美國無線通訊 (USM) 2010 Q2 法說會逐字稿

Greetings and welcome to the TDS and US Cellular second quarter conference call.

At this time all participants are in a listen-only mode.

A brief question and answer session will follow the formal presentation.

(Operator Instructions).

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Jane McCahon, Vice President Corporate Relations for TDS.

Thank you, Ms.

McCahon.

You may begin.

Thank you, Christine.

Thank you for joining us.

With me today and offering prepared comments are Ken Meyers, TDS Executive Vice President and CFO; Mary Dillon, US Cellular President and CEO; Steve Campbell, US Cellular Executive Vice President, Finance, CFO, and Treasurer; Alan Ferber, US Cellular Executive VP, Operations; and Bill Megan, TDS Telecom Executive VP, Finance, and CFO.

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 efficient and effective 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 contain statements about expected future events and financial results that are forward-looking statements and subject to risks and uncertainties.

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

Both companies plan to file their SEC Form 10-Qs later today.

Earlier this morning both companies filed Forms 8-K which included revised financial statements previously included in the Forms 10-K for 2009 and 10-Q for the first quarter of 2010, reflecting corrections for the immaterial errors discovered earlier this year.

We will also post schedules with the revised quarterly numbers for you on our website in the guidance and reconciliation section shortly after the other filings are made with the SEC today.

We will also be making our first XBRL first filing this quarter which will be posted to our website, too.

We'll be visiting the following cities over the next quarter or so.

In early September, we will be in New York and Boston, and later in September we will be traveling to Europe.

If you'd like to meet with us, please let us know and we'll try to accommodate you if at all possible.

And keep in mind that TDS has an open door policy.

If you're in the Chicago area and would like to meet with members of the management team from US Cellular, TDS Corporate or the TDS Telecom folks in Madison, Wisconsin, the investor relations team will try to accommodate you, calendars permitting.

With that I'd like to turn the call over to Ken Meyers.

Thank you, Jane.

Good morning.

I'll make a few comments about the quarter and 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 remarks.

In the quarter, TDS's operating revenues were $1.2 billion, slightly down from last year.

Both business units' competition remains fierce, yet we continue to make strong gains in all data categories.

US Cellular's profitability was adversely impacted in the quarter as revenue growth was stunted by lower voice revenues while spending increased as expected on our enablement initiatives.

We expect pressure on voice ARPU to continue and we have lowered our revenue and operating cash flow guidance accordingly.

At US Cellular, we continue to balance investments in future-oriented growth and enablement initiatives with cost-reduction programs in other areas of the business.

We expect that these efforts combined with the anticipated lifts from the introduction of exciting customer programs can help accelerate growth in revenues and profitability.

For example, we completed our 3G roll-out projects for this year and now cover almost all of our customers.

Also, we've introduced our first Android phone.

More about these topics later.

Also of note in the quarter, Telecom saw continued stabilization in its business with ILEC revenue growth and the impact from cost reduction efforts contributing to a 29% increase in operating income.

Additionally I hope you saw yesterday's press release on the broadband graph that Telecom received.

I know Bill Megan will have a few more details for you.

At the enterprise level, we continue to maintain a strong balance sheet that provides us with financial flexibility which will be increasingly important as we evaluate the purchase of additional spectrum and finalize our plans to roll out a 4G network.

Let me point out since the beginning of the year we've been working to improve investment returns on our cash balances.

As such we invested a portion of our cash, about $425 million directly into US Treasury securities and commercial paper guaranteed by the FDIC with staggered maturity dates.

We have broken out the details for you on page 11 of our press release.

Besides increasing yields this does affect balance sheet geography with some shown as short term investments and some showing as long-term investments.

During the quarter TDS bought back a little over 568,000 special common shares for about $16 million.

As we said before, we plan to be measured in this three-year authorization.

US Cellular repurchased a little over 395,000 shares for approximately $16 million also.

At both US cellular and TDS, we like to have an active shelf registration statement on file providing another layer of financial flexibility.

Later today US Cellular plans to file a conventional Form S3 registration statement.

At this time, the company has no plans to use the shelf, it's just part of our typical financial strategies.

