威訊通訊 (VZ) 2003 Q4 法說會逐字稿

Good morning ladies and gentlemen and welcome to the Rural Cellular Corporation Fourth Quarter 2003 Earnings Release Conference Call.

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

Following today's presentation, instructions will be given for the question-and answer-session.

If anyone needs assistance at anytime during the conference, please press "*" followed by the "0".

As a reminder this conference is being recorded today Wednesday, February 25, 2004.

I would now like to turn the conference over to Mr. Chris Boraas, Director of Investor Relations.

Please go ahead sir.

Good morning, everyone.

As a reminder, this call is being broadcast live through our website at www.rccwireless.com.

An archive will also be made available on the investor relations section of our website.

In addition, after the completion of this call, a dial-in replay will be available through March 3, 2004.

We plan to file our 8-K including as an exhibit the [prepared] text from today's teleconference.

Additionally we expect to file our Form 10-K within the next week or so.

With us this morning are Richard Ekstrand, RCC's President and CEO;

Wesley Schultz, RCC's Chief Financial Officer; and Ann Newhall, RCC's Chief Operating Officer.

Please be mindful of this call's 1-hour time allotment when asking your questions.

So before we begin, I want to state that any comments about RCC's future prospects are forward-looking and therefore involve certain risks and uncertainties.

These risks and uncertainties include but are not limited to competitive considerations, success of customer enrollment and retention initiatives, and the successful integration of new service areas.

These risks and uncertainties also include our ability to increase wireless usage and reduce customer acquisition costs and to negotiate favorable roaming agreements.

We must also be able to service our debt.

Additionally we must meet the continuous demands of the changing technologies.

For additional risks and uncertainties, please see RCC's report on Form 10-K for the year-ended December 31, 2002 and from time to time in other filings with the Securities and Exchange Commission.

In the course of this conference call, we will be referencing non-GAAP performance measures.

For reconciliation of non-GAAP financial measures to comparable GAAP measures, please refer to our website where you will find non-GAAP to GAAP reconciliation included in our February 24, 2004 press release.

And with that I'll turn it over to Rick Ekstrand.

Thanks, Chris.

Good morning everyone.

We focus our energy and financial resources on providing our voice customers the best possible wireless networks in rural America.

Our customers value the coverage and as demonstrated by our numbers, our roaming customers also appreciate the quality of our service. 2003 was a defining year for us both financially and for our networks.

On the financial front, our results speak decisively.

Analyst consensus in the beginning of '03 certainly did not peg our EBITDA performance at $61m for the fourth quarter or $242m for the year.

Our fourth quarter EBITDA margin of 47% reflects solid revenue management and our proven cost control measures.

We are also pleased with our profitable fourth quarter results, as we are reporting net income of $1.1m or 9 cents per share.

Many of you expressed an interest in our network plans for the next generation technology.

As you may recall, last year we entered into new roaming agreements with AT&T, Cingular, T-Mobile, and Verizon.

These agreements include region-specific provisions for CDMA-1X, RTT as well as GSM, GPRS networks.

Under those agreements, we launched next generation roaming services on over 100 cell sites in 2003 on time and under budget.

And our '04 construction phase is in full swing and on schedule.

As we announced last quarter, we entered into a property exchange agreement with AT&T Wireless that involved our Midwest, Northwest, and South regions.

At the close of this transaction, which we expect yet this quarter, three of our four regions will have next generation technology path, selected together with stable and multi-year roaming agreements in place.

Our recently announced T-Mobile agreement also allows their customers to use these new GSM networks as well as our Wireless Alliance networks.

The T-Mobile minutes from this agreement are new minutes to our cellular footprint.

We expect to offer next generation service to many of our own customers throughout the course of this year.

In addition to completing our network overbuilds, we will be transitioning our building systems to handle next generation services.

It is important to note that we have handled building transitions successfully over the past several years.

This transition will be handled at the same level of diligence and care.

Switching gears, RCC is recovered to comply with wireless number portability in our markets in May of this year.

We are confident in our ability to meet the porting requirements of this mandate.

Our strong networks and coverage areas make us an attractive alternative to the competition.

Additionally and as a point of reference, there are approximately 2m households in our current service areas.

About half are without a wireless phone.

Because of its many advantages, we firmly believe wireless is a service delivery mechanism of choice.

We believe the eventual porting of landline to wireless will have a positive impact in overall wireless customer growth.

This results in wireless companies to have a greater share of total access lines.

With a lot of moving pieces this year, it goes without saying that our financial results may be affected by several key items, including integration of growth of the operating properties we received from the AT&T Wireless in our South region which are expected to have less EBITDA than the Oregon 4 properties we are exchanging.

The timing and development of our inbuilt licenses the migration of roaming partners existing customers based in next generation technologies and the amount of new roaming minutes and revenue from T-Mobile.

Yet, going forward we do look towards greater customer growth potential in both voice and data applications than in the past year.

We believe in unique qualities of our real strategy.

We believe our strong regional footprints together with the low population density of less than 25 people per square mile position us well for manageable roaming environment.

[Inaudible] is one of the few public wireless carriers concentrating on real America is contributing to our current financial results.

With all of our successes we understand the challenges that our debt-leverage presents, we are absolutely focused on bringing increasing value to our investors.

