美國無線通訊 (USM) 2003 Q1 法說會逐字稿

Good morning. My name is Brooke and I will be your conference facilitator today. At this time, I would like to welcome everyone to the TDS and U.S. Cellular First Quarter Results 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 keypad. If you would like to withdraw your question, press the pound key.

Thank you. Mr. Mark Steinkrauss, you may begin your conference

Great. Thank you, Brooke. Good morning everybody.

With me today, Sandy Helton, the Executive Vice President and CFO of TDS. Jack Rooney, the CEO of U.S. Cellular, Jay Ellison, Executive Vice President, Operations, U.S. Cellular, Ken Meyers, Executive Vice President, Finance and CFO of U.S. Cellular, and Dave Whitwood, Executive Vice President, Staff Operations and CFO at TDS Telecom.

Thanks for joining us this morning.

A replay of the teleconference will be available starting at 1:00 Chicago time and run through midnight on Tuesday, May 6th. The replay number is 1-800-642-1687 and the pass-code, 9658404. For international callers, the number is 706-645-9291, same pass-code. This call is being simultaneously web cast on the investor relations sections of both the TDS web site at www.teldta.com and U.S. Cellular web site at www.uscellular.com. The web cast will be available for the next two weeks, after which it will be available in the conference call archive.

As always, it's important for you to know that some of the discussion today, either in the prepared comments or in 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 risk and uncertainty that could cause 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 thereto.

The call is being recorded by TDS and it's copyrighted material. It cannot be recorded or rebroadcast without TDS's expressed 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 information from us regarding the teleconferences, or you changed your e-mail address, or you want to be placed on our mailing list to begin with, please e-mail me all your basics at the e-mail address shown on the press release.

Regarding upcoming company events, both TDS and U.S. Cellular annual meetings are being held this week here in Chicago. U.S. Cellular's is tomorrow, May 6th, at 10:00 at Northern Trust. TDS's is Thursday at 10:00 at the Standard Club. If you'd like to come and join us during our annual meetings, please feel free to do so.

Also, TDS and U.S. Cellular will both be presenting on May 14th at the Baird Growth Stock Conference here in Chicago, and the following week, U.S. Cellular will be reporting at the Lehman Brothers Global Wireless Conference in New York City.

In addition, Sandy and I will be visiting several European cities in June to chat with investors. If you're in Europe and you'd be interested in meeting with us, please let us know.

Shortly after we released our earnings results earlier this morning and before this call, both TDS and U.S. Cellular filed 8-Ks. The 8-Ks are simply wraparounds of the earnings releases and puts us in compliance with the new rules as set forth by the SEC. Both press releases were posted to the Internet home page this morning, shortly after going out over the wire. U.S. Cellular has posted their release to their Web site as well.

You will find posted on our Web site additional information on the reconciliation of non-GAAP financial measures that may be used by management when discussing the company's results during today's conference call. This information can be accessed on the conference call page of the investor relations sections of both the TDS and U.S. Cellular Web sites.

With that, I turn the call over to Sandy Helton

Good morning. My comments will be brief this morning so that Ken and Dave will have plenty of time to discuss results at the business units and to answer any questions you may have.

As you know, we announced on April 22nd that TDS and U.S. Cellular would delay the regularly scheduled first-quarter operating results release date to today. The delay was due to the fact that we and our independent accounts, PriceWaterhouse Coopers LLC, needed more time to finalize the accounting treatment related to the announced exchange of wireless properties between U.S. Cellular and AT&T Wireless.

For the last two weeks, we worked very closely with PWC to ensure that the accounting for the markets to be exchanged was both appropriate and accurate. After a very thorough review, we have now concluded that the accounting for these markets should not be treated as discontinued operations, as had been previously noted in U.S. Cellular's and TDS's annual reports to shareholders. And we have finalized other details relating to accounting for this transaction as well.

We apologize for the delay, but we believe it was necessary to ensure the most accurate reporting related to this transaction.2 Turning now to the results for the quarter, the TDS consolidated revenues grew 21% in the first quarter over the same period last year, driven by a combination of organic growth and the addition of the Chicago market for U.S. Cellular, and two rural I-LECS in New Hampshire for TDS Telecom. Operating income decreased 68% for the quarter.

