美國無線通訊 (USM) 2009 Q4 法說會逐字稿

Good morning, my name is Danny, I will be your conference operator today.

At this time I would like to welcome everyone to the fourth quarter results conference call.

(Operator Instructions) Thank you.

Jane McCahon you may begin your conference.

Thank you, Dan.

Good morning everyone and thank you for joining TDS and US Cellular on our fourth quarter 2009 results conference call.

With me today and offering prepared comments are Kenneth Meyers, Executive Vice President and CFO at TDS, Steve Campbell, Executive Vice President of Finance, CFO and Treasurer at US Cellular, Alan Ferber, Executive Vice President Operations at US Cellular, and Bill Megan, the Executive Vice President Finance and CFO of TDS Telecom.

This call is being simultaneously webcast on the investor relations sections of both the TDS and US Cellular websites.

We believe our websites are an effective and efficient way to provide information to the investment community and will continue to look for additional ways to use them.

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

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

Shortly after we released our earnings result this is morning, and before this call, TDS and US Cellular filed 8K's, including the press releases we issued this morning.

Both Companies plan to file their SEC form 10-Ks later today.

We have posted on our websites on a separate page entitled, "Guidance and Reconciliation," additional information and reconciliations of non-GAAP financial measures that may be used by management when discussing operating results during today's conference call.

The Company's guidance for 2010 is posted as well as the reconciliations for net income, diluted EPS and operating cash flow.

We will be visiting the following cities and participating in investment conferences over the next quarter or so.

This coming Monday, March 1st, we'll be participating in Morgan Stanley's technology, media and telecom conference in San Francisco.

In March, I'm planning to visit investors in Detroit, Milwaukee and Chicago, and in Portland, Oregon and Seattle.

And for those planning to attend CTIA in Las Vegas in March, we will have management available to meet with investors and analysts on Wednesday, March 24th.

If you would like to meet with us in any of these cities or events, please let us know and we believe try to accommodate you if at all possible.

As you know, TDS maintains an open door policy, so if you're in the Chicago area and would like to meet from members of the management team, from US Cellular, TDS Corporate or TDS Telecom up in Madison, Wisconsin, the investor relations team will try to accommodate you, calendars permitting.

Right now, I'd like to turn the call over to Ken Meyers.

Good morning.

I'll make a few comments about the quarter, then turn the call over to the rest of the team who will cover the operating results.

We'll then take questions at the end of the prepared comments.

In the fourth quarter, TDS's operating revenues were $1.3 billion, essentially unchanged year-over-year reflecting strong continued growth in data revenues at both business units.

The impact again this quarter of the loss of inbound roaming revenue at US Cellular and a continuation in the decline of physical access lines at TDS Telecom.

However, the impact of the loss of inbound roaming should be less significant in 2010 since most, about three-quarters worth, of expected decline has cycled through.

Operating income excluding the impact of impairment charge did decline at both business units.

The economy was a headwind all year long and we were fighting to protect our competitive position.

Telecom has made good progress bringing their costs in line with the current revenue stream and US Cellular efforts to renew its high value customers in the quarter were costly, but are expected to pay dividends in the form of reduced churn in 2010.

In November, TDS authorized its third authorization for $250 million of stock repurchases.

Since June of 2007, through the end of the year, the Company now has bought back 14.3 million shares, for about $503 million, in addition to paying nearly $130 million of dividends while maintaining a solid investment grade balance sheet.

In 2009 alone, we repurchased 6.4 million shares for about $177 million, and paid out an additional $47 million in dividends.

We ended the quarter with $671 million in cash and cash equivalents invested primarily in treasuries, the Company also has another $113 million invested in certificates of deposit, which are FDIC insured.

The CDs are listed as short term investments on the balance sheet and are in addition to the $671 million shown as cash and cash equivalents.

TDS's effective tax rate for 2009 was 34.5% -- 32.4% at US Cellular.

Looking out to this year, 2010, we'd expect something closer to 38 and 39% for USM and TDS respectively.

Both US Cellular and TDS Telecom are continuing their efforts to generate long-term profitable growth by focusing on the customer and investing in their businesses.

Our guidance for 2010 reflects the difficult tradeoffs we're making between maintaining margins and funding long-term growth initiatives to provide a foundation for future profitability

Our strong balance sheet provides us with the ability to invest at both US Cellular and TDS Telecom simultaneously to enhance their competitive positions while, at the same time, continuing our share repurchase programs at TDS and US Cellular and fund dividends at TDS which we just increased for the 35th consecutive year.

