美國無線通訊 (USM) 2012 Q1 法說會逐字稿

Greetings, and welcome to the TDS and US Cellular first-quarter operating results 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, Ms.

Jane McCahon, Vice President of Corporate Relations for TDS.

Thank you, you may begin.

Thank you, Louis.

Good morning, and thanks everyone for joining us.

I want to make you all aware of the quarterly conference call presentation we have prepared to accompany our comments this morning, which you can find on the Investor Relations pages of the TDS and US Cellular websites.

With me today, and offering prepared comments; from TDS are Ken Meyers, Executive Vice President and CFO.

From US Cellular; Mary Dillon, President and Chief Executive Officer, Steve Campbell, Executive Vice President and CFO.

And from TDS Telecom, Vicki Villacrez, Vice President-Finance and CFO.

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

Please see the websites for slides referred to on this call, including our non-GAAP reconciliation.

The information set forth in the presentation today, and discussed during this call, 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, that will be included in our SEC filings.

Shortly after we released our earnings results this mourning, and before this call, TDS and US Cellular filed SEC form 8-K current reports, including the press releases we issued this morning.

Both companies plan to file their SEC form 10-Q later this afternoon.

As a reminder, we will be hosting an analyst day at CTIA next Wednesday, so please contact us if you'd be interested in being part of the meeting,.

And also, we remind you that our annual shareholder meetings are coming up; US Cellular's on May 15, and TDS on May 17.

Please note that the TDS meeting is being held a different location this year, out by O'Hare to avoid the expected disruptions downtown around the NATO meeting.

Please keep in mind that TDS as an open door policy, so if you're in the Chicago area, and would like to meet members of management from TDS, US Cellular, or TDS Telecom, the IR team will be -- will try to accommodate you, calendars permitting.

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

Thank you, Jane.

Good morning.

I'll start on slide 4.

TDS ended the quarter with revenues up 4%, operating income up 5%, and earnings per share up 23%.

TDS's overall tax rate for the quarter was about 28.9%.

The rate was reduced by 9.3%, or $7.2 million, primarily due to an unrecognized tax benefit, due to the expiration of a statute of limitations for certain tax years, and the correction of deferred tax balances on some partnership investments.

TDS incurred a net-operating loss in 2011 for federal income tax purposes, largely as a result of the 100% bonus depreciation rules in effect at the time.

We carried this federal net-operating loss back to prior years, and received an almost $60 million refund in the first quarter.

The bonus depreciation rate, for federal income tax purposes, for 2012 was 50%, and is currently expected to expire at the end of the year.

We expect federal income tax payments to substantially increase in 2013, and remain at a higher level for several years, as the amount of TDS's Federal tax-depreciation deduction substantially decreases.

For the full year, we are estimating effective tax rate at TDS of about 35%.

Those same factors also affected US Cellular in the quarter, and we expect a full-year tax rate at US Cellular of about 33% for the year.

As you may have seen in the press release, TDS and US Cellular did not repurchase any shares during the quarter.

We determine whether to repurchase shares from time to time based on many considerations, ranging from market conditions, to cash needed for known or possible requirements, with many and a sundry other reasons in between, including other facts and circumstances.

Our press release has a more fulsome listing of many of the reasons we might consider purchasing or not purchasing shares.

We continue to desire to repurchase shares under the existing authorizations as circumstances warrant or allow.

To the extent that we do not complete the existing TDS authorization before it expires in November, we would expect the board to approve additional authorization at that time.

I would also like to thank all of the investors that have provided us with some thoughtful ideas around changes we can make, in terms of increasing the shareholder value.

We have received many suggestions, and we are working through them.

Let me finally touch on some regulatory issues, specifically USF and spectrum.

First, around USF, many stakeholders, including our companies, have been engaged the FCC, in Washington with Congress, as well at the courts trying to augment, reinterpret, or overturn the order on USF and intercarrier compensation.

Everyone understands the details that do matter here, and all parties are working to shape the outcomes with their advocacy.

