美國無線通訊 (USM) 2009 Q1 法說會逐字稿

Good morning, my name is [Jamal] and I'll be your conference operator today.

At this time I would like to welcome everyone for the first quarter operating results for Telephone and Data Systems and United States Cellular Corporation.

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

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

(Operator Instructions) Thank you.

Mr.

Steinkrauss, you may begin your conference.

Thank you Jamal, and good morning everybody.

We appreciate your taking the time to be on the call.

With me today and offering prepared remarks are Ken Meyers, Executive VP, CFO at TDS; Steve Campbell, Executive VP Finance, CFO and Treasurer at U.S.

Cellular; Jay Ellison, Executive VP and COO at U.S.

Cellular; Bill Megan, Executive VP Finance and CFO at TDS Telecom.

Also joining us this morning is U.S.

Cellular CEO Jack Rooney.

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

Chicago time.

It will run through midnight Thursday, May 7th.

The replay number is 1-800-642-1687.

And the conference ID is 96977513.

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

Same pass code.

Please keep in mind that the purpose of today's call is to discuss the operating and financial results for our companies and any other information contained in today's press releases.

If you have any other questions unrelated to the operating and financial results, I would be pleased to respond to them after the call, and am available for the remainder of the week in my office.

My contact information is on the release.

For many years, TDS has maintained an open door policy.

If you are in the Chicago area and would like to meet with members of the management team from TDS, U.S.

Cellular, or TDS Telecom, Investor Relations team will try to accommodate you, calendars permitting.

This call is being simultaneously webcast on the Investor Relations sections of both the TDS and U.S.

Cellular websites.

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

Please recall that archived calls are not updated.

Some information during this call and subsequent Q and A period contain statements about expected future results and financial results that are forward-looking and subject to risk and uncertainties.

Please review the Safe Harbor paragraphs in our releases and the more extended versions on our websites as well as in our filings with the SEC.

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

Cellular filed 8-Ks.

The 8-Ks include the press released this morning.

Both companies plan to file their SEC forms 10-Q later today.

Both press releases have been posted to the TDS internet home page and U.S.

Cellular has posted their release to their website as well.

You'll also find posted on our website additional information, reconciliation of non-GAAP financial measures that may be used by management when discussing operating results during today's call.

The Company's updated guidance for 2009 is posted as well.

The reconciliations of the net income, diluted EPS, and operating cash flow.

All of this information is included on a separate page entitled Guidance and Reconciliation to make is easier to find.

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

Please note that the comparisons made today by the speakers and their prepared remarks are first quarter year-over-year compares, unless otherwise indicated.

In 2009 as a result of the implementation of FFAS 160 which was effective January 1 this year, we made a change on the balance sheet.

Minority interest is now referred to as non-controlling interest and classified within equity.

Also, FFAS 160 requires a presentation change to the statement of operations in that net income now includes net income attributable to non-controlling interest.

Below the net income line item, the net income attributable to non-controlling interest is deducted from net income to yield net income attributable to TDS/U.S.

Cellular.

These presentations were made retrospectively so that the 2009 and 2008 presentation is consistent.

Note three in the 10-Q provides a full explanation of this matter.

Both companies have confirmed prior guidance for the year, and the details are in the press releases and websites.

Steve and Bill will comment on this shortly.

We will be visiting the following cities and attending several investment conferences in the next month or so.

Next week, the Morgan Stanley Telecommunications Services Corporate Access Day in New York City on May 14th.

Barclays Global Wireless and Wire Line Conference in New York City on May 27th and 28th.

We'll also be meeting with investors in Baltimore, Washington D.C.

and Richmond, Virginia on June 4th and 5th.

We will be presenting at RBC Technology Media Communications Conference in San Francisco on June 10th.

And finally, we'll be presenting at CFSB Credit Resource and Convergence Conference in Dana Point, California, on June 11th.

If you would like to meet with any of us during these events, let me know and we will try to accommodate you.

With that, I'm going to turn the call over to Ken.

Good morning.

I have just a few comments to make about the quarter before turning the call over to the rest of the team who will cover the operating results.

We will then take questions at the end of our prepared comments.

TDS's operating revenues increased nearly $1.3 billion in the quarter with all of the increase driven by U.S.

Cellular.

Of note, U.S.

Cellular's data revenue continue to grow nicely and average revenue per unit was up year-over-year despite a decrease in roaming revenue.

And TDS Telecom continued its transformation to a broad band provider by growing the number of high speed data customers and data revenue.