We are very pleased to be once again listed on the NASDAQ national market.

We are also cognizant of the benefit security repurchases that a discount could have to our balance sheet.

Well we have not purchased any securities to date, we continue to evaluate those opportunities.

We are also open to potential strategic adjustments to our service areas when they are in line with our long-term objectives.

So in closing we are in an industry that has [game points per goal].

We only have -- with only half of our 2m service area households having at least one wireless phone, we believe today more than ever there is a real opportunity for the rest.

Our country’s economy is on the rebound and we are excited to be part of an enabling technology.

With that I will turn it over to Wes Schultz, for our financial wrap up.

Thanks, Rick.

EBITDA for the fourth quarter increased 28% to $61m compared to $48m last year, and for the year EBITDA increased to $242m.

Of these totals wireless lines EBITDA was approximately $1.3m and $3.8m for the year.

Net cash provided by operating activities continues to be strong, totaling a $145m for the year.

And lastly we reported our second profitable quarter this year with 9 cents per share.

Contributing to our strong fourth quarter EBITDA was a 17% increase in outcollect minutes, resulting in roaming revenue of $33.4m, and for the year a 31% increase in outcollect minutes more than offset the declining yield resulting in roaming revenue increasing to a $132m.

AT&T, Cingular, T-Mobile, and Verizon accounted for approximately 90% of our roaming minutes.

However, these carriers represent less than 90% of our total roaming revenue.

As has been the case all year, service revenue continues to be strong and again speaks to the quality of our networks and customers.

During '03, we successfully leveraged our superior network coverage to preserve and grow a quality customer base, as a result LSR for the fourth quarter increased to $44 from $40 last year.

This increased LSR together with our customer growth resulted in service revenue for the quarter increasing 12%, to $90.7m as compared to $80.7m last year.

We were able to accomplish this even though we currently do not market next generation services in our regions.

Contributing to the service revenue was the universal services fund support payments that we received as a result of our ETC certification in Washington, Alabama, Maine, and Mississippi.

In addition during the fourth quarter, we received ETC certification in Minnesota and Vermont and expect to begin receiving support payments during the first quarter of this year.

For the fourth quarter we received ETC support of approximately $3.8m and $8.8m for the year.

We expect to receive USF support payments in the low-to-mid $20m range in 2004.

Although, we would have liked greater customer growth we are pleased with the positive growth trend in LSR and it's effect on service revenue.

We believe the quality of our networks in the areas we serve together with the launching of our next generation networks currently under construction present an attractive opportunity for us later in 2004 when we expect to have more competitive features to offer than we have today.

Our continued efficiency improvements are a result of our constant attention to operating costs.

Network cost as a percentage of total revenues decreased to 17.4% for the fourth quarter compared to 20.8% last year.

As they have in previous quarters incollect minutes continue to grow yet average incollect cost per minute dropped resulting in an incollect expense for the quarter declining to $9.8m from $10.7m last year.

For the year incollect cost declined to $44.1m as compared to $47.1m last year.

Although SG&A is up for the quarter, a significant portion of the increase resulted from the USF pass through cost, which increased to $2.6m for the quarter as compared to $1.1m last year.

SG&A as a percentage of total revenues however, decreased to 27.2% for the fourth quarter compared to 27.6% last year.

Now, turning to capital expenditures we’ve begun our next generation overlays, which is the primary reason for capital expenditures of $21.1m for the quarter.

Capital expenditures were $53.7m for all of 2003.

Looking ahead to this year, we expect capital expenditures to be in the $100m range, reflecting the continued build up of our next generation networks.

We still believe the capital expenditures will range from 190-230m for the period of 2003 through 2005.

We are likely to be at the high end of this range, because of the build-out opportunities for our adjacent unbilled license areas.

Net postpaid adds of 2003 were approximately 17,000, and we'll look to improving that number in 2004.

This improvement in net postpaid customer growth depends on several factors, including the success of our commercial launch of next generation products in three of our regions and the amount of synergies in our South region provided from enhanced operating footprint.

We also look for LSR and churn in 2004 to be comparable to 2003.

Moving now to outcollect roaming, 2004 is a transition year for us, primarily because of our AT&T property swap, which is expected to close yet this quarter.

Because of the loss of Oregon 4, we will likely experience lower roaming revenues this year.

It is important to know that Oregon 4 provided approximately $15m of roaming revenue last year.

In our remaining service areas, we expect minute increases from our roaming partners to again largely offset the expected yield declines.

As a point of reference, roaming yields declined 5 cents per minute in 2003.

We expect roaming yield to decrease by approximately 3 cents this year to about 18 cents per minute.

We also have certain incremental opportunities to increase outcollect roaming minutes in various regions this year.

One reason for our success in roaming last year was our expanded relationship with Cingular.

Likewise, we have been working to develop our relationship with T-Mobile and recently announced an expanded agreement with them.

Cingular's recently announced acquisition of AT&T is not expected to impact our anticipated outcollect minute.

Now turning to our capital structure.

We continue to explore alternatives to improve our balance sheet.

