美國無線通訊 (USM) 0 Q0 法說會逐字稿

Good afternoon.

My name is Kelly, and I will be your conference facilitator today.

At this time I would like to welcome everyone to the fourth quarter and year end results for Telephone and Data Systems and U.S.

Cellular 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 1 on your telephone keypad.

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

Thank you.

Mr. Steinkrauss, you may begin your conference.

Thank you, Kelly.

Good morning everybody and thank you, as always, for joining us on our year end results conference call.

With me today are Sandy Helton, Executive Vice President and CFO of TDS, Ken Meyers, Executive Vice President, Finance and CFO with U.S.

Cellular, Dave Wittwer Executive Vice President, Staff Operations and CFO at TDS Telecom, Jack Rooney, President and CEO at U.S.

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

A replay of the teleconference will be available today at 1:00 p.m.

Chicago time and will run through midnight Thursday February 10th.

The replay number is: 800-642-1687.

Passcode 3521201.

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

This call is being simultaneously Webcast on the Investor Relations section of both the 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.

And remember the archive calls are not updated.

We will be making some forward-looking statements today, so please review the safe harbor paragraph in our releases, and more extended versions on our website as well as our annual report and all of our filings with the SEC in this regard.

If you're not getting notification from us regarding teleconferences or have changed your e-mail address please e-mail me or one of my associates at the address on the press release so we can update all of our lists.

Regarding upcoming company events, Ted Carlson, Jack Rooney and others will speak at the Raymond James 26th annual institutional investors conference in Orlando, Florida, and on March 8th at the Merrill Lynch communications forum in Dallas, Texas.

Sandy Helton of TDS will be speaking at the Wachovia media and communications fixed income conference on April 12th in New York City.

Also, we will be at CTIA but our calendar for that event in New Orleans on March 14th is pretty much full at this time.

If you have an interest in our companies and would like to visit either TDS or U. S. cellular we would be pleased to have you do so.

We've maintained pretty much of an open-door policy.

We can set up meetings with management teams given reasonable lead times as calendars are typically very busy.

We have terrific folks at our companies that are extremely knowledgeable about our companies, the industry, and various technology, so please avail yourself of this opportunity.

Shortly after we released earnings results this morning and before the call both TDS and U.S.

Cellular filed 8-K's.

The 8-K's are wrap-arounds of the earnings releases we issued this morning and put us in compliance with the new rules set forth by the SEC.

The TDS 8-K, however, does expand on the CLEC impairment that Sandy will talk about in just a moment.

So I encourage you to read it in full.

Both press releases were posted to the TDS Internet home page this morning shortly after going out over the wire.

U.S.

Cellular has posted their release to their website as well.

You'll also find posted on our website additional information and reconciliation of non-GAAP financial measures that may be used by management when discussing the operating data during today's conference call as well as any changes to the company's forward-looking guidance.

All of this information is now included on a separate page titles called Guidance and Reconciliation to make it easier for you to find.

The information can little be accessed on the conference call page of the Investor Relations sections of both websites.

I will now turn the phone call over to Sandy Helton.

Thank you, Mark.

Good morning, and thank you for joining us.

I will briefly highlight TDS's consolidated results for the quarter and full year and will touch on a few items affecting the overall company.

After that Ken Meyers will discuss U.S.

Cellular's results followed by Dave Wittwer who will highlight TDS Telecom's results, then we'll take your questions.

TDS's consolidated operating revenues grew 6 percent year over year in the fourth quarter driven primarily by continued strong customer growth at U.S.

Cellular as well as steady performance at TDS Telecom.

Full-year operating revenues increased 8 percent, affecting both fourth quarter and full-year revenue results with the divestitures of several U.S.

Cellular markets which had contributed to revenues in 2003, and Ken will expand on this in his comments.

The company recorded an operating loss of $37.9 million for the fourth quarter.

The loss reflect two noncash impairment charges totaling $117.4 million; both relating to TDS Telecom's CLEC operations.

These charges resulted from impairment reviews of the CLEC's goodwill and fixed assets.

The reviews were triggered by price increases authorized by state Public Service Commission which along with the series of regulatory rulings resulted in these impairments.

The reviews were conducted in accordance with FAS 144 and FAS 142.

As a result of the fixed asset impairment review TDS Telecom recorded an $87.9 million fixed asset write-down; this loss recorded the difference between the fair value and the carrying value of the CLEC's fixed assets.

The write-down in goodwill totals $29.4 million.

The results of the goodwill impairment review indicated that the CLEC no longer has any implied goodwill, and therefore the carrying amount of goodwill was charged to expense in the fourth quarter.

