威訊通訊 (VZ) 2004 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Rural Cellular Corporation's 1st quarter 2004 earnings 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 any time during the conference, please press the star followed by the zero on your touch tone phone.

And, as a reminder, this conference is being recorded today, Tuesday, May 11th of 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, and thanks again for joining us for our first quarter 2004 teleconference.

This conference was preceded by our first quarter 2004 press release which was released late yesterday.

Today's conference call should be considered together with the press release and its related financial information.

As a reminder that this call is being broadcast live through our Web site at RCCWireless.com.

An archive will also be available in our Investor Relations section.

This section of our Web site also contains comprehensive financial information about our company, as well as our corporate governance information.

In addition, after the completion of this call, a dial in replay will be made available through May 18, 2004.

With us this morning are Richard Ekstrand, RCC's President and Chief Executive Office;

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

Please be mindful of this calls one hour time allotment when asking your questions.

Before I begin, I want to remind you 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 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 and maintain favorable roaming agreements.

We must also be able to service our debt.

Additionally we must meet the continuous demands of changing technologies.

For additional risks and uncertainties please see RCC's report on Form 10(K) for the year ended December 31, 2003, and our other filings with the Securities and Exchange Commission.

In the course of this call we will be referencing nonGAAP performance measures.

For reconciliation of nonGAAP financial measures to comparable GAAP measures please refer to our Web site where you will find a nonGAAP to GAAP reconciliation included in our May 10, 2004 press release.

And with that,I will turn it over to Rick Ekstrand.

Thanks, Chris.

Good morning, everyone.

We had another solid financial quarter.

EBITDA improved 9% to $56 million while margins improved to a very strong 47%.

Driving our EBITDA, service revenue grew by approximately 10% fueled by consistently strong LSR, USF subsidies and customer growth.

And we also improved our balance sheet through the completion of the 510 million senior secured note offering and through a $15 million repurchase of discounted securities.

On a strategic front we closed our property exchange with AT&T Wireless, trading a vulnerable market in Oregon for a long-term growth opportunity in our South region.

Most importantly we made progress on the building of our next-generation networks.

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

These agreements included region specific provisions for CDMA 1 X RTT and GSM/GPRS networks.

Since our next-generation overlay started late last year we have been seeing increasing levels of GSM and CDMA roaming traffic as we turn up new sites.

So it goes without saying, we have a strong interest in getting these networks fully on line as soon as possible.

We are now in the construction season for our regions and our networked efforts are going full forward.

We expect the bulk of our population centers and highway miles, in our three Northern regions to be covered by year end.

And we expect to roll-out next-generation services to our customers in the first region during the third quarter and the other two regions later in the year.

Most new customers will be served by a new billing system starting in the fourth quarter.

Our legacy customers will be converted in the first half of next year.

As a result of our numerous acquisitions, we have successfully executed six system billing conversions.

We have the experience required to complete this transition smoothly.

As we begin marketing these upgraded networks, our customers will enjoy the benefits of advanced applications including picture phones, streaming video, downloadable ring tones and games.

We are also looking forward to the opportunities that may develop from wireless Web services.

But, just as importantly, our capacity to carry voice traffic will dramatically increase with the completion of our overlays.

With half of the 2 million households in our service areas without wireless service, we believe there will be growing demand for this additional capacity.

Since we believe the parting of land line numbers to wireless will have a positive impact on overall wireless customer growth.

We look forward to the May 24th FCC deadline for total number portability.

And finally, network build out potential in our recent acquired licensed areas provide options that previously did not exist for us.

So in closing, there are a lot of moving pieces this year that will affect our financial results including the integration and growth of the operating properties we received from AT&T in our South region, which are expected to have less EBITDA than the properties we exchanged; the pace of our network overlays;

The development of our in belt (ph) licenses; and the rate of migration of roaming partners existing customer base to next-generation technologies.

But before I finish up today, I want to recognize our employees who are not only doing their daily job serving our customers, but are also provisioning our next-generation networks and billing services to prepare us for the future.

Thanks to our team.

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

Thanks, Rick.

I'm also pleased with our financial performance this quarter and the progress we have made on our network overlays and the improvement and flexibility we have added to our balance sheet.

As Rick mentioned, EBITDA for the quarter increased slightly over 9% to $56 million, which is the highest first quarter total in the company's history.

