威訊通訊 (VZ) 2005 Q2 法說會逐字稿

Thank you for standing by and welcome to RCC's earnings conference call.

At this time all participants are in a listen-only mode. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded today, Tuesday, August 2, 2005.

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

Please go ahead.

Good morning everyone and

thanks for joining us for our 2005 second quarter teleconference.

This call is also being broadcast live through our Website at unicel.com.

After the completion of this call, a dial in replay will be available through August 9.

An archive will also be available in the Investor Relations Section of our Website.

Comprehensive financial information about our Company is also included in this section of our Website as well as corporate governance information.

This teleconference, which was preceded by our second quarter 2005 press release, should be considered together with the press release and its related financial information.

Before we 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 enrollments and retention initiatives and the successful integration of new service areas.

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

We also must be able to service our debt.

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

For additional risks and uncertainties please see RCC's report on Form 10-K for the year ended December 3, 2004 and our other filings with the Securities and Exchange Commission.

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

Please refer to our Website where you will find the non-GAAP to GAAP financial measure reconciliation included in our August 1, 2005 press release.

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.

Rick, Ann and Wes will be available after the prepared remarks of this call for a question-and-answer session.

During this exchange please be mindful this call has a one hour time allotment.

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

Thanks Chris.

Good morning, everyone.

For the past year and a half we have been pursuing the goal of bringing next generation products to our customers.

We have our compass, we've plotted the direction and we're working our plan.

We have reinvented RCC from every angle with mew roaming agreements, networks, products and equipments, while unifying under one brand name.

For nearly 15 years we've successfully managed to balance the efforts of our customer service, sales and networks teams.

As a result, our historical customer performance has been among the best in the business and we will overcome our current difficulties.

While the recent introduction of next generation has brought both change and challenge we have made significant progress in both the network and roaming fronts.

For example, we had a 28% increase roaming revenue this quarter as compared to first quarter, which is what we anticipated as we launched our GSM networks this year.

We are pleased with this result and confident that we will experience further growth in all collect minutes as we continue to develop our networks.

While we are seeing improved LSR from next generation customers, we are still working through customer service challenges of these technology changes.

The decrease in our retention level reflects a multitude of technology-related issues including billing, networks and handsets, all of which impact our ability to service our customers.

I assure you we are working on overcoming these challenges.

As part of the solution we're moving away from regionally focused business units and toward a functionally organized Company.

Going forward, our sales and marketing customer operations, network operations, and financial functions will be centrally managed.

To be clear, we remain committed to our local markets but will centralize and streamline our internal management systems.

These changes will allow us to redeploy our resources to butter serve our customers and to officially implement best practices Companywide.

Streamline decision making and reframe our relationship with our customers.

As a part of our refocus, we strengthened our team by adding a key executive to head up our new Companywide customer operations team.

And we've promoted our Midwest Regional Vice-President to direct our Companywide sales and marketing efforts.

While we have our share of challenges, we believe our recent organizational changes will make us stronger.

Through all of us, our strategy of bringing new technology wireless products to mainstream America has not changed.

We'll continue to maintain a strong presence in our communities, the quality and experience levels of our employees are solid and our networks are growing stronger every day.

Over the long term, we are well positioned to deliver new technology products and services to our customers.

We also appreciate the quality of our service areas and the value that our spectrum, which we own will bring to our shareholders.

On another note, I'd like to welcome James Continenza and Jacques to our Board of Directors.

Their willingness to serve together with their experience in telecom positions them for a meaningful to our Board and Company.

And with that, I'll turn it over to Ann Newhall for an operations wrap up.

Thanks Rick and good morning everyone.

I'd like to provide an update on several topics including our network construction, billing system conversion, customer status and some additional color on roaming.

We are still in the heart of our construction season.

At end of the quarter, approximately 88% of our 944 sites were equipped with either GSM or CDMA technology.

At the end of July approximately 93% of our 953 sites are equipped with either GSM or CDMA technology.

We are now offering new technology products in all of our service areas, with the recent commercial launches in our Mississippi and Kansas markets.

During last quarter's teleconference, we mentioned the accelerated distribution of GSM handsets by Cingular and noted that we were not yet able to capture roaming demand from those customers.

As evidenced by our strong roaming this quarter we are meeting more of this demand.

GSM roaming minutes for the second quarter increased 74% over the first quarter of this year.

GSM and CDMA minutes in the second quarter accounted for 72% of our total roaming minute volume.

While total roaming minutes this quarter increased 13% over last year, the year-over-year increase accelerated each month during the quarter.

We expect this momentum to result in a strong second path in roaming minutes.

And, of course, the cell sites we add to our network only enhance this opportunity.

We talked last quarter about developing trends in data roaming.

Consumers are increasingly using wireless data as a growing component of their overall wireless usage.

Data roaming has been markedly strong, increasing 325% over the first quarter and we continue to add to our limited number of completed interoperability arrangement.

Switching gears, our technology changes have brought additional changes and opportunities.

First, customer demand for these new technology products is very strong.

For example, our LSR this quarter increased to $50 as compared to $47 last year reflecting the new revenue generating capabilities of these products.