TDS purchased approximately 504,000 special common shares in the quarter for about $12 million.

As you may recall, in November of 2008, the Board of Directors authorized purchase of $250 million of Company shares over three year period.

This authorization gives flexibility to purchase either TDS common or special common shares.

The first five months of this new authorization, the Company has purchased $88 million of stock, leaving $162 million current authorization.

We intend to aggressively continue purchasing our shares, as we believe the stock offers an attractive value at these levels.

We ended the quarter with $756 million in cash and cash equivalent invested primarily in treasuries.

The Company also has $54 million invested in certificates and deposits, which are FDIC insured.

The CDs are listed as short-term investments on the balance sheet.

Moving forward, we tend to invest more of our cash position into CDs, as they're currently earning higher interest rates.

Also in the area of liquidity, TDS and US Cellular have $1.3 billion revolving credit facilities which expire this year.

These facilities are unused at this time, and we are currently meeting with bankers.

Given our cash position and the tone of the credit markets, we expect the amount of any replacement facilities could be significantly reduced for shorter terms and higher pricing.

We'll keep you informed as the terms are firmed up.

TDS's effective tax rate for the quarter was 30.3% due to a one-time benefit in the state tax law change.

We expect the effective tax rate for the year for TDS to be approximately 35% to 36%.

Of note on the income statement, interest and dividend income is down nearly $8 million due to lower interest rate on lower cash position.

Interest expense is down about $11 million, primarily due to the elimination last year of the prepaid forward contracts.

Finally, you will note the increase in earnings per share which was positively impacted by the Company's share repurchase programs.

Overall, we had a solid quarter.

We continue to be cash flow positive and have a very strong balance sheet.

With the financial strength and flexibility to grow our companies in this economic downtime.

Now I will turn the call over to Steve Campbell at U.S.

Cellular.

Steve.

Thanks, Ken.

And good morning to everyone.

US Cellular is off to a good start and reporting solid results for the first quarter of 2009, despite the challenging economic and competitive conditions that we're facing.

Taking a look first at customer activity, we ended the quarter with over 6.2 million total customers.

Our retail customer base grew to 5.8 million, up over 2% from the same quarter a year ago.

Retail gross additions for the quarter were $366,000, up 2% year-over-year and 4% sequentially.

Retail net additions for the quarter were $63,000, down from $85,000 a year ago, but up more than 90% from $33,000 last quarter.

We had a nice gain in post-pay customers.

The Cornerstone segment for our strategy just $60,000 net additions, and we kept the post pay churn rate low at 1.46% for the quarter, a sign that our customer satisfaction strategy continues to be effective.

ARPU for the quarter was $52.54 up about 1% from the prior year.

The key driver of the increase was data revenues.

We continue to see nice growth in this area, with data revenues increasing by 36% to $157 million.

This growth in customers and data revenues helped drive an increase in total service revenues despite a reduction in inbound roaming revenue.

Total service revenue for the first quarter were $982 million, up 2% year-over-year.

Inbound roaming revenues were $60 million, down $13 million, or 17%.

The decrease here was due primarily to a decline in roaming revenues from the combined Verizon/Alltel entity.

In certain coverage areas, the certain usage levels by the combined entity are down from the past usage levels by Verizon and Alltel as separate entities.

We anticipate this trend will increase over the next several quarters.

ETC revenues from the universal service fund were $38 million, up $7 million or 24% from last year.

This increase is due to revenues in several additional states where we qualified to receive support over the past year.

Due to the ongoing possibility of USF reform, the level of funding we'll receive in the future is uncertain.

However, we don't expect any material change over the next couple of quarters.

Turning to cost and expenses, the net loss on equipment for the quarter was $115 million, up $13 million or about 12% year-over-year.

This increase is indicative of the aggressive promotions that continue to be utilized by carriers to stimulate customer adds and renewals in a maturing industry together with a challenging economy.

It is also a function of selling more Smartphones and other premium hand sets with expanded capabilities, which tend to have a higher subsidy on a per unit basis.

During the first quarter, sales of Smartphones and premium devices including our Blackberry and Windows Mobile Solutions nearly tripled year after year.

As we expand more of our 3G network to more of our cell sites, we expect continued growth in sales and related revenues in this area.

Other cash operating expenses consisting of system operations and SG&A, grew $18 million or 3% year-over-year.

This reflected an increase of 8% in the number of cell sites and service as we continue to expand our network coverage and quality.

Additional customer usage and other costs related to the growth and data services and higher advertisings we attempt to maintain our brand awareness in this very competitive environment.