Both Steve and Bill will comment on each Company's outlook.

Finally, I want to comment on yesterday's press release.

Jack Rooney, US Cellular President and CEO announced his plans to retire this year.

The company has a search underway and Jack plans to remain in his role leading US Cellular and ensuring we continue to focus on the customer as we go through this process.

Now let me turn the call over to Alan Ferber.

Alan?

Thanks, Ken, good morning to everyone.

I'll begin by saying a few words about the overall business environment.

As we indicated at the close of our third quarter call, we believe that economic and market conditions have been very challenging and will continue to be so for some time.

Consumers continue to be concerned about the economy.

With the unemployment rate still near 10%, and credit still tight, consumers are very cautious regarding their telecom spending and continue to be somewhat price sensitive.

In this regard, US Cellular was well-positioned in the quarter offering very aggressive holiday promotions and adjusting our pricing as necessary to respond to competitors.

In times such as these, we believe that the wide variety of our service plans including unlimited and bundled options offers customers significant value and meets their needs very effectively.

And while competition on price has become more prevalent across the industry, we remain focused on differentiating ourselves and extending our brand awareness by helping customers understand that we are more than just another phone company offering a low price point.

Rather, in addition to providing great services and an award-winning network, we consistently demonstrate to customers that we have their backs through innovative programs like battery swap and overage protection.

By the way, we were just awarded our ninth straight J.D.

Power award for network quality in the north central region.

Our customers responded to our offerings during the fourth quarter with the result that we achieved improved subscriber growth and lower churn rates over the third quarter.

We ended the water with about 5.7 million retail customers, up about 1% sequentially and year-over-year.

On previous calls we have discussed actions that we have taken to add and retain customers.

These stimulus actions, which began late in the second quarter of 2009, have driven improvement in retail net additions over the past two quarters despite the continuing difficult competitive and economic climate.

Retail gross additions for the fourth quarter were 354,000, up about 1%, both year-over-year and sequentially.

The post paid churn rate improved to 1.58% from 1.7% in the previous quarter and a prepaid churn rate improved as well by more than 250 basis points due to our attractive retention programs.

The introduction of data services for prepay in the second quarter of this year will improve our offerings in that segment and should drive further improvements in gross adds and churn.

Overall, we gained 26,000 post paid customers and 13,000 prepaid customers, for a total of 39,000 retail net additions in the fourth quarter.

This is up significantly from the loss a of 6,000 customers in the prior quarter, and up 18% year-over-year.

During the quarter, we introduced several new handsets, I want to take a moment to touch on those.

We launched a number of Smartphones in the fourth quarter, including the RIM Blackberry 9630 Tour which was our top selling device in the Smartphone category for the quarter and the RIM Blackberry 8530 Curve which will replace the 8330 Curve in our lineup.

In addition, we launched both the HTC Snap and Touch Pro Two, two windows based Smartphones.

Demand for the Touch Pro Two, which has a 3.6-inch vibrant touch screen and windows 6.5 far exceeded our sales forecast.

We also introduced an additional data optimized premium device, the Samsung Caliber, a touch device that replaces the Samsung Dell.

In addition we introduced the ruggedized Motorola Quantico, a specialty phone which will appeal to our small and midsized business customers.

Finally, we introduced a couple of new traditional feature phones such as the Samsung R520 Trill and the Motorola Crush a nonpremium touch device that was one of our top selling devices for the quarter.

As you can see, we continue to focus on ensuring that we have a strong handset lineup with an emphasis on Smartphones and data optimized premium devices.

Sales of these devices increased 150%- year over year and represented 27% of all handsets sold this quarter, hoping to drive increases in data revenues and RPU.

Now I'll turn the call over to Steve to discuss the financial results for the quarter.

Steve?

Thank you, Alan.

US Cellular finished 2009 with mixed, but very solid financial results, despite the difficult economic and competitive conditions that Alan spoke about earlier.

Service revenues for the fourth quarter were $986 million, up 1% year-over-year.

When adjusted for decline in roaming revenues, resulting primarily from the Verizon Alto combination, service revenues were up 3%.

Inbound roaming revenues were $62 million, down $17 million or 22% year-over-year.

As we think about that trend, as Ken said earlier, we expect to see a year-over-year decrease in the current quarter but not as significant.

Data revenues were $190 million, up 34% year-over-year.

This outstanding growth in data revenues more than offset a decrease in voice revenues.

