美國無線通訊 (USM) 2004 Q1 法說會逐字稿

At this time, I would like to welcome everyone to the TDS and U.S.

Cellular first quarter operating 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. (OPERATOR INSTRUCTIONS).

Thank you.

Mr. Steinkraus, you may begin your conference.

Thank you, Jamie, and good morning, everybody.

With me today are Sandy Helton, Executive Vice President and CFO of TDS;

Ken Meyers, Executive Vice President Finance and CFO of U.S. Cellular;

Dave Whitworth, Executive Vice President Staff Operations and CFO of TDS Telecom, who will be offering prepared comments.

Also joining us are Jack Rooney, President and Chief Executive Officer of U.S.

Cellular, and Jay Ellison, Executive Vice President Operations U.S. Cellular.

A replay of the teleconference will be available today at 12 noon Chicago time and will run through midnight Thursday, April 29.

The replay number is 800-642-1687, passcode 6960621.

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

The call is being simultaneously webcast on the investor relations sections of both TDS' website at www.teldta.com, and the U.S.

Cellular website at www.USCellular.com.

The webcast will be available for the next two weeks, after which it will be available in the conference call archives.

As always, it's important for you to know that some of the information and discussion 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 statements involve certain risks and uncertainties which 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 some length in the press release.

Investors and 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 changes thereto.

This call is being recorded by TDS and is copyrighted material; it cannot be recorded or rebroadcast without TDS' express permission.

Your participation applies consent to our taping; please drop off the line at this time if you don't agree to these terms.

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

Regarding upcoming company events, Ted Carlson and Ken Meyers will speak on May 5 at the Baird (indiscernible) Stock Conference here in Chicago.

U.S.

Cellular will also be presenting at the Lehman Brothers 2004 Global Wireless Conference in New York City on May 25.

Additionally, both U.S.

Cellular and TDS' annual meeting of shareholders will be held June 29 here in Chicago.

The meetings start at 8:30 to 10:00 for U.S.

Cellular and from 10 to 11:30 for TDS.

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 we issued this morning around 7:00 Chicago time, and they put us in compliance with the new rules set forth by the SEC.

Both press releases were posted to the TDS Internet homepage this morning shortly after going out over the wire, and U.S.

Cellular posted their release to their website as well.

You will also find posted on our websites additional information and reconciliation of non-GAAP financial measures that may be used by management when discussing the select operating data during today's conference call.

The information can be accessed on the conference call page of the investor relations sections of the websites.

With that, I'm now going to turn the phone call over to Sandy Helton.

Thank you, Mark.

Good morning, and thank you for joining us.

I plan to keep my comments brief, highlighting TDS' consolidated results for the first quarter.

I'll then turn the call over to Ken and Dave, who will discuss results for the business units.

We will then take your questions.

As you may know, TDS and U.S.

Cellular announced last week that both companies will be restating 2003 and 2002 financial statements for non-cash items related to the implementation of Statement of Financial Accounting Standard 141 for business combinations, and SFAS 142 for goodwill and other intangible assets, as well as the application of deferred taxes under SFAS 109 accounting for income taxes.

The adjustments relate to a reclassification between goodwill and licenses for U.S.

Cellular operations, which is reflected in the financial statements included in the press release.

These adjustments will not impact revenues, cash or cash flow, and they do not affect the first quarter results.

TDS' consolidated operating revenues grew 7 percent year-over-year in the first quarter due to strong customer growth and higher ARPU at U.S.

Cellular and continued steady results at TDS Telecom.

Operating income more than doubled year-over-year, growing from 35.7 million in the first quarter of 2003 to 73.2 million in the first quarter of this year.

This was due in part to improved profitability at both business units, and also affecting the year-over-year performance was a pre-tax loss in the first quarter of 2003 of $21.6 million related to the difference between the book value of the Florida and Georgia assets being exchanged with AT&T Wireless, and the fair value of AT&T Wireless licenses received.

And this transaction was completed in August of last year.

TDS' effective tax rate for the quarter was 46.4 percent.