The FCC is observing all this, but has not yet acted formally on most of the issues in the pending petitions.

This quarter also saw the enactment of the long-awaited Spectrum legislation, as part of the Middle Class Tax Relief and Job Creation Act of 2012.

The legislation gives the FCC needed authority to conduct the incentive auctions, and set in motion a process to auction more Spectrum over the next few years.

This is welcome news for the industry.

The FCC has started to work to establish rules for the new bands and for the incentive options.

US Cellular will be involved in the process.

The FCC has also initiated a rule, making that interoperability, which we hope will unlock the full potential of bands already auctioned by the FCC, by bringing US carriers together into a stronger, common 4G ecosystem.

We believe adoption of rules mandating interoperability, coupled with the enforcement of the FCC's data roaming rules, are key regulatory underpinnings to fostering a competitive industry.

Now, let me turn the call over to Mary Dillon.

Thanks, Ken, and good morning, everyone.

I'll start with our successes and challenges during the first quarter, and a number of initiatives we've launched to drive future results.

I'll start with the review of our accomplishments on the quarter, starting on page 7.

As a result of improved effectiveness in driving increased brand awareness, launch of our 4G LTE services, as well as strong execution by our front-line associates, we are seeing solid progress, as evidenced by a 7% increase in retail gross additions this quarter, an encouraging sign in the midst of a very competitive time in Wireless.

During this quarter, we added 4000 net prepaid customers, and we hope to continue that momentum, with the addition of Wal-Mart distribution, which I'll speak about more in a moment.

Smartphone adoption has accelerated, representing 54% of devices sold this quarter.

And that growth, along with continued migration to higher-end Belief Plans, has continued to drive postpaid ARPU up 5%.

Also contributing to the 13% increase in operating cash flow were increases in inbound roaming, continued management of device subsidies, and good cost control.

Now, moving to slide 8.

Elevation in postpaid churn continues to be a challenge.

We attribute this increase to the expanded distribution of the iPhone, as well as aggressive promotions by competitors, particularly for 4G devices and services.

We expect this intense, competitive environment to continue throughout the year.

Growth in data usage, both on and off our networks, is quite strong.

And were continuing to build capacity on our 3G and 4G networks to meet this demand.

In addition, we're managing off network usage in order to minimize the cost of outbound roaming.

This continuing growth in data usage just underscores the urgency of rolling out our 4G LTE network products and services as quickly as possible.

And finally, handset manufacturers are working hard to meet our specific requirements for 4G devices.

We currently have two devices, and we plan to have five to eight by the end of the year.

We started the year with the launch of three key initiatives which will contribute to business growth and profitability over time.

So turn to slide 9, and I'll talk about the first.

The first of these is the commercial launch of our 4G LTE network in our wave-one markets, Iowa, Maine, North Carolina, Oklahoma, Texas, and Wisconsin.

In many of these markets, we are the first carrier to bring 4G speeds.

The first device launch was the Samsung Galaxy Tab 10.1 at the end of March, followed shortly by the Samsung Aviator smartphone in early April.

Both devices have been selling strongly.

We are now focusing our build out of our wave-two markets, and we're on track to turn them on by the end of the year, which will bring coverage to over half of our customers.

Slide 10 shows the second exciting development, the launch of U Prepaid in 450 Wal-Mart stores in mid-May.

US Cellular will be the carrier in 414 of those stores.

This represents our first phone in a box, offered at the world's largest retailer, and gives us another opportunity to be where our customers want to shop.

Were actively pursuing other big box opportunities, as well as examining our own distribution for further efficiencies.

And finally, slide 11.

We launched updated pricing on May 1 with three goals.

To drive new customer growth, to increase profitability, and to maintain ARPU growth over time.

We have made a number of adjustments, the most significant of which is the addition of tier-data pricing for smartphones.

This change will incent more customers to upgrade to their first smartphone with some smaller plans, and then allow us to move them up the ARPU chain as they become more experienced with their devices, and consume increasing amounts of data.