Operating income included a 23.5 million writedown of the book value, related to U.S. Cellular markets being traded to AT&T wireless. This loss on the transaction is recorded as operating expense, in accordance with current accounting principles. It has no cash impact. The remaining increase in operating expenses that U.S. Cellular related to the company's fast-pace of growth, both in its new Chicago market as well as its other markets, and to expenses related to Cellular's investment in network technology.

Ken Myers will address U.S. Cellular's results in greater depth shortly. Operating performance by TDS Telecom was strong during the quarter as I-LEC operating income grew12% and TDS narrowed the operating loss dramatically.

TDS's tax rate on operations was 42% during the quarter, but tax expense reflects a 5.8 million tax benefit, related to the writedown of the back value which was reflected in operating expenses. It is expected that U.S. Cellular will record tax expense of $12 million and a current tax liability of $26 million due to the taxable gain on the U.S. Cellular transaction with AT&T, at the time the transaction closes.

In either quarter two or quarter three. Accounting principles require the recording of these tax effects at different points in time. During the quarter, TDS moved forward with our stock repurchase program. This followed the announcement in February that the TDS board of directors authorized the repurchase of an additional 2 million shares of TDS stock on top of the 1 million share authorization already in praise.

We initiated the stock repurchase in March and since then have purchased a total of 1,229,400shares through April 23rd, at an average price of $40.55.For just under $50 million cash.

We plan to continue repurchasing shares as market conditions warrant, particularly as we believe that TDS's shares represent an excellent value in today's market. This program underlines our determination to improve shareholder returns.

Also during the quarter, we sold the remaining 164,000 shares of Therasign (ph) which had the not been money advertised. Removing that version of the Vera sign portions from the balance sheet. You may remember that we money advertised the rest of the position last year. To conclude I note that like many other companies, we are feeling the effects of the continued weak economic climate compounded by the tribulations of the telecommunication industry. Fortunately, we are in a good position to weather the storm.

We are full service telecommunication provider with excellent wireless and wireline operations. We have a strong balance sheet. Disciplined business strategies, centered on customer service and the people are among the best in the industry. I'll now turn the call over to Ken Meyers who will discuss U.S. Cellular's results

Thank you, Sandy. Good morning. Thank you for your time today. As we reviewed the results of the quarter, it's important to note consolidated revenues and expenses include all of the company's operations, including the Chicago operations which were not part of the company during the first quarter of 2002. As well as the north Florida and Georgia operations which are part of the trade with AT&T that was announced on March 10.Until that transaction closes in late second or early third quarter of this year, the results of North Florida and Georgia markets will be included in consolidated results.

This accounting treatment is different than we expected when we discussed this trade with you on March 10.During the quarter we continued to see solid growth in customers across our markets. During the quarter we added 137,000 net new customers. This compares to 31,000 in the first quarter of2002.A time at which Chicago was not included in the results.

This substantial increase in customer growth was not specific to any one area. It reflects continuation of what we saw in the third and fourth quarters of 2002, which was somewhat stronger demand than experienced in the first half of 2002. This growth in customers contributed -- this growth contributed to the 21% year over year increase in customers.

At quarter end, the company served over 4.2million customers. Key to achieving this high level of growth was an outstanding performance of the area of churn control. Post-paid churn across the company averaged just1.6%.Recent changes in personnel and collection processes have helped reduce non-paid disconnects, part of churn, as well as bad debt expense.

Finally, retail revenue per customer again increased. This quarter it's up 4% year over year averaging$37.05 for the quarter. These two factors combined to produce a 22%increase in service revenue for the quarter. Even though roaming revenue was flat on a year over year basis.

Turning to operating income, as Sandy mentioned, this result includes a 23.5 million dollar book loss record the as a result of the AT&T trade. This non-cash charge was calculated using current accounting principles which follow very strict set of rules. These accounting rules are not the basis for the. Processes or valuation techniques we use in evaluating acquisitions, dispositions or trades.

Within operating expenses, a 21% increase in customers combined with a 59% increase in average minutes of use per customer pushes the system operating expenses up almost 28% on a year over year basis. Marketing selling expenses, including subsidies are 54% year over year on a 342% increase in net customer addition.