At this point, we are satisfied with our current liquidity position, keeping in mind our anticipated capital expenditure requirements and upcoming credit facility amortization starting in 2005 of $47m, and the requirement to refinance or extend the maturity date of our $125m 9 5/8 senior subordinated notes before November 15, 2007.

As you probably know, we announced the payment of our fixed dividend on the junior preferred stock in February, and consistent with our practice for the past two quarters, we did not pay at a cash dividend on our senior exchangeable preferred stock.

We've had many questions regarding this practice.

Simply put, if we fail to comply with certain terms of the senior preferred stock certificate of designation, including non-payment of cash dividends or the mandatory redemption obligation, the sole remedy of the holders will be the election of two directors to our Board.

With our senior preferred stock not maturing until May 2010, we have not yet made a decision regarding the future schedule redemption.

With that, thank you, and I'll now turn the teleconference back to the moderator who will poll for you any questions.

Thank you sir.

Ladies and gentlemen, at this time we will begin the question-and-answer session.

If you have a question, please press "*" followed by the "1" on your pushbutton phone.

If you would like to decline from the polling process, press the "*" followed by the "2".

You will hear a three-tone prompt acknowledging your selection.

Your questions will be polled in the order they are received.

If you are using speaker equipment, you will need to lift the handset before pressing the numbers.

One moment please for the first question.

And our first question comes from Patrick Dyson with Credit Suisse First Boston.

Please go ahead.

Hi.

Good morning guys.

I have a few questions.

Wes you provided some enhanced discussion about the preferred's and I am going to follow up on that little bit.

Could you just get I mean just give us may be some additional thoughts about your sense as far as any particular timing to look at the preferred and your consideration as far as what is the amount under the basket right now, which you can use as far as cash to apply to the preferred, and also your consideration of potentially applying or providing equity to preferred orders as a means to lower the amount of total obligations and ultimately look to delever through the total preferred's?

Well.

Pat I think you have a couple of questions there.

I'll try to answer the easiest part of that, probably first, as it relates to the amount of restricted payment basket.

As you most of you probably know, we really have a couple of things that restrict the amount of restricted payment baskets.

First is within our most recent indentures that are part of the most too recent offerings, that amount is about in $125m range for restricted payments basket availability.

However we have a more restricted, restricted payment basket within our current credit facilities that is at a $100m.

So essentially that one would rule at this point in time, even though we have greater flexibility within the other indentures.

As it relates to timing, I am not exactly sure what you are driving as there, other than I think the Company has said it publicly many times that we are focused on delevering the Company.

We know that -- we believe that we need to reduce the amount of leverage that we have, particularly in front of the common stock, so that our common stock can appreciate in value overtime, it is our responsibility and so we look at many different opportunities to do that, and when the right ones present themselves, we'll be opportunistic in that regard.

But we don’t have a specific timetable of any set plan at this point in which to address that.

It's fair to characterize it is something that’s you are very focused on presently?

I think, we are contributing -- we are, you know, both myself and Sue Allen our Treasurer have spent the vast majority of our time looking at ways to improve our balance sheet.

Okay.

And then just two or three quick follow-ups, you had previously given guidance for '04 EBITDA as essentially comparable to '03, is that thought still in place and two more.

But first let it be that, could you give us the overlap of what AWS and Cingular combined would overlap your pops and then finally on roaming yield in the fourth quarter it went up sequentially from the third quarter, is there anything, that's unique, could you just provide some comment to that, thanks?

I will talk about two of the three and I will let Ann talk about the overlap.

As far as EBITDA guidance for 2004, I am sure as you can tell from what we have talked about in our prepared remarks that we will not give you specific guidance as to what 2004 EBITDA is, earlier we said it would be comparable and I think, we still believe it -- that’s the case.

There are obviously a few things that are going to have some impact on our 2004 EBITDA, that we have detailed both Rick and I, through our prepared comments.

And certainly I -- the loss of Oregon-4 EBITDA that we had in 2003, from much of 2004 is going to have an impact on the year-over-year comparisons.

You are right in the -- in regards to the yield for outcollect in the fourth quarter it was actually up slightly from third quarter and it's a result of some contractual language that was a one-time quarter event essentially for the company.

With respect to the overlap of Cingular over our properties first of all in our filings that will be made shortly here in the 10-K, they overlap for each specific [RSABTA] or MSA is laid out along with the population basis of the licenses.

I don't have the exact totals here but prior to the swap with AWS there was a small part of each of our regions that had some overlap from Cingular several other properties in the South the operational properties that we are acquiring from AWS do have an overlap with Cingular, so right now I don't have a percentage but it's not -- it's not a significant percentage of all of our properties.

Okay, thank you.

Thank you, our next question comes from Todd Reithmier (ph.) with Furtado (ph.) Research.

Please go ahead.

Thank you, most of my questions were answered during the first group but when -- if you could just clarify what are the step downs in the roaming contracts, what months do they occur, and then second can you just clarify that the USF funds that you talked about the 3.8m this quarter, just clarify that, that does not include any pass through.

Hi, Todd it's Wes, I will answer the last one first the -- I think there is some confusion some times when we talk about USF there are two pieces of this, in our revenues and in our expense are amounts that we essentially collect from our customers.

The amount that we collect from our customers shows up in revenue and then the amount that we remit to USAC is an expense that's part of SG&A.