Operating income for the quarter was $115 million.

This compared to $119 million last year, which included a benefit of $3 million related to the sale of accounts receivable, but had been written off in previous years.

Operating cash flow for the first quarter was $255 million, compared to $265 million in the prior year, and the operating cash flow margin was 25.9% compared to 27.6%.

Although total service revenues grew by 2% year-over-year, we experienced a reduction in high margin roaming revenues, which together with increases in the equipment subsidy and other cash costs of acquiring and retaining customers, offset that growth and resulted in modestly lower operating cash flow and margin.

Investments and other income for the quarter totaled $7 million, compared to $3 million in the prior year.

Earnings related to our interest in the Los Angeles partnership were $16.9 million and $15.8 million respectively.

Income before income taxes was $122 million.

Essentially the same as in the prior year, whereas net income for the quarter increased to $91 million, up $16 million or 21% year-over-year.

This increase reflected a reduction in the overall tax rate from 38.9% in 2008 to 25.6% in 2009.

Primarily due to a one-time state tax benefit resulting from a tax law change, as Ken mentioned in his comments.

This tax law change is not expected to provide any incremental benefit in future periods.

And, therefore, for the full year of 2009, we estimate that the overall effective tax rate for U.S.

Cellular will be approximately 34%.

Our balance sheet remains very sound.

March 31st, the cash balance was $192 million and there were no outstanding borrowings under our revolving credit facility.

Currently we have borrowing capacity of $700 million under that facility.

As I mentioned a moment ago, the Company generated substantial cash flow from operating activities during the quarter.

We used some of this cash to fund capital expenditures of $138 million, including expenditures related to our EBDO expansion in selected markets.

In addition, we repurchased 367,000 of our common shares at a cost of about $13 million.

Our guidance for the full year 2009 is shown in today's press release and remains unchanged from that communicated earlier this year.

Although we are off to a good start and achieve solid results in the First Quarter of 2009, it is still early in the year, and there are a number of significant uncertainties that it could affect the full-year results.

Now I'll turn the call over to Jay Ellison for some comments on our operational performance and plans.

Jay.

Thanks, Steve, and good morning to everyone.

As Steve already mentioned, we're off to a good start in 2009.

Service revenues for the quarter grew 2% year-over-year and ARPU grew by 1%.

Both of these positive trends reflect outstanding growth in our data revenue.

Data now represents 16% of our total service revenues, up from 12% a year ago and it has room to increase further.

During the first quarter, growth additions in our key post paid segment were $299,000.

These results reflect a 5% improvement on a year-over-year basis and a 2% increase sequentially.

We believe that several factors contributed to this improvement.

First, we continue to be competitive in our promotional offering and we launched several new hand sets to keep our product mix optimized to meet the needs of our customers.

New devices include the LG Wine, which provides customers who want our basic services with a quality hand set at a value driven price.

The Samsung TwoStep and the LG Banter.

Both of these hand sets provide value to customers who want to take advantage of our entire fleet of data products and services.

And in April, we launched the ATC Touch Pro.

A Windows mobile device that will further expand our offerings in the SmartPhone category.

Also, we've seen a nice take rate on the new bundled service plans that we introduced on February 1st.

These bundled plans which combine some of our most popular features together, include unlimited messaging plans which offer unlimited text, picture and video messaging for $19.95 to $29.95 a month, and unlimited messaging and Internet plan, which offer all of the features of our unlimited messaging plan and unlimited data access, mobile e-mail and a mobile browser for $24.95 to $49.95.

Another factor is the continued expansion of our EVDO network.

During the fourth quarter of 2008, we turned up EVDO service in Chicago and selected markets in Iowa, Oklahoma, and Wisconsin.

This is providing our data subscribers with a high speed, high quality user experience.

As you know, certain of the unlimited providers recently launched new services in the Chicago market.

To address this competition and to reinforce the value of our valued proposition, we have augmented our marketing plans with the following actions.

We've launched a new aggressive media campaign that emphasizes the value in our calling plan, particularly the value of free incoming calls and availability of our national calling plan.

We have introduced our $65 unlimited prepaid calling plan in the Milwaukee and Chicago markets.

And for a limited time only, added unlimited text messaging to this plan at no extra charge.

In the future, we will be offering this plan in all of our markets.

We have incorporated messaging about our superior network and hand set pricing into our prepaid advertising, and we are executing a win-back campaign targeted specifically at those customers who left our service for (inaudible), emphasizing our high quality network and overall outstanding customer experience.