New technology LSR continues to be over $5 more than our legacy customer LSR.

During the second quarter, we focused on LSR and customer migration and we took a moderate approach as we rolled out our GSM products so as not not to overwhelm our systems and to focus on the factors that led to our higher churn.

As we go forward we will work to work to improve our churn and growth adds.

Customer migrations for the quarter were approximately 45,000 as compared to 33,000 handset upgrades this year.

Gross adds for the quarter were 39,000.

At quarter end, approximately 25% of our total customer base was using new technology products.

Increasing from 15% at the end of the first quarter.

Our next generation product launch has brought new demands in various areas including billing, networks, handsets and certain business systems.

Although we have made substantial progress in our distribution and point of sale system, along with resolving certain antenna issues we discussed last quarter, we continue to experience a high volume of customer service calls.

Many of these calls are billing-related questions.

In June we announced the termination of a contract for billing and related services with Amdocs.

And now we have announced the signing of a agreement with VeriSign to be our billing provider for our GSM customers.

Our GSM customers will be transitioned from Amdocs to VeriSign by the end of the year.

VeriSign has been one of our TDMA billing providers for more than five years.

And we have confidence in them.

And with that, I'll turn it over to Wes Schultz for our financial wrap up.

Thanks, Ann.

I'd like to provide some additional detail about our second-quarter financial results, which are in line with our plans and give us confidence as we go into the second half of 2005.

EBITDA was $52 million for the quarter, including wireless alliance EBITDA of $1.8 million.

Service revenues were $98.9 million, an increase of 4.1% over last year and up 4.4% from the first quarter of this year.

These increases primarily resulted from local service revenue or LSR per customer increasing to $50 for the quarter compared to $47 last year.

Contributing to the increase in LSR was approximately $1.50 increase from billing from our customers with the other half the increase from USF payments.

USF payments for the quarter were 11.1 million compared to $8.7 million last year.

Roaming revenue for the quarter was $25.1 million.

Our collect yield declined to $0.14 from $0.16 per minute last year.

This decline was largely offset by a 13% increase in roaming minutes for the quarter compared to 2004.

Rick talked about how quickly trends in our business are changing and Ann talked about the momentum we are seeing in roaming minute growth.

And in that regard we saw a year-over-year roaming minute increase of 5% in April, 9% in May, and 22% in June.

And with what we saw in July, this trend is continuing.

Moving on, equipment revenue increased 76% to 9.4 million for the quarter.

Contributing to the increased revenue were sales of new technology products to new customers and migrated customers, which Ann and Rick have already talked about.

The per handset subsidy this quarter declined by 19%, which we believe is another indication of our customers' demand for new technology products.

Network costs for the quarter increased 11.5% to $28.8 million reflecting the additional costs of operating multiple networks, additional cell sites and increased incollect costs.

Incollect costs per minute for the quarter was approximately $0.11 per minute compared to $0.12 last year.

SG&A increased from 33.1 million to 38 million reflecting the higher regulatory pass-through fees and bad debt expense and sales and marketing costs from our new technology product promotions. 28% increase in depreciation expense primarily reflects the activation of our new network and the acceleration of our TDMA equipment depreciation.

Affecting interest expense during the quarter was our repurchase of 14,932 shares of our 11 3/8 senior exchangeable preferred stock for 13.4 million.

These shares also had accrued $4 million in unpaid dividends.

Accordingly, we recorded a $5.6 million gain from our acquisition of these securities, which offsets interest expense.

As you may recall during the second quarter last year we repurchased 42,750 shares of those securities for $36 million and recorded a $12.1 million gain, which also offset interest expense.

Cash interest payments during the quarter were $8.1 million compared to $7.7 million last year.

And as you know, cash interest payments are higher in the first and third quarters of the year since interest on the bulk of our debt is payable in those quarters.

Now turning to capital expenditures.

We continue to make significant progress toward the completion of our next generation networks, which comprised the bulk of the 26.4 million in capital spending this quarter.

At quarter end our most restrictive financing terms provided approximately 79 million in restricted payments capacity.

Looking ahead, based on the strong roaming trends we are seeing we believe roaming revenue in 2005 will exceed 2004 levels.

We continue to believe EBITDA for 2005 were be will line with our earlier guidance from $205 to $215 million.

And we continue capital expenditures to be in the $100 million range.

With that, thank you.

And I'll now turn the teleconference back to the moderator who'll poll you for any questions.

Thank you. [OPERATOR INSTRUCTIONS] Our first comes from Rick Prentiss with Raymond James.

Please go ahead.

Yes, good morning.

Couple questions for you all.

On the roaming front, encouraging to see the volume growth like you're seeing there.

Can you tell us, are you starting to see any T-Mobile 800 roaming?

We know T-Mobile has started selling some dual mold handsets in different parts of the country.

Have you started seeing any T-Mobile 800 roaming mobile yet?

At this point from what we can see and know it appears to be primarily 1900 roaming.

We just haven't tracked that particular metric at this point.

Okay.

And then you mentioned the increase in the network costs.

Some of it related to not just cell sites adding but also the dual network costs.