In terms of a regulatory update, we continue our ongoing advocacy efforts recently testifying before Congress both on the House side on the D-block issues and the Senate side around USF.

We are actively meeting with policy makers as well as other industry participants to promote solutions for mobile and fixed services.

As you know issues that are significant to us include USF, spectrum availability, special access rates, handset exclusivity and data rights.

Now let me introduce Mary Dillon to you.

She's been on the job for about two months, so we've asked her to say a few words about her initial impressions.

But to be fair we won't subject her to any of your Q&A at this time.

Mary?

Thanks Ken, and good morning to all of you on today's call.

I'm very pleased to greet you for the first time as US Cellular's president and CEO.

I've been on the job for about two months now, and my immediate focus has been in four areas -- getting to know the company, the industry, technology and most importantly our customers.

I'm excited about what I've learned.

US Cellular's strategy is based on providing an exceptional customer experience.

Based on my experience with consumer businesses and building strong brands, I believe whole heartedly that this strategy can differentiate US Cellular in the wireless marketplace.

Delivering outstanding customer satisfaction requires three things -- a deep understanding of the consumer's needs and wants, a relentless focus on meeting those needs and wants, and most importantly front line associates who believe in the brand and who respect and delight customers.

US cellular has all those things.

Clearly what we need to do is to continue to put our size, nimbleness and our creativity to work in tangible ways that are important to our target customers.

And we need to move quickly.

Two important priorities are accelerating growth and improving margins.

I want you to know that the entire team here is committed to these goals and I look forward to reporting to you on our plans and progress in more detail in the future.

It was a pleasure to speak to you briefly this morning and I hope to meet you all soon.

Now I'll turn the call over to Alan and Steve who will review US Cellular's results for the quarter and take your questions.

Thank you, Mary.

And good morning to everyone.

In terms of the overall business environment, the second quarter showed no significant signs of improvement, with employment remaining sluggish and consumer confidence being fragile.

And consumers continue to be cautious with their telecom spending.

As Ken said, our industry's competition remains fierce.

All changes in service plan pricing which carriers across the industry have introduced over the past several quarters continue to put downward pressure on voice revenues.

We also see aggressive competition around handset offerings and subsidies.

We've responded to these competitive pressures to maintain our positioning and protect our customer base and we will continue to do so.

But as we'll discuss later, this has had an impact on our overall profitability.

Nevertheless we remain committed to our strategy to differentiate US Cellular by providing a better overall customer experience.

In times like these we believe the wide variety of our service plans including unlimited and bundle options, a best in class network, competitive handset offerings and innovative programs like battery swap and overage protection combine to offer customers significant value that is unmatched in the industry.

Now turning to results, during the second quarter we added 7,000 net retail customers, a substantial improvement over the loss of 59,000 net retail customers last year.

As a reminder, the second quarter of 2009 was very challenging for us due to the loss of the iPhone 3GS as well as the launch of prepaid providers Boost and Leap into some of our key markets.

An important driver of these better results was improved year-over-over churn rates for both postpaid and prepaid customers.

Our postpaid churn of 1.4% was a significant improvement from the 1.7% experience in the second quarter of 2009, and was stable compared to the first quarter, a good result given that we have traditionally experienced a seasonal bump in churn rates as we enter the summer.

Our prepaid churn of 7% also improved from 8.4% a year ago.

We believe that the improved churn rates show that our satisfaction strategy is resonating with customers.

This is important as we believe our ability to leverage and build upon this loyalty will be an even more critical component of our competitive strategy going forward.

In the postpaid segment despite improved churn, we lost 22,000 customers.

This is a bit better than the loss of 32,000 customers last year.

We believe that some of our postpaid losses are actually customers take advantage of our prepaid offerings -- not willing to sign a new contract but still staying with US Cellular as they continue to look for opportunities to manage their budgets and our prepaid offering has become more robust.

This is an industry trend, as according to the Yankee Group, 9% of prepaid subscribers switched from postpaid in the past year.

We also believe aggressive that handset and promotional offerings by competitors impacted our postpaid results.

On the other hand, we had another quarter of strong results in the prepaid segment with 29,000 net additions.