Frankly, we have competed against other unlimited providers for many years, and we are confident that our commitment to ensuring the ideal customer experience, both at the point of sale and afterwards, our superior network.

and our compelling value proposition ultimately will win out in Chicago as it has in other markets in the past.

I want to change the focus now and talk about some of our plans to continue to grow and to strengthen our business during the remainder of 2009 and for the longer term.

To capitalize, on the continuing increase in the demand for data services, our current promotions are geared towards increasing our penetration of Smartphones and other data devices, and to help ensure our that data customers receive a high quality data experience, we plan to continue the expansion of our EVDO network this year to include sites covering the rest of Iowa, Tennessee, and western North Carolina.

As a result, more than 60% of our total cell sites will be EVDO capable by the end of 2009.

This expanded EVDO capability is important because it will allow us to offer our customers an enhanced data experience, as well as new products and services not previously available from U.S.

Cellular.

We plan to expand our offerings in the prepaid segment of the market, although we have been and will remain predominantly a post paid focus company, we view offering a competitive prepaid product as an important part of providing our customers with a complete range of options and prepay is part of our value proposition.

Late last year our prepaid platform provider announced its decision to exit the business, necessitating that we select and convert to a new platform.

We are in the process of making that conversion and expect to complete it this quarter.

The new platform will provide our existing prepaid customers with an improved user experience.

It will give us greater flexibility in designing our prepaid plan offering and give us the ability to offer prepaid data services in the near future.

I want to mention a couple of exciting new marketing programs.

During April, we launched our new community outreach program, Calling All Teachers, a grass roots initiative that will funnel $1 million directly into the classroom of the public school teaches.

Both this program and our previous Calling All Communities program are delivering on U.S.

Cellular's grand promise to be more than just a phone company to customers and potential customers in the communities where we do business.

And as a result, we'll have positive, long-term effects on customer loyalty.

And later this month, we'll be launching our battery swap program on a company-wide basis.

This innovative new program, which is unique to U.S.

Cellular, is aimed at enhancing the customer experience.

Beginning on May 19th, a customer can visit any U.S.

Cellular company owned retail store or exclusive agent location and swap a dead battery for a battery that is fully charged.

Whatever the reason, and free of charge.

Battery swap is another proof point of U.S.

Cellular's continuing commitment to providing the highest level of customer satisfaction in the wireless industry.

On our last call, we told you about several major initiatives that will begin this year.

They include an enterprise data warehouse customer relation management system to collect and analyze the in depth information that will enable us to develop far more intimate customer relationships than has been possible in the past.

A new operating employment sales system that will streamline our billing environment and give us the ability to develop more flexible pricing and bundled services, as well as the capabilities to develop and introduce new products and services to our customers more quickly.

And internet web initiatives that will allow customers to complete a wider range of buying and account management transactions online.

Work on these initiatives, including the development of an integrated product structure and word plan is currently underway.

We expect to complete the internal staffing of the initiative and begin detailed requirements, definitions, and design work later this quarter.

In summary, we delivered very solid operating and financial results in the first quarter.

We believe that we have an opportunity to continue to grow our business over the long-term and that our core strategy of delivering the highest level of customer satisfaction in the industry is down.

We offer a competitive mix of products and services, particularly to our key copay segment.

Finally, we are investing in our business and infrastructure to further enhance the customer experience, provide greater value to our customers, and to most efficiently and cost effectively deliver the ideal customer experience.

Now I'll turn the call over to Bill Megan for a discussion of TDS Telecom results.

Bill.

Thank you, Steve and Jay.

Good morning, everyone.

TDS Telecom's results for the first quarter were impacted by the weakening economy, as well as the initiatives we have undertaken to remain competitive against wireless and cable providers.

On a positive side, we had a strong growth in high speed data subscriber base and we have seen our access line lost tempering a bit.

For the quarter, TDS Telecom's combined [ILEK] and [CLEK] revenues declined 3%.

The decline was 1% in the ILEK and 9% in CLEK.

In the ILEK, voice revenues declined in line with our access line loss.

The decrease in network access revenues is driven by lower minutes of use on our network and lower access rates.

The decline in CLEK continues to be driven by our decision to limit our new residential customers.

Cash expenses increased 2%.

Cost control efforts were offset by investments we are making in initiatives to attract and keep customers.

Operating cash flow declined 11 %, and the operating cash flow margin to 34%.

A strong positive in the quarter was the increase in ILEK data revenues, which grew 18%.