Wireless Alliance contributed approximately $1.2 million of the total EBITDA this quarter.

A significant factor in this quarters EBITDA was strong service revenue reflecting the equally of our networks and our customer base.

We are pleased with the positive trend in local service revenue or LSR, which increased $3 to $43 this quarter from $40 last year.

The increase in LSR, together with our customer growth resulted in service revenue increasing 9.5% to $88.6 million.

USF subsidies for the quarter were $2.8 million this year compared to $383,000 in 2003.

We expect USF subsidies for all of 2004 to be in the low $20 million range.

Moving ahead to out collect roaming revenue, 2004 is a transition year for us because of our AT&T property swap which closed on March 1st of 2004 and our network overlays.

Because of the swap of Oregon four and its historically strong roaming revenues we will experience lowering roaming revenues this year.

As discussed last quarter Oregon four provided approximately $15 million of roaming revenue for the full year in 2003.

In our remaining markets, we anticipate increase in minutes from our roaming partners to largely offset expected yield declines.

So as expected, roaming revenue for the quarter declined 11% to $25.7 million, reflecting the swap of Oregon four service area, a 10% increase in out collect minutes, together with a decline in yield to 19 cents per minute.

It's important to note that out collect minutes increased approximately 14% year over year, if you exclude both the Oregon four and the new South properties.

AT&T, Cingular, T-Mobile and Verizon accounted for 88% of our roaming minutes this quarter.

Although we saw a decline in AT&T minutes, we are glad to see that T-Mobile minutes doubled this quarter.

AT&T, Cingular, T-Mobile and Verizon represent approximately 82% of our total roaming revenue this quarter.

Moving on to expenses.

Our continued efficiency improvements are reflected in our EBITDA margin increase to 47%.

Network cost, as a percentage of total revenues, decreased to 19.6% for the quarter from 21.3% last year.

As has been the case in previous quarters, in collect minutes continue to grow, yet average in collect minutes costs dropped resulting in in collect expense for the quarter actually declining to $10.3 million from $11 million last year.

Per minute in collect costs for the quarter decreased to 13 cents per minute from 16 cents per minute last year.

SGA, excluding the regulatory pass through fees, increased 3.5% to $27.9 million.

The regulatory pass through fees increased to $2.5 million compared to $1.1 million last year.

Net cash provided by operating activities continues to be strong, improving 44% to $20.2 million for the quarter.

It's important to point out that there were a number of items impacting the year over year comparisons of interest expense this quarter, including preferred stock dividends and costs related to the early extinguishment of debt resulting from our recent refinancing.

I encourage to you look at the press release, which includes a detailed summary of the different components of interest expense for both years.

Cash interest for the quarter was $39.5 million.

In the future cash interest will be higher in the first and third quarters since the bulk of our debt has interest payments payable in those quarters.

Now turning to capital expenditures.

We are well underway with our next-generation overlays which comprise the bulk of the $13.7 million in spending this quarter.

We expect them to be higher for the rest of the year as we continue the next-generation overbuild's.

Net post paid additions in the first quarter were approximately 1,400 we expect improvement in that number during the rest of the year.

Total net customer additions including wholesale were 9,100 for the quarter.

Switching gears to our capital structure, we are continuing our efforts to explore alternatives and take action to improve our balance sheet.

We used the net proceeds from the recent offering to repay all of the owning obligations under our former credit facility.

We now have greater restrictive payment flexibility.

We do not have any required debt amortization payments until 2008.

Shortly after the completion of the offering, we repurchased $15 million par value of our 11 3/8 senior exchangeable preferred stock for approximately $13.4 million.

At the end of the quarter our restricted payment basket was approximately $125 million.

With that I'd like to thank you and I'll turn over the teleconference back to the moderator who will poll you for 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 the star followed by the one on your push button phone.

If you would like to decline from the polling process, press the star followed by the two.

You will hear a three tone prompt acknowledging your selection.

Your questions will be polled in the order that 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.

Our first question comes from Ethan Schwartz with CRT Capital Group.

Please go ahead with your question.

Hi.

First of all, congratulations on a pretty stable quarter.

A couple just clean up questions.

You mentioned 13 cents a minute in collect cost.

What was the total in collect cost for the quarter?

I believe it was 10.3 but let me go back to my notes.