Operating cash flow which excludes the impairment charges and gains and losses on asset sales as well as depreciation, amortization, and accretion, was $248 million for the quarter.

This compares to $238 million in the fourth quarter of 2003, an increase of 4 percent.

Operating income for the full year was $221 million, operating cash flow for the year was $995 million compared to $964 million in 2003, an increase of 3 percent.

TDS's effective tax rate on operations for the full year was 32.7 percent, excluding the tax impact of asset sales and impairment, and this tax rate for 2004 is particularly low as a result of favorable resolution of federal and state tax audits.

During the fourth quarter, TDS continued strengthening the balance sheet.

We amended the revolving credit facilities of both TDS and U.S.

Cellular, extending maturities to 2009, reducing facility costs and improving other terms.

The combined revolving credit for the two companies totals $1.3 billion.

Additionally, we completed several other debt-related activities during the year, all of which were intended to take advantage of the favorable credit market.

During the year we also spent a considerable amount of time and effort on the Sarbanes-Oxley requirements along with the rest of corporate America.

Going forward, we remain fully committed to complying with the Sox 404 requirement.

In summary we are pleased with the fourth quarter and the full-year results.

The business units made considerable progress in delivering on their strategy.

We strengthened our financial position, and we maintained the company's investment grade ratings.

Looking forward we believe we are in an excellent position to build on the momentum we generated in 2004.

We have many new initiatives in place for 2005 and are intent upon completing them as successfully as we did our 2004 initiatives.

Before turning the call over to Ken Meyers, I'd like to express our appreciation to our shareholders and bondholders for their continued support.

Thank you.

And now Ken will discuss U.S.

Cellular's results.

Good morning.

Thank you for your time today.

I'm pleased to report another solid quarter of operating results at U.S.

Cellular which tops off a very strong year.

During the quarter the company added 150,000 net new customers, an increase of about 6 percent over last year.

This growth benefited from the company's continuing strong results and customer retention.

Our post-paid churn rate for the quarter averaged just 1.6 percent per month.

For the full year, the company added 627,000 new customers, a 40 percent increase over the 447,000 customers added in 2003.

And well above our original guidance for the year.

At year-end customer lines totaled 4.95 million, a 12 percent increase over year-end 2003's customer base.

In evaluating this growth, recognize that during the year we divested operations serving 91,000 customers; adjusting for these divestitures customer growth was 15 percent.

Post-paid churn for the year averaged 1.5 percent per month.

During the quarter the company generated $673 million of service revenue, an 8.5 percent increase year-over-year.

Customer billings are up 12 percent in line with customer growth, while roaming revenue fell 29 percent.

Roaming revenue was affected by the divestitures of high roaming markets and contractual price changes.

Those price changes also benefited roaming costs, the benefit which is seen in systems operations expenses.

Systems operations costs fell $10.9 million on a year-over-year basis.

There's a couple of factors driving this result.

First, the divestitures eliminated certain network in-usage expenses.

Second, we have the previously mentioned decline in roaming rates and third, we received a one-time benefit of about $8 million reducing those costs.

SG&A has two drivers.

Marketing costs and G&A.

Marketing costs, which include equipment subsidies on new sales, were up 27 percent driven by a 15 percent increase in cost per gross add and an 11 percent growth in gross customer additions.

The increase in cost per gross add reflected both the high equipment subsidies we've seen all year and higher advertising costs.

It carries the impact of our new market launches.

Also, the quarter started off slow in October, so you had the fixed cost of our store operations without the usual level of activations.

G&A was up about 11 percent, a little less than the growth in customers and includes retention costs in our calculation.

EBITDA pre gains, that's operating income before gains, plus depreciation and amortization and accretion, totaled $165.9 million for the quarter, and was in line with our guidance.

Both above and below the operating income line you will see gains from our sales of both operating and investment markets to Altel of previously announced transaction that closed during the quarter.

As Sandy mentioned, the tax quip rate was favorable of about 38.5 percent at U.S.

Cellular below our usual 42 percent rate due to the favorable resolution of some tax audits.

For the quarter, net income totaled $40.5 million or 0.47 per share.

As I stated this is a solid end to a very strong year.

During the year, the Company launched three new markets: Portland, Maine, Oklahoma City, and Lincoln, Nebraska, and completed the divestitures of non strategic markets in south Texas, Florida, and Ohio, continuing to strengthen our footprint.

We completed the roll-out of CDMA across all of our markets and did it on schedule and below budget.

