases you know those customers also disconnect those second lines.

So I think we had an increase this month or this quarter we went up to 9,100 customers, which is up over a thousand from where we were at the end of the third quarter.

So, you know, that certainly has an impact.

The cable modems are selling it that way.

We need to do it as well.

Okay, great.

On the wireless side looking at free cash flow, are you guys going to need some funding going forward?

Where do you think the free cash is going to shake out for wireless this year?

Thanks.

When we look at the total company including the effective to continue to build out Chicago as well as the new markets we are very close this year.

We don't get to free cash flow under the numbers we're looking at right now, but the financing need is something less than $50 million and we've got availability under multiple lines for that.

So we don't see any additional financing needs for the year.

Great, thanks.

Your next question comes from Neal Feinberg (ph).

Congratulations on the Quarter with USM.

I have kind of a macro question for you.

If I look at a price chart of both TDS and USM from back in call it July, August, USM was selling around $25, where it is today, TDS is selling at $60.

In that time you guys have I think done the right things, which is monetized the foreign investments and obviously revenues and cash flows have probably come in relatively similar to the guidance that you guys gave.

And the only thing that's changed is that TDS stock has gone from $60 to $42.

Part of that is the perception of the market place you guys have raised a lot of the money and nobody knows what you are going to be doing with that money.

Obviously some of that is going to be going to CAPEX but there's still going to be a large portion of cash on the balance sheet.

I think this is reflected in the fact that your stock, if you accept the fact of USM has dropped about 18 points.

I don't know if you guys prepared to do that today, but in the coming months, I think it's important for you to detail what you might be doing with the money.

If you think your stock is cheap particularly the TDS stock, I think a buyback would be a welcome thing.

And your balance sheet is pretty stellar.

Can you talk about the a buy back and how big that could be and other uses of that cash?

Well, was that an immediate question or a request for discussion in the next month?

Like I said, I don't know if you're prepared to talk about that today.

But I think it is significant that your stock really excluding the USM has traded off that much.

And out of anxiety, if you will, about where that money is going to go.

You have done the right thing.

Wire line, wireless company, and I think that they will want to know where that cash portion is going.

Well let me give a brief answer to it today and, you're right, we will be talking about it more over the coming months.

First of all, we couldn't agree with you more that the stock is at a very attractive value right now.

And what we're focused on is our first priority is our liquidity position in making sure we have the ability to fund our operations over the coming year or so.

And you know you've heard from Ken the overall cash needs.

Obviously there are seasonal needs and so you know we need to make sure we have coverage for that.

We are planning to pay down some TDS debt, which was something that our rating agency suggested would be necessary in order to maintain our A minus rating.

So that is planned for this year.

And we're just making sure that we can address all of our refinancing and operational needs in light of the fact that the capital markets have not been very welcoming of telecom companies over the past year.

So, once we see that the markets are returning to normal conditions, we'll be looking at how much our excess cash is and certainly stock repurchases is one of the things we'll be looking at.

Would a stock repurchase then given the conditions in the market right now -- what you said is that the capital markets are not very forgiving right now.

That's probably placed your equity in a very good position where obviously the return on equity you get from a share repurchase has got to be pretty high relative to other investments you might make?

Well it's true that the equity values are not very attractive in terms of what we believe the value is.

But the other aspect is the debt markets.

And the debt markets were essentially unavailable to most telecom companies last year.

And so that's what we need to mange sure returns to more normal conditions.

So that we have access to those markets as we need to fund our operations.

But we do appreciate your point.

It's a valid one and we will be talking about it more over the coming months.

Thank you.

Your next question comes from Greg Gorbatenko.

Yes, good morning.

We finally got some sun in Chicago here.

That's nice.

My question is around the revenue reconciliation.

I was just looking at the consensus, it's about 615, USM.

Came in a little lighter than that.

Clearly the rebate issue adds back in about $2.5 million.

Does that mean about the customer activation fees were around 10 million?

That a number?

Greg, I don't know what you're trying to get to there.

And if you look at service revenue, so you get out the equipment rebates, because the effect of the total program while it only had a $2.5 million effect on the bottom line this quarter, it actually has a larger effect on just the equipment revenue.

So you really focus on service revenue I think you see that service revenue came in, at or above probably a lot of the expectations.

Okay.

So that --

I don't have the total reduction to equipment revenue for the quarter in front of me.

You know, with the papers I've got with me but I can get you that number.

Okay.

That would be great.

Then, also, someone asked a similar question but I don't think it got exactly at the answer we're looking for.

Long-term run rate from these [PrimeCo] customers as far as big prepay percentage, what's a long-run percentage that you guys are kind of targeting?

You said it was 22% of the base now?

Is it maybe 5%?