Then there are the subsidies that we turnaround and receive based on where our customers are within the space that we have ETC certification in, that shows up in revenue.

So, there is actually two pieces of revenue if you will that have some relationship to Universal Service Fund, those that we collect from our customers and then what we turn around and then receive back from USAC.

The amount that -- 3.8 and 8.8 are the amounts that we have received from USAC from where our customers are located within the States that we have ETC certification in.

As far as the step downs it's difficult for us to give a lot specifics there because there are a number of different contracts that have a number of different step downs throughout the course of the year.

What we did give guidance to that we are able to give at this point in time is that we expect for the year to have our yield to be in the 18 cents range and that's based on the contractual step-downs that are part of the agreements with our major roaming partners.

Okay, let me ask it in a different way then, the -- in the last three years you had big step down in the fourth quarter occurring in the roaming rate and then this year it was -- previous person said it was up sequentially by a little bit, it is 21 cents in the fourth quarter, how much of that was a one-time thing?

Probably about 1 cent.

Okay.

Thanks.

Our next question comes from Evan Schwartz with CRT Capital Group.

Please go ahead.

Hi, thanks.

Just a couple of clarifications on some of the earlier questions, first, back on the issue of the AT&T and Cingular overlap.

First question is are AT&T and Cingular already one another's preferred roaming providers to each other in all of your markets or is there any transition towards that state that would occur either because of the transition to GSM or because they would consummate their merger?

Yes.

AT&T and Cingular do prefer each other first.

So, we would have never been number one in line for either of those carriers.

Okay.

And then second of all, did I understand it correctly that the Cingular overlap with you currently is relatively minor, is that right?

Well.

Yes.

I think an example might help.

On the outside of our whole Northeast region, for example, there is one MSA -- I am sorry one RSA that they overlap a great deal.

You know, likewise there are two RSAs in the Northwest.

It is just sporadic overlap.

Okay.

They have been a relatively minor factor in those particular areas.

However, the areas in the South that we are recently acquiring, Dothan, Tupelo and Columbus, Starkville are all BTAs, are areas that are part of their [starting] network can do overlap with us.

Okay.

So you are probably correct to assume that in those areas you are not going to picking up new roaming revenue from AT&T, because presumably they would start to roam on Cingular's overlapping with you down there.

But again as was the case in our existing markets they would have already been preferred to AT&T prior to the acquisition.

So that comes in again that we would have been expecting that have gotten in those markets.

As we did the analysis for the swap, we were not counting particularly on that roaming revenue as part of our business plan then.

Okay.

And then you mentioned that AT&T and Cingular were less than 90% of roaming revenue.

What were they roughly as a percentage of roaming revenue together and who are the other big chunks that makes the balance?

What I said was that the top four roaming partner, which have been pretty consistent, although there has been some jacking within the four are AT&T Cingular, Verizon, and T-Mobile were less than 80% of our revenues, whereas really trying to make sure you understood was that although there about 90% of our minutes of use, their yield collectively is less than what the average yield is for all of our roaming partners.

Who are the other big roaming partners in there?

I’ve talked about 90% of our roaming partners -- I

But you said there is another 20% of roaming revenue, it sounds like it's coming from secondary sources or so forth?

Yes they come, we have roaming agreements with probably 400 or more companies that provide us, not that are material pieces, of course, but which go into that 20%, and we simply haven’t detailed all of that information.

Any other carrier in the country where is likely as a roaming partner -- I mean you look at U.S.

Cellulars, Western, Dobs, and those kinds of companies certainly are also contributing to our roaming units.

Okay and then just a final question.

I will give it up to somebody else.

Did you see anything in the quarter as far as roaming revenue specifically from AT&T that suggested either a radical drop in their year-over-year growth rate or something that they were doing as far as the plans that they were operating, that was altering the roaming patterns of their subscribers; any color obviously I am asking because Dobson reported that kind of effect but were not sure exactly why they reported it?

Well it's hard to really dissect what the effect of some of the rate plans, some of the openings might have on our minutes.

One of the things that I think that we are seeing is probably some flowing at AT&T roaming, but that's been the -- on a percentage basis, but we have seen a bigger increase in actually the other three that we talked about of the big four roaming partners.

And so they have more than offset, you know, the slower growth rate, if you will, of AT&T in 2003.

And I think that’s one of the benefits that we have, is that we have those four roaming partners that are all pretty significant roaming partners for us, and not just AT&T.

And if I can go back to our last call, I believe when we talked about the AWS swaps, we also talked about the fact that at that time AWS had built five sites over a short piece of interstate in the Oregon 4 property that we swapped, that has been a significant source of roaming minutes, and of course, those were fully in place in fourth quarter last year and resulted in less minutes from that area.

I think one of the other things is that, we just have heard that was referred to in the Dobson call where there were some plans that didn’t allow people to roam, may be they are go-phone plans.

Okay.

Prepaid.

I have one point of clarification back on Todd's question - he asked how much this one-time contractual piece had an impact on our yield.

I said 1 cent, it was actually a fraction of 1 cent, so I don't want to -- we are talking round digits now within a fraction of 1 cent.

Thank you very much.

Thank you.

Our next question comes from Athney Carmen (ph.) with Deutsche Bank.

