威訊通訊 (VZ) 2005 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen and welcome to the RCC fourth quarter earnings conference call. [OPERATOR INSTRUCTIONS]

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

Please go ahead, sir.

Good afternoon, everyone, and thanks for joining us for our 2005 fourth quarter teleconference.

This call is also being broadcast live to our website at unicel.com.

After the completion of this call, a dial-in replay will be available through March 1, 2006.

An archive will also be made 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 a fourth 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 enrollment and retention initiatives.

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 also must be able to service our debt.

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

For further discussion on these and other risks and uncertainties, please see RCC's report on 10-K for the year ended December 31, 2004, and our other filings with the Securities and Exchange Commission.

Given these concerns, investors should not place undue reliance on forward-looking statements.

In the course of this conference call, we will discuss financial metrics that do not confirm to generally accepted accounting principals.

Any non-GAAP financial measures presented by RCC during today's call should be considered in addition to, but not substitute for, information prepared in accordance with GAAP.

Please refer to our website, where you will find a non-GAAP to GAAP financial measure reconciliation included in our February 21, 2005 press release.

With us this afternoon, 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 their prepared remarks of this call for a question-and-answer session.

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

Thanks, Chris.

Good afternoon, everyone.

Throughout our history, we've consistently pursued a revenue strategy, focusing on securing roaming revenue with appropriate technology choices and relationships, and leveraging those same technology investments with our customer base.

When we went public ten years ago, we exclusively relied on our 850 megahertz licenses to cover our 600,000 POPs and 27,000 customers.

Today, with 6.4 million POPs and over 700,000 customers, the rural characteristics of our service areas have remained essentially the same.

And 2005 was another successful year for RCC.

We exceeded our initial adjusted EBITDA expectations.

Our new organizational structure is benefiting the customer experience and has improved our ability to be more responsive to the marketplace.

We received strong levels of USF and redeployed more services in those underserved areas.

Our debt refinancing moved us -- moved out our nearest term maturity and gave us increased financial flexibility.

We expedientially entered into a new billing agreement with Verasign, and have transitioned our GSM customers to that system.

We expanded our board of directors.

We grew our service areas with edge-outs in Fargo and Grand Forks, North Dakota;

Lewiston-Auburn, Maine;

Lewiston, Idaho; the Lakes area in New Hampshire; and selected areas of Alabama.

And most importantly, we've increased our coverage, capability and capacity through the significant progress made in our new technology networks.

We believe the sum total of these achievements has played a role in our improved enterprise value.

Moving on to the customer front and our migration efforts.

To be clear, we are not in business to lose customers.

Yet, net customer growth represents one of our biggest challenges.

We made progress in the fourth quarter with solid gross adds, and also seeing retention improvement in new technology customers, compared to our legacy base.

To grow customers in 2006, we don't plan to outspend our national competitors, but will continue migrating our existing customer base to new technology products, in addition to leveraging our differentiating qualities, which include our superior network coverage, our strong distribution system, and our local market presence.

As 2006 progresses, we expect to -- expect improved customer retention resulting from a growing proportion of new technology customers, together with improved billing and customer service.

Also in 2006, we expect lower capital spending, consistent USF payments and continued strength in roaming.

Additionally, we plan to leverage new technology networks, which will include the continuing evolution of devices that provide access to information and entertainment.

Last year we enhanced our product offerings with ring tones, games, downloads, and weather maps.

In 2006, is not -- it's not just about putting phones in people's pockets.

We're taking the next step in combining wireless and PC products, which is wireless data delivery and integrating music, e-mail and [caloring[ devices into our product offerings.

We will offer these products using PDA's, hybrid phones and other advance devices.

We are dedicating technical and customer service teams to support these product offerings, and to proactively address anticipated customer service needs.

Roamers have utilized these data services to the tune of roughly $2 million in 2005, and we look for continued improvement, not only in this data roaming stream but also in how our own customers will use them.

Going forward, as our customers travel and go about their work, they'll have the opportunity to be totally connected through wireless in all of the principle ways they communicate.

In conclusion, I want to express a heart felt thank you to all of our employees.

Because of their res -- [revalence], loyalty, integrity, our Company is stronger today than ever before.