I think that's what I - it's 10.3 versus 11 last year.

Okay.

It looked like the USF subsidy declined slightly sequentially?

Is that a - am I right about that, is that a seasonal issue?

Or - I thought it was up sort of in the - North of $3 million range last quarter,r but maybe I have that incorrectly.

Ethan, I don't recall exactly what the subsidy was for the fourth quarter.

But one of the things that is important to point out is that there has been, as we have brought on different states over the course of 2003.

Sometimes there has been catch up amounts that we've received from previous quarters, which may have been the case in the fourth quarter of 2003 where we actually received some monies from states that we had brought on earlier in the year and there was a catch up in the fourth quarter.

But there is really no seasonality that's a part of this.

It's based on our customers, and since our customers numbers are slightly up we should have on a go forward basis, they would be expected to increase slightly.

Okay.

Then the LSR increase is obviously very positive.

I calculated something close to about $1.20 from the subsidies and I think I got about 60 cents from the pass throughs.

So first question, is that right?

And, second of all, that part that was not attributable to the subsidies or the pass throughs, what accounted for that?

How did you get LSR up year over year?

Just to make sure.

And this is an excellent - I'm glad you asked the question, because this is a little bit misunderstood sometimes.

The actual subsidies that we receive are in the local service revenue and RPU numbers.

The pass through amounts, although they are included in service revenues, we do not include in our calculations for any of our revenue per customer.

They are simply a pass through.

So that number does not impact the growth in LSR.

You're right, about one-third of the growth is associated with the USF subsidies that we receive.

The other two-thirds is from our our own customers and Ann will give you insight as to what comprises that.

As we've talked about in the past, we have a regular and continuous part of our operations which is focused on increasing LSR, not only in the sales to new customers as they come on board with us, but also increasing sales to our base of customers, either by improving the access plan that they are on to provide them with a more appropriate access plan, or to sell them new features or older features that we've brought out that they haven't previously purchased.

So that's an emphasis that continues in our company and we continue to see the results of that.

Okay.

A couple of final questions.

First, in your last call you said that you expected EBITDA sort of in the same range as in 2003.

Is that still sort of where you are guiding to at the moment?

We really haven't changed any of our guidance from previously.

We had, I think, said comparable to slightly ahead of 2003.

Okay.

Then the final question.

Looking at the one part of the picture here that's a little less exciting is obviously your organic growth isn't super strong.

Are you holding back at all until you - in marketing until you get next gen up?

And can you give us a sense as to what marketing of next gen services will do to cost of acquisition and cash cost per user?

Well, I don't think that our sales teams are ever holding back because they are, of course, incentive to get customers and bring them on board.

However , in each region as we are looking to roll-out the next-generation services they are keenly aware of our desire not to subsidize any more TDMA phones than we have to this year.

And also keenly aware of our customers interests in having some of the new products and services that are offered by the next-generation system.

So we feel that there is - there is some restraint that's appropriate, that's being exercised throughout our sales and distribution group.

And we expect that restraint to be less (INAUDIBLE) while we roll-out these new generation networks.

Good.

Okay.

Thanks very much.

Thank you.

Our next question comes from Todd Rethemeier with Sur Terre Research.

Please go ahead with your question.

Thank you.

I've got two questions for you.

First can you give us an apples to apples roaming number here for the quarter?

It looks like you were down 3 million just in reported results.

If I estimate it, I would probably say it was about 1 - down 1 or 2 million on an apples to apples basis.

Does that seem about right?

That would probably be pretty close.

We had $15 million that we talked about that was roaming for all of 2003 for the Oregon four properties.

And so, although there is some seasonality likely in there, I think that's a more constant number that we probably see in some of our other markets.

That would stand to reason.

What I did say in my prepared remarks were the minutes of use for the settlement cycles that are part of the first quarter, we actually saw minute increase, if you exclude the Oregon four properties and the new properties, those minutes were 14% versus the 10% on a total company basis.

Okay.

And then the second question.

The wholesale customers that you added this quarter seem to be up, a large part of your customer adds, was there any one particular reseller that was drawn, was there any regional differences?

Where did that come from?

Well, the short answer is, no, it was not from any one source.

We have several reseller sources.

They all increased very strongly in this quarter.

And we just haven't broken out that information region by region, but it contributed to some of the success in each region.

Okay.

Thanks.