Marketing costs per gross addition averaged $358during the quarter, down slightly from a year ago. Despite the slight improvement, the equipment discounting is higher than we woo like to see in the market with significant discounts offered on the latest in technology like the camera phones. Not only does this affect short term profitability by raising marketing and retention costs, it also reinforces consumer's perception there is little to no value in equipment, even the newest and most advanced modes.

GNA expenses were up 45% driven by a 21% larger customer base plus the substantial cost of the Chicago operation as well as increases in retention and bad debt expenses on a year over year basis. Chicago operation is being transitioned from an outsourced billing and store operations systems to our in-house system, which is used in our other markets.

We expect to have this transition done by the end of summer, and will incur higher billing costs until the project is completed. Retention expenses were affected by the higher discounting that I mentioned earlier.

Bad debt expense, while up almost $9 million year over year is now showing signs improvement as non-pay customer disconnects are declining. During the most recent quarter, absolute level of bad debt expense fell from those recorded in the third and fourth quarters last year.

Low line there's an 18% increase in investment income from markets which we have an ownership interest while interest expense was up $6 million or 71%, due to the higher debt levels primarily related to last year's acquisition of the Chicago market. Looking forward, the economic picture is still uncertain. Traffic was light in the quarter, strong churn results helped achieve the solid customer growth. We are pleased with our 1.6% monthly churn rate for the quarter, I caution people not to draw lines off of just one data point. However, with good results in churn, we are still comfortable with our original full year targets of425 to 475,000 net customer additions for the year.

Our target -- we are targeting service revenues in the 2.35 to 2.4 billion dollar level for the year. This reflects not treating the Florida-Georgia markets as discontinued operations and owning them for about one-half of the year.

Under that same assumption, a historical measure of operating cash flow, which was total revenue less operating expenses versus system operations marketing and selling equipment costs and GNA is anticipated to be in the rake of 670 to 695million dollars.

Our cap ex guidance of 600 to 630 million dollars is still unchanged. We are progressing on schedule with this year's CDMA overlays in Oklahoma and New England as well as building out Omaha, Nebraska for launch by year-end.

Once we close the AT&T prayed trade, we will examine how quickly, woo can build some of the markets which may have an effect on capital on the second half of the year. We will update you as those plans evolve.

Thank you for your time this morning. Now let me turn the call over to Dave Whitwood at TDS Telecom.

Thanks, Ken. Good morning, everyone. TDS's Telecom's results for the quarter were inline with the plan. Revenues were 6.7% for the quarter with 8.3% in improved EBITDA lines declined 1.1%.Declines in residential second lines and business Centric lines continued to be primarily drivers for the decline. If a business customer replaces their service with a PBX served by ISDN-PRR lines that represents 19access lines per the account.

We still have the customer, just a different technology to serve them. Access lines equivalents grew .8 for the quarter, excluding the effects of acquisitions. Access minutes of use remain flat on a comparable basis, primarily as a result of wireless substitution, greater use of the internet for email and E-commerce and the general economic conditions.

We continue to do well with increased penetration in the a key products and services, dialup and high speed internet access and long distance calling services and caller I.D. Long distance customers for DSL increased to12,800 accounts a 27% improvement. DSL service is available in 35 markets, representing 50% of the ELIC access lines.

The DSL customers when added to the other markets bring the total to 26,000 customers. Dialup accounts were up slightly, primarily as customers shift to DSL. The DSL strategy continues to focus on cable modem competition.

The CLEC operations lines increase the 82,400 and increased to 37%.CLEC revenues increased 37% for the quarter. Adjusted EBITDA increased by 10.8 million in the quarter. Included if the first quart result is 1.8 million in one-time access revenues for the operations.

This relates to amounts previously reserved as a result of billing disputes. The disputes have been resolved in our flavor and are reflected in quart. The Minnesota C-LEK operation U.S. links that nearly 40,000 lines using MUNY people from QWEST. The FCC order on MUNY P service is not released and we are not operating any MUNY service to other elects. We are confident in the total year guidance given in the I-LEK and C-LEK operations. Eye electric (ph) revenues are anticipated to be in the range of 635 to 640 million and 210 to 220 million in the faster growing C-LEK operation.

Adjusted EBITDA in the I-LEK is anticipated to being the 313 million and C-LEK is adjusted to have a loss of 10 million to break even. Capital expenditures are targeted at 130 million plus or minus and 40 million plus or minus in the C-LEK business. We are used to providing value to shareholders through marketing programs.