This builds on the momentum from the first quarter when we gained 33,000 prepaid customers and also represents a market turnaround from the second quarter a year ago when we lost 27,000 prepaid customers.

In this segment, our customers are currently valuing our new data service offerings as well as our new unlimited calling plans and the quality of our award-winning network.

Over 90% of new prepaid customers are choosing plans at the $59 or higher price point, which has a positive impact to prepaid ARPU and demonstrates that we are not targeting nor attracting the ultra-price sensitive customers.

Our data revenues continue to grow rapidly, up 33% over last year, driven primarily by the increasing penetration of data optimized devices requiring the purchase of data plans such as smartphones, other premium hand sets and wireless modems.

These data optimized devices were 24% of all devices sold for the quarter as compared to only 16% a year ago.

Penetration of smartphones alone within our postpaid customer base has doubled to 10% this June from 5% last June and all data optimized devices now account for 18% of our customer base up from 8% a year ago.

Now I'll turn the call over to Steve for some comments on our financial results.

Thank you, Alan and good morning everyone.

Service revenues for the quarter were $973 million which is essentially flat with the $974 million reported in the prior year.

Within the retail service component, we are pleased by the continuing strong growth in our data revenues, which as Alan said grew 33% year over year to $215 million.

And when combined with higher regulatory recovery revenues offset the continuing decline in voice revenues.

Thus our retail service ARPU for the quarter of $46.81 was essentially unchanged from a year ago despite the significant downward pressure on pricing that we continue to experience.

Data now represents 22% of service revenues up from 17% a year ago.

And as Alan already touched on, a key factor in this growth is the increased penetration of smartphones and other datacentric devices in our customer base.

We remain very optimistic about the opportunity for continued growth in data revenues for a number of reasons.

First, we launched our first Android-powered phone in July and we have more Android phones on the way.

Second at this point, only 18% of our postpaid customers have smartphones and other data optimized devices that require data plans so we have plenty of room to grow in that area.

And as you know, these are high quality customers who tend to have higher ARPU.

Another factor is the expansion of our 3-G network and the positive impact of the resulting improved customer experience is having on data usage.

The 3G network now covers approximately 98% of our customers and this year's expansion was completed by the end of June, sooner than we expected.

And finally, the introduction of data services on our prepaid plans at the end of March is producing incremental growth in both prepaid customers and data revenues.

Inbound roaming revenues for the quarter were $61 million down just $1 million or about 2% year-over-year.

The small decline was expected as a result of Verizon's acquisition of Alltel.

Over the remainder of this year we expect roaming revenues to stabilize and then start to move up on a year-over-over basis.

Our ETC revenues were $35 million compared to $31 million a year ago.

Subject to any changes to the Universal Service Fund program that the FCC might adopt in connection with the national broadband plan or otherwise, we don't expect much change in the level of ETC revenues over the next couple of quarters.

Moving on to our costs and expenses, the net loss on equipment subsidy for the quarter was $105 million, up $16 million from last year.

This was primarily due to a 4% increase in the number of units sold, aggressive promotional pricing across all categories of handsets and a shift in mix to more higher subsidy smartphone and premium devices.

Other cash operating expenses increased about $53 million or 9% year-over-year.

Breaking that down further, system operations expenses of $214 million were up $19 million.

This was due to a 5% increase in the average number of cell sites and service and higher expenses related to increases in customer data usage.

Significantly over the past year, total data usage has increased 444%.

SG&A expenses of $445 million increased by about $34 million or 8%.

One of the major factors here representing almost half of the increase was higher USF expense due to a change in the contribution factors.

Also we incurred higher selling costs driven by a 7% increase in commission eligible customer additions and renewals and as planned, we incurred significant incremental expenses related to our multi-year initiatives that were launched in 2009.

Operating cash flow for the quarter was $209 million compared to $280 million in the prior year.

The resulting operating cash flow margin was 21.5% compared to 28.8%.

This erosion in profitability reflects pressures on voice revenues we've already discussed, the added cost to attract and retain our customer base in the current economic and competitive environment and, of course, the investments we are making in future capabilities.

Below the operating income line, investment and other income for the quarter totaled $10.6 million including earnings of approximately $17 million from our interest in the Los Angeles partnership.