Our promotional campaign for high speed data added 9,800 net subscribers sequentially.

Gross adds remain strong at 17,900 for the quarter.

Our high speed data penetration over all access lines is now at 34%, up seven percentage points from last year.

We are also seeing a greater percentage of our customers using higher speed service, which is contributed to a residential DSL ARPU increase of 6% to $37.

88% of our customers are taking speeds of 1.5 megabit or greater, and over half are taking speeds from 3-25 megabits.

We have had continued success in selling our triple play, adding 5,500 net subscribers in the quarter.

And we now have a little better than 64,000 in total.

We continue to invest in our network.

Capital expenditures were $26 million for the quarter on a consolidated basis.

We will continue to evolve our network and put the necessary infrastructure in place to offer competitive broad band speed.

91% of our lines of our ILEK lines are equipped for DSL service.

In 2009, about half of our lines will be capable of 10 megabit speeds or greater.

We are also readying our network to provide 25 megabit or faster in our most competitive market.

We are investing in additional advanced service offerings, including our hosted IP-based services and higher speed data over bonded copper facilities for our commercial customers.

And we are expanding the capabilities of our network with our 10 gig regional fiber transport initiative.

Let me elaborate for a moment on the initiatives we have under way this year.

We indicated last call that we were rolling out products to respond immediately to the weakening economic environment.

In the consumer segment, we see the near term competitive battle for data services moving to affordability rather than top end speed.

So we have emphasized speeds in the range of 1.5 to 10 megabits.

Similarly, we have rolled out new voice and data service bundles that give consumers a lot of flexibility in matching the service sets to their needs and budgets.

And for our triple play, we have launched a new promotion in tandem with Dish that extends their $9.99 for six months offer to a full year.

We also include an HDTV in our program.

This offer requires a two-year commitment from the customer.

And we have armed [Stave and Winback] teams with additional tools, including our version of naked DSL.

In the commercial segment, we are leading with our hosted IP service we call VantageIP.

Among many benefits, the service provides very rich call management features, such as advanced call routing and one-call capability.

Because it is hosted on our network, the service has carrier grade failover capability.

We believe this is an especially attractive offering in this environment, since it allows businesses to avoid a large up front capital investment because the services is hosted on our network.

The service has been very well received in the small to medium business space as they seek to reduce their cost and let us manage their telecommunications.

In our press release, we provided a new data series showing performance of this new service.

Managed IP stations are the actual number of station sets installed at our customers.

For both ILEK and CLEK we had 5,100 stations installed at the end of first quarter, nearly doubling the count from last quarter.

We do not count these customers as physical access lines, but we do count the stations in equivalent access lines.

Our investment in the 10 gig transport network will work for us in several ways.

It will help us reduce cost by enabling more efficient cost routing and internet back call to fill an enhanced network reliability with expanded route diversity and redundancy.

And allows us to roll out new services like managed IP to more markets.

And, finally, we are confirming our guidance as shown in the Company and press release.

And with that I'll turn the call back over to Mark Steinkrauss.

Thank you, Bill.

Jamal, we are now ready to take Q and A.

(Operator Instructions) We'll pause for a moment to compile the Q and A roster.

Your first question or comment comes from the line of Ric Prentiss.

Your line is open.

Thanks.

Good morning, guys.

A couple questions for you .

First, I think you mentioned by the end of 2009 you want to get to where 60% of your cell sites will have 3G in it.

Can you remind us where you were at year end 2008 and where you are right now and can you translate that maybe also into percent of pops instead of just percent of cell

Well, Ric, it's Steve Campbell.

At the end of the year we were at about 30%-33% roughly in terms of cell site coverage.

And as we said and you reminded us, we're targeting about 60% of cell sites covered by the end of 2009.

And I would translate that by saying we think that that coverage will translate into about 75% of our post pay customer base.

How about year end 2008?

What do you think that was of the base?

Something like 40% then, or --

I don't know offhand, but I would guess perhaps a little lower than that.

Okay.

And then also obviously emphasizing Smartphone penetration, what percent of your post paid base are Smartphones, and are you selling air cards as well?

This is Jay.

We are selling air cards and all of our EVDO markets as we launch bring up an EVDO.

We're adding the air card itself to both our direct sales organization, but we're putting those in all of our retail stores with the launch of each of those EVDO markets, and we'll continue with that strategy as we bring up the ones that we mentioned earlier on the call.

As far as Smartphones, our Smartphones sales -- let me answer it two ways.