We target increasing penetration and new services as well as calling plans to boost access and long distance minutes of use. Providing high level of satisfaction to customers allows us to improve the returns.

Now I'll turn the call over to Dave.

Thank you, Dave. Brooke, we can now open the call up to Q & A.

At this time I'd like to remind everyone, please press star and the number one on your telephone keypad.

We'll pause to compose the Q & A roster.

Your first question comes from Richard Prentiss of Raymond James & Associates.

Good morning, guys. have questions on the U.S. Cellular side for Ken. On the '03 full year guidance that the gave, the service revenues of $2.3 billion, I think you said to $2.55, a although it was chopped you up, operating cash flow of 670 to 605 million. Could you repeat, was that full year, Florida-Georgia, was it half year? I couldn't hear that part.

What I said was that that is our estimate of what the year will turn out to be. It assumes that Florida and Georgia are in there for roughly half a year. Okay.

Yes.

That's what we would in fact see, And the revenue was $2.35 billion to $2.4.

Okay. I think on the March call when you announced the swap with AT&T, it was speculated that you would be giving up about 40 million worth of operating cash flow on an annual basis for the Florida-Georgia properties. Do I have my notes right on that?

That was the estimate at the time, yes.

That was for a full year impact. Right now, you are assuming they will only be in the results for a half year.

About a half year.

Roughly a half year. Okay. Second question, then, are you expecting any other operations to get consolidated this year, I think there also have been speculation now that you have a bigger presence in the northeast, you guys might be starting to be able to consolidate more properties up that day?.

I don't know what you mean by consolidate more properties. We have a nice footprint up there in the AT&T trance action adds both Portland, Maine, as well as Burlington, Vermont, to the footprint, but currently, we don't have -- we don't own those licenses. They don't come until the AT&T trade closes. I would be doubtful that we would get anything up there up and running this year.

I was thinking there was something that you had operational, cellular license with Verizon, I thought there was something in that neck of the woods that you might start consolidating.

There's nothing at this point in time.

After you finished the swap of the Florida and Georgia properties to AT&T, what should expect as far as G&A going forward? That was a pretty big step up this time. Will there be the ability to scale that, IE, when you get rid of those properties, can G&A come down significantly or is there a need to keep it up higher in

Oh, it's not scalable on a straight line. The company will continue to take different parts of the operation and make sure they're running as efficiently as possible. But you know, I don't think that you would want to -- that you would expect it to be on a straight line.

Right.

The other thing that's happened is that the -- once the AT&T trade closes, we probably will be providing some services for some period of time to those markets that we used to own. You can't switch a billing system on day one of an acquisition.

Right.

That will result in some of those costs being absorbed, and at the same time, you know, we'll be working to start up operations in other new markets.

Okay. On the G & A side, you mentioned that the bad debt was getting better. I think you said absolute terms it was flat, third quarter, fourth quart, first quarter. Where is that dollar figure at as a percentage of debt.

Under 3% is where it's at as a percent of revenue. It was actually down in the first quarter from dollar levels in the third and fourth quarter.

Richard Prentiss Okay. And final question for you, as you look at, then, selling or swapping the AT&T properties, keeping your operating cash flow guidance unchanged, even though first quarter seems to be a little light compared to then the ability to produce these numbers, where do you see your biggest ability to ramp up EBITDA or operating cash flow performance in the rest of the year?

I think there are quite a few contributing factors. One is that we are currently in the Chicago operations on a outsourced billing platform. And over the rest of the first half, first eight months of this year will be transitioning off of that, and right now, we're incurring costs both to provide that service as well as to prepare for the transition, and those costs go away as one example. I think we'll see continued improvement in bad debt throughout the rest of the year, and we get the benefit in the revenue side from the strong growth in customers.

Okay. Great. Good luck, guys.

Thank you.

Your next question comes from Frank Louthan (ph) of Raymond James.

Good morning. Quickly on some of the markets on the wireline side. Can you just comment on what it looks like coming from the C-LEK side and then also on the acquisition front. I heard on the Century Telecall last week there are smaller things in the works. Are you seeing any more activity on that front and what's your current appetite for additional I-LEK acquisitions. Thanks.