Additionally, these changes will help us better monetize the conception of our most heavy data users.

We made pricing changes to both retail and SMB.

We have added new options for the small-medium business market, and we continue to retain the very effective loyalty rewards program for all of our customers.

Finally, as a part of our ongoing efforts to control expenses, we are extending our upgrade period from 18 to 22 months, and will not be offering our phone replacement program on the new plans, as we have not seen enough benefits for this offering in relationship to the costs.

So with that, I would like to turn the call over to Steve for a review of the quarter's financial results.

Thank you, Mary, and good morning, everyone.

US Cellular's financial results for the quarter reflect positive growth in revenues and operating cash flow year-over-year, as we improved ARPU and managed costs.

Customer results were mixed, as we improved retail gross additions, but as Mary said, still challenged with retaining customers in the extremely competitive marketplace, and a still somewhat sluggish economy.

As shown on slide 12, first-quarter retail gross additions were $273,000, up 7% from $256,000, in the prior-year quarter.

In the postpaid segment, there was a net loss of 38,000 customers, as the increase in retail gross additions was offset by an increase in churn.

In the prepaid segment, we added 4,000 customers.

So in total, we lost 34,000 retail customers in the first quarter this year, compared to a net loss of 31,000 last year.

Postpaid churn, shown on the next slide, increased to 1.57% from 1.37% last year.

As Mary commented earlier, we attribute this increase to the expanded distribution of the iPhone, and aggressive promotions by our competitors, particularly for 4G devices and services.

We continue to add customers to our Belief Plans; 211,000 during the first quarter, as they recognize the value and exceptional service we provide.

We currently have 3.3 million customers on our Belief Plans, and continuing to add and migrate customers to these plans is important to bringing churn back down.

Slide 14 shows the trends in smartphone sales, penetration growth, and postpaid ARPU.

During the first quarter we sold 415,000 smartphones, which represented 54% of total devices sold.

This compares to the first quarter of 2011, when we sold 337,000 smartphones, or 42% of total units sold.

Smartphones now represent 34% of our postpaid subscriber base, compared to 20% in the same period last year.

While the overall cost to subsidize these devices is greater, we expect average revenue per customer will continue to benefit our results over time.

As you can see on the graph at the far right, postpaid ARPU has steadily increased over the past several quarters, due to strong smartphone sales, as well as continued migrations to the higher ARPU Belief Plans.

Postpaid ARPU was $54 in the quarter, up 5% from $51.21 a year ago.

Turning to our financial performance, service revenues for the quarter were $1.024 billion, which is an increase of $39 million, or 4% from last year.

Breaking that down a bit further, retail service revenues were $888 million, an increase of 3%, with build ARPU growing 6% year-over-year.

Inbound roaming revenues increased, growing $16 million, or 24% year-over-year, to $80 million, primarily a result of increased data-roaming traffic.

We expect to see continued, but probably more modest, growth in this high-margin revenue stream over the remainder of this year.

System operations expenses of $233 million, were up $16 million, or 7% year-over-year.

This was due to several factors, including expenses associated with the deployment of the 4G network, a 3% increase in the number of cell sites in service, and higher data usage and roaming expenses, as our customers used more data services, both on and off our networks.

As data usage continues to grow significantly, we are implementing a number of measures designed to minimize the impact on our expenses.

The net loss on equipment for the quarter was $119 million, down $4 million from last year, primarily as a result of fewer equipment transactions.

The average loss per device sold was flat year-over-year, despite the shift in mix to smartphones.

So, given the 23% increase in the number of smartphones sold, we believe that we've done a very good job of controlling our equipment costs by better balancing the types of devices offered and our promotions on them, and introducing lower-cost, entry-level smartphones to broaden our line up.

We expect that equipment pricing will continue to be very aggressive across the industry, and that our costs will be impacted by the continuing shift in mix to smartphones, and the introduction of additional 4G devices later this year.