Thank you.

Our next question comes from Pat Dyson with Credit Suisse First Boston.

Please go ahead with your question.

Yes, thanks.

Just to follow up on the previous question.

On the MOU's number, Wes.

You talked about it being 10% year over year.

The problem that I'm having as I look at that number is that I look at roaming revenue last year of 29.1 million and your stated yield of 21 cents, and you run that through, you get 138.4 million minutes.

And then if you take the roaming revenue this quarter, run it through the yield, you get 135.5.

What am I missing?

As I do that math, that doesn't get me to the 10%.

Well, there are a couple of things, Pat.

First of all, rounding, I think, starts to play an impact here because we, to this point, have not brought the roaming yield out into three digits, if will you.

And we are rounding up our yield at 21 cents and at 19 cents for the respective periods.

That could be as high as 21.4 or as low as 20.6 and the same thing when you are looking at the 19 cents.

So that could have an impact.

The second thing that could cause an impact.

Whenever we have talked about minute growth and when we've talked about yield, we have always talked about those on the settlement cycle basis that we get reports for.

As most of you probably know, in the nonGSM world, the settlement cycles are on mid month, January 15th, in this case, February 15th and March 15th, comprises our first quarter minutes when we talk about our minutes.

And so those are all done on a half month convention.

Obviously the roaming revenue that we report is based on estimates for the second half of the month; in this case the period from March 16th through the end of March.

So when we, I think what ends up happening, and it's understandable, you take the yield that we talk about and you take our revenue and you come up with a yield, that may be a little apples to oranges from the yield and the minutes that I am talking about simply because we are talking about slightly different points in time.

There are other things that have had impact over time, contractual trueups, things that are part of our various contracts that may have affected last year and not affected this year's first quarter, so it's not quite as simple as, unfortunately, we would like it to be from your perspective.

But that pretty much talks about the differences that there would be.

So as I look back to, say, last year or this year, if I was to say round up last year and round down this year, I would get to 3% MOU growth.

Was there something unique last year as far as this year as far as the settlement process that would bridge that gap from 2.8, 3%, up to 10%?

Well Pat, I don't know that I can answer that question because I'm not sure, you may be talking about the numbers again, but those reason the numbers that I have.

I know that, our yield, for instance, if you take 19 cents and 21 cents and you do the math, it's like 9%.

The reality is over 12% was the actual reduction in yield if you go out to three decimal points.

So that has an impact.

I said earlier that there are things that happen that are essentially trueups, based on contractual differences, that don't always reflect in the yield, that are part of the roaming revenue numbers.

And that could have been - that was likely the case in the first quarter last year and we didn't have that in the first quarter this year.

If you go back, the actual minutes, without Oregon four and without additional minutes in the properties that we received from AT&T Wireless, we're up 14% year over year.

They were up 14% if you include just the minutes we really had for the properties we own when we owned them, in other words Oregon four for January's settlement cycle, February's settlement cycle and the March settlement cycle in the new properties, they were up 10%.

Okay.

Let's continue going through the numbers.

Second question I had, Wes, I know you highlighted the fact that you stepped back into the market and bought back some senior preferred.

Maybe just walk through your thoughts on additional buy backs, and in the context of the senior preferreds, specifically the accrued there that would allow you to capture a larger discount by taking out some of the junior preferreds.

I don't think our strategy has changed from what we've talked about in the past.

We will continue to evaluate our alternatives.

Certainly you point out a fact that I think everyone knows that, for us purchasing any of the junior preferred stock, we first need to bring our dividends current on our senior preferred stock.

We recently had declared a pick dividend on the junior preferred stock.

And as we have the last three quarters we've elected to not pay the dividend for the fourth quarter that's due on May 15th on the senior preferred stock.

Beyond that, we continue to evaluate what our options are and look to find the best net for the value type of opportunities that are available to the company.

But other than that, that's really our stated goal and that's what we will continue to do.

Thank you.

Thank you.

Our next question comes from Stephen Flynn of Morgan Stanley.

Please go ahead with your question.

Great.

I just want to follow up on Pat's question on the MOU's.

Could you give us a little idea of what we should look for throughout the remainder of the year on MOU growth, if we're all taking your yield and and dividing that by your reporting revenues to get MOU numbers.