Affecting the tax rate was a $2.5 million tax expense related to the tax gain on the sale of U.S.

Cellular's South Texas markets to AT&T Wireless in February.

Excluding the taxes associated with this gain, the effective tax rate on operations was 40.8 percent for the quarter, compared to 42.2 percent in the first quarter of 2003.

We expect the normalized tax rate from operations for the year to be approximately 41 percent.

We continued to repurchase TDS stock during the quarter, buying back 40,300 shares at an average price of $69.82 per share.

We plan to continue the stock repurchase program this year as part of our commitment to improve shareholder return, contingent on bond market conditions.

Additionally, in February, U.S. cellular repaid in its entirety the 8.1 percent intercompany loan of $105 million due in 2008.

U.S. cellular arranged for the loan from TDS in 2002 to partially finance its purchase of the Chicago markets.

The loan carried no penalty for prepayments.

In summary, TDS and its business units delivered strong performance in the first quarter, providing an excellent start to the year.

We are encouraged by the apparent improvement in the overall economic environment, and we look forward to continued growth at U.S.

Cellular and steady performance at TDS Telecom in the coming months.

I will now turn the call over to Ken Meyers, who will discuss U.S.

Cellular's results.

Thank you, Sandy.

Good morning, and thank you for your time today.

Overall, the first quarter turned out to be a very solid start for the year.

A good retail environment, great customer retention, and slightly improving average revenue per customer were key drivers to the results, which included a 9.7 percent increase in service revenues and a 12 percent increase in operating cash flow.

For the quarter, U.S.

Cellular added a record 196,000 net new customers, with strength in all markets.

This is not only a first quarter record, but also the Company's highest level of net customer additions in any quarter.

These customer additions were 43 percent above last year's first quarter results and above our business plan.

Two factors contributed to this positive result.

First, we saw a 6 percent increase in gross adds on a year-over-year basis, notwithstanding the divestitures of the Florida, Georgia and South Texas properties, both of which negatively affect comparability.

This was the highest level of gross customer additions in five quarters.

Additionally, customer retention rates were outstanding.

Postpay churn averaged just 1.3 percent per month, and the all-in churn rate averaged just want 1.5 percent per month.

These, too, were better than our business plan for the quarter.

Actual disconnects of 201,000 were the lowest quarterly total since the second quarter of 2002, a time at which the Company had 3.6 million customers.

As a result, total customers grew 7 percent year-over-year despite divestitures that reduced the customer base a net 199,000 customers during the last 12 months.

This customer growth and an increase in average revenue per customer drove a 9.7 percent increase in service revenue despite a decline in roaming revenue that primarily resulted from the Florida, Georgia and South Texas divestitures, which were high keeper roaming markets.

Roaming revenue which totaled $42.5 million declined about 22 percent on a year-over-year basis.

Retail service revenue grew 14 percent, from $472 million in the first quarter of 2003 to $540 million this quarter.

Key drivers to this growth was the 7 percent customer growth I mentioned previously, increases in data-related revenue, and continued execution of a targeted promotional strategy aimed at higher revenue plans.

Data revenue, which includes our short messaging services and contributions from our Easy Edge data services that we launched late last year, totaled almost $11 million for the quarter, or about 1.8 percent of total service revenue.

A year ago, data services contributed about $2 million to revenue.

Also, about $12 million of the year-over-year revenue growth is due to increased billings for contributions to the universal service bug due to an increase in the USF contribution rate.

This amount affects both revenue and SG&A costs equally.

Systems operations cost actually declined about $400,000 year-over-year due to declining roaming costs.

Other costs in this category increased in line with the growth of our networks and customer usage increases.

SG&A, along with net equipment costs, increased by $40 million on a year-over-year basis, due to slightly higher average cost per gross add, higher levels of activations, increased retention costs, and the aforementioned increases in Universal Service Fund contributions.

Cost per gross add averaged $371 for the quarter, up about $13, or a little bit over 3 percent, from the first quarter of last year, but is slightly better than the average cost of the most recent three quarters.