Good morning, Frank. Acquisitions. We continue to look for things that fit into our clusters. We continue to be opportunistic, so, you know, opportunities continue to show up now and then, but nothing that we're at liberty to talk about, obviously. You know, in regards to margin, obviously the largest contributor is the improvement in operating cash flow at TDS Metro Com. That's primarily it. The I-LEK business was relatively fine.

Will that profitability in the C-LEK, what is the trend on that. Is that going to continue on that level. Are you planning on any new markets being entered into, thanks.

Sure. We have always talked about generally what our strategy is and where we wanted to stay. We certainly have a lot of addressable market share that we're continuing to workdown. Over the next year or so. We don't have any plans at the moment to expand beyond where we are. But you know, as we continue to you know, get some scale and it will continue to look at it, certainly.

Okay. Great, thanks.

Your next question comes from Tom Watts of S.G. Cowen

Good morning. Couple of -- one housekeeping question. What were net adds in the -- properties being swapped to AT&T?

That's not a number that we -- we don't separately disclose customer numbers.

Okay. I guess overall, I think a lot of the questions have focused on the cost side, and what has happened on that front. Can you give us a sense of how much of that is specifically related to the cost increases are specifically related to Chicago versus higher retention costs in your other markets? Should we have this as a Chicago-specific item for the most part.

On a year over year basis, you have the cost of the network and G&A operations, distribution around Chicago none of which was there a year ago. We do not break out as I said market-specific numbers, whether it be on the cost side or not. But in the area of GNA as an example, or systems ops, two numbers, over -- close to half of those numbers are just the introduction of the Chicago results. You see that when you look at the fourth quarter results, and you compare them to second and third quarter when Chicago wasn't really there.

And one thing we have been hearing is that between Cingular and their independent retailers, there are a lot of disagreements in Chicago. Has any of that benefited you, or is your own push to do things through your own stores really take you out of that loop?

This is Jay Ellison. When we came to Chicago, we were very aggressive with our own exclusive dealers and other markets that joined us in our launch in Chicago. With multiple retail locations. We have had some discussions with other dealers of other organizations that contact us depending on their independent business situation at that current time. We will continue to grow as we open up new markets and continue our footprint in Chicago with both company-owned stores and exclusive distribution through our agents from other markets as well as some that we have signed up here in Chicago that may are been with previous providers.

Okay. And just a final question, on inventory, it looked like that was up about 40% over Q4. Any reasons for that?

Well, I think one of the things is that inventory was advanced shipments of some 3G phones.

Okay. So, we should see the inventory come down in the future quarters?

I expect it to.

Okay. Thanks very much.

Your next question comes from Luiz Carvalho (ph) of Morgan Stanley.

Hello. Good morning, everybody. I just have some -- I'd like to talk about the cost side of the equation on USM, more specifically you mentioned retention costs being up, and you talked about the difficulties with handset subsidies, so the handset issue, how competitive the market is becoming. You can give us if not some numbers, some clarifications, on what you see the dynamics therein terms of handset subsidies.

Also, if you see your move to more -- to CDMA as being affecting you there, and lastly, if you could tell us a little bit about how you are accounting for retention costs considering that your CPGA, well, it was a little lower than we had expected, are you accounting for retention costs not as part of PCGA but as part of your CCPU? Anything on that front would be great. Thank you very much.

Okay, Luis. Good morning. First of all when we put out a cost per gross add number, we calculate consistently with the way we have in the last three or four years with the retention costs being part of CCPU. Not being part of costs per gross at. We try to keep those two separate because they're really accept operate drivers.

One is more of the upfront investment in growing the business, otter one is the cost of maintaining your business. CDMA conversion has had some effect on retention costs as we have rolled out that new technology in Wisconsin and Iowa late last year and part of the conversion in terms of the customer base occurred this year.

But what happens in just the open marketplace is when we continue to discount handsets the way we do in this industry, the customer is always looking at an opportunity to either get a new handset by walking across the street with a new carrier because of the way they're priced, or you do something on the retention side.

So, what started off in the industry as a way to purr growth and be looked at as a one-time marketing cost is becoming an ongoing GNA cost.

Do you think it's fair to assume that most of the increasing retention costs are essentially the retention costs translate into higher handset costs for you, because you have to spend more to retain subscribers, or there's some different type of retention costs that you are referring to?

Well, they are over there primarily handsets in today's business world.