We also completed the roll-out of our Easy Edge services to all of our markets, allowing us to continue to grow our data revenue stream.

During the quarter, data revenue averaged $1.59 per customer per month representing 3.4 percent of total service revenue.

We continue to enhance these Easy Edge services.

We strengthened our balance sheet during the year.

We retired convertible securities, there by eliminating potential dilution and refinanceable short and intermediate term debt getting attractive 30-year rate.

In total, net debt outstanding is almost $90 million lower than it was a year ago.

And we met the guidance we provided for the year.

All in all, a strong year.

Looking forward, we're glad to see the consolidation in the industry.

It makes sense long term.

Short term, we expect some disruptions as entities are merged and they reposition themselves in the marketplace.

How much disruption and when is certain, but it affects our outlook for 2005.

However, our plan is to continue to execute our strategy and focus on the customer and not be distracted by what goes on around us.

We expect to continue to grow in both new and existing markets in terms of customers, revenue, and EBITDA.

Our guidance for the year is: net adds, 425 to 475,000 new retail customers; service revenue, approximately 2.9 billion, an increase of almost 10 percent; and EBITDA, 750 to $800 million.

Two things to note about the guidance.

Net adds, service revenue, and EBITDA do not include the effect of an anticipated commercial launch of St. Louis.

This is tentatively scheduled for the second half of 2005, and we will update you on those plans and their effects as the exact timeline becomes more certain.

Second, as many of you know, the guidance is interrelated.

Substantial difference in customer growth could affect current year EBITDA given the up-front nature of our marketing costs.

Finally, we anticipate cap ex -- finally, our cap ex guidance, which includes the rest of our spending for St. Louis to total 570 to $610 million for the year.

This represents a 7 to 13 percent decline from the $655 million invested in 2004.

We are not currently planning any widespread deployment of EDGO this year but may run some market tests and will continue to monitor customer demand as well as actual performance of the technology.

Now let me turn this phone call over to Dave Wittwer, TDS Telecom.

Thanks, Ken, and good morning everyone.

TDS Telecom is pleased to report solid operating results for the quarter as well.

ILEC revenues increased slightly primarily on continued growth in DSL and LD demand offset by axis line losses.

Operating cash flow increased 11.2 percent in the quarter, primarily as a result of two one-time items that I will speak to in a moment.

On a comparable basis, physical access line losses were somewhat higher than the previous quarter.

In part, these losses were due to seasonal residential lines becoming inactive as customers temporarily moved to warmer climates.

Historically the fourth quarter has produced the largest access line losses in our serving areas for just this reason.

However, we have developed a program that allows the customer to temporarily disconnect their service and still retain their current telephone number and provides for expedited reconnection when they return to their seasonal homes.

The customer is charged a small monthly fee for the service and these lines are not included in our access line count while inactive.

The number of customers in that program has more than doubled in the past year and now totals more than 3,000.

Reductions in residential second lines accounted for 63 percent of the year-over-year decline.

Access lines equivalents, those access lines adjusted to reflect voice grade equivalents, grew 1.1 percent in the comparable quarter.

Access minutes of use reflecting utilization of our wireline network increased by 3.3 percent.

DSL customers increased 78 percent and long-distance customers increased 28 percent in the quarter.

Many of our DSL customers migrate from dial up Internet service, and that accounts for a portion of the 10 percent decline in dial-up service.

Data is a strong component of the Company's strategy, effectively transforming the Company to a broadband service provider.

DSL units reached a milestone based upon our customer perception survey DSL now has more high-speed data market share than cable modems.

This is self-reported by our customers and includes only the markets where we provide high-speed data, but this is a tremendous result as we enter the high-speed data business later than the competition and have actively added market where our market share started with 0.

The speed of our service offering has also improved.

At the end of 2003, less than 1 percent of our residential high-speed data customers had one and a half megabit service.

Now one-third are at one and a half megabits; 66 percent of our physical access lines are equipped for DSL systems.

There were two unusual items in the fourth quarter of 2003 that affected ILEC operating cash flow comparables by $4.7 million: an early retirement incentive program and the sale of bad debt relate---of bad debt related to carrier bankruptcies.

After adjusting for these one-time negative items in 2003 of 4.7 million, operating cash flow still improved in 2004.

CLEC revenues increased by $2.5 million while operating cash flow declined by 3.1 million on equivalent access line increases of 17 percent.

The customer growth outpaces the revenue and operating cash flow growth primarily because of pressure on access rates which has a direct effect on revenues and operating cash flow.