This slight improvement reflects the increased volumes of gross additions this quarter, as heavy equipment discounting continues to be the norm.

Operating cash flow totaled $142 million for the quarter, a 12 percent increase on a year-over-year basis, even after the costs related to the 43 percent increase in net customer additions.

Operating income totaled $28 million for the quarter compared to an operating loss of $4 million a year ago.

The year ago result reflects a $21 million loss on assets held for sale, which was related to the Florida/Georgia divestiture.

The $4.9 million increase in interest expense reflects the effect of our debt issuance last year in which we turned out amounts that were outstanding on our revolving credit agreements.

For the quarter, the Company produced $9.2 million of net income, or 11 cents a share.

On our year-end call, we committed to update you on our launch plans throughout the year.

It now appears that we should be able to launch commercial service in Oklahoma City, Portland, Maine, and Lincoln, Nebraska before the end of the third quarter.

As a result of these anticipated market launches and the strong first quarter results, we are increasing our guidance for customer additions and service revenue for the year.

Net customer additions, which were originally targeted at 325 to 350,000 for the year, are now targeted in the 475 to 500,000 range for the year.

In evaluating these new ranges, recognize that wireless number portability rolls out to the rest of the country in late May, and that as we have said in the past, we believe the real affect of WNP will not be known until the second half of this year.

As the year progresses, we will continue to monitor our performance and modify this guidance as appropriate.

Our original guidance for service revenue for the year was approximately $2.5 billion.

As a result of the new, higher customer targets and the growth in data, we are raising that by $50 million to approximately $2.55 billion for the year.

The targets for depreciation, operating income and operating cash flow remain unchanged.

They are approximately $480 million for depreciation, 162 to 210 million for operating income, and 640 to $690 million for operating cash flow.

We currently anticipate the higher revenue from the faster growth will offset the costs already incurred to acquire or retain these customers.

Additionally, our capital spending plans are unchanged; we anticipate investing approximately 610 to $630 million this year.

Recapping, U.S.

Cellular is pleased to report a very strong first quarter.

Customer growth was at record levels due to both a pickup in gross additions and record low churn rates.

The first full quarter of our Easy Edge offering contributed nicely to our revenue growth, allowing us to increase operating cash flow 12 percent year-over-year despite the extra cost of growth.

Now let me turn the phone call over to Dave Whitworth at TDS Telecom.

Thank you, ken. (technical difficulty).

TDS Telecom (technical difficulty) that is line with the full-year guidance previously provided.

Two items I would like to highlight.

First is the change in how we count long distance customers.

Starting this quarter, ILEC LD customers are the lines that subscribe to our LD product.

Previous quarters were a count of customers, not lines.

We did not have the information to recalculate previous quarters, and we footnoted the summary operating data pages to reflect this change.

The impact of moving from customers to lines increased the count by approximately 25,000.

No impact on revenues, but we believe this approach is more consistent with others' presentation of LD customers.

Secondly, related to revenue growth, ILEC revenues were essentially flat.

This is primarily the result of fewer access lines, reduced access rates and slightly lower USF revenues, which we discussed in the fourth quarter.

These impacts are offset by more DSL customers and increased LD penetration.

Relative to revenue growth in our CLEC business, I would remind you that we experienced interstate and intrastate access rate reductions in 2003 that impacted the comparable quarters by $1.7 million.

We also had approximately $1.8 million in onetime revenues from RBOC settlements in the first quarter of 2003 which are nonrecurring.

These impacts, as well as other intrastate rate reductions that will occur midyear 2004, are contemplated in our total year guidance.

I thought I would use the remainder of our time to address a number of issues I hear from the investment community regularly.

First, what initiatives are planned to drive ILEC revenue growth?

There are three primary areas of focus for TDS Telecom.

Data services are extremely important to us and to our customers, so we will continue to aggressively sell high-speed data, but not limited to DSL.

We are working on a variety of products and services that helps customers to experience the (indiscernible) high-speed connection to the Internet.