Interest expense was $16 million, down $3 million year-over-year, reflecting the redemption of our 8.75% senior notes back in December 2009.

Net income for US Cellular shareholders totaled $41 million or $0.47 per diluted shares versus $82 million or $0.94 per share in 2009.

That decrease reflects lower operating income.

This year's effective tax rate is 38% which was relatively flat compared to last year's rate of 39.3%.

For the full year 2010 we expect the effective tax rate to be pretty much in line with the year to date number.

As shown in the release, this quarter we generated cash flow from operating activities of $251 million.

And so net of capital expenditures of $133 million, free cash flow of $118 million.

As Ken said, our balance sheet remains sound and we have significant liquidity and financial flexibility together with our expected cash flow from operations to meet financing needs.

At June 30, cash and short-term investments at US Cellular totaled $369 million and we have about $300 million of unused borrowing capacity under our revolving credit agreement.

Our guidance for the full year 2010 is contained in today's press release and has been updated to reflect our current expectations.

As you can see we are lowering our estimates for service revenues to the new range of $3.925 billion to $4.0 billion and for adjusted OIBDA, which we also refer to as operating cash flow to the new range of $800 million to $850 million.

The guidance for depreciation and for capital expenditures, both at approximately $600 million is unchanged.

The major factor in our decision to revise our estimates for service revenues and operating cash flow is the expectation of continued pressure on voice revenues reflecting our customers' aggressive migration to more value priced bundle plans.

Other factors included in our underlying assumptions are risks related to the sluggish economy as well as the expectation of intense competition in the second half of the year particularly around equipment subsidies.

We do expect growth in data and roaming revenues over the balance of the year, and we are taking steps to rein in cash operating costs wherever feasible.

But t he favorable impacts in these areas won't fully offset the decline we've been seeing in voice revenues over the past several months.

Now I'll turn the call back over to Alan.

Thank you, Steve.

I'd like to wrap up the wireless discussion by providing an update about some of our key initiatives and plans for the remainder of this year.

US Cellular's business is connecting people, and our brand message is believe in something better.

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

May ushered in the one-year anniversary of the battery swap program and in the first year approximately 17% of our customers took advantage of this program.

Another proof point supporting our brand messaging is our overage protection program launched in November.

Our customers really appreciate the value of this service.

At the end of June, we had almost 2.2 million customers, over one-third of our base, signed up.

This is a program that we developed in response to the research we have done, which pointed to bill shock as one of our customer's biggest pain points and predictor of churn.

Based on the success of these retention-focused proof points which have generated increased loyalty as evidenced by our improved churn rates, we are very excited about a number of new and innovative proof points we will launch later this year.

These new proof points will be focused more on leveraging our strong customer loyalty and attracting new customers as we continue to differentiate US Cellular in the marketplace as the company that has the customers' back.

With our second quarter customer satisfaction and net promoter scores being higher than first quarter we are very proud of being at another all-time high in these areas.

We've also taken a leap forward in supporting our customer satisfaction strategy through improving our handset offerings.

In July, we launched our first Android powered device, the Samsung Acclaim.

In the first three weeks following the launch we sold over 30,000 of these devices.

We expect the launch the HTC Desire, a high end Android-powered device, at the end of August and we expect to introduce additional Android-powered devices throughout the remainder of 2010 including the highly anticipated Samsung Galaxy S and two phones from LG.

We also have expanded our BlackBerry portfolio with the launch of the Red Curve in July and the anticipated launch of the Bold in August an additional BlackBerry later this year.

Lastly, we'll be launching two new messaging phones in the fourth quarter to provide our customers with more handset and feature options.

So, as you can see, we remain focused on ensuring we have a strong handset lineup with an emphasis on smartphones and other datacentric devices.

As Steve mentioned earlier, we have completed and launched the latest phase of our 3G network deployment and now cover 98% of our customer base sooner than expected.

This is important because we see continue to see an increase in data revenues and a reduction in churn in the areas where we provide 3G service.

We also are continuing to work with multiple vendors on our LTE technical trial and plan for future deployment of LTE.