Our Smartphones sales have been running at 78% of our mix recently.

And it's 4%-5% of our total post pay base at this point.

Okay.

And you mentioned the USF in the quarter on the revenue on the wireless side was $38 million.

Difficulty to peg Washington, particularly now with a new administration.

But I think I heard you guys say you don't expect any material change for the next several quarters.

What is the process going on right now with USF reform?

Well, I think to some degree it's in advance right now.

There's still some open seats at the commission.

There have been nominations.

I think that they are still pending confirmation.

I think we expect that the commission will take the issue up again later this year.

But I don't think we can speculate beyond that as to what might happen.

Maybe another way to answer the question, you mentioned that roaming expect to get worse given the Verizon/Alltel closing versus what we saw in the last quarter.

If you look at your 2009 guidance which was left unchanged on the wireless side as well, what kind of baked into the 2009 revenue guidance for your thoughts on USF and roaming?

Well, as I said in my comments, the decline we saw in the first quarter we're expecting that trend to increase over the balance of this year.

And on DTC revenues, as I said, we're not expecting any significant change for the next couple of quarters.

Okay.

And then a final comment and question, obviously some good success on the Smartphones and the data, ARPU, rolling out some more areas.

What are your thoughts as far as [Forgie].

It might seem premature, but CTIA was quite a bit of buzz.

What do you see going on with LT as far as time frames?

Is it going to be data only to begin with, and how would you guys look to trial or deploy it over time?

I don't think our view on LT has changed.

This is Jay again.

It looks like at a high level what we've currently seen in talking to infrastructure in hand sets that 2010 does look like data cards potentially rolling out.

Hand sets, a wide variety of hand sets look to be very late 2010, 2011.

We are in the planning phase to do some technical trials.

Potentially later this year.

But purely from a technical basis.

And then depending on how that evolved, we would then look to similarly what we have done and 3G a small commercial trial and then make some decisions from that in 2010.

Okay.

Thanks, guys.

Ric, just to go back to address your question about the number of cell sites that had EBDO capability of 12-31, approximately 23%.

23.

Okay, thanks, Mark.

Your next question or comment comes from the line of Simon Flannery.

Your line is open.

Okay.

Thank you very much.

Good morning.

Very good churn number getting under 1.5% for the quarter.

Could you talk a little bit about the drivers of that given the weak economy.

Some carriers have talked about seeing business churn tick up.

What is your drivers on that and what is your expectation for the balance of the year?

And then this has been the best quarter in wireless in a year and if you look at your guidance, it certainly implies a lower rate for the rest of the year.

Do you think there's a lot of seasonality at play for your business, or is that really being appropriately conservative given the environment out there?

Thanks.

This is Jay.

I'll take bits and pieces of both of those.

On the churn side I can tell you that we have been listening to our customers and as -- our whole point is around the human -- creating customer loyalty.

One of the things we offered in the first quarter was an incentive different and above what we would offer anew customer.

And we offered an additional hand set rebate to our existing customers in the first quarter.

I think that has helped drive down our churn rate.

And we are looking at based on the net results and the results that we've reported today looking at different variations on an ongoing basis of that program.

We are looking at a longer term and much broader loyalty program for our customer base.

But that basically was the general -- one of the general drivers of this churn.

And, of course, being very aggressive in our customer relations and our stores being educated around all of those things.

I'll make -- I think there is some seasonality that we have experienced on a year-over-year basis.

And I think our guidance is reflecting still some uncertainty in the economy and the implications around that economy for at least the first three-quarters or so of the year.

And that's really what is reflected in those numbers.

Your next question or comment comes from the line of [Phil Cusick].

Your line is open.

Hi.

This is actually Richard in for Phil.

I wanted to follow-up a little bit and ask if you saw the store traffic change once leap and (inaudible) launched in February and given what just said about your guidance and is that guidance reflecting the change in competitive levels going forward.

If you could answer that.

I would say our store traffic really has been fairly consistent.

We -- as I mentioned in my prepared comments, nevertheless with multiple prepaid type or unlimited type providers, we've augmented our campaigns to really address our customer base as much as anything making sure that we have competitive offerings there and have augmented our prepaid offerings and feel very strongly our network messaging is very critical and made some changes there.

But our overall traffic in the first quarter was not off tremendously from what we have seen historically in the first quarter.

Great.

Thank you.

Your next question or comment comes from the line of Will Power.

Your line is open.

Great.

Thanks.

I guess a couple additional questions.