Today, with a seasoned management team, we are well prepared for tomorrow's challenges.

With that, I'll turn it over to Ann Newhall for an operations discussion.

Thanks, Rick, and good afternoon, everyone.

During the last two years, we've rebuilt and expanded our networks, with the goal of maximizing our return, while providing the best possible technology choices for our national roaming partners and customers.

Having increased our cell site count from 800 TDMA sites in early 2004 to about 1,100 new technology sites at the end of 2005, we are now providing improved coverage in all of our service areas and are offering advanced wireless applications to our customers.

We continue to work through the process of migrating GSM customers to this new technology offering, which started in early 2005.

During this period, our retention has been negatively affected.

We said last quarter that fixing churn is never about fixing one thing; it's about improving hundreds of things.

Today, because of all those things we are doing better, we are seeing improved customer care and network metrics.

Additionally, we successfully completed the billing tren -- transition of our GSM customers to Verasign during the quarter.

All of these factors contributed to our ability to increase post-paid add -- gross adds by 17% over the fourth quarter of last year, resulting in the most gross adds for any quarter during the last couple of years.

In addition, retention improved by .03% from the third quarter of 2005.

We are not out of the woods yet, but we are very encouraged by this progress.

In addition to acquiring new customers, we are also focused on migrating our remaining legacy customer base to new technology products and services.

This process is a critical component of our overall retention strategy.

As we complete this migration, we feel confident that our retention will improve, because we are seeing retention for new technology customers at better than 98%.

The better retention from our new technology customers and the higher LSR these customers produce is evidence of the popularity and demand for these product offerings.

Also, LSR this quarter increased $51, as compared to $48 last year.

Given these metrics, we plan to take a multi-tiered approach to more quickly migrate our legacy customer group to new technology products.

As a result, we anticipate higher migration costs in the first half of the year.

We also anticipate offering new prepaid products in the second half, and continued growth in wholesale customers.

We expect additional data product usage, including e-mail capability, location services, pictures and others, to contribute to overall growth in customer LSR.

With all of that said, we anticipate positive post-paid customer growth in 2006.

We are often asked how soon we will be able to eliminate the cost of operating our TDMA network.

During the fourth quarter of 2004, 40% of our roaming traffic came from new technology minutes.

During the fourth quarter of 2005, 90% of our roaming traffic came from either GSM or CDMA, which is consistent with the percentage of customers of our roaming partners using GSM or CDMA.

Still, 10% of our roaming minutes, together with our remaining TDMA customer base, represent a significant revenue source.

We are already harvesting spectrum and capacity from our TDMA networks, in order to rationalize usage among our networks.

By so doing, we will more efficiently utilize existing spectrum, and be in a position to prune down the costs of operating multiple networks.

In 2006 we will add capacity to our new technology networks, which will enable our networks to carry increased roaming traffic and accommodate the accelerating customer migration to new technology.

Increased capacity includes additional channels within our cell sites that connect the customer to the tower, in addition to expanded connectivity between the towers and the switch.

We will add new cell sites this year, as is normal for any network, but we don't expect to make the robust additions at the pace that we did during the prior two years.

And with that, I'll turn the call over to Wes for his financial wrap-up.

Thanks, Ann.

During our teleconference call after the first quarter of 2005, we expressed confidence that roaming revenue would improve during the second half of the year.

Certainly, the third and now the fourth quarter results show the success of our efforts and point to the strength of this revenue stream.

The 53% increase in year-over-year roaming revenue for the fourth quarter was a significant contributor to adjusted EBITDA, which increased to $54.4 million this quarter.

Adjusted EBITDA for Wireless Alliance was $2.4 million for the quarter.

Another indication of the strength of roaming was the 77% increase in minutes of use in the fourth quarter compared to last year. [inaudible] yield this quarter declined to $0.12 compared to $0.15 last year.

Also contributing to adjusted EBITDA this quarter was strong LSR per customer of $51 compared with $48 last year, which has helped to offset the impact of having fewer customers this year.

As has been the case throughout the year, LSR increases reflect additional revenue from our customers, as well as additional USF payments.