We've also made progress on several of our major initiatives to enable stronger customer relationships, make product development, point-of-sale and billing operations more efficient and drive on-line sales and account management.

As we have said previously, we expect spending on these major initiatives to continue over the next several years.

Finally during the second quarter we made a seamless move to a new third party logistics provider through which we are able to provide a better customer experience at a lower cost.

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

Bill?

Thank you, Mary, Steve and Alan.

Good morning, everyone.

Telecom overall results were quite positive reflecting the impact of cost control efforts, initiatives to stabilize revenues and line losses, and continued high speed data growth.

Actions we have taken over time to build attractive service bundles and position them with competitive pricing, to introduce new commercial service offerings, and to control costs are reflected in the quarter's numbers.

We had strong growth in data revenues driven by continued growth in high speed data subscribers and also by our acquisition late in the first quarter of VISI, our hosted and managed service company.

Our access line losses also continued to show improvement.

We do remain cautious on the economic recovery, however, as overall growth has been modest and job creation in particular has been limited.

In our commercial segment, we still see customers more focused on price and still hesitant to make buying decisions.

For the quarter, TDS Telecom's combined ILEC and CLEC revenues increased 1.7% from last year.

ILEC revenue grew 4.1% with high speed data contributing half of the increase, and VISI the other half.

Voice revenues declined modestly and network access revenue remained flat.

CLEC revenue declined 5.5% in line with our plan to limit investment in new residential customers.

Growth in ILEC data revenues was strong at 26%.

Promotional campaigns for high speed data added 5800 net subscribers sequentially and net subscribers grew 13% year on year.

Growth adds tempered from last quarter but were still strong at 15,000 while monthly churn stayed constant at 1.4%.

Our high speed data penetration over all access lines is now at 42% up 6 percentage points from last year.

Residential DSL ARPU was $37, as competitive pricing pressures were offset by customers migrating to higher speed service.

Seventy percent of our customers are taking speed of 3 meg or greater.

The decline in ILEC voice revenues were due to physical access line loss of 4.2% and lower ARPU driven by increased usage of bundling discounts.

We continue our efforts to reduce the loss in physical access lines.

Since the beginning of 2009, we've been aggressively marketing new voice packages called Star packages, which include additional features and long distance minutes, giving consumers a lot of flexibility in matching the service set to their budgets and needs.

At the end of June, we had 145,000 customers on these plans which is 38% of our residential customer base up from 16% last year.

We now have 54% of our residential customers on some type of voice package.

We continue to emphasize our triple play bundles voice, data and video, with video offered through our partner, Dish Network.

Growth in triple play continued as we added 3300 net subscribers in the quarter, bringing our penetration of residential lines to 22%.

We know the importance of bundling and reducing churn, and churn on our triple play customer is very low at about 0.5% per month.

Our promotional strategy continues to evolve with different value propositions.

Our current offerings include both double and triple play price for life promotion, a range of price discounts as well as gift cards or HD TV sets depending on the service set ordered, and the length of the service agreement.

We have had measurable success with our bundled offerings, with 59% of our residential customers on a double or triple play bundle up from 52% last year.

Our dedicated phase team continues to have an impact as they leverage contact with the customer to show them the value of our services including the bundled service offerings, service packages and promotions that can save them money.

Among the tools this team has is our version of naked DSL which includes a basic voice line that includes value as a safety feature for consumers who might otherwise just cut the cord.

In the commercial segment, we continue to lead with our hosted IP service we called managed IP.

The service is hosted on our network and provides very rich call management features such as advanced call routing and one number capability.

For both ILEC and CLEC we have 19,700 stations installed, an increase of 18% sequentially.

Consolidated cash expenses were down 2.5% for the period.

We have executed on cost control initiatives and head count is 8% lower than last year.

Lower expense in the CLEC is in line with fewer residential customers.

We continue to invest in our network.

Capital expenditures were $33.5 million for the quarter as we evolve our network and put the necessary infrastructure in place to offer faster broadband speed.

Ninety-three percent of our ILEC lines are equipped for DSL service.

About half our lines are capable of 10 meg or higher speed service.