Second, we believe there is an opportunity to continue to penetrate the long distance market, primarily by offering larger bundles of minutes.

We have the big minute plans in place in the majority of our states and unlimited plans in a few today.

Customer (indiscernible) to date is very strong.

And lastly, we will be looking to new services that can leverage this high-speed connection to the customer.

The second topic is voice-over IP.

Clearly, voice-over IP is an exciting new technology that we're watching very, very closely.

We are currently planning a couple of trials to understand how we can use this technology to defend our existing markets, attack new markets, and potentially reduce our cost structure in existing markets.

We also have a small fixed wireless data trial underway which we hope to couple with a voice-over IP offering.

Third, fiber to the premise.

With the adoption of the passive optical network standards by the RBOCs, we believe that this will help drive down cost to the equipment over time, and the economics will continue to improve.

We expect to use fiber to the home as the technology of choice for new subdivisions, as the cost to install fiber for new construction is not significantly higher than traditional copper.

Fourth, UNI-P.

The FCC has recently sent a letter to members of the telecommunications industry encouraging all parties to attempt to negotiate network access agreements in order to avoid continuing legal battles and uncertainty in the market.

TDS Telecom is currently undertaking such negotiations, but I remind you that our exposure to UNI-P is limited, with approximately 37,000 lines in our Minnesota operation.

And lastly, access charge reform.

We, like others, understand that the current access charge system needs change.

There have been a number of proposals that have been circulated, each having their merits and shortcomings.

Assuming that any loss in inter-carrier revenue for rural carriers is shifted to some form of USF funding, the impact on the current Universal Service Fund could be significant and unsustainable.

For these reasons, we believe that some form of inter-carrier compensation needs to be part of any future plan.

TDS is actively working with various industry groups and associations to develop these proposals, and will advocate a viable solution that will retain some form of access revenue streams.

And now I'll turn the call back to Mark Steinkraus.

Thank you, Dave.

And, Jamie, we're ready to do the Q&A session.

(OPERATOR INSTRUCTIONS).

Ric Prentiss, Raymond James.

A question for ken on U.S. Cellular.

The adds were truly large this quarter, and you have raised your guidance for the year.

There really is a fall-off, really, if you look at first quarter versus rest of the year.

Can you explain what is going to happen differently in the rest of the year versus what happened in the first quarter?

There's a few things.

One, as I said, the effect of WNP when it rolls out across the rest of the country is an unknown.

Quite frankly, more of our customers are in markets that are not in the top 100.

So there's a big unknown there.

Secondly, as I have said in the past, when we think about WNP and who it really has the most potential benefit for, it's the business customers.

And I thought that was -- we would have to go through the first six months of the year before we really understood that.

Third, you have a marketplace today that is volatile.

And as a result of that, I'm not going to draw straight lines off the first quarter, but we will continue to update you as we go throughout the year if things continue to perform at these levels.

So you're assumption is that number portability will have a more prevalent impact possibly on you guys in the second half of '04 than maybe other people experienced, except for AT&T on the national level.

I'm saying I don't know what the effect of it is; that's all.

Second question for you, Ken, is on the retention costs -- are you guys going to break out sales and marketing versus G&A, or can you give us a little insight into how much retention costs?

Because clearly the churn rate on postpay of 1.3 is excellent, buy just trying to get a handle on how much it costs to kind of create that churn rate.

As you'll notice on the face to the financials, SG&A is in one line item.

But we have broken out both cost per gross add, as well as G&A cost per customer.

Those two ought to be able to show you the trend.

Reverse method.

What is your sense of how much is it -- what is the breakeven point to, say, pay retention costs to keep churn down as opposed to losing?

Have you guys done a cost analysis to figure out is there a certain cost point, and are people signing -- when you do the retention are they signing on to one or two-year contracts?

First of all, there is a tool we use that looks at that, but it's not an average; it's driven by the individual customer on what their revenues are.

So different customer groups have different profitability to us.

Secondly, anytime we incur retention costs there is a contract renewal involved, and typically that is a two-year contract.