SG&A expenses of $442 million were flat year-over-year.

Operating cash flow for the quarter of $230 million was up 13%, compared to last year's $203 million.

As a result, the operating cash flow margin was 22.4%, compared to 20.6%.

Continuing on slide 60, total investment and other income net for the quarter totaled $9.4 million, including earnings of approximately $17 million related to our interest in the Los Angeles partnership.

Net income attributable to US Cellular shareholders totaled $62.5 million, or $0.73 per diluted share, versus $35.2 million, or $0.41 per share in 2011.

The effective tax rate for the quarter this year was 27.1%, compared to 38% last year.

As Ken said earlier, the decrease in the tax rate was due to benefits related to the expiration of the statute of limitations for certain tax years and the correction of deferred tax balances related to certain partnership investments.

So, looking at the full year, we currently expect the effective tax rate to be approximately 33%.

In the first quarter, we generated cash flow from operating activities of $257 million, essentially equal to last year's number.

Cash used for additions to property, plant, and equipment in the quarter was $209.2 million, reflecting significant expenditures related to our 3G and 4G networks, as well as for our multi-year enablement initiatives.

US Cellular's balance sheet remains sound, and we have significant liquidity and financial flexibility, together with expected cash flow from operations and funds available under our revolving credit facility, to meet our financing needs.

At March 31, cash and short-term investments totaled $627 million, and we have about $300 million of unused borrowing capacity under our revolving credit agreement.

Our guidance for the full year 2012, which is unchanged from that announced earlier this year, is shown on slide 17, as well as in the press release.

Very quickly, for the key measures, we're estimating service revenues in the range of $4.05 billion to $4.15 billion, operating cash flow in the range of $800 million to $900 million, and capital expenditures of approximately $850 million.

Now, I'll turn the call over to Vicki Villacrez to cover TDS Telecom.

Thank you, Steve.

Good morning, everyone.

Before we begin to review our results for the first quarter, as shown on slide 19, I'd like to identify several enhancements to our reporting.

First, TDS has reevaluated its reportable business segments, and our Hosted and Managed Services business is now being reported separately as a segment.

While HMS is still relatively small, we expected to be an important contributor to our performance in the future, and want to provide additional visibility.

We have also changed how we are reporting our ILEC and CLEC revenues, to better reflect the way we focus on our customers, and that is between residential and commercial customers.

At this end, we are reporting the number of voice, data, and IPTV connections for both residential and commercial operations.

TDS Telecom's first-quarter performance was highlighted by the growth in HMS revenues, primarily provided by our acquisition of OneNeck in June of last year.

ILEC and CLEC connections continued to decline, but the rate of ILEC physical access line loss moderated slightly.

We are generating continued strong growth in our commercial managed IP products and services, initial residential IPTV connections, and Triple Play bundles.

Overall, however, operating income decreased, due primarily to $5.2 million of discrete items that were included in the first quarter of 2011, as well as a decline in high-margin wholesale revenues.

Turning to slide 20, revenues for Telecom's combined operations were up 3% from last year.

ILEC revenues decreased 3% overall.

Residential revenues were stable, as a result of increases in broadband revenues, offsetting voice line losses.

Commercial revenues dipped 5%, due to continuation of declines in traditional legacy revenues, partially offset as more businesses move to IP-based products and services.

Wholesale revenues declined $3 million, or 5%, primarily as a result of continued declines in access revenues, with lower minutes of use and changes in regulatory recovery rules.

CLEC revenues were down 3%, as the decrease in revenues caused by the declining number of CLEC residential connections exceeded the increase in commercial revenues for the quarter of 1%.

As mentioned, HMS revenues were up $11.3 million, mostly driven by the acquisition of OneNeck.

Turning to slide 21, you can see how residential and commercial revenues trend with the number of connections for both the ILEC and CLEC.

ILEC residential revenue per connection increased 2% year-over-year, primarily reflecting better broadband penetration and our customers' demand for higher speeds, and their willingness to pay for them.