Capital spending also supports our advance service offerings including our hosted IP based services, and higher speed data over bonded copper facilities for our commercial customers.

As part of our commitment to bringing critical high speed data services to our rural communities as Ken mentioned in his remarks, we submitted applications to the RUS in the second round of broadband stimulus funding.

As announced yesterday, the RUS approved 39 of the applications for a total of $114.5 million.

We will receive nearly $86 million in federal grants and we will provide approximately $29 million of our own funding.

This is in addition to the two grants awarded in round one for $12.5 million.

We continue to evaluate acquisition opportunities when there is good strategic fit and price levels are attractive both in the managed services segment as well as in our more traditional small ILEC markets.

Finally let me note we affirm our previous guidance as shown in the press release.

Now I will turn the call back to Jane McCahon.

Thanks, Bill.

Christine, we are ready for Q&A..

(Operator Instructions) Our first question is from Michael Rollins with Citi Investment Research.

Please proceed with your question.

Good morning.

Thanks for taking the question.

Just a follow-up on the guidance revisions for wireless with voice coming down, cash flow coming down.

Do you think you're hitting a ceiling in some way, a pace that you can capture more data revenue and try to get that ARPU up over time or are there some transitory, temporary things going on that you've got to get through to break through that ceiling so to speak?

Thanks.

Good morning, Mike.

It's Ken.

A couple of different points.

I'll let Alan talk about the revenue side of the equation where we've seen some migration of our customer base from one set of plans to another.

On the cost side, we've talked about a lot of the investments we are making pushing the 3G network out everywhere obviously adds network costs in advance of the data revenue you've now enabled.

We've got initiatives around billing and the other infrastructure we've talked about that are going on at the same time, all of which are very important steps along a long-term path here.

So I don't think that there is some ceiling per se that we've hit.

In fact it's just the ongoing evolution of our business and the model that we are following.

Alan?

Thanks, Ken.

Michael, if you recall last year we introduced some new rate plans in the middle of last summer as did many other wireless carriers and we've seen some pretty aggressive migration to those voice plans.

The pace of that migration is slowing but is not over yet.

We still think there's lots of growth on the data side of the business that over time is going to more than make up for the voice revenue decline.

And can you give us an update in terms of -- I don't think I got this in your initial comments.

What percent of device sales are integrated or smartphone devices versus the penetration of your base?

Mike, it's Steve.

We talk about these higher end devices as data optimized which we include in smartphones, premium hand sets and of course wireless modems.

This quarter that was about 24% of our sales.

And that was compared to about 16% in the same quarter a year ago.

As far as current penetration in the base, I did mention that right now about 18% of our customers have those data optimized devices and that's up pretty considerably from about 8% last year.

And just one last follow-up, if you had to contrast the reasons why your percent of sales might be lower currently than some of your peers -- or put another way -- the opportunity to get that up over time, can you just -- I know you hit some of the points in the answer you just gave me and before, but will it be your top three priorities of what you have to do to get the number up over the next 12 months?

Michael, this is Alan.

There's a couple things.

First of all you have some definition issues.

Many of our competitors include messaging devices in those totals we just gave you.

We track messaging devices separately.

The biggest impacts for our opportunity there is the completion or near completion of our EBDO buildout and we expect the rate of growth in those devices to increase off our current levels because of that.

Thank you very much.

Our next question comes from Simon Flannery with Morgan Stanley.

Please proceed with your question.

Thanks very much.

Good morning.

You touched on universal service and ETC outlook.

Perhaps you can give us an update on what you're expecting what you are hearing from Washington on USF intercarrier comp timing and likely impact on the next year or two?

And just coming back on this voice ARPU issue, can you talk about what's going on with MOUs?

Are lower MOUs part of it or is it primarily a mix shift in the plans -- people are trading down to lower plans with fewer buckets of minutes?

Thanks.

Simon, Ken here.

Good morning.

Good morning.

On the USF/ETC front, I don't think I have anything to really offer in term of definitive timelines or anything else at this point.

A lot of uncertainty, our own plans right now are predicated on no substantial change in that over the next 2 to 4 quarters.

Something that a lot of debate, a lot of different constituencies that need to be addressed in this process and a lot of inertia.