Data now represents 19% of service revenues, up from 14% a year ago.

The keys to continuing growth in data are increased penetration of Smartphones and other data-intensive premium devices and the ongoing expansion of our 3G coverage which is now available to 75% of our customers.

Driven by that increase in data revenues, retail service ARPU grew to $47.12, up $0.69 year-over-year, and up $0.10 sequentially.

I should mention, though, that although the year-over-year increase looks fairly significant, in part it reflects the special $50 billing service credit that the Company offered on higher end rate plans as part of the holiday promotion in 2008.

ETC revenues were $42 million, compared to $40 million in the third quarter, and $27 million a year ago.

The increase year-over-year was due to expanded eligibility and incremental growth within certain of our states, as well as audit adjustments in 2008 that depressed receipts in that period.

Subject to any changes to the universal service fund program that the FCC might adopt in the future in connection with the upcoming national broadband plan or otherwise, we don't expect much change in the level of ETC revenues in 2010.

Operating cash flow for the quarter was $181 million, compared to $208 million in the prior year, and the operating cash flow margin was 18.4%, compared to 21.3%.

Although service revenues grew by 1% year-over-year, there was a significant decrease in higher margin roaming revenues as well as increases in equipment subsidies, and operating expenses.

A net loss on equipment for the quarter was $137 million, up almost $10 million from the prior year.

This reflects a 6% increase in volume due to solid growth in overall sales and renewal activity, as well as an increase in the net subsidy per unit.

Sales of Smartphones and other premium data intensive devices continued to increase which in turn will continue to drive growth in data revenues.

Sales of these units more than doubled year-over-year and we expect that trend to continue.

Other cash operating expenses consisting of system operations and selling, general and administrative expenses, increased about $26 million or 4% year-over-year.

Within that system operations expenses of $196 million were relatively flat year over year as higher costs related to a 6% increase in the number of cell sites and service and increases in customer voice and data usage were offset by certain one-time adjustments.

These adjustments are identified in the footnotes to the financial statements that are included with today's press release.

SG&A expenses of $471 million increased about $28 million or 6% due to several factors.

We incurred higher costs to acquire customers, such as commissions related to the increased sales and renewal activity and bad debt expense, and higher cost to serve customers, such as those related to the battery swap program, and staffing levels in our customer care centers.

We'v e experienced record call volumes in response to our recent promotional offers, such as the Thanksgiving weekend sale, as well as in a increase in call handle times related to the expanding base of Smartphones and other premium data devices.

As planned, we incurred incremental expenses related to the multi-year initiatives that were launched in 2009.

During the quarter, in connection with our annual impairment assessment of intangible assets we recorded a loss on impairment of licenses of $14 million.

This loss was a noncash charge, and had no impact on cash or operating cash flow.

In the fourth quarter of 2008, by comparison, we recorded a loss on impairment of licenses of $387 million, which was attributable to the deterioration and credit and financial markets at that time.

Both today's press release and the SEC Form 10-K report to be filed later today include additional information related to the impairment losses.

Investment and other income for the quarter totaled $6 million, including earnings of $15 million related to our interest in the Los Angeles partnership.

And finally, net income attributable to US Cellular totaled $12 million or $0.14 per share.

As disclosed in the press release, the impact of the impairment loss that I mentioned on net income was a reduction of $8.7 million or $0.10 per diluted share.

I'd like to make a few comments about our full-year results.

Service revenues were more than $3.9 billion, essentially flat to 2008, due to the anticipated reduction in inbound roaming revenues.

After adjusting for this reduction, service revenues grew by approximately 2% from the prior year.

Data revenues grow to $683 million an increase of 33% year-over-year, and represented 17% of service revenues compared to 13% a year ago.

The growth in data offset a decline in voice revenues and drove a net increase of about 1% in retail service ARPU for the year to almost $47.

Operating cash flow for the year was $926 million and the operating cash flow margin was 23.6%.

Although both of these measures are down about 9% from 2008, we believe that they represent very solid results given the economic and competitive challenges.

A major factor in the year-over-year comparison representing almost three-quarters of the total drop in operating cash flow was the loss of higher margin roaming revenues.

Other factors were higher system expenses, reflecting network expansion and increased customer usage both on and off our network, higher cost to acquire and serve customers, such as equipment subsidies, commissions, bad debts and customer service personnel to support the higher call volumes and handle times associated with the growth in Smartphones, and incremental expenses related to the multiyear initiatives that were launched in 2009.