This is a metric we will continue to monitor closely, and expect to grow, as we rollout IPTV.

ILEC physical access lines continued to decline, decreasing 5% overall.

On the residential side, slide 22, our Star Voice packages continue to help us mitigate our line loss.

At March 31, we had 201,000 customers on these plans, which are 57% of our residential customer base.

That is up from 49% at this time last year.

Turning to slide 23.

While the growth in broadband subscriber additions has slowed, with residential subscribers growing 3% year-on-year, ILEC residential broadband revenues remains an important part of our revenue focus and our bundle strategy.

We continue to attract new customers, and they are taking higher speeds.

The number of residential broadband subscribers taking speeds of five megabits or greater is now 65%, as 20% are taking speeds greater than 10 megabits.

As we rollout IPTV, we are offering speeds up to 25 megabits in our copper markets, and up to 50 megabits in our fiber markets, with our copper and fiber market split about evenly.

Our current expectations are that we will enable our network with capability for IPTV in 19 markets.

Residential broadband penetration was 62% of primary residential lines, and resident broadband has trended upward to $38.00, as migration to higher-speed service offsets competitive pricing pressures.

We continue to emphasize our Triple Play bundles, voice, broadband, and video, with video offered primarily through our dish partner -- our partner Dish Network.

We added nearly 1,000 net Triple Play subscribers in the quarter, bringing our penetration of customers to 30%.

Churn on our Triple Play customers continues to remain very low at roughly [0.5%] per month.

As you know, we have had measurable success with our bundled offerings, up 68% of our residential customers on a Double or Triple Play, up from 64% last year.

In the Commercial segment, on slide 24, we continue to lead with our hosted IP service we called managedIP.

For Telecom's combined operations, we now have 64,500 managedIP connections, an increase of 88% over last year.

Turning to the P&L on slide 25, consolidated cash expenses were up 18% for the period.

ILEC cash expenses increased 12%, which includes the effects of several discrete items which reduced 2011 expense by $5.2 million, and were not repeated this quarter.

Excluding these items, ILEC cash expenses increased 6%, as costs associated with IPTV, such as network maintenance, and higher contractor costs, drove higher cost of service.

CLEC expenses were relatively flat, and HMS expenses were driven by the acquisition of OneNeck and investments we are making at this early stage to build an HMS management team, and products and services to support our strategic vision of an HMS business that can move the needle in terms of Telecom's growth and profitability.

All in, operating cash flow for the quarter was $60.7 million.

Slide 26 shows our to 2012 guidance, unchanged from our year-end call.

As we mentioned on the last call, our 2012 CapEx guidance reflects investments that we are making to enhance our network, to deliver competitive broadband services, improved systems that support our sales and customer service processes, and enable our ability to expand our IPTV offering.

Thanks for your interest and I will now turn the call back over to Jane McCahon.

Jane?

Thanks.

Louis, we are ready for Q&A.

And we have Alan Ferber, our Chief Brand and Strategy Officer to join us for Q&A.

We will now be conducting a question and answer session.

(Operator Instructions) One moment while we pole for questions.

Simon Flannery, Morgan Stanley.

Mary, on the churn, can you just get a little bit more specific?

Are we talking about primarily voluntary churn, or is there any trend in bad debts, or involuntary?

And is there -- it would seem, actually, churn reduced at some of the other carriers this quarter, so I'd just be interested in how you think this trends through the year.

And then on the tiering; I know it's a very early days, but what do you expect the near-term impact on ARPU will be?

Do you expect some people trading down, to sort of lower tiers to diminish the impact?

I know you expect good ARPU growth over time, but how should we think about the impact in the next couple of quarters?

Simon, on the churn question, thank you, it's really more about voluntary than involuntary.

And, I will just add, that we've seen some moderate improvement, month by month, since December on our voluntary churn.

So I see that as an encouraging sign.

But it is still elevated versus a year ago.