As you look out over the period, of time how much costs could you reduce once you don't have to run multiple technology networks, i.e., shutting down maybe some analog at some point or TDMA?

Well, we are, of course, very closely looking at our older networks because right now we're running analog CDMA - - I mean analog TDMA, CDMA or GMS and data networks.

So, obviously whatever we can reduce would be of benefit to us.

Because of the complexity of looking at multiple technologies on a particular cell site lease and calculating how many we need at a particular time given the capacity that we have, I would say at this point we don't have a full analysis that we can share with you of that.

But we are looking at both the analog and TDMA to judge when we're going to be able to completely shut down that network.

And in the meantime, piece by piece we are shifting capacity and support to the new networks as the capacity on the GSM and CDMA ramps up.

Rick, there's no question though that we will be looking for expense leverage in that particular line item.

If you go back over time, I think we've been very successful at driving expense leverage, particularly network costs and SG&A, and those will be areas of focus as we know look to the future.

Great.

And on the speaking of future and technologies, any movement from Cingular as far as asking you guys to put in UMTS as far as being a roaming partner from their standpoint or when you might need to spend some capital in that regard?

I think as we've mentioned before on these calls, we're involved in the GSM Alliance, which is comprised of Cingular ourselves and 20 smaller carriers, which provide the forum for us to talk about future technologies and developments as things move along.

We have had some initial discussions about UMTS but as I'm sure you have been aware Cingular is currently testing and examining that technology.

And so we'll continue our discussions with them but I'd say at this point we neither have specific demands from Cingular of any sort.

But we do have a very active discussion going on about the call that will fit in the future.

And the final question is on leverage.

If you look out there, where do you want to try and see leverage get to over the next couple of years?

What kind of target zone of where you'd like to see it head?

I'm not sure that we have a specific number that I would want to share, but certainly we continue to focus on how we can reduce our overall leverage and we continue to make strides at trying to do that.

The preferred stock repurchase is just one small example of how we're trying to continue to reduce our leverage.

And we'll continue to do that as we go forward.

Great, good luck, guys, making the technology change and moving to a new day.

Your next question comes from David Sharret with Lehman Brothers.

Please go ahead.

Maybe just starting off on your retention rate and the increase in churn in the quarter.

If you can just talk about kind of what you have to do from here you think to get your retention rates back towards historical levels?

And what you think of as sort of a realistic timing to seeing that occur?

Sure.

I'll be happy to address those things, David.

I think as we've talked about many times before, retention and its evil twin churn are something that is a constant and really daily focus of our Company.

I think our normal processes have been somewhat disrupted as we've moved through technology change and some of the billing complexities that we've encountered over the last six months particularly.

And so some of the daily routine of outbound calls and follow-up have been less prominent in our plans simply because our customer service has had a very heavy load of incoming calls with questions about technology, billing and related things.

Having said that, good retention is comprised of a thousand kinds of daily things that go on.

Everything from the ease and reliability of using the handsets and the network to annual cards that are mailed to customers to let them know we appreciate their business and everything in between.

And so really our focus has been very simple.

That is to provide the very best networks that we can to our customers, whether they're on our TDMA network or new technology networks, to continue to have high quality and accessible human being customer service, which our customers like and use a lot of.

And also to do all of the other things such as the regular outbound calling, the regular inquiries when we know we have customers with difficulties in resolving their difficulties to carry it forward.

And, of course, a bedrock of all of this is because it's one of our most regular contacts with our customer is accurate and timely billing.

And we've had some issues in that area, which as we've shared before, we're working on to correct.

To know the steps that we have to take and execute well on them is, of course, what we're in business for.

And we know we've had some challenges here.

We also know that you don't turn the ship in a day.

So I'd say that we'll be reporting more on this in third quarter of positive progress in this regard and even more by year end.

But it is not a change that I expect to happen within the next month.

Do you view this as a peak level in turns of churn or a low water mark in terms of retention rate?

Oh, yes, it has to be.

We've had - - we've talked so many times of about our pride and our hight retention.

We talk about it as retention in our Company because that's how we think of it, as opposed to churn.

And it's just part of our daily mantra.

And I would think that actually these churn levels, although it has an obvious financial consequence, of course, that we look at is just on a daily basis just a great concern to our employees.

Because this is not usually where we find ourselves.

So I can assure you it has a very great focus, and we're very intent on turning that trend.

Thank you.

Two just housekeeping items.

The first I don't know if you mentioned this, Wes, but was there an USF true-up in the second quarter?

Well, true-up being a broad term for retroactive payments or various things like that, there was some.

Certainly the $11.1 million you should not extrapolate to be a run rate of $44 million.

Right.

So there was probably in the neighborhood of a $1.5 million to $2 million potentially of true-up as you would call it in the quarter.

All right.

And then in terms of your updated reshifted handbasket basket after the repurchases?

We talked about it.

It was approximately $79 million.

One last broader question about the preferreds and then why did the preferred repurchases resume this quarter after you'v taken you a couple quarters off?

And sort of the criteria on when you look to continue repurchasing preferreds in the future?

And if you've comment if you've been buying more in the third quarter thus far?

Well, I can answer the last one the easiest.

We have not bought any to this point.