Capital expenditures for the year were $547 million, including expenditures to construct new cell sites, increased capacity in existing sites and switches, expand 3G services to additional markets, outfit new and remodel existing retail stores and continue the development and enhancement of our office systems.

With operating cash flow of $926 million and capital expenditures of $547 million, we generated $379 million of free cash flow in 2009.

Our balance sheet remains sound.

In December of 2009, we redeemed our 8.75% notes that had a principle amount of $130 million..

At year-end, at US Cellular, the cash bam was $294 million, and there were no outstanding borrowings under our revolving credit facility.

We have borrowing capacity of $300 million under that facility.

Our guidance for the full year 2010 is contained in today's press release.

As you see, we're projecting service revenues of 3.975 to $4.075 billion implied operating cash flow of 850 to $950 million, and capital expenditures of approximately $600 million.

Factors influencing our current thinking about 2010 results include the ongoing weakness in the economy, significant risks related to service plan pricing and equipment subsidies, and the investments that we're making in the business to ensure our longer term success.

Now I'll turn the call back to Alan.

Thank you, Steve I would like to wrap up by saying a few words about some of our other initiatives to grow and strengthen our business.

In both the short term and long term.

And a few words about 2010.

Our business is connecting people and our brand message is believe in something better.

Our battery swap program continues to be a strong proof point in our customer centric strategy.

In the fourth quarter, we reached an amazing milestone.

Over 1 million battery swaps since the program's launch.

This means that a significant portion of our customers are already enjoying the benefits of the program and when they visit our stores to do a battery swap, it provides us an opportunity to share with them our latest handset and service offerings.

Our most recent proof point to demonstrate to customers that we have their backs is overage protection launched this past November.

This new free service allows customers to opt into receiving alerts when they are coming close to reaching their allowable plan minutes or text messages for the month in order to avoid overage charges and the resulting billing surprises.

By the end of December, approximately 600,000 customers had signed up for this service, and currently that number is over one million We believe that the large response rate indicates that customers find this service valuable in managing their budgets during these difficult economic times.

For the second year in a row, we sponsored calling all communities.

An opportunity for 10 schools to share a million dollars to improve education.

With the added boost of national television, print and radio advertising support, voting far surpassed last year's campaign.

A total of 432,000 votes were cast, up 260% from 2008, and voters needed to visit US Cellular stores to receive unique codes to vote for their schools.

In 2010, we expect competition to remain intense.

January brought more competitive pricing actions by competitors, and we responded quickly to ensure our customers received similar benefits.

As necessary, we will respond to market conditions in order to protect our subscriber base and maintain our competitive position.

While we are focused on working to grow our business, we will continue to look carefully at any opportunity to take cost out of our business that are not critical to our success.

During 2010, we expect to continue to innovate around our customer satisfaction strategy, introducing additional proof points in order to demonstrate to customers our commitment to delivering on our brand promise of believe in something better.

Also, earlier this month, we launched ring back tones, a new application which enables customers to further personalize the experience for people contacting them.

Ring backs are tones that are played to the calling party whenever they call one of our subscribing customers, and they are accessed for a fee through our music store tone room deluxe.

We will also continue to build on these success of our handset offerings, the LG UX220 an entry level Bluetooth device was introduced in January.

We plan to launch three additional devices in the March/April time frame, the Samsung free form Cordy tablet , the LG wine two an enhanced EVDO version of our successful LG Wine, and a LG Lotus 2, a unique square-shaped cordy flip phone with touch capability and EBDO.

By the end of this year, our 3G network deployment will expand our reach to approximately 98% of our customers.

Looking forward to 4G, we have started technical trials of LTD as we continue planning for deployment of this next-generation technology.

Finally, we continue to move forward with a multi year initiatives that we told you about in previous calls.

These initiatives which will enable stronger customer relationships make product development point of sale and building operations more efficient and drive online sales and account management, are well into the requirements definition and design phases.

In several areas we have completed or are in the process of completing contract negotiations with key vendors.

An early outcome has been the replacement of our web platform infrastructure which will enable future capabilities around account management and e-commerce.

This work will continue over the next several years with 2010 representing our period of peak investment.

Our plate is extremely full this year.

However, we are confident in our organization's ability to continue to provide our customers with an exceptional experience.

While embracing the change in leadership that Jack Rooney's retirement will bring about and working to further these many new initiatives that will differentiate US Cellular and enable us to compete effectively over the longer term.