You had gross adds -- retail gross adds up year-over-year sequentially.

As you look at the sequential performance it also looks like SG&A was down sequentially despite the higher growth.

I wonder if you could comment on that and some of the drivers there.

And then separately, slightly positive prepaid growth, despite the platform changes under way and increased competition.

I wonder if you could give us any more color on the drivers there and any initial thoughts on the take rate you're seeing for the $65 prepaid plan.

Thanks.

I think in terms of the trend in G&A, we have said that we're looking at all areas of cost in the business.

And I think what you're seeing there is just ratcheting down and tightening down on costs.

There is nothing really significant as a single line item that jumps out in the quarter.

The one thing I would mention is that I think advertising quarter to quarter is down given the heavy advertising that we do in the fourth quarter associated with the holiday selling season.

But other than that, I don't think there is anything that I could call out as a significant quarter to quarter factor in SG&A.

On the prepaid side, I don't have the specific take rates on those $65 plans.

Just remember that those plans, as I mentioned, and my comments were only available in a small percentage, two markets actually, Chicago and Milwaukee.

And I also mentioned that we will be expanding that offering to other markets as the conversion completes later this quarter.

We continue to balance between our focus with our associates relative to prepaid and post paid.

But one of the main things we've done a lot of work around in the past 12 months is educating our front line that it's really customer needs base selling and to position our products together up front so that they can talk through the needs with our customers.

And in this economic time, one of the things we are seeing is some consumers are making decisions to add that third or fourth line potentially in that prepaid category versus adding a family plan to get some cost controls relative to their expenditures.

And we have seen a lot of that as well.

Our next question or comment comes from the line of Chris king.

Your line is open.

Good morning and thank you.

Two questions for you.

First of all, with respect to the competitive dynamic in several of your markets, I was just wondering if you could comment on any changes that you were seeing in minutes of use trends on the voice side, either as a result of the softening economy or as a result of the competitive pressures, whether you have seen any changes in that dynamic over the last several quarters of note?

And secondly, obviously you guys have had some changes in your board representations at both TDS and U.S.

Cellular.

I just was wondering if you could talk at certainly a very high level about your relationships with some of the larger independent shareholders and how that dynamic is playing out.

Thank you.

Okay.

This is Steve.

I'll take the first part of your question which was related to minutes of use.

And I think there is actually two parts to that question.

On the voice side, minutes of use have been very stable over the last few quarters.

There is no noteworthy trend in usage on the voice side.

However, as you can imagine from our data revenues, we continue to see an explosion in the level of data, particularly in text messaging.

So that part of usage is up dramatically quarter to quarter, quarter last year, et cetera.

Chris, with respect to the second part of your question, as I mentioned in my opening comments, we wanted to take advantage of the fact that I've got a whole bunch of folks from my finance and operating teams here.

So we're going to take that call afterwards and I'll give you a call in your office to chat with you about it.

Understood.

Thank you.

Your next question or comment comes from the line of Kevin Roe.

Your line is open.

Thank you.

Good morning.

Given the plans to roll out the $65 unlimited prepaid plan on all of your markets through this quarter and the rest of the year, how should we think about the impact of that plan, that offering on your EBITDA margin?

It was 26% in the quarter.

Is that plan accretive to that margin or diluted to that margin long-term?

Second question would be on the post paid strength you saw in the quarter, which was great to see some traction there.

Has that strength continued through the month of April?

And, lastly, one for Ken maybe.

Unbilled spectrum.

Any plans for your unbilled spectrum and why not monetize it.

Thanks.

I'll start.

On the unbilled spectrum.

At this point there aren't any plans to do anything given the economy right now.

Similarly, we do think that some of that could be future areas of growth for the Company.

So we have no plans to monetize it at this point in time.

This is Jay.

I'll try to take the other couple of questions.

I may need reminder.

I believe on the prepaid comment, it depends, of course, on the uptake.

But over the long-term, we don't see really any major implications on the margins.

And, again, we are focused mainly around post paid and we'll continue to do so.

On your question around traffic in April, our store traffic was still up pretty consistent, again, to what we see on a seasonal basis in all of our marketplaces.

So I would say that we have just launched our Mother's Day and things like that, which we normally see increases from that about a week to ten days ago.

So, again, watching the seasonality of the traffic.

Your next question or comment comes from the line of Michael Rollins.

Your line is open.

Hi.

Good morning.

I just want to follow-up with -- I guess if you look at the current capital market backdrop, how do you think about possible M&A with some regional assets that are out there and could be up for sale?