We certainly believe until we report our earnings we're not in a position that we can meaningfully do anything in the market so that's an easy one.

Why did we buy securities in the second quarter?

I guess it really came back to our philosophy that says that we're determined to reduce our leverage.

And one of the ways to do that that we get the biggest bang for the buck has historically been the senior preferred repurchases.

We looked at balancing our liquidity positioning, our cash position, and that overall goal and decided that it was appropriate for us to look at continuing to repurchase the senior preferreds to meet that goal of debt reduction.

So that's essentially how we went about doing it.

We'll continue to look at that on a quarter-by-quarter basis, taking all of those factors into account and what our forecasts going forward to determine what makes the most sense for us.

But we'll continue to monitor that every quarter.

And any thoughts about doing something more broadly, can you just talk about any conversations you've had with your preferred holders kind of in line with what Dobson(ph) was able to accomplish over the last couple months?

We've talked to a lot of our investors on a routine basis but certainly we don't have anything to talk about in this forum that would specifically address I think what your question is trying to hit at.

I will also - - I think their situation was a little bit different in that, for us to be able to do things with any of our preferreds other than the senior preferred is probably a little in a different place than what Dobson might have been.

For instance, for us to do a similar transaction with the junior preferred or the Class M which are junior to our senior obviously is not something that we could currently do.

Because the seniors are still in place?

We have the seniors in place and we have the dividends that are in arrears, which preclude us from being able to do some things with both those classes of stock.

All right.

Thanks, guys.

Thank you.

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

Please go ahead.

Thank you, first apologies if I miss this had but did you state what percentage of your network is now turned on to GSM and able to receive GSM roaming?

It was 93% as of then of July of our cell sites currently have either CDMA or GSM.

Thank you.

And you mentioned the June surge in roaming.

What do you think accounted for that?

Is it sort of a secular pattern or was that because of more of the GSM sites were being turned down?

Or what's your intuition about what was causing that?

Really remembering the many of the areas that we have construction in, some are, of course, summer are the prime time for construction so we had heavy construction in the second quarter.

As well as bringing up substantially all of our networks in our south regions in Mississippi and Alabama and Kansas, which turned up very first week of July.

So - -

So, in other words, I'm not going to say that the 22% is what it's going to be going forward but you'd say that's sort of indicative of what a fully turned on network with less construction might be capable of?

Is that a fair assessment?

I think we have to be a little bit careful for how long you compare percentages.

But as Ann indicated the Kansas network actually didn't get turned on until Jule.

So those wouldn't be represented in the June numbers.

I think it's a combination of all the factors that you talked about Ethan.

I think there's certainly some seasonality that has played into this scenario.

But certainly the fact that we have a lot more of our network in the second quarter and June it would have been a lot more than it would have been in April.

And so because of that, we're seeing the benefits that we've long touted, we expected to see when we got those networks more fully brought up to GSM.

And those facts are just coming to light right now and proving out.

Let me ask you a question on LSR.

I guess you suggested that about $1.50 of the year-over-year increase was actually result of billing.

But it seems to me that a percentage of that 1.50 is attributable to an increase in incollect expense or let's say in outbound roaming so that it whittles away away into the profit impact of that 1.50 to the point where maybe eats those 2/3 of it.

Am I doing the right math and if so, is there a way in which you can prevent incollect expenses from eating into what you're getting as far as the incremental?

Just so that we've got this clear for everyone on the call, out-collect roaming should have no impact whatsoever on our LSR.

I mean, that - - when we put out-collect roaming into any calculation, it goes into a term we call RPU, which I don't think we even addressed specifically on this call.

So just to make that point of clarification.

I think the second point you're driving at Ethan, is that we're getting a $1.50 more from our customers.

But one of the prices that have $1.50 could perhaps be additional incollect expense in the form of network costs, which is where incollect expense shows up on our income statement.

And you're right to some degree.

One of the trade-offs that we're looking at that drives higher LSR is that in some cases we are adding additional footprint outside of our service area into service offerings that are driving bigger buckets, higher priced plants.

And so that is one of the things that we continue to deal with every day as we put together service pricing plans and look at margins on those particular plans.

Now one of things though that we didn't talk specifically about on this call but that we have in the past is that we've really got a three-pronged network build both last year and this year.

The first prong of that is to get all of our existing TDMA sites up to either CDMA or GSM on them.

In addition, we're doing a number of fill-in sites to make our network in the areas that we've served in the past that much stronger, more complete in-building coverage kind of network.

The third prong was us to edge from our existing footprint into some of the areas that perhaps are attractive from an out-collect roaming perspective but are also where some of our customers go and use other people's networks.

As we build up those networks that's one way for us to control some of the in-collect expense that we encounter.

And certainly the plans some of the early adopters that we've had we believe are some of our potentially some of our higher off-network users.

As we drill down further into our customer base, we will likely see that next strata or some of the next strata of customers not using some of the off-network.

It also helps that in that as we convert our customer base to primarily GSM, although we have the CDMA here in the midwest, our GSM incollect expense rates per minute are less than what our historical TDMA minutes are.

So all those factors I think you need to appreciate or understand as you look at this scenario.