Is it zero?

Ten?

What's a number there?

Thanks.

I don't think we have, quite frankly, a specific target.

What we had was the objective and we had an objective to shift the Chicago market with the introduction of our pricing product line to a much greater base of postpaid.

As Jack mentioned and Ken mentioned, you know, it is a profitable product line based on its cost of acquisition and we clearly want to keep that in our product portfolio.

We just want to look at some of the learnings from what they have done in packaging and et cetera in Chicago to export to our other market, as well as look as some alternative ways of offering prepaid which is in its very early stages within our marketing product organization as we speak.

But clearly it is a product that will remain viable and we will continue to support and grow that but, again, our focus has always been to focus on our local regional rate plans and on the post paid environment and we want to continue to do that in the Chicago market place.

Thanks and it's a good quarter.

Thank you.

Your next question comes from Pat Conlan (ph).

Yes, hello.

I've got a couple questions.

The first on the [PrimeCo] acquisition.

And correct me here if I get any of these numbers wrong, but generally you invested $600 million to buy [PrimeCo] and as I understand you're looking at investing another $400 million in the short to medium term here to grow it --

Where would you get that number?

Pardon?

Where would you get $400 million to invest?

That's why I said correct me if I'm wrong.

That number came to me out of left field.

While we are now in the ballpark business, left field is still something we -- I can't understand where you would get a number like that.

Okay.

Well what is the number then?

Well we have said that over the first 12 months of the -- from the acquisition we would invest $90 million into the Chicago network.

And sure there's going to be other things, incidental things like distribution, et cetera, but believe me, it falls well short of $400 million.

Okay.

Let's just say then $700 million or so invested and the company, again correct me if I'm wrong, had an EBITDA of $19 or $20 million before you bought it.

I'm wondering where you expect EBITDA to be or to grow to on that investment on the $700 million?

Well, as we said when we talked about the acquisition, all of our acquisitions this company are done on long-term discounted cash flow model that we spend a lot of time looking at the market, looking at what our opportunities are.

And when we look at this acquisition, we were very satisfied that we'd be able to generate a return out of this investment that was at or above our cost of capital.

So when we look at this as a long-term investment, that's what we look at it, not a one-year or two-year pay back, we saw this as a very positive effect of overall value of the company.

Okay.

What is your cost of capital then that you're using in determining that?

When you say it meets or exceeds your cost of capital and discounted cash flow?

We used a number that was around 11%.

Okay.

And then my second question relates to the naming rights on the stadium to put your name on it, you're spending about $68 million, I believe, on that.

And I'm wondering if you could help me understand what -- what the return looks like on that or how you look at that?

How shareholders are going to get a return on that investment.

We're spending $3.4 million a year from our marketing budget to buy the right to promote our name in association with the White Sox and the White Sox Ballpark over the next 20 years. $3.4 million buys us a whole lot of exposure into the Chicago market, as one analyst in the newspapers here put it, you spend 3.[audio gap] if we bought a 30 second ad on a Super Bowl we would have spent $2.9 million just for that 30 seconds of exposure.

This $3.4 million already over the last weekend has generated us significant exposure and publicity, most of it favorable.

And when you look at this against other advertising, and promotional opportunities, the return on this is significant.

The way we look at this, as you would any other sponsorship, it's a cost of value ratio and you clearly want to get, you know, a dollar spent.

You want to get a return of about at least 1.15 or greater and this clearly exceeded that in our valuation.

So to Jack points its the impressions that you're going after and that's how we measured this.

Naming rights offer.

Okay.

Well thank you very much.

Your next question comes from Ben Abramovitz.

Good morning, guys, very good quarter.

One question going out to 2003.

The guidance you gave for net additions is above what I think a lot of people were expecting.

As I try and look out, in terms of, turn, what kind of a turn numbers do you have built into there in terms of what we might see in 2003?

Right now as we look at 2003 with us still migrating some of the old [PrimeCo] customers off of some of their rate plans we're looking for as an all end number pretty flat with that year, probably 2.1.

It's something that probably improves throughout the year.

Okay.

Thanks, guys most of my other questions were already answer.

Your next question comes from Kevin Fougherty (ph).

Hi, guys.

Question for Dave on the access line decline.

That you're run rate in the fourth quarter implies a high 2-3% rate of decline for the year.

I'm wondering if -- what kind of outlook you guys have for that as you go into '03?

Then, secondly, can you give us any more color on the res versus bis mix of the decline?

I mean your comments suggest it's more bis Centrex but if you can give us any more color on the mix?

Then a couple more, tax rate, U.S.

Cellular, what kind of normalized tax rate should we expect?

It looks like you had a benefit in the fourth quarter.

Finally the number of pops you're planning on launching on U.S.