Is that something that at this point the Company is interested in as it grows a vehicle, or is that something at this point where you would rather just focus on the organic operations of the wireless business moving forward?

Thanks.

Hi, Mike.

It's Ken.

We continue to look at about every potential wireless as well as wire line deal that comes across the table.

For about five years we weren't able to do any of the wire line transactions just because of where pricing had moved in the marketplace.

We didn't see how we could generate an adequate return on those prices so we stayed out of it.

And recently pricing has come back into a more acceptable range, at least from the Company's perspective.

So we've seen a few deals there.

On the wireless side, the same thing.

In neither business do we look at one asset as something that is so strategically important that we need to do it at any price.

And so it's strictly a value based model we use that looks at the cost, and that cost can be both financial cost but also its effect on our operation and business and any other thing we have at that point in time versus the price we're buying at.

Your next question or comment comes from the line of Stephen Mead.

Your line is open.

In terms of CapEx, can you talk about where CapEx is going in terms of southside versus the upgrade EVDO.

And then also from a procuring standpoint, what you're able to do in terms of the cost of the equipment and cost of achieving certain upgrades.

Okay.

Steve, let me try it.

First of all, because the Company follows on the technology movement, when you think of EVDO as an example, today we're probably putting EVDO in at 35%-40% of what our original expectations were.

And we've just seen the cost curve for that technology come down very dramatically over the last couple of years.

With respect to this year's capital, in total we're looking at maybe 30% of first quarter spend was probably related to the EVDO number.

Okay.

And then the other thing is, when you were talking about the penetration of Smartphone devices, you had a number that you were talking about in terms of the adds.

I was trying to get just a clarification in terms of what that was.

Say the percent again as a percentage of say gross adds or net adds and then what percentage of the base of retail customers or post paid customers are Smartphone customers?

Well, as I said, the percent of the post paid customers that are Smartphone users today is about 5%.

Right.

In the first quarter, the percent of total device sales that were Smartphones was about 7%-8% roughly speaking.

It's just sort of extraordinarily how much of an increase in revenue came just from that relatively small base.

It isn't -- I don't think -- this is Jay.

I don't think it's significantly higher (inaudible), but there is several other factors out there.

I mentioned the introduction of our bundled packages and to that not only have we seen an explosion as Steve mentioned earlier in text messaging, but we've also seen significant growth in picture messaging as well with the introduction of about 18 months ago out the door provisioning.

So it's multiple areas within the business and the base discoverability.

You're getting a lot of data usage on other sophisticated devices that don't fit into the "Smartphone" category.

Smartphone is the E-mail product.

It's rim and the Microsoft Windows based systems, where the music, the location base, the navigation, everything is on the sophisticated phones but they don't have to be up to the Smartphone level.

Right.

And also remember that something around half of the data revenue is actually text messaging.

And we've had very strong growth in text messaging, and that is virtually on every hand set.

It is every hand set in the installed base.

Jamal, we have time for one more question since we're coming up on the hour if there is anyone else waiting.

Yes, sir.

The last question or comment comes from the line of Patrick [Rehin].

Your line is open.

Good morning, and thanks for taking the questions.

I have a couple, if I can.

The first one just a clarification on the expectation for roaming revenue.

When you say you expect the trend to increase, is that sequentially or year-over-year?

The first quarter is usually the lowest.

So do you expect it to be flat from here or actually decline from here?

I think the answer is both.

If you looked at the full year, we would expect it to be down each quarter kind of year to year.

But we expect the trend over the next few quarters when you look at a trend line that it will be down.

Okay.

And then the next question is, considering the decline in roaming as well as the pressure for handset subsidies, what do you think -- how do you think about long-term margins for the wireless business?

You should say mid 30%.

Where do you see it being in a year or two years?

Right now, Patrick, I don't know that that is even answerable given the economy and just dramatic increase we've seen in equipment subsidies around the Smartphones and the advertising level that we've seen in the last 6-12 months.

So right now we're aimed at trying to grow the data revenue, strengthen the whole business by pushing our post pay but also building our prepaid product line better and moving our technology changes deeper into the footprint.

So try to look at this economy and guess when we're going to come out of it and what that's going to do to margins, I think that's too soon right now.

Okay.

Folks, that ends today's call.

If there are any other questions, please feel free to give me a buzz in my office.

I'll be there all afternoon and the remainder of the week.

Jamal you can conclude the call.

Yes, sir.

This conclude's today's conference call.

You may now disconnect.