Please go ahead.

Thanks very much, couple of questions, first you talked a little bit about the increase that you saw from some contractual issues in the roaming here on a sequential basis but even if you look at the year-over-year your revenue was up about 22-23%, minutes were only up 17%.

I was wondering if there are any one-time items or adjustments maybe some accounting for the swap, it's closing that would cause that and then second question with respect to subscriber growth, you know, despite the fact that your churn continues to still be very good at 2.1% on a postpaid net basis obviously you still are I guess below what the run-rate had been in past quarters and I am wondering is that indicative of just you intentionally slowing down in advance of ramping up your sort of networks with upgrades and new services and new handsets or is there something specific with respect to your markets versus what we have seen in other rural markets like Western wireless and some of the other folks that have reported.

I will pick the first piece and then I will let Ann talk about the churn.

As it relates to the roaming we had a one-time contractual opportunity I guess, if you look at it that way in the fourth quarter of this year that effected the sequential yield but as it relates to last year and our year-over-year comparison it's driven primarily from the fact that our yield was actually very similar or up a little bit on a fourth quarter of '02 versus the fourth quarter of '03.

We talked about fourth quarter of '03, we also had a contract with one of the major roaming partners that in '02 fourth quarter lowered the rate minutes once they exceeded sort of threshold.

I think, we talked about that probably a year ago and that also would have impacted then the fourth quarter yield a year go to be lower and dropped from third quarter and that we didn’t have that same situation this year and so that did not have an impact on our serial third quarter to fourth quarter yield in '04 -- in '03.

And just so we are clear, the financials that you presented here do not include the impact of the swap.

I don’t see anything in the discontinued line item earnings things like that is that correct?

That is correct, the Oregon 4 properties are included in the financial statements other than balance sheet assets that broken out separately, but the P&L is all included in the fourth quarter numbers.

Okay.

One follow up on that roaming thing, [Athney], I believe you said that our minutes were up 17% year-over-year, that was up 17% year-over-year for the fourth quarter.

The full year was up 31% year-over-year and the revenue was up, I think it was in the 22% range year-over-year.

So we did have and continue to have very significant roaming minutes increases, which is what we always tried to balance, the increases in roaming minutes and the yield rate changes and that's why we have been successful in achieving since stable roaming revenue over the years.

Addressing the subscriber growth issue, we are certainly not trying to slowdown subscriber growth, but we are doing -- we do have a couple of things in mind that we think affects that.

First of all, we have made a very conscious effort to pursue quality customers in all respect and one result of that is the LSR growth which we think has been very strong and very good over the last year as we've reported here today.

We are also cognizant that to the extent we are waiting for our new generation technology overlays to be completed to footprints that are appropriate for our own customers that every phone we've put into the market place is part of an acquisition cost that we probably have to trade out within a very short time.

So that means that its not worthwhile to pay for that phone custody for a customer that is less than what we would desire over longtime.

Having said that, we are certainly not in the run rate that we would have seen two years ago.

We believe that we will be on a stronger path this year than last year, but we are obviously juggling quite a few things when we don't have some of the fancy next generation stuff in our market place that some of our competitors have.

Have you seen your market share shift in some of those markets as perhaps others in the market have taken advantage of the fact that you are perhaps in a little bit of a transition in moving to next generation in trying to get a lot of adds quickly, because I mean, if you just look at it from an overall basis and if you look at your markets versus Western Wireless or one of the other rural companies it just seems in general that growth additions are down and I am wondering if that's a market share change as you guys are sort of transitioning or bit something more specific to the market?

Well I would say that we don't necessarily do market share penetration studies because we think other marketing research is more valuable to us, but I would just say logically the total penetrations have increased in our markets just as they have in all markets.

We have also had new competitors coming into almost every one of our licensed areas over the last year and certainly in prior years and almost automatically that effects total market share that one might have.

Whether or not -- I don't know how to carry that out further in a logical basis, but clearly more competitors growing penetration has some effect there.

Okay.

Thank you.

Thank you.

Our next question comes from Tom Friedberg with Janco.

Please go ahead.

Gentlemen.

Great quarter, nice positive surprise, I have never seen roaming as strong especially in the fourth quarter.

Given some of the Dobson-AT&T issues, was there a particular region or carrier that was -- that provided you a disproportionate number of roaming minutes in the period?

If I can add a comment, I know Wes will have a comment is, it's very important to keep in mind here that we completely reworked the four roaming agreements with our major roaming partners last year.

And as you do that, there are different incentives for carriers to send us minutes which we've encouraged, and so there are some changes that are going on in that regard.

But it's just a natural outprocess where you're trying to balance the different services that we offer to our roaming partners and we hope to have -- continue to have opportunities to balance in that vein and attract new minutes.

Well Ann, one thing that I -- and tell me if I have this wrong, but I think in the Northeast especially T-Mobile customers had no option but to roam on you and now that they are building a limited network up there.

Is that -- a, was that a major driver in the fourth quarter, and is that something that could be a take in '04 as we look at the number of minutes generated?

Actually that’s really one of things that is a positive uncertainty for us and here's why, T-Mobile customers really had nothing to roam in the Northeast before the limited network that they put up themselves, but certainly they were not permitting roaming on other carriers except to the extent their customers roamed on our wireless alliance network in the Midwest.