And it's clearly something in this competitive marketplace, in some ways we are not surprised about.

And we are very focused, though, on putting our best foot forward to both continue to drive the strong growth add trends that we have had, as well as tactics around churn mitigation.

So we're really focused on both of those, and we will continue to watch and look to lower that.

On the ARPU, on the pricing, I'll just start this by saying I don't think we are looking for any short-term change on ARPU in the pricing.

The pricing is going to be with us for a while, and there are dynamics in there that are both about bringing in new customers and smartphones and entry-level plans, as well as to bring people up the ARPU curve to those who are interested in getting more data and paying us for that data.

So those will balance out over time.

We see this as an opportunity to improve ARPU over time; won't be in the short term.

Ric Prentiss, Raymond James Financial.

Hey, couple questions.

First, on the wireless side, on the roaming business, you mentioned where you expect modest year-over-year growth.

Below double digit, higher than double digits?

Trying to gauge it.

And do you expect seasonality to play out where the summer months are heavier still?

We definitely expect to see normal seasonality during the summer months, as we always do.

And I think for the full year, we would be talking, on a year-over-year basis, really, overall single-digit, as opposed to the double-digit numbers that we have been seeing.

And then on the EBITDA line, obviously a good EBITDA in the quarter.

If you, kind of, annualize that, it would suggest high or above the high-end of the range.

And Mary, some of the stuff you are putting in place, the 22 month versus 18 month upgrade, no more phone replacements for new belief, the tiered data pricing, some of that should actually, probably, help EBITDA.

Just trying to think through -- what are your thoughts as far as EBITDA, and maybe also throw in the percent upgrades in the quarter.

Maybe that was down also.

Well, the percent upgrades in the quarter were about 10%, slightly under 10, 9.5%.

There's a lot of moving parts, as it relates to the revenues and costs of the business.

So while we continue to grow -- expect to grow our gross adds, that obviously has an LOE cost to it.

As our data usage, for everybody, obviously, in the industry is continuing to grow.

That's a pressure on cost, and were taking several steps to mitigate that, but that will continue to an increase.

So, while we -- also, we see some opportunities to improve profitability along the lines of things you described; like changing some of our policies and implementing new pricing.

We think that range is still the right range in terms of expectations.

So, yes, the other piece is that ETC revenue we know is going to step down.

And that's high-margin revenue, and that's part of the plan.

May I ask, Steve, if you would add anything else to that?

I think in addition to the things that Mary mentioned, there's going to be a seasonality effect as well as, Ric, as we enter in to the heavy-promotional fourth-quarter period of time.

You'll see device pricing, very aggressive in that period, probably more so than you see in the first quarter of the year.

And also, remember that we just launched the LTE network, and we will be rolling that network out further over the course of the year.

And that certainly brings costs with it.

So those are -- would be a couple of things in addition to the gross add and ETC revenue impacts that Mary mentioned.

And the ETC, was it expected to drop -- was it July 1, the effective date, and it cuts it like 20% or so?

Right, so the step down begins at July 1, and it is a 20% step down.

So in effect, you have about a 10% step down for the full year.

James Moorman, S&P Capital.

Two questions.

First, in terms of the Wal-Mart agreement, a lot of the other prepaid carriers have noted a lot of pressure at the low end, I guess especially with lifeline products.

Have you factored that in, and are you concerned about that with your new offering?

And also, on data, have you thought about offering, now that you guys are offering tablets and more smartphones, about offering a family of data device plans?

Were you can use all your devices on one data package?

I'll take the Wal-Mart, and I'll ask Alan to talk about the data plan.

On the Wal-Mart piece, we see it as really opportunity for us.

Obviously, there's growth in the prepaid market.

There's about 0.25 of sales of that market happening in big-box retailers.

So for us to have distribution, to have products and services available there, represents, really, we think incremental revenue and profit for us over time.

On the family data plans, obviously that's certainly something that we expect to hit the marketplace later on this summer.