Interstate access rate reductions in 2004 impacted the comparable quarters by $2.2 million.

DSL sales continued to grow with the unit increase of 44 percent year to year.

Although the regulatory landscape has changed, we remain committed and focused on execute ago strategy to create value.

There are several areas we continue to focus on.

Customer service is critical and independent customer satisfaction surveys that we participate in score us number one or number two in our markets.

This is also supported by our low churn.

Data also continues to be an important part of our strategy.

In the quarter, about two-thirds of the new sales to commercial customers included our high-speed data product.

Nearly 40 percent of our commercial customers now have our high-speed data service.

Focusing on second and third-tier markets is important to our future as the recent regulatory rulings have been more extreme for larger markets, and lastly, deep penetration allows the company to offer data services in a cost-effective manner and allows us to use alternative technologies to bypass the RBOC completely.

Besides our current CLEC trial utilizing fiber to the premise we are also trialing wireless high speed data with a voice over IP offering.

With respect to our 2005 guidance, we expect ILEC revenues in the range of 655 to 665 million and 240 to 250 million in our CLEC operation.

Operating cash flow in our ILEC markets is anticipated to be in the range of 305 to 315 million while our CLEC is anticipated to be in the range of 15 to 20 million.

Capital expenditures for 2005 in the ILEC markets are targeted at 120 to 130 million and 30 to 35 million in the CLEC markets.

ILEC cap ex in 2004 was lower than planned primarily as a result of timing of construction expenditures. 2005 guidance reflects a higher level of capital spending to account for the timing shifts.

Approximately $10 million.

These cap ex amounts include the cost of our video market trials in both the ILEC and the CLEC which continue to proceed nicely.

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

Okay.

Kelly, we're ready for Q and A.

[Caller Instructions] Your first question comes from Mike Rollins.

Hi, good morning.

A couple of clarifications on the U.S.

Cellular side, and then I just had question about the operations.

In terms of the clarifications, first you reported, I think, an investment income in the quarter of around 7.6 million that was different than the normal investment income that you report.

Is that a one-time or recurring item?

The second point of clarification is the non-GAAP reconciliations are not on the website yet.

Could you just give us some of the numbers around retention costs to help us with that?

And just in terms of the operations, what are you seeing on the pricing front in terms of your strategy to get customers, and as data revenue continues to grow would you -- and minutes continue to grow would you expect ARPU to accelerate in 2005 or does the competitive landscape hold back the ARPU to the gains that you had in '04?

Thanks.

Good morning, Mike, it's Ken.

A lot of parts to your question there.

I will try to take them through one part -- one piece at a time.

With respect to investment income, which is where we record the equity of the companies that we don't manage, that line item really hasn't changed much at all.

So about 11 percent increase year-over-year.

The second line, which is interest and dividend income, that one is up $5.6 million.

There's two things that fit in there.

One is that interest income is up, and that is some interest that is more one-time in nature, but the other thing that is up, sizably, year-over-year, would be the dividends that we get on the Vodafone stock.

Those were about $1.7 million in the fourth quarter of last year and they're up to about 3.6 million in the fourth quarter of this year.

The reconciliation, if it's not up, will be up real shortly, and so instead of trying to read through all those numbers now, either I can get back to you right after the call or they will be out there.

That's fine.

I can get them after the call, then.

Okay.

With respect to customer billings, you know, we have increased that up until this quarter probably the last -- almost 10 quarters, I think.

So clearly the first four were easier, given that we had changed some promotional strategy, and as you get deeper and deeper in the marketplace it gets a little tougher.

You've got two kind of counterveiling trends there.

One is the continuing growth of our data revenue, and two is just the movement further and further down the marketplace.

Right now given some of the competitive pricing changes that we've seen, especially around family plans and whatever, I'm not expecting a lot of growth in that number this year.

We'll see how pricing plays out over the next months, but I wouldn't bank on it right now.

Great.

Thanks for answering all those questions.

Appreciate it.

Your next question comes from Simon Flannery.

Okay.

Thank you.

Good morning.

If I could just turn back to the CLEC operations, please, I can obviously look at the 8-K for more details but what's the depreciation benefit likely to be in 2005 as a result of the write-off?

I'm not quite clear, you talked about the FASB changes but is there any change to your business model as a result of the TRO and some of the access charge changes?

And in terms of the guidance, the accelerated profitability, what's really driving in that 2005?

Thank you.

Sure, Simon.

I think the impact on depreciation associated with impairment would be about $10 million.

Okay.

And that's---

In 2005.

And that will start from January 1?

Yeah.