At this point, I just don't see -- I don't have clarity in terms of any visibility in terms of when something big happens there.

Okay.

Simon, on your voice question, it's really a function of movement to plans that have more bundled features.

It's been something that we've been seeing happen over the next several quarters.

MOUs is not really an issue.

MOUs on the voice side are essentially flat this year quarter to last year quarter.

Almost identical, it's probably less than a 1% difference.

The real driver is the fact you have got more features in the plans and also a lot of the adds that we're getting are add a line in the family lines of lines that tend to have a lower revenue per line.

When you say bundled features, is that like putting in free text messaging?

For one thing, you've got more minutes in the plan.

You don't have overage charges but certainly including things like free incoming, free mobile-to-mobile, free text and pics, that sort of thing where you have an add-on a la carte revenue stream that is part of the more value bundle than we had previously.

And how far through the process are we on that getting people on to those new plans?

I think it would be hard to quote a percentage but as Alan said, we see that rate of migration slowing.

We've probably moved through a considerable part of our base at this point.

Thank you.

Our next question comes from Ric Prentiss with Raymond James.

Please proceed with your question.

Good morning and welcome, Mary.

A couple questions.

I think you mentioned how there's been some movement from postpaid to prepaid.

It seems to be one of the bigger growth areas in the wireless industry.

Can you talk a little bit about your thoughts on all-in pricing?

There were a lot of discussions over the last week on that, and also how important is the national big box retailer channel to you or might it become?

This is Alan, Ric.

On the all-in pricing, we definitely think that bundled and simplified pricing is the wave of the future.

As you know, the plans we introduced in March on the prepaid side are bundled, a voice-only plan, a voice and text plan, a voice, text, and data plan.

And we think that has helped the uptake on the prepaid side.

With regard to big box retailers, we continue to look at those opportunities.

I think right now it mostly serves a different segment of the prepaid market than we are targeting but we continue to look at opportunities there as well.

Ken, in your opening remarks you talked about the strong balance sheet.

How you might consider additional spectrum also spending on 4G -- can you just tell us as far as what kind of priorities spectrum might be, how much spending on 4G might be and what time frame?

Any thoughts on building out some of those earlier markets you have spectrum in but have not built out?

A mouthful there, Ric.

See if I can get them all.

First of all I don't have 4G cost estimates that are stable enough to really talk about.

Our plans are perhaps to -- we are testing it now.

We have got tests going on today with multiple vendors to test technical interoperability.

There may be some small level investment next year in that area.

But for us it's important that we have the hand set availability so we can feed our face before we turn on the 4G network and take advantage of all that capacity.

Spectrum is something that we look at kind in a make versus buy model looking at where is it available and less costly than adding capacity or typical methods like cell splitting so it is more on an opportunistic basis.

We have got a couple of markets where we would like more spectrum, and we've got some where it covers a lot of our foot print right now.

The other part of your question --

The markets where you have spectrum but you haven't built yet?

Yes.

As we've said in this type of economy, we won't even think about it.

I think right now until we get more vibrant economy as well as get some of our enablement initiatives completed, I think our resources are pretty much used and focused on just those initiatives.

And one final question and I promise just a one-part question.

Light squared.

What are your thoughts as far as -- and Clearwire, maybe -- what are your thoughts as far as wholesale 4G LTE providers?

Not enough information at this point in terms of figuring out how they may fit into our plans.

Great.

Thanks, guys.

Our next question comes from Kevin Roe with Roe Equity Research.

Please proceed with your question.

Thank you.

Following up on Ric's question on 4G.

If you needed to move quickly on 4G, and of course, we have got Clearwire out there, we've got multiple 4G networks launching over the next year.

If you felt the competitive pressure from that, how quickly could you go commercial with LTE?

I don't know that I've got an answer for that.

We will get back to you, Kevin.

My guess is given all the experience the network team has in making transitions like this, we could move quickly.

The issue isn't so much whether you can do it in the network, it is whether there is a sufficient ecosystem handsets underneath that for our customers to take advantage of.

And as we talk about other people launching 4G, a large part of our customer base now is in smaller towns and rural areas and that's not where it's coming first.

Right.