Our GSM sites came up in the Northeast in roughly mid-December, and so although there are some T-Mobile minutes that are included for that last part of December, they are clearly not significant in the overall picture of our roaming for the quarter.

However as we look forward to next year, each GSM cell site that comes up in the Northeast or the Northwest is an opportunity for T-Mobile minutes, which they cannot really size for us, because their customers have roamed there before, and we cannot size obviously because we haven’t had the experience with them except in our wireless alliance market.

So we think that that’s a positive opportunity in the year.

Well, then by process of elimination, it sounds like Cingular and Verizon were the main [inaudible] of the volume strength in the quarter?

Well, Tom, if you look at fourth quarter of '03 versus fourth quarter of '02, hardly enough the four carriers that are our biggest carriers are literally about the same percentage of the total minutes.

You are right to the extent that Cingular and Verizon, I think, are increasing faster certainly than what AT&T is, but don't dismiss T-Mobile as far as wireless alliance markets, we have seen a significant -- a very significant increase in the amount of minutes that their customers use on our great networks and part of the group going forward into fall, and so we are seeing a very, very significant increase in those markets which, I think, we -- there is some optimism [inaudible] in these cellular footprints where we now have GSM that T-Mobile could be a very significant contributor to new minutes in those markets

Right.

The overall mix is literally the same for those big four, the one point I would have mentioned is that AT&T is becoming a less -- had become a less percentage of our total minutes, which I think speaks well for what the other three have been able to accomplish with the other three.

Just a real quick retrospective question did you notice that AWE dropped off the cliff in, say October and early November?

No.

No.

Okay, and fine enough.

And one last question, I know it's really early since we've only had a week since the announcement of a definitive Cingular-AWS merger, but have you noticed any retrenchment of their sales or promotional activity either where you directly overlap or in adjacent markets that feature roaming?

We have not, no.

Okay, thank you again good quarter guys.

Thanks.

Thank you, our next question comes from Sandy Liang with Bear Stearns.

Please go ahead.

Hi there, just a couple of quick ones, can you just give us an update on how many cell sites do you have, and of those cell sites how many have GSM equipment, how many have TDMA equipment?

And also can you just talk about when you are going to launch GSM and CDMA commercially on your footprints?

As of year end, we had 754 cell sites, that's a combination of GSM cell sites and wireless lines, TDMA cell sites and the bulk of our properties, and CDMA cell sites in the Northeast and our star markets, and one RSA in Massachusetts.

As of yearend we have overlaid 101 sites with next generation equipment, I guess 99 were overlays and two were new sites and of course we have plans for a significantly greater overlays of that in this year.

I am sorry I don’t have it on my fingertips, the particular numbers of cell sites in each technology.

Okay, and when do you plan on selling CDMA and GSM phones to your customers?

Well, we have three different regions that we expect to develop marketable footprints this year, it's generally speaking likely to be the latter half of the year, maybe the end of the second quarter with some.

Okay.

Thank you.

Important to note that the wireless lines obviously are already GSM, so of the 750 sites that we are talking about we have had a 100, roughly of our cellular sites that have gone CDMA/GSM overlay, but in addition to that we have about 60 sites I believe in wireless lines that are already GSM, so as you are looking at the total amount, keep in mind wireless lines already is GSM.

Okay, so it sounds like, I mean the proportion, obviously we have seen the [obvious] here but the proportion of cell sites you have overlaid is pretty low so far so you should pick up some incremental minutes on new technologies this year.

Yes, and we have very aggressive overlay plan for the first part of the year, so --

And really as I talked about -- really those 100 sites that we did put CDMA and GSM in our cellular markets really were just turned up in December, so they had minimal if any impact on our portfolio.

Right, half of them were turned up actually December 31st, so really didn’t get commercial minutes [here].

And are there any 1.9 sites up in Vermont yet?

Yes.

Actually we have roughly 48 out there.

Those are not all in Vermont, but in the Northeast.

Okay.

Thanks.

Thank you.

Our next question comes from Mark Bishop with the Boston Company.

Please go ahead.

Hi, I have a few questions.

First of all, on your minutes of use, you said it was up on roaming, it was up 17% in Q4, how much was it up Q3 and Q2 on a year-over-year basis?

Year-over-year was 31% in total.

And Q4 was up 17%.

I was just wondering on a trend basis, what was up Q3 year-over-year?

It was probably, as I am looking here quick I am trying to get better information, it was in the mid 30s.

Up in the mid --

One of the things that I think is important to understand, both the second and third quarter were roughly in the mid 30s in order to get to the full year of 31, I think, as you realize, we had to have higher percentages in the first half of the year.

But when you look at it on a year-over-year basis, I think it is important to understand that in 2002, we have talked about, we had developed our relationship with Cingular, particularly, were they have an ever increasing number of minutes on our network that started in 2002 and really became much more in 2003, but we saw the effects of them starting in the second half of 2002.

So, when you start looking at year-over-year comparisons but particularly in the fourth quarter, you are comparing a Cingular that was much closer to the relationship that we are in 2003 by the fourth quarter of 2002.

So that’s certainly is going to impact the year-over-year growth at that point.