Cellular this year?

You mentioned the three markets.

I'm wondering how many other pops that might be.

Thanks.

Okay.

Kevin I think from a quarter perspective if you go back and look you tend to see that the fourth quarter ends up being a lighter net growth quarter for us so I wouldn't take that and necessarily extend that for the rest of the year.

We're kind of thinking that access lines would be kind of flattish over 2003.

Due to a whole variety of factors and, I'd say the mix is probably about 50/50, res side versus bis.

The res side certainly is the second lines, the cable modems, the DSL substitutions, the business side is certainly Centrex.

You do see some impact on the business side, too, on the economic conditions where businesses are cutting costs and cutting budgets as well and getting by with fewer.

So that's kind of where we see it now.

Okay.

With respect to U.S.

Cellular, you know, we plan on a 41 to 42% tax rate.

What happens is when we have some of these investment losses or impairment charges, the difference between tax bases and book bases is large at times so it really plays havoc with the actual rate.

On a going forward basis, we expect to see something in the 41 to 42% range.

The actual markets that I talked about and the total population in them, I don't know it might be a million to a million four total.

How much of that actually gets covered this year for launch might be half to three quarters of that.

Okay.

Great.

I just have one follow-up.

The churn rate you mentioned outlook wise, you expect to be flat.

Does that fully account for you know I guess Chicago after this kind of launch phase is over.

And the fact that you’re facing a lot more competition in Chicago.

Are you incorporating that into your plans for this year, as well?

We are.

The comment that we're facing a lot more competition in Chicago doesn't really is the reason for it to be substantially different.

Quite frankly, we have the same competitors and just as many of them in Milwaukee and in other places that we do business so the numbers that we've talked about do in fact take into account a somewhat higher churn rate in Chicago as we start off this year with still some migration efforts in front of us.

Okay.

Great.

I'm sorry -- if I can ask one more.

You talked about the use of excess cash potentially.

Your press release suggests, you know, evaluating other opportunities and reading between the lines that seems to imply, maybe purchase of other acquisitions, which you've done a lot of in the past.

Can you comment on your relative preference for other acquisitions verses your buy back for dividend increase?

Well, you know, we always look at the relative return of these options but you know we don't have any significant plans right now for acquisitions.

Thanks a lot.

We're going to take maybe two more questions because the call has already gone over by 15 minutes but we'll take two more.

But Ken and I will be available in our offices later in the day for anybody who didn't get a chance to ask the question.

Okay.

Your next question comes from David Palmisano.

I was wondering if you could tell me of the 160,000 net ads in the quarter how many were in the Chicago MTA.

David, this is Ken Meyers.

That is not a number we're giving out.

We don't like to talk about individual markets and what goes on in those so that is not a number we're disclosing.

In the 1X areas that you guys have just rolled out.

Do you have any data plans there?

Yes, we do.

Actually we are in the process of trialing data right now.

One of our markets down in Knoxville.

We do have a data strategy we plan to roll out as we continue to play our 1X networks and that launch was -- is for the back half or mid half, back half of the year.

One of the things that we want to do holding true to our core strategy around customer satisfaction, that's why we're moving forward with the way we're moving forward, is to make sure we understand clearly all of the customer touch points and the customer impacting areas relative to back end issues and things along those lines.

So those are some of the things that we are looking at now so that when we launch it, we clearly can take care of the customer from a customer satisfaction point of view.

And be able to triage and answer any questions that might come up from that customer.

But it absolutely is in our plans for this year.

Great.

Just one last question.

Where do you see monthly MOUs per customers trending in ’03?

It spiked up in the last few quarters.

Is it going to continue?

I think there's still growth of customers minutes of use yet this year.

Last year it grew substantially.

Part of that happens to be the mathematical effect of Chicago.

We're looking for minutes of use per customer to continue to grow this year.

Okay.

Can you give us any percentage or?

Not one that I -- not one that I'd be real comfortable with because it's not one we have any influence over.

Okay, thanks.

Last question.

Our last question comes from Michael Rollins.

Hi, thanks.

Just a quick clarification.

I just heard several prepaid numbers along the way on the call.

Did you give the percent of total subscribers?

I did, Mike.

Okay.

What we said was -- let me review the numbers so they are clear.

We said that, A, when we acquired the Chicago market, 35% of its base, when we closed 35% of its base was prepaid.

We said that year end that had grown to 22% of that base.

Yep.

The third number we gave was we said that prepay total within the company, the whole company, represents about 5% of our base.

Thank you.

Okay.

Mike, if you're all through, thank you everybody for joining us this morning and if you have any questions you can give me a buzz later today.

Thank you.

This concludes today's TDS conference call.

You may now disconnect.