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

Thank you, Steve and Alan.

Good morning everyone.

Telecom results again improved modestly from last quarter with a trend in revenues and expenses improving.

In addition, as we have said, broadband is a cornerstone of our strategy, and we continue to have strong growth in our high-speed data subscribers base.

For the quarter, TDS Telecom combined ILEC and CLEC revenues declined 3.3%.

The decline was 1% in the ILEC and a 8.2% in the CLEC.

In the ILEC, we had strong growth in data revenues, though it has not been enough to offset the loss in voice and network access revenues.

The decline in voice revenues was due to physical line losses and an increase in bundle discounts.

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

The decline in the CLEC is driven by our decision to limit investment in new residential customers, and, therefore, we expect that trend to continue.

As part of our efforts to mitigate the loss in physical access lines, while at the same time responding to customers' needs to economize, we rolled out new voice pangs called star packages which include additional features and long distance minutes giving customers a lot of flexibility in matching services to their needs and budget.

We began offering these new packages at the beginning of 2009, and had over 100,000 customers on these plans at the end of December.

We now have 49% of our residential customers on voice packages, up 12% from the end of 2008.

As I mentioned, a strong positive in the quarter was the increase in ILEC data revenues which grew 12%.

Our promotional campaigns for high-speed data added 6200 net subscribers sequentially, gross adds slowed slightly to 14,000 for the quarter.

Our high-speed data penetration over all access lines is now at 39%, up eight percentage points from last year.

Residential DS ARPU was flat at $37.

62% of our customers are taking speeds of three meg or greater now, however, as we see the near term competitive battle for data services still turning on affordability rather than top-end speed, and our emphasis has been on product offerings with speeds in the range of 1.5 to 10 meg bits and these are being well received.

We have also armed our saves and windback team with additional tools, including our version of naked DSL.

That said, while our current promotions are aimed at providing attractive price points, our long-term strategy anticipates consumer demand for much greater speeds.

I'll discuss that more in a moment.

And our greatest emphasis is on pulling all of these together, voice data and video, with video offered to our partner DISH Network.

We have had continued success in selling our triple play, adding 4400 net subscribers in the quarter, bringing our penetration of residential lines to 20%.

We know the importance of bundling and reducing churn.

Churn on the triple play customers is very low at one half percent per month.

For the triple play, we continued our promotion that extended 12 month credit offered by DISH for an additional year to lock in customer savings for a full 24 months.

Over the past year, we have introduced a series of promotions in our markets that have presented different value propositions and have kept the program fresh, and customers have responded favorably.

We have had measurable success with our bundled offerings, ending the year with 56% of our residential customers on double or triple play bundles, up from 47% last year.

We have also been building a suite of products around enhancing personal computer security and have launched several of these recently.

These premium products include PC security, identity theft protection, online backup, and remote PC support.

And our design to augment the value of our core product sets.

In the commercial segment, we are leading with our hosted IP service we call managed IP, among many benefits this service provides very rich call management features, such as advanced call routing and one number capability.

W e believe this is an especially attractive offering since it allows business to avoid a large up front capital investment because the service is hosted on our network.

For both ILEC and CLEC we now have nearly 14,000 stations installed.

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

Consolidated cash expenses were flat at 3.1% increase in the ILEC and a 5.7% decrease in the CLEC operations.

Expense reductions directly related to our cost control efforts were offset by severance charges of $1.7 million as we continue to adjust our cost structure.

Employee headcount was down 6% from last year.

Expense was also driven by initiatives to attract and retain customers and costs associated with our increased circuit band width to support of the high-speed data products.

We continue to invest in our network, capital expenditures were $33.7 million for the quarter.

We continue to evolve our network and put the necessary infrastructure in place to offer a competitive broadband speeds.

93% of our ILEC lines are equipped for DSL service, about half of our lines are capable of 10 meg or higher speed service we are investing in additional advanced service offerings including our hosted IP services.

And higher speed data over bonded copper facilities for our commercial customers.

We are expanding the capabilities of our network with our 10G regional fiber transport initiative, our investment in the 10G transport network will work for us in several ways.

It will help us reduce costs by enabling more efficient least cost routing and Internet backoff.

It builds an enhanced network reliability with expanded route diversity and redundancy and allows to us roll out new services like managed IP to more markets.

We continue to evaluate acquisition opportunities when there is good strategic fit and price levels are attractive.

As previously announced, we closed on the Union Telephone Company acquisition in the fourth quarter, adding 8200 equivalent access lines.