When we do that comparison going forward should we look towards the 2%, that down 2% number that we are all calculating, or look towards the 10 to 14% number that you through out as more of an organic growth number?

And what should we look toward for the remainder of '04?

Well, I'll let Wes address the numerical part of that question, but maybe it would be helpful if I talked a little bit about how we look at the roaming overall this year.

I think we said last quarter that as we provided some guidance for this year that we expected the year to be a little choppy in terms of roaming.

Some of the factors that lead to that are, of course, that our customers, AT&T Wireless, Cingular, Verizon, et cetera, provide the impetus for our roaming minutes for their customers coming through our networks.

Well that's obvious.

But how that has played out is maybe less obvious.

For example, I think probably everyone on this call is aware that AT&T Wireless lost about 380,000 customers in the first quarter.

We lost far more than that in terms of customers from AT&T Wireless because, in order to get to that net loss number, it really means, and I'm using somebody else's numbers here, AT&T Wireless or an analyst, but they lost about 2.3 million customers and they replaced about 2 million of them.

The 2.3 million customers that they lost, we assume were largely TDMA customers.

They replaced those customers with around 2 million customers that were only GSM customers.

So from our standpoint they didn't lose 380,000 customers, they lost, we lost 2.3 million customers roaming on our network until our networks are fully capable of providing GSM everywhere those customers, those new GSM customers would roam.

Another area is that as we made our build plans for this year last fall, Cingular was touting a gate handset strategy.

You may recall that a gate handset is a handset that has both TDMA and GSM in it.

So a customer that roamed on our networks would use GSM where we had our GSM networks up and TDMA where we didn't.

Cingular significantly changed that strategy after the first of the year and now is only, I shouldn't say only, but is primarily promoting and selling GSM only handsets.

What this means for us is with those customers, as well as T-Mobile customers that only have GSM in their handsets, if they roam into our areas and we do not have a GSM site up, they are not able to make a call on our system.

So in response to these actions that we've seen happen with other carriers, we have significantly advanced the timing of our GSM cell sites coming up this yea,r so that we will have covered, by the end of the year, as many of our prime roaming sites as possible.

And we think we have a good plan to that and that's going well.

But in the meantime, we certainly expect that there are AT&T or Cingular customers that come into our area and cannot make a call in every portion of our network, as we would have expected them to be able to do in the past.

We've also experienced increased minutes from other carriers as we've advanced our CDMA networks.

And we still think that, overall, the year is going to come out in accordance with our guidance.

But it's probably not going to be a smooth movement.

Now I'm not sure what your reference was to minutes being down 2% year over year.

We don't really, I don't believe we've provided any guidance as to specific minute growth, and certainly not a decline.

Down 2% was the calculation that Pat was talking about in the last call, basically dividing your yield by your roaming revenues.

Well, perhaps what I can do to help shed some light on that is, through the April settlement cycle which now includes one settlement that will be counting towards in the second quarter when we talk about yield and minutes, we have not had a settlement cycle with fewer MOU's in the current year than the prior year, if I go back over, at least, the last couple years time.

And I'm sure it probably goes beyond that.

But keep in mind, however, that the swap of Oregon four property will impact and show that we will have lower roaming minutes of use, likely when you start going forward in the year, or at least it will be lower roaming revenue as we've talked about previously.

And that swap closed in March so it hit one month in the first quarter?

That's correct, yes.

And then, just my last question is, can you update us on, if you were charging your subscribers at all for wireless number portability or E-911, if those.

A lot of carriers have raised those charges, if you've changed those charges and if it's included in your LSR?

Thanks.

We do have charges both to recover our costs for wireless number portability and also E- 911 costs.

For the first quarter this year those costs for us total about $1.18.

But they are not included in our LSR at all.

And I think that number is somewhat lower than what other carriers portability and also E. 911 costs.

For the first quarter this year those costs for us total about $1.18.

But they are not included in our LSR at all.

And I think that number is somewhat lower than what other carriers have.

Okay.

Great.

Thank you.

Thank you.

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

Please go ahead with your question.

Thanks, good morning.

Two questions.

First a clarification.

I believe that your February - end of February conference call you mentioned USF revenue in the mid, low 20 million range?

And I believe you said this today, low 20 million.

Is there a change there or is it just semantics?

I think it's more semantics than it's anything.

We haven't really seen anything different than what we had previously thought , so I think that's essentially the same guidance.