I think in terms of the impact on the regulatory rulings, clearly it did impact larger markets in a greater extent, you know, UNE-P doesn't have much of a future.

That's something we've talked about all along, but certainly's it's been accelerated, so what it does though is it---we become more focused in terms of different segments of customers.

It's more and more important to have customers on our network and so I think what you find as we go forward is that there are different segments of customers that will accelerate, there are other segments of customers who will have to pull back a bit on, and then obviously data continues to be, you know, an integral part of the solution, so you know, that's something we continue to accelerate, which really weren't impacted as much by TRO.

But fundamentally access to unbundled loops was preserved rather nicely in the TRO so we were pleased with that.

So we shouldn't really read too much into the significant write-offs more it was reflecting the sort of the way that the accounting rules require to you recognize that?

Big change strategy?

It's a function of our -- of the guidance and the growth potential that we see and the pricing impact and the regulatory climate.

Thank you.

Your next question comes from David Janazzo.

Good morning.

I was wondering if you could comment----you may not be able to speak directly but looks like option 58 is winding down.

I was wondering if you could comment on the U.S.

Cellular strategy along with the bidding partner and what it could mean for future plans.

Thanks.

Good morning, David this is Ken Myers.

Hi, Ken.

There's really not a lot I can say.

Because the auction is ongoing and we have a joint venture partner that is actively involved in it, the rules are such that there's little I can talk about.

What we have been doing is public information.

We have talked about our strategy in the past which is that we will continue to look for opportunities to strength our footprint.

Each one of those opportunities has to, you know, pass through our DCF type of models, but I can't make any specific comments about what our partner is doing today or where they go next.

Thanks, Ken.

Your next question comes from Kevin Roe.

Thanks.

Ken, two questions.

First, on subscriber growth, could you give us an idea of how your older markets, you know, excluding the new launches in '04, performed, you know, sort of same-store sale basis?

How important was the new launches to the overall growth?

Kevin, I don't have, you know, specific numbers in front of me right now.

I think that a couple of comments I can make are, one, recognize these new markets, there are three of them, oak city has 1.2 million people in it; you've got Portland that may have 500,000, and Lincoln, you know, might be 300,000 or 400,000.

So the total population in those marks is not huge, so it's not like we've now dramatically changed the addressable market out there.

We're real pleased with how well we've been received in them.

They are doing very well based upon our expectations but the growth this year has been a result of further penetration across the board in all of our markets.

We continue to do very well in our other New England markets besides Portland; in our Wisconsin markets, Iowa markets.

It's across-the-board growth.

Great.

Secondly, on St. Louis, can you give us an update there as to where you stand in the buildout, you know, maybe sites built or in general how is it going relative to plan?

The actual construction of the network is going well.

We have over 200 cell sites that are up and running right now.

In fact, are carrying traffic from our customers as they roam in there.

We still have some more sites to build this year, and as I said, we're anticipating a second-half start.

We just don't have a firm date yet, and given that when you're talking about whether it be three months or six months, what we would anticipate out of that market will change rather dramatically.

We didn't want to incorporate in that our guidance and then be a couple months off and have to change it, so we thought, like we did last year, we'll wait until we get closer then update our guidance based upon a more certain start date.

Is the gating factor -- swing factor for that sort of three-plus month estimate of before launch is that primarily related to these additional sites that you want to buildout, getting zoning permits, et cetera, or are there other mitigating factors?

No, it's---we're doing very well with the construction side of it in the network---right on plan.

It is simply the organization-wide implication with a launch like this, making sure that we've got sufficient time to hire and train all of our people before they ever talk to a customer and that we've got the right distribution and the right places.

It's typical large project timelines that we're just managing, and given that one of them affects the next, there's just, you know, a couple of months uncertainty right now.

Thanks.

Kelly, before you take the next question, let me just call to your attention that the reconciliations on the guidance were were posted to the website today around 8:00 Chicago time.

So they're up there.

If you're having any issues about getting to the link to access them, you can just call my office and we'll help you out with it but you should be able to navigate to the reconciliations.

Okay, Kelly.

Your next question comes from Tom Seitz.

Yeah, good morning.

Thanks.

Just a couple of quick questions.

Ken, for Ken first, can you tell us what USF revenues were in '04, confirm those, then tell us what your expectations are for '05?

And then I'm assuming it is not in the guidance, but, you know, assuming you were to be successful in acquiring some licenses in auction 58, is there any cap ex dollars in the budget for next year associated with an increase in licenses via the -- via the auction?

And then for Dave, can you tell me what USF revenues were in '04 and what your expectations are for '05?