But it is something that we've certainly look at.

I think the final comment on that just one additional aspect of it is, of course, we have a variety of plans that we offer to our customers.

Some of those plans do emphasize our local footprint and charge our customers for use of other peoples' networks at a margin to us.

So a portion of the incollect costs that we incur is for minutes that we are in effect reselling on a per-minute basis to our customers.

All right.

Thanks a lot.

I appreciate it.

Thank you.

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

Please go ahead.

Thanks, good morning.

Wes, question for you first on - - or Ann on the gross post paid ads.

They were done sequentially in the quarter relative to the first quarter.

And wanted to get a sense as to how we should think about the gross post paid ads for the balance of the year in context obviously with some of the churn comments earlier?

Well, in the first quarter, we launched GSM networks and our largest region, which comprises nearly a third of our potential base as well as another region in the northwest.

And we got a pop in both of those regions in terms of customer ads and how we move forward.

But it also came at a price because we had some system difficulties that we had discussed earlier.

So as we moved into the second quarter, we certainly eased back on how we launched our south region.

And when I say eased back, what I mean by that is that we did not market strongly, we had soft roll-outs.

We eased back on some of the marketing in our other regions.

Deciding that it was better to both seek the best customers and to use some of this time for migrating customers rather than having a strong and emphasis on acquisition.

And we expect that to be more aggressive in the second half of the queer.

Okay.

So, relative to the sequential base we should see some pick up in the third and then obviously in the fourth?

That's our belief.

A couple other questions would be; first on USF Wes, do you still feel comfortable with the $36 million guidance for the full year and is there any update on New Hampshire and South Dakota?

There's really nothing new in either of those, South Dakota or New Hampshire.

We continue to feel confident that we'll get the ETC certification in South Dakota.

It's been a slow and a laborious process but we believe we'll get there.

I think at this point it's unlikely - - well even if we get it now, it would not have really any impact on our 2005.

Because it would be now the earliest we could it would be effective for January of 2006 from a revenue perspective.

As far as the guidance of 36 million, I think it's likely that we will exceed that number by at least a small portion.

So that we would expect that that's clearly a number that we can be - -.

Okay two other questions.

Well, first on the roaming yield, do you still feel comfortable in the $0.13 s roaming yield that you talked about previously?

And then finally on the cash position in the context of the preferred buy-back, given the fact that the third quarter is a higher cash interest quarter you're going to end the quarter with something say around a $20 to $25 million cash position.

Wes, if you could just give us your sense as to what's the appropriate cash position for the Company?

And how low you'd potentially be willing to go in the context of some of the preferred buy-backs?

I'll try to answer the first one.

The $0.13 that you were talking about so far for the year we've been through the first two quarters we've been at a roughly $0.14.

So I believe the $0.13 was relative to some guidance we probably gave for the full year.

Certainly we'd expect that we'd be at least at that yield level for the full year because we're quite a bit in percentages, we're quite a bit ahead at this point.

As far as cash is concerned, we've had a lot more cash than we currently have on our balance sheet in the not-too-distant past.

But we've also had times in the past where we've certainly had less cash than we've had on the balance sheet in the not-too-distant past.

As long as we have the availability on our revolver, we believe that certainly gives us adequate liquidity for our needs.

We're really coming into in the third quarter, which is typically our best EBITDA quarter and we would expect that it would continue again this year.

We are also seeing, you know, that we've had a disproportionate amount of our CapEx in the first half of the year, so that we'll see some reduction in CapEx as we go through the remainder of the year.

You certainly hit the nail on the head.

Third quarter is our strong or our highest cash interest expense quarter.

So we have to balance all of those things together but we're certainly not viewing liquidity or cash as a concern at this point.

Okay.

Thanks.

Thank you.

Our next question comes from Sandy Liang with Bear Stearns, please go ahead.

Hi, good morning.

Can you talk about the potential for RPU increases through your new technology price plans?

I'm wondering, are the GSM customers taking bigger buckets of minutes on average?And how does the GSM RPU compare to your TDMA RPU?

Well, as we discussed earlier with respect to LSR, which is our local service revenue component, without consideration of our roaming revenue, our new technology customers are more than $5 higher than our legacy base of customers.

From what we see today, we expect that that will continue.

In some cases they are purchasing bigger buckets.

In some cases they are purchasing data features and other features that they simply like to use.

It's really quite menu of things that they have to select from.

And we've just found a great appetite of minutes whether that's used in feature side nights and weekends or larger buckets.

Clearly our GSM customers are using significantly more minutes than our legacy TDMA customers did though.

And so whether they pay for it in bigger buckets or in overage, they're more than what our legacy customers do.

Now, would these have been higher RPU customers in the older technology?

If they're migrated customer, there's probably a pretty good scenario that would say that's the case.

But remember, these are not all migrated customers.

So in many cases these are new customers and it would be literally impossible to know what they would have picked as a TDMA selection.

But, by and large, these customers are using a lot more minutes.

So it would tell that you they're probably higher RPU kind of users in the past as well.

Okay.

One quick one again about the cash.

You're working capital usage was, it looks like it was around the same as the quarter a year ago.