And finally, our guidance for 2010 is shown in the press release and reflects our current views that the economy will continue to be a headwind throughout 2010 impacting both residential and commercial customers.

We expect broadband to continue to be a driver, offset, however, by physical access line losses which will continue, but are not expected to worsen.

Costs will be favorably impacted by the headcount reductions we made in 2009, and network expenses will benefit from the expansion of our 10G network.

I will note the CapEx guidance is approximately $140 million, an increase from 2009, which represents our commitment to continuing to upgrade our network to support growing products and services like high-speed data where we are focused on pushing faster speeds and longer term to all customers to enhance our competitive position versus the cable operators and managed IP, our leading commercial offering.

The CapEx guidance does not include amounts awarded under the broadband initiatives program of our US We submitted a set of applications in round one and the government approved two of our applications, awarding grants totaling $12.5 million.

We plan to submit additional high-quality applications in round two.

The reporting presentation for the grants, however, is still being discussed with industry participants, regulators and our auditors.

Under one method that has been proposed, the grants would be treated as deferred income and our financial statements would reflect an increase in our plant balance.

The other more intuitive method would treat the grants as a reduction in the cost of the assets with no impact on our plant balance.

As the presentation is finalized, we will update our CapEx guidance if necessary.

And now I will turn the call back to Jane McCahon.

Thank you so much.

We're ready to open it up for questions, please.

Again, at this time, I would like to remind everyone.

(Operator Instructions) Your first question comes from the line of Ric Prentiss from Raymond James.

Your line is now open.

Great, thanks, good morning guys.

Morning.

A couple questions for you on this busy day.

On the competitive front for US Cellular, do you feel a need to get a larger footprint either clustering expansion or nationwide to compete with some of this competitive pressure we're seeing?

Hi, this is Ken.

I'll take that.

There's nothing on the competitive front that changes one way or another with footprint.

By that I mean, the service that is we're able to offer our customers, whether they be in Iowa or Chicago are the same across the network with the various roaming agreements that we have in place.

So, there isn't anything from a pure competitive standpoint that anything changes with that.

How about from a cost side, would it help margins in this competitive environment if you were to get bigger, is that something that you would consider either regionally or nationwide?

So as I think you are aware, we have a series of licenses that are not built today that could allow us to expand our operations, but as we said probably a year ago, this was not the type of economy that we'd want to launch new markets into.

So we still have those licenses but we have no current plan to build those out right now.

Okay.

And then I think you mentioned LTE technical trials had started.

Maybe a little update of what you've seen so far.

We just got off the administrator PCS call they're going pretty fast and furious with LTE, suggesting they might spend 300, $400 million to build out an LTE network starting in the second half of the 2010.

Kind of what your thoughts are on that, is it ready, how much capex might be required and what point of time should we be thinking bit in your neck of the woods?

Ric, it's Alan.

At this point it's a little too early to tell and answer any of those questions.

We're obviously trying to understand the impacts on things like data capacity and other technical issues.

But at this point, it's just too early.

Yes, and this is Steve, let me just add to that.

Th e technical trial just started a couple months ago in December.

I think so far it's going well, I mean, just after a couple of months.

I t probably will span another several months.

An d our view is that although some are pushing very hard on this, it will be some time before there is really a -- handsets available that would facilitate a broad-scale commercial launch for us.

Early on, we see people doing more in the way of data cards and Dongals but for us no significant spending this year, frankly, for a launch.

Okay.

And then I think Clear launched in your Chicago area in the fourth quarter, they seem to be more focussed on probably mobile broadband, computing, any impact on your businesses from Clear launching?

.

Ric, this is Alan You'r e absolutely right in Chicago they have made a bit of a splash in terms of advertising and marketing.

They've had extremely little impact on our business.

An d consistent with our LTE trial, we believe that is the right long-term technology solution.

Okay.

And just to throw a number, I don't know if you saw, it was interesting in this busy day, T-Mobile's parent company through a stat out there that they said by 2015 they think 14 gig bites a month might be the consumption for customers.

That' s just an astounding number if you think about it.

) Interesting is a good description of that right now have.

Exactly.

So early stage but obviously you guys are doing the work to try and be maybe a fast follower would maybe be the right way to phrase it?

That's exactly where we decide to play on the technology side.

Great, we'll see you guys out at CTI.

Okay, Ric.

Your next question comes from the line of Simon Flannery from Morgan Stanley.

Your line is now open.