And Sandy, if you want to separate the two during that, that'd be good.

And then, Sandy, last question, can you talk to----can you talk to us a little bit about your strategy for the prepaid forward contracts?

You know, they're all, I think, above the ceiling price right now, and I wondered if, you know, you would consider settling those early, you know, to take advantage of the stock price.

Just talk about your general strategy for those.

Thanks.

Okay.

I'll start, Tom.

It's Ken.

The USF funds for the fourth quarter were $10.6 million.

That brings the year to date total upward to 32.4 million.

Included in the fourth quarter were very small amounts from two new states.

Historically we've received money out of our provision of services in Wisconsin, Iowa, and Washington.

In the end of the quarter we got some small amounts for -- related to service in Oklahoma and Oregon.

At this point pending any change in the rules, our anticipation is that we would see something at the fourth quarter level in each of the next four quarters.

The second part of your question dealt with the CapEx guidance that we have provided.

The CapEx guidance that we have provided is for the company's current operations including the completion of our St. Louis network.

It does not include any other market launches.

At this point in time we don't anticipate any in this year.

What, if anything, our partner gets out of the auction and what they decide to do in terms of eventual time lines are things that I can't even speculate on right now.

Okay.

This is Dave.

U S F for telecom in the fourth quarter was 21.8 million bringing the total for the year to 85.8 million and we'd expect that to be flat in '05.

Thanks.

And, Tom, with regard to the monetizations that we have for Vodafone, Deutsche telecom, and [ Veristein ] just to remind you they do mature in 2007, 2008, and we have collars which limit the benefits that we can take to the rising stock price.

So example on Vodafone, the top -- the average of the cap is $22.60.

So to the extent that Vodafone continues to rise us to the benefit of the counter parties, plus the remaining shares that we would have after satisfying these obligations--

You can settle them in cash, though, can't you?

If you, I mean, maybe they wouldn't be interested in that right now, but you can present either shares or cash, right?

That is always an option.

Okay.

We don't have any current plans to terminate these early.

Okay.

So I think that's sort of gives you the outline of the situation.

Great.

Thanks.

Uh-huh.

Your next question comes from Steven Meade.

Ken, can you hear me?

Yes, Steve.

Just barely, but I can hear you.

Just going back to U.S.

Cellular, on last year's CapEx, how much of St. Louis is in that number?

And then the other question I had is, as you go forward in the first and second quarters, the expenses that you're incurring in St. Louis, are those going through the income statement, or are they being capitalized?

Okay.

First of all, the majority of the St. Louis build was completed at the end of the year but not all of it.

Two, that system is up and running today, it is providing service, as I said, to our customers as they roam through there and those expenses are all being currently recognized.

They were expenses in the fourth quarter related to the operation in their network, and they will continue to be expenses as they go.

And how large was that?

And I was sort of curious in terms of St. Louis, you know, how many independent U.S.

Cellular offices are you planning for that market?

Are they already open?

Are people in them?

What kind of infrastructure are you going to have on the ground versus just sort of sell sites and stuff?

Okay.

First of all, we do not have any commercial locations up and open yet that---that would make us, in fact, open for business from a commercial standpoint.

The size of our distribution is not something that I would prefer to comment on until we launch the market.

Okay.

And so when you're talking about the guidance and you are going to go into St. Louis, I'm wondering why you decided to make guidance without St. Louis and then, you're going to have to revise your guidance which, you know, kind of causes additional confusion, or whatever, but just -- what were you thinking about in sort of your approach to that?

Well, the approach to that is the exact same approach we used last year on the guidance with respect to Oak City, Portland, and Lincoln, and what it's driven by is, let's take ads, when we think about launching a market, the number of ads is going to vary significantly depending upon whether we're there for three or six months, as an example, and with so many of the costs driven by that customer growth, so will its cost.

So to put a stake in the ground now around either one of those numbers, given just the uncertainty in terms of what that real data was, was just too speculative.

In St. Louis do you have a sense of whether that market -- what's the size of that market in terms of current subs, what the turnover rate is in that market, versus the U.S. averages and stuff?

I mean, is it a more attractive market to be opening up in all things being equal, or how's it look?

I don't think that it's going to be too dramatically different than an average market, but to try to go into marketing strategies and things like that at this point in time, again, it's a corner of the room I don't want to go to.

Okay.

The other question I had, on the roaming side; is the roaming revenue going to continue to fall on an absolute basis, or at some point does it just level out?

I think that there's -- there's three pieces that really drive that, okay, the divestitures is one piece.