You mentioned USF for the contribution; can you update us as far as how much USF was the beneficial USF, the one that you get out of the pool?

We call that eligible telecommunications Company revenue, or ETC funding, and for the quarter we got about $3.8 million.

Michael Balhoff, Legg Mason.

A couple of questions.

First, Ken, to go after the wireless number portability question again -- I missed whether or not you said what percent of your markets are not currently available for wireless number portability.

And can we talk about what the net porting has been in the ones that are susceptible to it now, so that we can figure out roughly what we might extrapolate for the latter part of the year?

Sure.

I don't think that markets necessarily is the best denominator.

But if we looked at customers, I would estimate that probably 70 percent of our customers are outside the top 100.

Having said that, historically, from -- if you want to look at either the fourth quarter, look at the first quarter, or you look at the last five months now, and together we have been a net recipient of ports, though the level of porting has not been material.

Just to give you some parameters around that -- if I look at the gross adds for this quarter, it's less than about 3 percent of those were involved in ports.

Thank you.

That's very helpful.

The second question relates to the strength in net adds.

Can you give us a sense of where that is coming from?

Are those significantly promotions, or what is really contributing to the net add strength that is really extraordinary.

You talk about the net adds; there's really two different components.

First of all, as I said, gross adds are up about 6 percent year-over-year.

Certainly, now, anything on the sale side of the house is affected by whatever promotions are going on.

The industry is promotional.

But I have mentioned a better retail environment; the fact is the store traffic and gross adds were up about 6 percent year-over-year.

And that contributed about 21,000 line increase in gross adds year-over-year.

Now, with net adds up from 137 last year to 196 this year, call it 60,000, 21 of that came through the volume side of the house.

The rest of it all came through better retention.

They set churn was a record for us at 1. 3 percent for postpaid, 1.5 all-in.

It's all about our strategy of trying to ensure that we satisfy the customers' needs.

That is just paying off big time.

Thank you.

Dave, turning to the wireline side of the house, could you give us some sort of sense of -- you indicated that, obviously, access rates have been under some pressure, and obviously volumes have been following.

Can you give us a sense of what you are seeing as the year goes on as far as that goes.

Actually your numbers were a little lighter than I expected in the quarter.

Sure, Mike.

Actually, the access minutes of use growth that we saw comparable to the quarter was about a 2.9 percent increase.

So we saw some improvement in minutes of use, which is a good sign.

Certainly, intrastate access rates are under pressure as we negotiate with public service commissions and (indiscernible) cities or a whole variety of things; that is certainly an area that gets -- that there's a lot of pressure on.

So we think that we have a pretty good handle on it and we are going to continue to fight that fight, but it's certainly an area there that is pressure on.

Dave, if I understood your comments on the other subject, which was the inter-carrier comp reform, it sounds as if you're not particularly in favor of what the inter-carrier comp forum is proposing, which I understand is slick (ph) increases and universal service increases.

So you're actually suggesting that you are in favor of some sort of special access payment or some inter-carrier comp continuing, which I think is the NEKA (ph) plan?

Is that the case?

Without all the details, Mike, I think that's fundamentally it.

We think that a plan that would simply say it all moves over to a slick, and then the remainder goes to universal services, is going to put a lot of pressure on that fund.

And then there's a lot of challenges around that.

So we think there is some component of it that probably still belongs to inter-carrier (technical difficulty).

Will Power, Robert Baird.

A question for Ken.

First, roaming revenue down in Q1 due -- it sounds like in large part due to divested markets.

Should we expect even a more pronounced impact from that in Q2 and Q3 just due to some of the seasonal impacts and travel patterns?

Any color there would be helpful.

Secondly, as you look at the strong momentum in Q1, both in terms of gross ads and churn, have you generally seen those trends continue into April thus far?

Any color there would be helpful.

First of all with respect to roaming, you're going to have this comparability issue year-over-year throughout the year.

The actual North Florida divestiture closed in August of last year, so first and second quarter of this year carries that effect.