Okay and so the minute use growth was down sequentially in Q4 because of more minutes moving on to GSM, which you don’t currently --

No.

Not let’s try it a slightly different way.

As we told you before in 2002 we really let’s say refreshed our relationship with Cingular and provided reasonable incentives for them to move minutes to our network.

They did so and we saw --

Yeah, you did your comps in Q2 versus 2002 up until the third quarter?

That’s right.

[inaudible] up throughout 2002.

It got gradually better but by fourth quarter we really start to full -- is a full impact of that and it has remained strong from then throughout this year.

So you just didn’t have that same bulk in minutes in Q3 in 2002.

Okay, I understand and then on your roaming minutes of use you -- can you breakout how many where on TDMA versus either CDMA or GSM?

We don’t give that details but the vast majority of our minutes as, you know, our company at this point throughout the reporting periods that we are talking about has been primarily a TDMA networks company with the exception of one market in the Northeast that is CDMA and our Wireless alliance which is GSM.

So the vast majority of the minutes that we were talking about are TDMA in 2003.

You think your CDMA and GSM roaming minutes have reached 15% of the total units, or are they still much less than --?

I don’t have that information available.

We don't look at it quite that way.

We look at it in total.

And because it's region specific as to whether or not we even have CDMA available for roaming purposes.

Okay.

Really.

Okay.

This simple change, this could change quite a bit as we look at 2004, certainly with the overlays of GSM in both our Northeast and in the Northwest and CDMA in our Midwest regions, we will likely see a significant increase in minutes in both of those technologies, some of which will probably come at the cost of TDMA as the Cingular's and AT&T's move their customers to GSM, there will be an evolution more then likely to more and more GSM minutes from TDMA.

Okay.

And is it reasonable to think that we shouldn’t be surprised if your roaming revenue were to simply decline for a quarter or two, because of the mix shift of lower yielding GSM and CDMA before you have the pick up in overall minutes by attempting fully build out your networks in those technologies?

I am not sure I can draw that conclusion for you.

I think, that one thing that we did talk about was that we are going to have some pressure in '04 on a year-over-year comparison basis, simply because we are expecting to close the property swap yet this quarter for -- with AT&T for Oregon 4 and that was a heavy roaming market for us.

So, from that perspective we could see and we likely will be challenged as to what that would do on our year-over-year comparison, but if you are looking at same store kinds of opportunities going forward, the comments that we said earlier, we have given here what we believe the yield is going to be for next year, which encompasses what we think are the migration paths.

And we are not giving specific guidance as to what GSM rates are versus TDMA rates, and they may or may not be less or more, so I mean I think what you got to use is the information we've given you 18 cent yield, is our estimation for next year.

And we are in a Euro transition, obviously, as these minutes evolve over, but we still have the base level of TDMA that is very significant, and I expect it still will be throughout 2003 -- 2004, excuse me.

Okay, thank you on the assets swap, you said there is a $15m of roaming in the parts that you are swapping out.

Is the part you are swapping in EBITDA do you expect it to be EBITDA positive and can you give any kind of rough quantification to that?

We expect that it will be EBITDA positive -- EBITDA positive, however we are not giving specific guidance as to what that property will produce, it will be come part of our South region, and from that perspective, frankly will get folded into all of the operating performance that we look at on that regional basis.

We will not be doing a separate P&L for those properties.

One of the real benefits from this transaction is the synergy that we think that it will provide our current operation, and likewise we think that the synergies that our current operation will provide on these particular properties because these regions are adjacent to one another, there is a lot of split-over synergies that we think we can provide for the customer experience.

And so, it will just be part of our South region, and we don't anticipate giving any specific financial data for these new properties.

Okay, is there cash coming in to you as part of the swap?

Yes, there is $13.5m that was received.

13.5m.

And just couple of more quick ones, what's the gross adds in the quarter?

We haven’t -- that is not part of what we have given out as information.

Okay and why was --

[inaudible] into the net add number and the churn I suspect.

And why was the interest expense down slightly sequentially?

Interest rates probably are slightly less in the fourth quarter than they had been previously.

You also have in the third quarter interest expense for the early termination of the debt that we repaid as a part of our offering this past summer, and so those costs for the unamortized offering cost, when that was put in place, were expensed in the third quarter.

Thank you.

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

Please go ahead.

Thanks, couple of quick questions.

First regarding your '04 USF guidance, the 20m range, what is your assumption in terms of State approval behind that guidance, and is there much more upside in that USF number beyond '04 in terms of absolute dollars?

And my second question is a clarification, you mentioned it was difficult to quantify the impact of certainly that the 1,900-megahertz GSM roaming in your Northeast markets.

We do assume that you haven’t built in any material roaming minutes into your '04 guidance or is there something, you know, material already in there from T-Mobile?

Thanks.

Two questions.

I will try to answer the second one first on the roaming.

Certainly, we have in 2004 in our internal budgets, which are certainly part of whatever guidance we have given you today.

We do have an anticipation of minutes in the Northeast on our GSM network, but as it has been the case, I think over the last several years, our internal projections for minutes-of-use growth has typically been less than what it actually turns out to be and it's because quite frankly we tried to be pretty conservative on our view of what minutes we are going to grow.