Okay.

Second question is, several operators both national and rural, around the country have dropped their $40 unlimited local long distance plans and I notice you'are still actively promoting around-the-clock offering, as you call it.

Can you give us an idea how important that plan was in terms of gross adds for the quarter?

Maybe minutes of use, or just t's economics relative to your overall base, any color would be great.

Sure.

Actually the round-the-clock plan just started, I believe, in April.

So it didn't have any effect on the first quarter.

Although we have had unlimited local plans from time to time in a couple of our regions before that.

I would say it is, when we've utilized and promoted those plans we have found a certain segment of the customer base which is attracted to them, but it is not our most popular set of plans.

And probably hasn't been the biggest attractor; it's just one of a number of plans.

We don't look at it as being particularly special.

It just appeals to a certain segment that is very focused on local use and likes the freedom of having it be unlimited.

I would point out that ,as far as the economics go, when we utilize those plans we are certainly have profitable arrangements for in collect revenue.

For example, when those customers move to another area we are making a profit on those minutes rather than having it be a cost to the plan and other services that we offer.

So they are structured differently so that we still get the type of LSR that we want off the plan.

Would you consider the round-the-clock offering as promotional in nature or something that will be a more longer term part of your total plan offerings?

Well, I would think that we will always have some type of unlimited offering that some of our customers will be on.

We tend to promote a different point in each marketing cycle that we go through.

It happens that that is the particular marketing cycle we are in right now is for that plan.

But I think if you look back and if you could look back a quarter we were promoting regional plans.

If you were looking forward, you would see a different cycle in the plans.

It's just what we choose to promote at a particular time.

Great.

Thanks, that's helpful.

Thank you.

Our next question comes from Mr. Steve Rowland with ( INAUDIBLE) Advisors.

Please go ahead with your question.

Hey, guys.

How are you?

Just a quick question.

Just doing some back of the envelope, it looks like your G&A expense, I'm not including the selling, was down about $4 million quarter over quarter.

And I'm wondering if you could kind of explain what that was all about and whether or not that's sustainable?

First off, SGA as we talked about were actually down about 2.9% if you take out the USF pass throughs.

I'm not sure that it was down $4 million.

In fact ,that number seems pretty high because I don't think we could go down that much without that, so I'm not sure your arithmetic is quite accurate.

I don't have- it would take me a second to go through the numbers right now but I'm sure we weren't down by that much.

But, having said that, I think it's important to understand that we are pretty proud of the fact that we've been able to keep our general and administrative expenses, on a percentage of revenue basis, declining.

That is certainly something that the company strives to do.

And I think we've done a good job of keeping our costs in check and continuing to drive strong EBITDA margins, which are one of the hallmarks of our company.

Did the swap have any impact on GMA for you guys?

It would have had some.

Again with one month of operation that affected us for the first quarter, the Oregon four properties with more customers and more imbedded customer base, certainly had some additional costs versus what would have incurred in the new properties.

But I don't think it would have had a significant difference through this period of time.

Okay.

Great.

Thanks, guys.

Thank you.

Our next question comes from Andre Gardener with Kelso Management.

Please go ahead with your question.

If you apply the valuation that Cingular used when they acquired AT&T Wireless, what kind of a price do you get for Rural Cellular?

Well, I think there's a lot of difference, from what I've read at least, there's been a lot of different multiples depending on what kind of EBITDA multiples that you are looking at.

So, that's a very difficult question for to us answer and I think it's one that's better served by analysts depending on how they look at it.

Certainly the one thing that I think I can say is that based on that multiple it's at a greater multiple than what we are currently trading on in the equity markets.

Let me phrases it another way.

What kind of multiples of EBITDA do properties change hands today in the private marketplace?

I'm not sure I have privy to that information.

The most recent one, obviously the one that has had the most press in recent times, would be the Cingular / AT&T but I think people could argue that that's not necessarily a comparable for us.

And, private valuations, I'm not - I just am not aware of any ones that will give us any better information right now.

When you do sell GSM, are you finding that people are signing up for added features, i.e. sending photographs, text messages, downloading rings and things like that?

I think as we said earlier we are rolling out GSM to our larger cellular customers base a little later this year so we really don't have information to provide you on that right now.

We do offer GSM in our Wireless Alliance markets and have some for years and we've found the interest in those features to be strong and good.