Your next question comes from the line of Phil Cusik from Macquarie Your line is now open.

Thank you, I wanted to ask about the guidance to a rebound in margins, especially given your commentary about more Smartphones and giving bigger in that space and the ARPU can come from data over time, but the near term impact seem to be higher subsidies.

Can you tell us about what's driving your confidence in that margin rebound?

Thanks.

So I think that we finished the year with margins of 23.6% and I think the range of the guidance is somewhere around that.

I think a midpoint for the guidance is like 22.5 or so.

S o I don't -- I wouldn't say that there is a large rebound.

In fact, I think we're saying more than likely cash flow margin will be fairly flat year-on-year.

And certainly we do expect continuing growth in data, but there's continuing pressure on voice as well.

S o not projecting a big lift in ARPU this year.

An d although we said the effect would be smaller, we are going to continue to see a little by of -- bit of a decline in roaming revenue, that tends to be higher margin roaming.

S o year-on-year in the first quarter we'll see a little bit of a decline there.

Sorry, that's my poor math skills.

Secon d of all, maybe I can ask about, your strategy in wireless, it seems like the industry continues to slow down post paid we're hearing from a bunch of different channels slowed down this quarter, the prepaid space has gotten more crowded.

Wha t are the long-term prospects for an independent regional operator and do you want to participate in industry MA if it happens or is that just not interesting.

Phil, it's Ken.

So our long-term view is we are still very excited about this industry as people continue to add the number of devices that they carry, and the number of people that carry them continue to change.

New products and services around the whole data world, as we now have many computers -- mini computers sitting in our pockets, continues to have a lot of attraction to us.

Wil l we participate?

I think there hasn't been a deal out there that we haven't looked at.

But whether we can make a deal that still leaves enough value on the table for our shareholders when we're done buying something is uncertain.

We've looked at them, we haven't been able to get to some of the prices, especially given not only the price standpoint but also just how full our plate is with all the enablements that we're work ring on right now.

So we'll continue to look, but until we get some of the enables behind us, we probably won't be doing anything big.

Okay.

Thanks guys 346 your next question apples.

Your next question comes from the line of Kevin Roe from Roe Equity Research.

Thank you, good morning Following on the wireless margin question, the minute of the guidance, I am I, implies 22%, versus the 23 and change last year.

And for the last several years wireless margins continue to fall on an annual basis.

I guess my question is, I understand the pressures on that margin.

When should that decline stop or flat line?

Is it 2011?

When do we stop seeing the downward pressure?

.

Well, I'll start and Ken may want to add.

But I think that when you look at the guidance that we are providing for 2010, it reflects a range and that's our best thinking about margins for 2010.

We certainly think we can improve them over time, we've intn taking steps to do that.

And a big factor in that is -- are the enablement initiative that is we talked about that facilitate growth but also operating efficiencies over time, and we think the continuing evolution of our brand strategy is going to create a lift for us.

All that said, we think that given this economy and competitive environment, the prospects for a big lift in the short term are really uncertain.

And again, the reminder, we've said that over the past several quarters that we're investing helpful in the business right now to -- heavily in the business right now to improve our capabilities and long-term positioning.

So I don't think that I would attach a probability or a specific time frame for achieving significant expansion in the margins beyond what's implied by the current guidance.

But rest assure that had we're focused on that and we're doing everything that we can to improve them in a way that's consistent with our strategy and makes sense for the business overly the long hall.

Put another way, you don't say material downside to your 2010 minute guidance beyond that?

Is it safe -- is the feeling that this 2010 margin in this environment economically and competitively is a low point?

I think the range that we've provided is the way we see it at this time.

I think it gives a range of reasonable outcomes.

I think that's the visibility that we have right now.

And on the revenue guidance, the minute implies 2.5% wireless revenue growth, service revenue growth for 2010.

I think you mentioned you expect a little improvement in ARPU so that accounts for a bit of the 2.5; is that correct?

So should we assume that you're looking for some retail post paid growth in 2010 and some ARPU expansion maybe a split between the two to drive at that mid point of the range?

I think you can assume we're expecting some amount of sub growth and some ARPU growth.

It will be a combination of both factors.

Thank you.

Your next question comes from the line of Robert Dezego.

SunTrust Robinson Your line is open.

I was wondering if you had any early feedback on the price plan changes in the first quarter and if you're seeing anything from the larger carriers, and if there's been any change in the foot traffic in your stores.

I know you've talked about that in the past.