Some of the moves we made with our new data pricing allows increased flexibility for our family plan customers, as well.

To kind of mix and match family data to best meet their needs.

In terms of us launching a more formal family data plan, it's something we're looking at, but we don't have anything to actually announce at this time.

Sergey Dluzhevskiy, Gabelli & Company.

Two questions.

One question on share repurchases.

Could you expand a little bit on your thinking on share repurchasing going forward?

Clearly management believes that the stock is undervalued, but the Company did not buyback any shares in the first quarter.

And I was just wondering whether there were any legal reasons why you couldn't buy back stock or was that decision was primarily driven by market conditions and the business reasons.

So if you could just comment on the stock buybacks going forward?

And second question, if you could talk a little bit about your spectrum position in nonoperating markets that cover about 45 million people.

Maybe you can talk a little bit about average spectrum depths that you have across those markets, and what are your plans for these markets?

And whether it makes sense to [monetize] some of those spectrum holdings, assuming you don't plan to roll out service in some of those markets?

So starting with the share repurchase, we have an active authorization for the Board for both companies.

It is something that we had been actively pursuing before we started working on the share consolidation project; it is something that we are committed to continuing on with.

There are various times, for a lot of different reasons, that we kind of list out in the press releases, why or we may not be in the market at any point in time.

It doesn't change our long-term view of both the attractiveness of share repurchases, and our desire to execute, to the extent that we didn't get it all done by the end of this year.

And I expect that we are just going to get another one.

So, when we -- when the time is right and appropriate, we'll be in the market.

There are times that are not right and appropriate, that's about as far as I'm going to go.

Spectrum --

Just on the non-operating market question, Sergey, I think our position has been spectrum is obviously a valuable commodity, a valuable asset I should say.

And so for us to be in a position to have spectrum, that we need to trade for other spectrum end markets, I don't think were looking to monetize that spectrum right now.

It's an asset for us.

What is your average spectrum depth?

I know that they cover 45 million people, but what is the size of the license, on average, if you can disclose?

We can circle back with you on that specific question, okay?

Okay.

Stephen Mead, Anchor Capital Advisories.

Can you provide us just some comparative metrics on a Belief customer versus the Company averages in terms of ARPU or churn or --?

Just help out on that?

I don't have the specific numbers in front of me, but in general, the Belief Plan customers have both higher ARPU and lower churn.

The ARPU is roughly 30% higher, 40% higher than the non-Belief Plan customers.

And then, how many Belief Plan customers did you add in the quarter?

We added about 211,000 in the quarter, and we have about 3.3 million total.

And then, can you also, in terms of the SG&A line, that was flat year-over-year.

I was just wondering how that trend, in terms of year-over-year compares on the selling side?

Is there that much of a cost in the second quarter associated with the Wal-Mart rollout?

On a year-over-year basis, as I said in my prepared comments, and as you mentioned, the trend is flat year-over-year within.

So you asked about selling and marketing.

The year-to-year difference is $2 million.

There are some pluses and minuses in that number.

For example, year-over-year, our advertising in the second -- I'm sorry, in the 2012 period was down a little bit from the previous year, because first quarter last year was a heavy spend, as we were right in the thick of still launching the Belief Plans.

So that would be one factor.

Also, we had more, when you look at the combination of new gross adds and renewals and upgrade transactions, higher number of transactions.

So, year-over-year commissions would have been a little higher to offset that advertising impact.

So netting it out, pretty flat year-over-year.

And as far as the trend going forward, I think when you look at the guidance, you can see where we're forecasting for the year, and we've mentioned the things that we think will impact the year-to-year comparisons.

They are more about, as we said, acquisition costs related to new add, equipment pricing, system operations costs.

Selling and marketing will not be a big factor in the year-over-year comparisons as we move ahead into the second quarter.

As far as WalMart is concerned, the implementation expenses associated with Walmart, those are also reflected in the guidance that we have provided.