All right. Thank you very much.

Your next question comes from Roger Sach (ph) of Kaffe Financial.

A couple of clarifications or housekeeping items on U.S. Cellular first. Ken, do you have the all insure number for the quarter.

9%.

9%.And do you have some sort of a figure as well as the duplicative billing expenses until the outsourcing is completely switched over that would occur during the year.

Not at this point in time, Roger.

And just quickly on the TDS Telecom side. I guess in their release now for the C-LEK, it's less disclosure than what we have had in the past. Could you supply us with a revenues and the EBITDA for the two C-LEK's.

Sure.Obviously the reason, Roger, that we combined those was with the new segment report, obviously, we are sensitive about GAAP issues. Revenues for the quarter for MetroCom were a little over $35 million. And adjusted EBITDA would have been a loss of about a half million.

Okay. Terrific. Breakout is just the DNA as well on that?

I'm sorry.

The DNA as well, the two C-LEK's.

I'm sorry, what

Depreciation and amortization, Dave.

Oh. I'm sorry. Depreciation would be a little over 7.4 million for depreciation.

The next question is from Ben Abramovitz of Jeffries & Company.

Two quick questions. One going back to the retention question, if you could give us roughly a percentage of the customer base that's retained in the qualify and do you expect the level to be ongoing at these levels?)

What was the second question?

What are the subsidies look like? Are they higher or lower than the subsidies given to acquire customers.

They are very much aligned with the subsidy on a -- on an existing customer, depending on what rate plan they sign up for, what their revenue levels are, how long they have been with the company. In terms of percentage of the customer base retained each month, that's not a number that I have got available as I sit here.

Okay. And then one other quick question, which is how long do you expect the D & A to run at the higher levels as you work through some of your IS-95 equipment.

Well, the D & A levels are really driven by the spending last year. If you remember, cap ex last year was $700 million, and -- and you also had in there in terms of when you look at it year over year, that 730 million of cap ex. You acquired the Chicago market, which also brought fixed assets in with you.

Okay. I thought there was a they're blip that was going to run through there for the older equipment that you accelerated some of the depreciation cycle there.

No. No. What we said was that we expected that the TDMA that is still in the network will continue to provide service to both our customers with TDMA handsets as well as with roamers, and that we will continue to monitor that going forward, but we right now see that effort as having a nice, long life.

Thanks, guys.

Your next question comes from Avi Silver of Bear Stearns.

Just -- most of my questions have been answered, but I just wanted to note, did you get any U.S.F. revenue this quarter and what are your expectations for the rest of the year in

We have received USF funds out of the state of Washington. They are federal fund bus out of the state of Washington. We have done that for about two years now. We have not received any funds related to the ETC statuses that we had filed for in Wisconsin, Iowa, that we were awarding. It is possible that we'll get some late they're year -- later this year, but until such time as that revenue stream is actually realized, I haven't put a number on it, there's a lot of numbers that are out there that are read three or four different ways, and until the check shows up, I'm staying kind of on this side of the fence, guys.

And could you give us the percentage of customers from pre-pay versus post-pay at the end of the quarter?

Prepay end of the quarter is under 5%, about 4,4.7.

Okay. And there -- I jumped on a few minutes late, so I don't know if you addressed this, but is there a comparable EBITDA revenue figure without the Chicago that you can give us?

No, there is not.

Thank you.

Your next question comes from Tahmin Clark (ph) of Legg Mason.

Good morning, guys, I know that you said specifically that you don't break out the markets, but last quarter you gave out a number that said your add growth on an organic basis was greater than it was in 4G '01 and can you do that for this quarter and let us know if it was greater than the4 Q it 1 in '02.

Yes, it was.

The second thing is in your prior guidance, you said ARPU for the full year would be pretty much in line with what it was last year, given the decline in rate per minute, you are expecting that to be the same as previously stated?

Right now we are looking at ARPU being relatively flat year over year. We rolled out new pricing and the new promotional strategy at the end of the first quarter last year, which helped us grow revenue for retail --retail revenue per customer in each of the next three quarters last year, and into this year.

I think at this point, going forward, the comparison become as little bit tougher now, so that's why we came out with overall flat retail per new per customer.

It's retail revenue, not all in one combined.