This is Alan, Robert So we don't talk about things like foot traffic, I will tell you on the pricing side, on the post paid side of the business, while there were some changes made by our competitors that we responded to, the impact of those changes on the unlimited plans has been relatively minimal.

It really sort of maintained everybody's competitive position.

On the prepaid side, there continues to be folk coming in and coming out of the market but again it's a little bit less stable than the postpaid side of the business.

There's nothing that is overly worrisome on that side either from a pricing point of view.

Okay on the prepaid strength in the quarter, is there thoughts that you're going to increase the focus here and have you seen any change in the -- on the competitive front from the unlimited prepaid provided whether Leaper straight talk or any of the other providers in your territory.

We always said we remain primarily a post paid business but we have to maintain our position in the prepaid market as well.

In 2009, we made some adjustments to our prepaid pricing and that has improved our position in the marketplace.

At the same time, competitors like Leap have weakened in our markets and that has improved our competitive positions as more and more prepaid customers recognize the total value proposition that US Cellular brings, including our great network and our first class experience.

So I think as the market shakes itself out, more prepaid customers are shopping for more than just price.

But it remains a very, very fluid market, as everybody, I think on the call recognizes.

Great, thank you If I could follow up with one last quick question.

I apologize if you gave this on the call, have you talked about how built out your 3G North America I today?

Could you give us maybe some color on any of the changes in the met Friday,, whether it's churn or gross add that is you've seen preand post putting a 3G network into play?

And what kind of benefits you're seeing there?

Robert, this is Alan, I'll start.

Right now we cover about 75% of our commerce.

We're forecasting 95% customer coverage by the end of this year.

We do see when we introduce EVDO into additional markets improvements both in gross adds, churn and ARPU, primarily reflecting an accelerating shift to things like Smartphones.

Great, thank you so much.

Your next question comes from the line of Ric Prentiss, from Raymond James.

Your line is now open.

Aid few minutes, wanted to get a follow-up question in there for you guys, actually two of them, stay on the US Cellular side.

When you look at those margins that we've been talking about, in kind of the low 20% range, and you look at the larger carriers out there.

What do you see as the primary differences between the two?

Is it just the scale that they have, your churn rate on the post paid side was well done, as you focussed on the customer experience.

Woul d it take scale to get the margins up?

I think we're all struggling with what's it going to take to get the margins up to help create that long-term shareholder value.

Ric, Ken, there's a few things.

Clearly, scale plays itself out in things like advertising buy, IS or billing systems cost, you get to leverage across many things, but there isn't anything we're going to do on the scale side that is going to dramatically change that when you compare our size to that of an AT&T or Verizon.

At the same time, our business model, which is a high-touch concept in order to ensure that we deliver the level of customer service to our customers, is going to have a slightly higher cost.

Now, in certain areas.

Now, where we are making investments today in order to improve our margins are in these areas that we've called the enablements that includes billing system, enhanced function amendment around our web.

Now, there are business models out there that where is a to -- where 15 to 20% transactions happen on the web.

That isn't the case in our example.

So we have the cost inside of our business for that.

There are things we're doing around handset logistics, a lot of different areas we are working on to improve the costs.

But there's always going to be a purchasing disadvantage in our size that there isn't a scale opportunity that we're going to be able to address.

Okay.

Then the final one just a thought process, as we've been looking around the globe, the Tour industry continues to grow, we've even seen mill comspin out their towers in Ghana of all places, .

Can you update us on how many towers you open, as you look at US Cellular trading at arguably below four time EV to EBITDA, and -- even if you don't need the cash, would it make sense to do a tower sale to unlock value hidden on the balance

Okay, well, this is Ken.

A couple things.

One, we have done an analysis of selling our towers about, let's see, how many years of tower companies been around?

Is about how many times we've looked at it.

Every time we look as it, it comes out as higher cost long-term debt for us to do that kind of a deal Talk about margins, that's going to turn around and put an operating cost into the model that isn't there today.

Further, as we now move from the technologies that we're using now on to LTE, one of the core reasons for maintaining the ownership of our towers is to have the flexibility to adapt our network as we change technology.

Now would be an completely inappropriate time to lose that flexibility.

Always good to look.

Yes.

Keeps my treasurer busy.

There are no further questions at this time.

I I turn the call back over to the presenters.

Thank you for joining us to.

W e look forward to talking to you and seeing everybody at CTIA.

Thank you so much.

This concludes today's conference call.

You may now disconnect.