Are there follow-on big-box potential partners, or who do we expect in that area?

We're always looking at opportunities to expand our points of distribution.

And then the [term by] sort of question in terms of the metrics on the telephone side.

For your -- the Internet TV customers.

Who did you refer them to?

Our IPTV customers are being reported in total for our three markets that we have launched.

For residential connections in the ILEC, and so that is the number of customers.

And you can see that that grew substantially in the quarter year-over-year to 4,900.

But the metrics, in terms of revenue and ARPU contribution from that base?

So it's pretty early yet to start reporting that.

As you know, we're in the process of enabling a number of market rollouts, and those are metrics that we will begin to report as we move forward.

(Operator Instructions) Michael Rollins, Citi.

I'm kind of curious if you could give us an update on the data roaming front.

It seems like, if you go back a few years, one of the things that you guys were able to evolve with the industry, is getting competitive access to voice roaming.

Where are we on a 3G and a 4G data basis in terms of you being able to have competitive access to roaming?

And how important is that for your data offering going forward?

Mike, I think I'd start it by saying as far as the 3G -- in terms of 3G technology, we have roaming agreements in place with a couple of the major carriers.

We believe we are well covered, in that respect.

Going forward, we think it would be -- will be important to have 4G roaming agreements, and we're continuing to work with, frankly, all the -- many of the carriers.

Those that we currently work with, as well as other carriers where 4G would be enabled by the move to the LTE technology.

I'm sure you appreciate that that moving to 4G carries with it both the business challenges of getting agreements in place, but also technical challenges, given the different bands of spectrum that are involved.

So that's something that we are actively working.

We don't have anything to report today in terms of consummated agreements, but it's important to the business and we will certainly continue to pursue it.

What's the portion of your roaming space, coming from data, or maybe put another way, is the growth in roaming, largely coming from data as opposed to voice at this point?

Yes.

The growth in roaming is coming largely from data.

Ric Prentiss, Raymond James Financial.

I [cleared to] jump in for a follow-up since Bill must not be here today.

I wanted to ask two, if I could.

One on the TDS side; the opposite question is with US Cellular.

TDS EBITDA was $61 million in the quarter.

Your guidance for the year stays at $245 million to $275 million.

Obviously, if you just straight annualize it, you're heading towards the low end of that guidance.

What are you seeing, as far as the trends in the quarters, that give you comfort it can be in the guidance?

Is the guidance at risk?

Just kind of thinking through the seasonality on the TDS side.

As you look at -- yes, the quarter was down.

One of the things -- our margin and our operating cash flow continues to reflect or downward pressure on our -- from our higher margin legacy revenues; voice revenues and the regulatory revenues.

The replacement of those revenues really are on a lower margin basis.

Having said that, as we look at the outlook with the restructure mechanism, that won't go in place until July 1, we have lost safety net revenues in the first quarter, and that will continue in the second quarter, as well as -- there are changes with originating intrastate voice traffic that is moved down to interstate rates for the first six months.

That will move back up to intrastate rates on July 1.

So there's a lot of things with this order that we have a lot of puts and takes.

The restructure mechanism starts to kick in July 1 and then we start to get a pickup in the latter half of the year.

And then for Mary, several of the regional carriers introduced the iPhone, Alaska and Ntelos, a couple of other guys.

What are your current thoughts on the iPhone, given the competitive environment out there?

I'd say a couple of things.

We're very excited with the line up of devices that we have.

We have absolute terrific devices now and coming, as well as several, as I mentioned, LTE devices through the year.

So we believe that we are very competitive on that front.

Having said that, there's obviously a market for the iPhone, and if in the future, terms were right for us, we would certainly entertain that.

But our philosophy right now is to play our offense, use the tools in our toolkit, and continue to drive our business forward.

There are no further questions at this time.

I'd like to hand the floor back over to Jane McCahon for closing comments.

I would like to thank everyone for joining us this morning and look forward to seeing many of you in New Orleans next week.

Thank you.

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