And the South Texas divestiture closed in February of this year, so that is going to affect first, second, third and fourth quarters of this year.

So you're going to have a comparability issue there.

I would think that the better way to look at it is to look at that current level of roaming revenues and drive off of that, as opposed to what the prior year numbers were.

I'm sorry; can you repeat your second question?

I just kind of want to get your sense for trend-setting out of Q1.

Certainly, good strength both in terms of gross adds and customer retention.

Has there been any change along with regard to those trends as we've headed into April thus far?

In the first quarter we saw both outstanding churn and a healthy retail environment throughout the whole quarter.

There wasn't much of a change January, February to March.

Starting off through April, I would say that churn continues to be a highlight.

Again, it's what we expect, though, given what our strategy is.

And retail stays strong.

Jim Moorman, Prudential Equity Group.

First a question on the very strong net add number in the first quarter.

Were there any special onetime promotions you had in any of your markets that might have helped -- forgive me if somebody asked thus already -- that might have helped that number?

And also, second question -- in regards to retention expenses, I know that we saw an uptick in the fourth quarter sequentially due to, I think it was cited, wireless number portability coming in November.

As you have 70 percent of your markets coming to wireless number portability in May, can we expect a similar increase in retention in the second quarter?

Thanks.

Going to the first question, as I said, we saw the strength in gross adds and net adds across the board, and in fundamentally all of our different geographies.

There was nothing, I think, usual or special about the offerings that were out in the first quarter.

With respect to retention costs, what we have been doing has been working with our customers to make sure that we meet their needs, and also kind of protect our customer base.

And so as we approach the second quarter, when wireless number portability goes to the rest of the country, I think we're in a pretty good position.

We have a high proportion of our customers under contract, so I wouldn't think that we would see a significant sequential change here.

Kevin Roe of Roe Research.

Ken, following up on the last question, the increase in gross adds year-over-year -- how important was the $40 1000 minute plan to your gross adds in the quarter?

Kevin, I don't have a breakout of gross adds by rate plan in front of me.

It contributed in some cases, but because of the fact that there isn't nights and weekends on that plan, it's only attractive to certain segments.

Regarding the markets you plan to launch for the end of Q3, could you again repeat those markets, and also the anticipated pop coverage for those markets?

The three markets are Oklahoma City, Oklahoma, Portland, Maine, and Lincoln, Nebraska.

I don't have the coverage assets in front of me.

Although, (indiscernible) anytime that we launch a market, our strategy requires that we have a very vibrant network so we can deliver on our promise to the customers.

Lastly, it is anticipated that the AT&T Wireless/Cingular merger will result in divestitures.

Can you give us an update on the Company's appetite to increase your Midwest footprint, or elsewhere?

Your anticipation in terms of what may or may not happen may be clearer than mine, because quite frankly, at this point in time I'm not sure what is going to come out of that.

What we have said, though, is that our strategy says that we will continue to strengthen our footprint through acquisitions, trades and/or divestitures.

We have a rather disciplined process that we go through in terms of valuing any opportunity.

If there is something out there that is adjacent to and reinforces the properties that we are already have, we will look at it.

If there is something available that is not adjacent to where we are at and doesn't add value to what we currently have, we won't even look at it.

David Janazzo, Merrill Lynch.

A question for Sandy.

Sandy, we've got access lines on the market from several sources now, and new financial structures coming -- incoming deposit in securities in particular.

What are your thoughts on these issues and how they might impact TDS?

To your first question about access lines on the market, as you know, we have a clustering strategy really across the enterprise.

And we always look at opportunities that would strengthen the footprints that we have and our strategic footprints for the future.

So, I think you would expect us to always look at what is available, and as Ken indicated for U.S.

Cellular, to use a disciplined process for looking at strategic fit and value.

So I think that pretty much covers our approach.

With regard to the income securities, we do look at these structures as well as others.

I think that it's fair to say that these structures are really focused on the investor base that wants a steady cash flow and consistent cash flow, and is generally less focused on growth.

And we continue to be focused on profitable growth in our businesses.