You mentioned handsets, what's your best guesstimate as to when LT handsets will be available?

Hey Kevin, this is Alan.

On the handset side we certainly expect some at the early part of 2011, perhaps a couple at the end of this year.

For the most part I think in terms of the type of depth of a handset you'd like to launch this service, we are probably closer to 2012.

And one last question, I wanted to follow up on two comments made in the call.

One was that you're going to continue to protect your customer base which of course impacts profitability.

And then your reference to competition being intense in the second half.

We talked about rising competition from 4G networks, or course, Clearwire is going to launch a voice service before year end.

So would you agree that the competitive intensity will at the very least continue into next year and if that's the case, is the pressure on margins to protect your customer base going to still be there until next year and thus shouldn't see margin improvement beyond the midpoint guidance of 21% for this year?

Thanks.

Well, Kevin it's Steve.

I think I would say we certainly agree that that competitive intensity is there.

We see it continuing.

I think we would expect it to continue for the foreseeable future.

In terms of the guidance we provided, that's focused on 2010.

That's our best thinking about margins for 2010 at this time.

Longer term our focus is to improve those margins to the point where we have an improved return on capital.

But as you know and as we've said a number of times we are trying to balance the need to protect the base.

We are also making investments in our multi-year initiatives.

We certainly think we can improve margins over times and we are taking steps to do that.

In fact you heard Mary say in her comments that accelerating growth and improving margins are going to be top priorities.

But given everything that's going on right now that we've already talked about, the uncertain state of the economy, the competitive landscape, all of our change initiatives, I don't think it makes sense for us at this point to attach a probability or time frame to when we would see a significant expansion in margins beyond what's implied in the current guidance.

That's helpful.

Thank you.

Our next question comes from Robert Dezego with SunTrust Robinson Humphrey.

Please proceed with your question..

Thank you for taking the calls today.

I just had two quick questions.

One was on data pricing.

Have you given any thought to tier data pricing and I was wondering if you could update us on your thoughts on how you feel about tiering your different data pricing?

And the other question I had is if you look at the mix of prepaid and postpaid, we are seeing a trend here where postpaid has been a little soft and prepaid has been pretty strong.

Is this something we should expect going forward for the next couple of quarters?

Is this kind of a new going forward way the business is going to be run?

What do you think it is going to take to get that postpaid back to growth?

Robert, this is Alan.

Let me tackle these one at a time.

In terms of data pricing, as of right now, we have no plans to launch tier data pricing.

But we do believe over the long-term that some form of tiering is required in the marketplace whether that is tier pricing or throttling or some combination of those.

We expect that to be the model going forward.

But as of right now we don't have any real strong need to introduce tier pricing so we don't have any current plans for that.

With regard to the prepaid/postpaid mix, as we have said a number of times, our focus is really on the postpaid side of the business.

We expect to capture our fair share of the prepaid market but our focus remains on the postpaid side.

We believe that with the expansion of our EVDO network, with the expansion of our handset offering, by the end of this year we expect to have probably four more Android devices and two or three more BlackBerry devices.

And our focus on innovating around the customer experience is all targeted at improving our postpaid performance.

Do you think they will have it going to the third and fourth quarter or is this something that could take a little bit more time to develop and we should probably expect some postpaid softness for the next couple of quarters?

I think it's too early to really know that at this point.

Okay.

And if I could follow up on churn.

A similar question.

Obviously your postpaid churn was stellar this quarter versus expectations and versus where you had been historically in the second quarter period.

Is this something you think is sustainable at these kind of year-over-year comps or is this a very strong quarter for churn but we shouldn't get too excited yet after one quarter?

We expect all the explanations I gave you around improving our postpaid value proposition we believe is going to improve both postpaid growth adds and our churn rate and believe it is a sustainable churn rate.

Thanks a lot for the answers.

(Operator Instructions) There are no further questions in the queue at this time.

I would now like to turn the floor back over to management for closing comments.

Thanks very much for joining us today.

If you have any questions please get to us and we'll get back to you as soon as we can.

Thank you.

Ladies and gentlemen, this does conclude today's teleconference.

You may disconnect your lines at this time and thank you for your participation.