But this quarter it seems like you're receivables were a much bigger use of cash, your receivable use was about 10 million.

And I'm just wondering if you can explain that trend?

Well, there's a couple of things, probably that have impacted that.

Certainly some of the customer service issues, some of the billing issues that we've talked about have contributed to the accounts receivable number going up from where it had been in the previous quarter.

You also have to bear in mind that this has the roaming receivable that does not get collected at the end of a given quarter.

And as you see a spike up in roaming seasonally, that will also increase our receivables on our balance sheet.

Okay.

Thanks.

Our next question comes from Romeo Reyes with Jefferies & Co..

Please go ahead.

Yes, good morning.

Couple of questions for you guys.

Can you give us a sense of how much you spent on migrating customers from the old technology to the new technology in the quarter?

Romeo, that's a good question.

But it's not one that we've talked about in the past.

And, frankly, we don't have that specific number right at the tip of our fingers.

The thing that I think is important to understand is that a migrated customer, for them to get the same kind of handset subsidy that the new customer has, typically has to sign a new contract.

So in many ways, I don't know that the costs are significantly different for migrating a customer.

At least those customers that have chosen to pick a contract from a new customer.

Where is the exception probably lies and the commission is certainly a lot less, although we do give some compensation to various people for migrating customers, it's nowhere near at the same level as it is for bringing in a new customer.

What's the Delta?

It really varies across different circumstances.

It's pretty significant.

And probably - - I'd even hazard a guess what the actual number is.

It's different among our different channels too, whether it's a teleservice customer, an aging customer, a retail customer or indirect or direct customer through one of our business channels.

I'm sorry, that's just one that is difficult for us to answer.

Okay.

I mean, for future calls it would interesting to sort of normalize EBITDA so that - - to the extent that there's one-time migration expense, it would be helpful if you could give us that number.

Secondly, the second question with respect to revenue on the roaming side, that comes from new technology, CDMA or GSM versus analog' where does that stand right now?

You said that some of the volume, roaming volumes that roughly 72% is coming from new technologies and 28% from analog or TDMA.

Can you give us a sense of what that makes this right now in terms of revenue?

All that we're providing at this point in time are those numbers.

We're not going to get into any more specifics as to the revenue.

I think those are pretty indicative as to where the revenue is also coming from.

When you look at the bulk of our minutes at this point are coming from new technologies, it stands to reason that a higher percentage of our revenue is therefore, coming from those technologies as well.

Okay.

Can you give us a sense of sort of rates on new versus old technology on the roaming side?

We have not given that specific guidance in the past and I don't anticipate that we will at this point either.

Okay.

Let's see, let me try one more.

On the CapEx side, can you give us a sense of how much of the $100 million is for upgrades this year?

Do you mean with respect to our new networks?

Yes.

Well, I talked earlier about the fact that it's three-pronged approach and the vast majority of our - - well, I shouldn't say that.

A big chunk of it really falls into each of those three categories quite honestly.

Certainly a great deal of it has to do with overlay.

We are overlaying.

I think we talked about earlier, we have some 900 sites.

So this has been a moving target because we didn't have 900 sites initially when we started the overlay.

We've been adding to our network in our footprint as well as augmenting our footprint into adjacent ares throughout the course of this overlay process.

So we are constantly increasing the number that essentially ends up being our total CapEx.

But the vast majority of our funds are going for those three particular prongs.

You also have to remember that we have to maintain our existing networks, and that means as capacity increases we add channels.

We add redundancy in certain areas.

We have the central black boxes in our networks.

We have computers.

We have vans, we remodel stores.

I mean, there are a variety of capital expenditures which we encounter during the year.

If you had to take a guess on how much of the CapEx is for the overlay versus say footprint expansion or capacity, adding additional capacity to existing foot print, what would those numbers be?

I'm not going to even hazard that guess.

We aren't giving that kind of specific information.

Certainly, if you look at the number of sites that we had, versus the number of sites we have now, it stands to reason that the bulk of the costs would go to overlaying the sites.

Now, that's been an ongoing use of CapEx though now, for going on over two years.

So don't lose sight of the fact that we've been overlaying sites going bac,k in the midwest region, back in 2000 -- in all of our regions going back to 2003.

So that has been a constant part of the CapEx since then.

Okay.

Can you give us a sense of what the south region did this quarter?

Last quarter you talked about the south region being somewhat soft.

And I think you guys also articulated that you had eased back a little bit in the south region.

Can you give us some flavor as to what the roaming loss - - the loss of roaming minutes was down in the south region?

And I think last time you indicated that south region was approximately 25% of your overall roaming minutes.

Can you give us a little bit more color on that?

Romeo, we're really just not - - I think the point we were trying to drive home and part of the reason the second quarter roaming has increased is for the very facts that we talked about in the first quarter.

We had a lot more of our GSM network up in the second quarter as compared to the first quarter.

We brought up many, many sites in both Alabama and Mississippi that impacted second quarter roaming.

We're really not going to talk specifically about roaming that's in a region an ongoing basis.

We did talk about that in the first quarter because we were really trying to help our investors understand the magnitude of what the impact of not having a network in the south region had in our total roaming picture.