Nigel Coe, Deutsche Bank.

You have upgraded your subscriber add numbers quite aggressively.

Clearly that is due to the good growth in Q1.

But could you give us some indication of how many subscribers you expect to come through from the new markets that you said you would be launching by end of Q3?

And secondly, could you give us some indication of when you would expect those new markets to be cash flow breakeven?

I can't or won't break out the subscriber component of the new markets at this time.

And to answer the question in terms of when do they get cash flow breakeven, that is directly related to how fast we grow in those.

Assuming certain, what I will call normal growth curves, it is probably 24 months.

But if you hit a strong growth spurt in their, in months 20 through 24, you're going to push it out.

Thanks for that.

Secondly, unless I am mistaken, it looks like you basically reclassed between equipment costs and SG&A for prior periods.

Could you give us some indication on the nature of that reclass of it?

You were putting retention in SG&A, where you're not putting that into equipment costs?

No, we were -- our retention costs always sat in G&A, so that our marketing cost between the equipment subsidies and marketing and selling, allowed investors to look at profit to gross add, trends around marketing.

Recent guidance suggests that all of the equipment costs, regardless of the nature of the transaction, are to belong in the equipment line.

So we have moved in that direction, but continue to put out the statistics that we put out on a consistent basis, so investors can track the Company's current, as well as historical, performance on the key drivers like cost per gross add and G&A cost per customer.

Finally, could you just give us the number of your CDMA subscribers now?

CDMA subscribers -- I don't have a current number in front of me, but we will follow-up with you on that.

Ric Prentiss Raymond James.

A follow-up question for you, Ken.

In the financial summary and operating stat summary, (technical difficulty) sell sites and service, and it dropped from year-end to first quarter -- I assume that was for the divested markets.

Just trying to keep track of what your sell densities are out there?

Could you let us know roughly how many sells transferred off with the Texas, maybe also going back to the third quarter -- how many transferred off the Florida?

Yes.

In fact, it is -- what you're seeing there is the divestiture of the Florida and Georgia properties.

Texas was approximately 150 sell sites.

I don't think I have got the August information in front of me, Rick, but we can get that back to you.

I was digging through the notes -- did you mention that you thought there was a G&A cost per customer out there also, in the financial and operating stats?

No.

But (indiscernible) I can give you the cost per gross add; you can back out your marketing costs.

And that gives you your G&A.

But the equipment costs now include both retention and sales in the equipment cost -- right?

Just use the marketing cost and you'll get their.

Because like the last question you mentioned, we thought the same thing, (indiscernible) you had moved retention handsets up into handsets than you have.

So now I see what you're doing.

The Florida/Georgia sell sites were just over 200.

Final question.

Data growing on the wireless side -- where do you see that going over the next year, and are you doing any promotional activities to try and push that higher?

Boy, where does it go?

You tell me.

We are real excited about the functionality of the product, the consumer acceptance, but I can't draw lines after just three months.

The second part of that question?

I'm sorry.

Any promotional activities like data adoption?

We haven't changed our promotional strategy since we rolled it out.

One of the things that we do that is perhaps unique is we built our own billing infrastructure on this, and it allows us to offer customers different packages of data usage, but also allows them the opportunity to pay as you go.

That way if you don't get the sale on day one, they still get to use it and experience it.

And if they decide that it's now more economical for them to buy a package, they move that way.

But it allows them to pay as you go.

Are you guys selling the aircards only, or are you selling just -- like camera phones into that data?

Very, very little to zero on the aircards.

This is primarily -- A, short messaging services; and B, data services over the phones.

Any anticipation of looking at EVDV or WVDO?

We anticipate looking at it.

We continue to monitor technology developments.

Some of the recent changes from the standards make EVGO look attractive.

But at this point, our analysis is still in the preliminary stages.

That would be that same fast fall-over like you did with one x?

We aren't going to go EVDV if no one else in the world does.

We have got to watch where the industry moves.

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Thanks, Jamie.

Thank you.

This concludes today's conference.

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