We had south Texas was -- and Fort Pierce were heavy roaming markets, so that changes the dynamic.

The pricing, I don't know that there's a lot of movement left around that.

Minutes of use, there are two different trend lines, one is continued very nice growth from certain carriers, primarily CDMA, given that's where we put it in our network, and erosion of TDMA, which is now going GSM and we are now putting GSM in our network.

While the amount was larger than normal in terms of percentage, it wasn't any different, in fact, it was slightly better, than what we had forecasted, and the net effect on the economics of the company is awfully small, given what has been going on with roaming costs.

So the -- it kind of sticks out as a sore thumb up in the revenue line, but it has not been a big issue this year, nor do we anticipate it to be a big issue.

One other question.

Did you mention what data was as a percentage of the revenue now on U.S.

Cellular side?

Yes, sir, I did.

North of 3 percent. 3.4 percent for the quarter.

Then as you look at sort of what's happened on the data side, what would be your -- I mean, can you talk a little bit more what the expectations would be as far as what potential is there and whether that's going to be a gradual penetration thing or do you see an acceleration of data penetration?

If I look back at what we've seen over the last year, where we've had some markets with data for the full yer and some just for the end, because of the schedule of our CDMA rollout, our expectation is probably along the gradual line.

Thanks.

Your next question comes from Donna Jaeger.

Thanks for taking my question.

Just a few quick ones.

On the CLEC business, did I understand you right that you're projecting 10 to 15 million in operating profit?

Operating cash flow.

Operating cash flow, okay.

I thought that was a big turn for only 7 million revenue jump.

Well, as Mark described, our guidance is posted on the website, our operating cash flow guidance is 15 to 20.

Okay.

Great, and on the universal service fund and the whole debate over inter-carrier comp I was just curious what your view was on what was going to happen this year on that and what your stance is.

Well, you know, we believe that inter-carrier compensation is a system that needs to be reformed.

Certainly there are a lot of people who have a lost of different approaches to it.

We have been supporting what's call the "expanded Portland group model" which is more of a capacity-based model, kind of a connections-based model.

I think there's going to be a lot of give and take this year but it's unlikely that anything in my opinion would happen in 2005, and I think the same thing with U S F.

Certainly, a lot of different positions around funding and who should contribute but I think it's unlikely that that gets resolved or we see any revenue impact in 2005.

And in most cases, I think, depending on how it works, we tend to see some type of a phase-in of whatever it would happen to be.

So I think it's unlikely we'll see an impact in2005 but there will certainly be a lot of discussion about it and the longer it takes to get a commissioner in place, et cetera, will impact that agenda as well.

Thanks for your input.

Your next question comes from Nigel Boe.

Yeah, it's Nigel Coe, actually.

I've got some questions for you.

First off on the ARPU, it's a little bit weaker on the retail side than I expected.

Could you talk a little bit about some of the pricing you're seeing in some of your key markets?

And secondly, just want to clarify on the CapEx, it doesn't sound like you got much in the way of CapEx in St. Louis.

Could you just confirm that?

And thirdly on the balance sheet for U.S.

Cellular you've recognized quite a large deferred tax asset in current assets.

Could you confirm why you've recognized the assets?

Thanks.

Okay.

With respect to ARPU, I don't think, on the customer billing side, there's anything too substantial there.

I think it's -- part of it is just kind of the year-end math that's involved.

Pricing that we see in our markets is, you know, primarily national-based pricing that you see in about any market out there.

St. Louis, as I said, there is some capital in there to complete the buildout this year; it is not what I would consider to be substantial, but, you know, like in any market, there will be ongoing capital even once you're in there.

But there is capital related to it this year but the larger part of it was [inaudible] in 2004.

The deferred tax asset gets pretty technical.

How about I follow up with you on that Nigel?

Okay.

Follow-on question, basically just to clarify on the operatives, no special promotional pricing in the fourth quarter?

No, there's nothing that I can point to that's a one-time item that suddenly changes.

Okay.

Just on the DSL very quickly--- very nice spike in DSL adds in the quarter, well above historical trends.

Is this a good number to model going forward, and, you know, what actually changed to drive up that number?

Thanks.

Well, you know, DSL ace said, Nigel, is important to us.

We're going to continue to push forward with it.

Obvious there's a lot of trends that are, you know, that impact it in terms of cable modem responses et cetera.

But I think that kind of growth is not unreasonable as we think about it going forward.

Probably on the high side in terms of where we'll end up next year.

Obviously we've got some market that we just got started in, so it probably won't be quite as strong in 2006.