Okay. On the wireline side. I have a quick question. Cap ex levels came in kind of light and I was wondering what you expect going forward. Is this a low quarter or is this going to trend the same

It's really a low quarter. If you look at the first quarter of last year, it was low as well. The guidance is reflective.

Just the normal seasonality.

That's right.

Okay. Thank you, guys.

The next question comes from Greg Gorbatenko of Loop Capital Markets

High, guys, that churn of 1.6 was better than a lot of these other companies reporting, that's great. I think maybe Nextel partners is the only exception around that area. What are you guys doing differently and can it still go lower. I have a quick question on TDS. Thanks.

What are we doing differently? I think what we are doing differently is starts with how we run the business. Everything that we do is focused around making sure that we satisfy the customer. You know, as we look the at marketplace today, the customers that we already have worth as much or more than the segment that you next attack. So, we're very focused on maintaining strong relationships with our customers in every - every aspect. Now, can it go lower?

As I said, at 1.6% for this quarter, we're extraordinarily pleased with it. I wouldn't want anybody drawing a straight lineoff of it, but I'm also sitting here trying to hold Jack Rooney from saying that, yeah, he wants to sit lower. It's part of our strategy to really go out of our way to satisfy our customers. It's never low enough.

Okay. Last question is on TDS. Did you guys say what the DSL adds were or did I miss it?

It's in the release, Greg.

Yeah.

Both from the C-LEK and I-LEK are posted in the data.

Okay. Thanks.

Your next question comes from William Power of Robert Baird.

Yeah. Good morning. I guess question, two questions on the wireline side of the business. First with respect to the I-LEK business or I wonder if you could comment on the MUNY (ph) activity in the I-LEK and the C-LEK markets looks likes it was EBITDA positive in the quarter and I'm trying to reflect that with the furl year guidance or break-even, are there other launch costs that you expect in the remainder of the year or why wouldn't that be slightly EBITDA positive for the year.

Good morning, Will. Let me answer the second one first. We did in the quarter reflect about 1.8 million for the one-time adjustments that are in that result. And those are not recurring. So, even with -- even with -- even with excluding that, we have a good start toward the total year guidance. There is no additional launch costs contemplate. In regard to MUNY activity other than in the quarters property which we acquired a couple of years ago where we are offering some unbundled loops, we are not operating any unbundled loop activity or any MUNY activity in any of the other I-LEKs.

Great, thanks.

The next question is from Ned Zachar from Thomas Wiesel partners.

First of all, rolling was flat when you looked at it year over year. Is that a result of price stepdowns or new competition, other networks available for roaming use. The second question, Ken, if I have the math right, given where the annual guidance is, versus the- that is on the EBITDA side and on the revenue annual guidance on revenue, it looks like you have to see an absolute reduction in quarterly run rate expenses for the balance of the year in order to get to the EBITDA guidance. Have I done the math correctly?

No. I don't know if I can answer the questions, whether you have done the math correctly. I don't have that in front of me right here, but yes, there are costs -- as I said, as an example, around the double billing costs, and around bad debt that in fact go away in terms of achieving the full year number.

For some of the category, you could see a reduction relative to the levels that we saw in the first quarter.

Yes, sir. In fact, if you look at our full year guidance on customer adds, we are -- we got off to a very good start around those.

Okay.

The other question

Roaming.

Was on roaming. Minutes of use are up year over year. And rate is down slightly with multiyear agreements.

But are you seeing competition from others to carry that traffic? Or is it really a function of the lower rates?

Well, I said, minutes of use are up year over year. Within any market, you know, some part of the network there may be minutes moving off to someone else's. Other minutes are coming in.

Terrific. Thank you very much.

Your next question comes from David Janazzo (ph) of Merrill Lynch.

Thanks. One for Ken. On the ARPU, Ken, it did come in a little bit lighter than we expected. I know it was up year over year. Can you talk about the ARPU drivers. I know that you were running the half rate promotions over the holiday season. The second question for Sandy. Update us on the current thought process in regard to the cash balance at TDS. I know that you did the share repurchase. Maybe the priority is there. Thanks.

Hi, David, Ken. With respect to the ARPU, it's about where I expect it to be, typically, you have a seasonal effect in the first quarter. That's why we have looked at it year -- on a year over year basis, whenever we have talked about it. I don't think there's anything really different there.