LSR for new technology customers continues to be more than $5 higher than legacy customer LSR.

USF payments for the fourth quarter increased to $10 .5 million compared to $9.1 million last year.

Equipment revenue increased 35% to $7.6 million for the quarter, reflecting availability of new technology products and our expanded networks.

During the quarter, post-paid growth additions increased to 44,000 compared to 38,000 last year.

Moving on, network costs for the quarter increased to $32 million, reflecting the additional costs of operating multiple networks and the additional cell sites that Ann discussed earlier.

Incollect costs declined slightly to $11.5 million this quarter, reflecting an increase in minutes that were more than offset by the decline in per-minute cost.

Incollect costs per minute this quarter declined to approximately $0.10 compared with $0.13 last year.

Selling general administrative expenses increased to $38 million this quarter.

Sales and marketing costs for the quarter increased to $15.2 million compared to $15 million last year.

Regulatory pass-through fees increased 9% to $3.5 million during the fourth quarter.

Additionally, we incurred higher bad debt expense during the year, which reflects difficulties we incurred during the first half the year with previous billing system and the resulting customer churn.

Bad debt expense for the quarter was $4.5 million compared with $3 million last year.

Other generally administrative costs decreased by 4.1% in the fourth quarter compared with the prior year.

The increase in depreciation expense reflects the investment in our new networks and shortening the remaining useful life of our TDMA networks, resulting from the migration of our customers to our new technology networks.

Interest expense for the quarter increased to $48 million reflecting higher borrowing, as a result of our November issuance of $175 million in senior subordinated notes, and drawing $58 million under our revolving credit agreement.

Partially offsettling -- offsetting increased interest expense was higher interest income, which resulted from investing a portion of the proceeds from the offerings.

As you may recall, the proceeds from the new senior subordinated notes offering were used to repay $125 million of 9.62 senior sub notes, which would have been due in May of 2008.

Also offsetting the increase in interest was a gain resulting from the November issuance of an additional 82,556 shares of Class A common stock in exchange for 1,000 shares of senior exchangeable preferred stock.

Additionally, we converted 7,500 shares of class D convertible preferred stock back into 43,000 shares of Class A common stock and 106,000 shares of Class B common stock.

Prior to the senior subordinated notes offering, we paid four quarterly cash dividends totaling $17.8 million on 11.375 senior exchangeable preferred stock.

Subsequent to the issuance of these notes, and consistent with our discussion last November regarding preferred dividends, we again chose not to pay cash dividends in November or February.

We also note that we would not be paying cash dividends on the 12.75 junior exchangeable preferred stock in November and February, bringing the total number of unpaid quarterly dividends on the junior preferred to four.

Cash interest payments during the quarter, including the senior exchangeable preferred stock dividends that we paid, were $29.6 million.

As you may recall, cash interest payments are higher in the first and third quarters of the year, since interest on the bulk of our debt is due in those quarters.

Reflecting the cycles of our cash interest expense, together with the recent borrowing under our credit facility and the senior subordinated note issuance, our liquidity improved at year-end to $154 million, consisting of $87 million of cash and cash equivalents, and $67 million in short-term investments.

Now looking ahead, as we anticipate improved adjusted EBITDA in 2006, there are many moving pieces.

Our biggest challenge will be customer growth and determining the best pace at which we transition our customers away from legacy technology.

Hitting our customer numbers in the first half of the year has a significant impact on our full-year revenue expectations.

With that said , we continue to expect increases in LSR and continued improvement in churn.

As our legacy customers transition to new technology products and services, we anticipate improvement in bad debt expense and efficiencies in customer service, billing and network operations.

Although we expect roaming yield to decline again in 2006, we also expect roaming revenue to exceed 2005 level.

We also expect consistent levels of USF payments in 2006, and we anticipate network cost efficiencies as the year unfolds, resulting from our new technology networks.

While leveraging the benefits of our new organization, we do not expect SG&A in 2006 to be significantly different from 2005.

In spite of additional capital needed to right-size our networks -- our new networks and continue the construction of additional cell sites, we expect capital expenditures for 2006 to be lower than 2005 levels, but slightly higher than the previous guidance of $150 million total capital spending in 2005 and 2006 combined.