But we did a little -- or in 2005, but we did a little better in 2004 than we thought as well.

Your next question comes from Jonathan Schildkraut.

I just had a question on cost of service.

It cut out a little in the begin of the call so I apologize if you've talk about this, but there was a pretty substantial drop-off from Q3 to Q4, 27 million.

I was wondering if you could discuss that and talk about the right way to think about that cost on a go-forward basis and also I heard something about an $8 million benefit in 2004 and I was wondering in what quarter that occurred.

Okay, John, it's Ken.

There was a sizable drop between 3 and 4, and there's really three different factors.

One is that Q3 had some markets in it that were divested in Q4.

It just takes a layer of cost out.

The second one is that I talked about how roaming revenue had declined because of some price changes.

Well, the other side of that is the roaming cost that go down right with it.

And so while there was a noticeable change in the revenue line and in ARPU, it had little real economic effect on the company at the end.

And then there was an $8 million of a one-time benefit in roaming costs this quarter, and it was this quarter.

I would not anticipate that going forward on a recurring basis.

What it is is embedded in roaming costs are sales taxes that have been paid that we recently won at a state level on an audit and got a refund on those, and so those were roaming costs that were recognized in the past; when they were paid we got the state to refund the money and, you see that benefit now.

But it's not something I would anticipate going forward.

All right.

Thank you.

If we could just come back to Nigel's question real quickly on DSL, I want to make sure we're clear.

As you think about modeling it probably the absolute increase that we had is reasonable to expect that again next year but obviously as a percent of the base it would be a smaller number.

Your next question comes from Colette Fleming.

It's actually Mark Kinarney Just wanted to get some color on the subscriber base.

I know over the course of 2004 your reseller base has picked up quite a bit.

Could you give me the percentage of your base that's prepaid and reseller, that type of thing, then could you also give me bad debt for the quarter, please?

Hello, Colette -- I'm sorry, Mark.

The prepaid is -- as a percent of the base is not dramatically changed, it's still about in the 3 percent range.

I don't have the reseller number right in front of me.

I'll call you, get back on that.

And bad debt will be in the Q. I just don't have a separate number to the level of detail we're at right now.

Thanks.

Your next question comes from [David Bo].

U S F funding that you were talking about was that for the wireline or the wireless business?

David this is Ken.

I didn't hear the beginning of your question.

The U S F funding that you guys were talking about earlier --.

Well, I believe Dave talked about the level of U S F funding that the Telecom received, and I talked about the level of E T C money that U.S.

Cellular has received.

Okay.

I guess I'm a little new to the acronyms.

What's E T C?

Eligible Telecommunications Company money.

It is money that comes out, it is a government funded program that comes as a result of our designation as a eligible telecommunication carrier providing services to certain areas.

And that's coming out of the U S F fund, right?

Yes, it is.

Okay.

Great.

Thank you.

Your next question comes from Chris King.

Good morning.

Two quick questions for you.

One regarding the cash tax liability of 550 million or so in '07 and '08.

How should we look at that going forward?

Will there be a committed cash offset to that at some point, and second question, just was wondering if you guys could comment or have any comment regarding the Southeastern asset group proposal that's outstanding to perhaps recapitalize the equity structure in some way, shape, or form.

Sure.

Let me start with the second question.

And the TDS board of directors will have a recommendation to the shareholders on the Southeast management proposal along with any other proposal that will be presented to shareholders at the annual meeting, and they haven't formulated their position at this time.

I do think it's fair to say that you should not expect the Carlson voting trust to be in support of that proposal.

But the board will be crafting its response in a timely manner.

With regard to thinking about the tax liability, certainly when we get to the point of maturity of the 2007 and 2008 time frame, we will be looking at various strategies for -- with satisfying these obligations.

We can even look at the potential of rolling them over for some extended period of time.

But certainly at the point at which we would have to satisfy the obligation, if we do it with shares, we'll have this tax obligation.

We currently have enough cash on hand to handle it.

But as we do our resource allocation from now until '07, you know, we'll be looking at the merits of using the existing cash versus any potential debt funding that might be necessary for the taxes.

So it's an ongoing, you know, strategic consideration, one that there's not a pat answer to right now.

Okay.

Thank you.

Uh-huh.

At this time, there's no further questions.

Okay.

Thank you, Kelly, and thank you everybody for joining us on the call today.

If you have any follow-up questions, you can reach me on the phone numbers that are noted on the press release.

Thank you and good-bye.

Thank you.

This concludes today's conference call.

You may now disconnect.