But now that essentially that network is up in sufficient numbers that are comparable to the rest of our regions' next generation networks, we're not going to continue to detail those region by region.

Okay.

Thanks.

Thank you.

Our next question comes from Anna with Noschco(ph) Banc of America.

Please go ahead.

Hi, thanks very much.

On this centralization of the sales and the customer service and the network-offs, can you give us a sense of what timeline you have on this?

Any cost savings, expectations, up front investments that might be required?

And then is there operational requisite that it poses?

Yes, as far as the timeline goes, it is already in effect, it's something that which we discussed in our officer group in July.

And put in place very quickly since it largely involves reporting relationships and functional alignment.

It did not involve significant costs because we were not involved in moving any really, any number of people or that type of thing.

And so the bulk of the costs are quite minor and relate to things that we might we name differently or reflect differently in our internal systems and internal communications and reporting.

As far as the cost savings that we expect from it, while we do expect to receive some execution efficiencies as we go forward and efficiencies of all types as we're properly aligned.

We are doing that not because we're looking at reducing our costs by any particular percentage but because we're looking to harvest resources from our legacy processes and apply those resources to the new efforts that we have.

Whether that's in data or looking forward to the future in a variety of paths that we have before us.

So the intent of this is not to specifically to improve our margin in the near future, it is to harvest those resources to apply towards our new opportunities and grow revenue in the future.

Okay.

Great, thank you.

Thank you.

Our next question comes from Aaron Rickles with CIBC.

Please go ahead.

Hi, good morning.

You had mentioned expense had increased a little bit in the quarter and I was trying to back into it some of the numbers in the press release release.

And it was looking like it would have been up maybe 1 million, maybe 1 million plus.

Can you just sort of go into a little bit of detail on what was driving that and with the increased churn sort of where would you see that going forward in the context of trying to reduce your churn over the course of the year?

The number that you're talking about for bad debt was not at $1 million it was a significant percentage less than the $1 million increase.

Certainly churn and nonpay customers in some cases has impacted our churn level.

And so for us, we've had bad debt from time to time go in some kind of cycles and it becomes a bit of a relation with churn.

And the higher your churn is typically you're going to see higher bad debt associated with that at the same time.

We would anticipate as our churn goes down that our bad debt will also go down.

So in absolute dollar amounts can you tell us what that debt was?

It was on the order of about $800,000 of an increase.

Of an increase, okay.

Thank you.

I guess just one sort of final thing.

In terms of the billing system, I think in the past you've talked about having to ramp-up staffing in some of your customer service centers to handle some of that inflow of calls.

Do you have a sense of, once you get all the billings systems in place that you plan to do through the course of the year, will you be able to bring some of that staffing level down to maybe more of your historical levels?

Is there a material cost savings that would arise from that?

Yes, we certainly dough intend to bring the staffing down to what we regard as more normal levels and in some respects that has already begun.

And we do expect it to be a cost savings over where we are today.

Okay.

Thank you very much.

Our next question comes from [Bazhard Zeta] with First Albany.

Please go ahead.

Hi, folks.

If I'm not mistaken, it has been about a year since you rolled out the CDMA service in the midwest.

Can you give us some color on the churn rate among the CDMA customers who have been with you for about a year now and how that compares to the Companywide churn rate?

Yes, certainly we can.

That system was rolled out just about a year ago now, as you said.

It has been very stable now for some months.

Stable in customer you service, stable on the network side and that that region, that area has the lowest churn in our Company by very high percentage.

So that is really been a strong and stable bright spot this year for us.

Would that be around 1%, higher than that?

Not too much higher than 1%.

Okay.

And what percentage of your GSM CDMA net adds - - I mean gross adds are taking contracts for longer than a year?

For example, Dobson which is a Company not too unsimilar to you, they are saying they brought 70% of their new GSM customers are taking two-year contract.

Are you experiencing a similar trend?

Well, I think - - I don't have the specific numbers on GSM versus CDMA and TDMA to share.

Let us say that the vast majority of our customers that are taking the contract are taking a two-year contract.

However, we also do have a product that we've been marketing that a very popular that is a no contract option where the customers pay a much higher percentage of the cost of the phone and all the rest of it and that has been a successful product for us as well.

In other words, we reduce our subsidy that we incur across-the-board by going with a no contract option.

So I don't have the specific percentages for you but overall on those customers who take a contract I would think we would be similar to Dobson.

So that no contract option is that available only to GSM or CDMA or is available to all three of the other systems that you have?

It's been primarily available most recently in the new technology side.

But we have had occasions to use it with TDMA as well.

Okay.

I have one last question.

Who has been the primary beneficiary of your increased churn rate?

Is it primarily the Sprint affiliates?

Can you shed some color on that?

No.

Okay.

That's all I have.

Thanks.

Our next question comes from [Ned Soccer with Madalf.] Please go ahead.

Thanks very much for taking the question.

Couple things.

A, can you talk about the size of the basket that's available, permissible as far as the repurchase of the senior preferred?

And secondly, Rick, I think a couple of months ago we talked about sort of how far you were through this transition process both from a network and an operational standpoint.