We have seen minutes grow 31%, as we have talked about it last year throughout our operating regions.

It would have been very, very difficult I think, you would agree, for us to build a budget and a plan assuming we would get 31% and it’s a [inaudible].

Likewise the year before that, we were in over 30% increase.

We just can't build our business model on those kinds of increases when, you know, a lot of people aren't experiencing those kind of growth rates.

So, we tried to be pretty conservative on that regards.

I think that same kind of thinking has gone into our thought process as we tried to estimate what the GSM opportunity is for us in the Northeast and in the Northwest later this year.

I am certainly hopeful that we can do the same as what we have done in the past and underestimate and over-perform but time will tell simply because so much of that is out of our control even more than probably before because we are reliant on T-Mobile, Cingular, and AT&T.

They are moving customers to GSM or allowing customers to now use GSM or maybe they have in the past, but certainly we think that’s a great opportunity for us.

As it relates to the USF the guidance that we’ve given you of roughly low to mid 20m is primarily driven off of the six certificate eligibilities that we’ve already received as of the end of this 2003 before that we received revenue for in ’03 as well as Minnesota and Vermont.

We have applications that are pending in four additional States, obviously if both would come in early enough in 2004 we could perhaps get some fourth quarter, third or fourth quarter pick up there.

We are not anticipating that, however, in the guidance but we’ve given you to this point.

Right.

Thanks a lot.

One of those factors that really hasn’t been addressed about the conversion of minutes to GSM or CDMA overtime is that we also experienced a more effective network costs [towards] on them.

So the conversion on minutes to as next generation networks roaming our own customers is an important piece of the [inaudible] and very advantageous in the year going forward.

Thank you.

Our next question comes from Rich Bereirra (ph.) with Glenview Capital.

Please go ahead.

Good morning guys, a question on the property swap.

You gave us the roaming revenue.

I mean, EBITDA basis I know, you don’t want to give us each of the individual properties but can you give us an indication, you know, obviously I expect that it is going to be EBITDA negative, the swap to us order of magnitude, can you give us some feel whether that’s 5m, 10m, 20m?

Well Rich, we are really not planning on giving that kind of guidance, but one of the things I think that's important to understand is I think you can go and, you know, from the information that we probably have provided have some pretty good idea what EBITDA was in that region Oregon-4 in '03.

The thing that I need to caution you on when you look at it from that perspective, is that Ann had talked about AT&T had put some powers in that market, and they were certainly destined to take away a big chunk of our, probably what would have been the roaming revenue from us in '04 in that region.

By going through the transaction that we have done, I think we have eliminated one of the real concerned areas that we would have had in '04.

We had done nothing that would have really made roaming revenues go down on a year-over-year basis, even if we hadn’t swapped out these properties.

So the hard part here I think, is the analysis of trying to take into account what would have been in '03, if we hadn’t made the property swap.

What we have tried to do, is give you enough information to have a better sense of what it meant for us in '03.

So as we are looking at '03 versus '04, you can see the affect of that.

The hard part would have been trying to determine what EBITDA would have been in Oregon-4 in '04.

I understand, but I guess what I am trying to figure out; obviously USF is going to be, you know, $12-13-14m year-over-year and roaming revenue, it sounds like at least in Oregon, it's going to be down at least if we assume that roaming revenues was going to be comparable year-over-year, that number is actually $15m lower on a same store basis as you pointed out?

Yes.

So what I am trying to figure out is what the puts and takes are so I could try and assess what are, you know, what a good -- try and adjust the 2003 number, and what a good starting point offer, you know, offer with the base 2004 estimates?

Well, there's about 35,000-36,000 customers in Oregon 4 that are also going to be going away and we are getting around 15,000-16,000 customers in return.

And we have also talked about that EBITDA for '04 on a total basis is going to be comparable to what it was in '03.

Perfect, thanks guys.

Thank you.

Our next question comes from Adam Wekersky (ph.) with Libertas (ph.).

Please go ahead.

Hi, good morning everyone, good morning Wes.

Quick question for you on your bond buy-back program, I know that you would reaffirm the $100m basket.

I was just curious where you stood with regards to these bond buy-backs and I'd also just love to get a little color on how things are progressing with your Southern properties?

I know there are some different demographics down there and I'd just love to hear what there -- what your thoughts are in terms of improving those operations?

Well, bond buy-back program, I am not sure it's program of -- we haven’t bought any bonds back.

Okay.

It's just that there have been no purchases of any of our large securities.

Okay.

With respect to our Southern region, I think that we've only rarely commented region-by-region on things, but we recently visited down there and things are going very well for us there.

Very good.

Thank you, Mr. Ekstrand, please continue with any closing statement.

Thanks again for your interest in Rural Cellular.

Our focus on rural markets is a clear differentiator from our urban and suburban counterparts.

We have an experience and focused management team that's been in place for a long time.

Our operations are strong as evidenced by our results, and our transition to next generation is well underway.

With that I look forward to discussing our first quarter result in May with you.

Thank you sir, ladies and gentlemen, this concludes Rural Cellular Corporation Fourth Quarter 2003 Earning Release Conference Call.

If you would like to listen to a replay of today's conference call, please dial 800-405-2236 with pass code 570279.

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