With regard to the cash balances, our priorities as we have indicated before, are first of all, we plan to reduce debt at the TDS level this year, and we want to do so in order to maintain our strong credit rating, and further than that, we'll be using the cash for various corporate purpose, and as you saw in the first quarter that does include stock repurchases.

Thanks.

So you need to add those three numbers together and go over to the right side of the balance sheet and take the derivative liability and subtract that $10,948,000.What you find when you do that for both the end of the quarter and end of last year, you are at about a billion 889 at the end of the first quarter, and a billion 886 at the end of the year.

So, you know, there's small frictional costs in there, but these transactions to monetize (ph) the securities, maintained value within the band of the floor and the ceiling of the transaction, and so what you lose on the marketable security line, you gain on the derivatives of assets and liabilities.

Thank you.

Sure.

You have a follow-up question from Richard Prentiss of Raymond James & Associates.

Actually, Ken, first I guess that's a visual, you trying to restrain Jack jumping on the churn thing. First on the retention costs, can you break out for us maybe in absolute dollar terms how much you are categorizing as retention or possibly tell us based on a CPGA number how much it was. Some of the other operators like western wireless give us the total CPGA and tell us about the retention costs so we can keep apples to apples out there.

Well, the CPGA number that I gave you, the 358 is a marketing based number. Okay. That's the cost of actually adding the customers. You try to break out the retention costs, and part of it goes through equipment discounts, and part of it sits in the GNA category on the financial statements. And I just don't have those two pieces here in front of me.

I might circle around, but your 35 would compare to other people's number for just the cost to acquire new customers. No retention costs.

That's cost per gross add.

Another question for you on the roaming. Did you break out what the dollar. I know you said it was flat. Have you broken out what the dollar value was for roaming in the quarter?

I didn't, but it's -- it's about 54 million, Greg. I don't have the -

I'll circle back with you and get the -- it's54 million.

In the past these significant seasonality on the roaming business, particularly in the summer months in your market. Should we expect the same to opinion continue, a spike up, in absolute roaming revenues in the third quarter.

Historically, you have seen minutes of use grow throughout the year with different travel patterns. I'm not aware of anything that would change that dramatically today.

And given the operating cash flow guidance and the cap ex with a little caveat, I guess know that if you close the AT&T in time, we might see some capital flow into the guidance for those new markets that you are getting from AT&T. How do the financings, how does the balance sheet look as far as cash, available debt, et cetera.

I think the balance sheet stays --extraordinarily strong. We have -- if you look at the balance sheet, you have got the notes payable, line for U.S. Cellular at 532.That is the revolving -- the two company - the company's two revolving credit agreements. There is plenty of availability under those for anything that we have got in our plate right now.

As far as data goes, you announced the brew the other day or maybe it was this morning, I lost track of which day it was, how are you feeling about the data trials in Tennessee and how good are you getting as far as seeding your market with 1X handsets.

This is Jay again. We are launching the soft launch in Tennessee on brew this month. You may have seen that. And we are now starting to -- based on our preliminary trials with brew to start bringing in that which is some of the inventory which you had seen, bringing in brew handsets and color monitor brew handsets to start seeding the base in all of the markets that are going to go or are already CDMA for the year. Our intent is to start featuring the color monitor brew enabled handsets go forward as our kind of go-to piece. The soft launch, start, I think the 15th of May and not -

Thanks, guys.

You have a follow-up question from Ben Abramovitz of Jeffries & Company.

You ran some of the discounted promotions in the Chicago area initially through January Then I think it was extended until the end of January. Did you see a slowdown in store traffic after you removed some of your promotions from earlier in the year. As the quarter progressed?

Yes. Of course, you did. What you did with that is you quickly established yourself at any time that you roll off of one promotional strategy and go into less aggressive pricing, you are going to see a change in any market.

So, January to February there was a drop-off in store activity?

Yes. Clearly part of it had to do with the change in promotion, and part of it had to do, I think with general retail slowness in -- at least here in the Midwest.

Okay.

At this time, there are no further questions. Gentlemen, do you have any closing remarks?

No, Brooke. Thank you, everybody, for joining us today. We appreciate you taking the time, and Ken and I will be available later today if you need to give as you call.

Thank you. This concludes today's TDS and U.S. Cellular first quarter results conference call. You may now disconnect.