I think at that point in time point you'd indicated that you were getting close to halfway through that process.

How do you feel about where you're at now relative to your progress on the last two or three months?

Thank you.

I'll answer the first one.

That's easy one.

We have the most respective payment capacity basket, that's a mouthful, is around $79 million that could be available for senior preferred repurchases.

It's not necessarily earmarked just for those.

Okay.

Given the point of where we're at, obviously with 93% of our sites with next gen, that's moved along very nicely through the course of the year.

And as we move into the through the fall season, we look to wrap that up.

Much of our Company is obviously, we have restrictions in terms of what we can do because of weather in the winter.

And we've got about 25% of our customers converted to new products.

And likewise the handsets that go with them.

So we would look at continuing to migrate our customer base over the course of the year.

Much of that is obviously market driven based on - - we certainly encourage them through our promotions and advertising and our - - from a marketing and sales standpoint.

And we're encouraged by their eagerness to get the - - access the networks both in terms of the coverage as well as features and products.

And so basically we're feeling very good about the markets's response to what we've been offering.

And we don't see that lessening as we go through the course of the rest of '05.

And we're excited about what we see.

So it's - - we'll continue to do what we've been doing.

We're working our plan and taking and moving our customers as fast as we can.

Thank you by the way.

One follow-up, how long has the no contract option been available and have you seen a material difference in your churn rates for that product versus people who were signing contracts?

I think we first introduced that into a market in fourth quarter last year because, frankly, it began as a transition product on the TDMA side.

In other words, we knew GSM was coming to a particular market but it was several months out so how do you handle the contracts, the customers that would like a new handset, et cetera.

We have not seen appreciably different churn rates with that product than we, of course, watched that quite closely to see what the trends might be.

Thank you.

Our next question comes from Adrian McKay with Freestyle Fund Management.

Please go ahead.

Thank you.

Can you talk a little bit about your roaming yield trends past this year in terms of how potential overbuilds are likely to impact those yields?

And what significant roaming agreements are likely to come up for renegotiation?

Well, I can answer the contracts - - significant contracts likely to come up for renegotiation.

At the moment, we do not have any contracts up for renegotiation specifically that are on the boards right now or even even through next year.

We've given guidance as to what we believe our roaming yield will be for this year.

I think we've talked in the past that we would anticipate that yields will continue to go down over time.

Some of those are built into our existing contracts and talked about that go on for some period of time with both our largest roaming partners in the case of Verizon and certainly Cingular.

What we have seen is a reduction from $0.16 to $0.14 that I talked about during the quarter this year.

The good news is, at $0.14 the - - we're starting to talk about reductions in fractions of penny instead of full increments of pennies or nickels that we've talked about in the past.

So I don't anticipate that we're going to have anywhere near the kind of overall gross rate reductions that we've seen in the past.

As it relates to overbuilds, I think you're talking about that as a threat to reduce roaming yields.

But in some cases, that's part of the negotiation, that's part of the contracts you have that I think we've already taken into account in large part with the roaming yields that we've talked about.

Have you seen any additional construction activity from people, for example, in Minnesota, there's off talk about possibility that Verizon might build out there?

In general terms, I don't think we're aware of any specific build plan there.

I think the fact still remains when we start talking about the minute increases that we've had, that's probably indicative of the fact that there hasn't been significant overbuild certainly at this point or we wouldn't be driving the minute increase that we're talking about.

I think also if you step back a minute and think some of the things that we've just talked about in this call.

It's clear with the new technologies, whether it's our customers, it's certainly also true for all of the other companies, which report, that we've seen drastic increases in the minutes of use that customers use on these new technologies.

As well as the complexities of data and other services, which we provide to them and which other carriers provide.

So you can imagine that even large carriers face and continue to face substantial capital requirements in their own backyards.

And so their desire to deploy resources in our area continues to be down the list for them as long as we are providing them reliable service at a quality that they demand and at a price that they consider reasonable.

And as you all know that's been our strategy over time and one which we have pursued successfully to keep our roaming revenue where it has been.

Even through times of severe transition such as we've all faced in the last years.

So we'll continue with that strategy and work to keep those relationships and revenues strong.

Okay.

Thanks.

Our next question comes from Adam Pugman(ph) with Golden Trade.

Please go ahead.

Can you just review what the amount of face and the amount of accrued is on both the senior and the juniors at this point?

The face on the senior preferred is roughly 159 million.

And I believe the accrued dividends are in the $40 million range on the senior preferred.

I'm scrambling here a little bit because I don't have those committed to memory.

But there's about 255 million on the junior preferred with call it 12 million of dividends that are accrued on those.

Okay.

Okay management, at this time I'm going to turn the conference back over to you for any closing comments you may have.

Thanks for your interest in the Company.

We'll look forward to filling in on what progress we've made during the third quarter.

We'll continue to make progress in our networks and our customers improving our processes.

And bringing value to our customers, the communities we serve.

And looking to deploy the capital expenditures that we've been making for the last number of quarters and bringing that to the marketplace with new products and new services.

So look forward to talking next quarter.

Ladies and gentlemen, that concludes today's teleconference.

Thank you for your participation.

At this time you may disconnect.