Thank you.

Thank you.

Our next question comes from Nailan Margiva (ph) with WRA Investments.

Please go ahead with your question.

Hi.

Good morning.

A couple of questions.

It seems like your capex is going to be increasing during the course of the year, considering you've given $100 million guidance for the full year.

Do you expect to be generating any free cash flow, that is cash flow from operations less capex?

And if not, how much do you expect to be dipping into your existing cash balance to continue to buy back preferred securities?

With respect to the capex, we still expect to be very close to our $100 million guidance.

I think, as you gathered from our comments about how we run our operations and seek to limit costs, our ideas are no different with our capex.

And even though we are accelerating some of our cell site builds, from, it's still within the guidance that we've given for $100 million before, by other adjustments that we've made.

We'd expect to be free cash flow, if you use the EBITDA less capex less cash interest expense, calculation that we've historically used.

I think we may have uninterrupted positive numbers, perhaps in the second or third quarter depending on the timing of some of the capex that we expect yet this year.

Obviously with about $14 million for the first quarter and $100 million of guidance there's some pretty significant numbers of capex that will be coming on board.

And depending on, if they are more even or if they end up getting lumped into, say, the third quarter, that could be an impact.

But for the year, we still expect to certainly have positive free cash flow, albeit, not at the same level we were last year.

That's on your definition, but aside from, if you take the definition as an increase in cash or decrease in cash, aside from all financing activities, do you expect there to be an increase in cash or decrease in cash?

And if there's a decrease in cash, do you expect to be dipping into whatever cash balance you have to be continuing to buy the preferred securities at discounts?

Well, if we do no other financing activities - I'm not quite sure I follow your question, but taking the financing activities out of play we would expect cash would increase if free cash-flow is positive.

Obviously if we use the free cash-flow to do some buy backs as you discussed that could have an impact on reducing our cash balances.

But in and of itself we should be producing cash this year if we are free cash-flow positive.

Okay.

Thanks.

One other question, do you have a sense for after this AWE swap what the overlap percentage is with Verizon?

Among your subs?

With Verizon?

Well, that's not something I can answer off the top of my head.

But I would believe we filed those competitive charts, haven't we, Chris?

In our regulatory filings you'll see that we list each licensed area and who the competitors are in it and the population base, so it's certainly something that you could calculate.

Okay.

Great.

Thanks.

Our next question comes from Patrick Comack with Guzman.

Please go ahead with your question.

Yes.

How are you doing?

Number 1.

Have you decided what you are going to do with the South properties, what technology are you going to?

Number 2 is.

You know, you could definitely afford to pay the senior preferred dividends on a returning basis.

Why don't you reinstitute that?

Start paying the dividend ,so you can start maybe buying back some common stock?

Because the stock is down, almost 50% from the January highs.

And also, do you think you can improve on the churn rate going forward?

Thank you.

I will take a couple of those questions.

As far as the South technology choice, we don't anticipate that we will complete any significant overlay this year and that decision process is still developing.

As far as improving upon the churn rates, I think we've always had very strong retention, as we call it here, because we like to focus on the customers that we keep.

We continue to have, expect it to be strong throughout this year and we always hope it will improve.

As far as the preferred dividend question, we continue to believe it's in the company's best interest to not pay these dividends at this time.

We really are not focused on buying back common shares at this point in time.

I think that there are other opportunities that probably are just as positive for us in looking at other securities.

So that is not something that we have contemplated nor have taken action on at this time.

Just a follow up.

I mean, what are some other strategic things that you can do to help the stock price?

I mean, the fact that you haven't decided on the technology on the Southern properties, I mean, would you think about selling the South?

I mean what are the other things that are going through your mind, Wes?

Well, I think there are a lot of possibilities, a lot of things that we think about but, I don't know if that's something that we, frankly, are going to want to talk about on this phone call.

I think you can understand why.

That's just not something that we think should be shared in public.

Okay.

Thank you.

Thank you, Mr. Ekstrand there are no further questions at this time.

Please continue with your closing remarks.

Thanks again for your interest in Rural Cellular.

And with that, I look forward to discussing our second quarter results, and our next-generation network evolution in August with you.

Thank you.

Ladies and gentlemen, this concludes the Rural Cellular Corporation's first quarter 2004 earnings conference call.

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