And, finally, we will continue to explore the various options to keep improving our balance sheet, and transfer a greater proportion of our total enterprise value from debt to equity.

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

Thank you, sir. [OPERATOR INSTRUCTIONS] Rick Prentiss with Raymond James, please go ahead with your question.

Yes.

Good afternoon, everyone.

Couple questions for you.

First on the net-add side, nice to see it back into the positive territory.

Can you update us a little bit about the trends you've seen as you moved into first quarter and, also, how much of the benefit on the pos -- returning to positive net adds was from the edge-out that you mentioned into those markets, Rick, in your opening comments, versus the success of reduced churn from the migrations?

Then I'll come in with a couple of follow-ups.

Well, I think we continue to see a good response to our networks and our new technology offerings.

I think it's difficult for us to segment exactly where the growth entirely comes from because, of course, any -- any add that we get in a new territory is a positive addition for us.

But at the moment, we've basically seen our gross adds coming pretty routinely from across our regions.

I think one of the things edge-outs has helped us do is that it's helped make what was -- prior to this edge-out -- the border of our territories stronger, because now they're not on the edge of our networks, so to speak.

And so, in some communities where we were right up against -- where our service territories might have ended and they would -- customers would normally roam into some other territory, by adding our network into some of those territories, it's just made us more competitive in some of these bordering communities, as well.

And you also mentioned that you're going to accelerate the migration to the new technologies in '06.

You went from -- if I remember right -- 35% of your customer base -- post-paid customer base on new tech in third quarter to 47% in fourth quarter, so at 12% incremental increase quarter-over-quarter, how fast should we expect it to continue?

Is it the same kind of incremental pace for the next couple of quarters or is it even faster?

I know in January, for instance, we've now gone past the 50% mark, so more than 50% of our customers today are on new technology products.

It's really one of the -- you know, the things that we're continuing to evaluate.

I would certainly think it'll be at least at the level that you saw in third quarter -- from third quarter to fourth quarter.

But we're also looking at ways that we may even accelerate it more, because we are definitely seeing the benefits in churn and in LSR from our new technology customers.

So it probably behooves us to try to move our customers as quickly as we can within reason.

An example that might illuminate that a little bit is that we fairly frequently run into a situation where we have a multiple-line account, which might be a family or a small business or something else like that where, perhaps, only one member has moved to the new technology and not the remaining members.

Or, perhaps, they've waited entirely because they didn't want to incur the cost of moving the group and new handsets and such, and so that a multiple-line account is one of our strong focuses in accelerating some of the migration.

Okay.

And then, Wes, I might have missed it, but when you started giving some '06 parameters and guidance, did you give a number or percent on EBITDA. or what is it that you said about EBITDA?

Again, I missed that.

I'm sorry.

I did.

We did not give specific guidance as to a number.

What we did say, from directional standpoint, we anticipate having improved adjusted EBITDA in 2006 as it compares to 2005.

Okay.

And then, I think it was Rick that mentioned $2 million, or maybe Ann that mentioned $2 million or $2.4 million of data roaming.

I think it's like two.

How much data ARPU are you seeing on the local side?

Is it noticeable yet?

Is that in the $5 that you're seeing on the LSR?

It's certainly -- I wish it was at the $5 level.

Unfortunately for us it's still not at that level.

We have seen significant increases in the last few quarters, but we're still really talking about data revenue across all of our customer base in the roughly $1 range, maybe a little bit more than $1 range.

That is double from where it was in the fourth quarter of 2004, but we still have a long ways to go improving data ARPU, if you will, to get closer to where some of the other carriers that have had data services out there longer are at.

Great.

Okay, thanks a lot.

Good luck, guys.

Thank you.

Our next question comes from Pat Dyson with Credit Suisse.

Please go ahead.

Thanks, good afternoon.

Three questions or three and one-half questions.

On service revenue, Wes, did you say anything about your outlook of what we should expect for service revenue for '06?

And a related question would be, what is -- how much room do we have to grow ARPU from the levels that we're at today?

Well, service revenue, we didn't talk specifically about it. hat we tried to do is give some directional guidance.

Here, again, we do anticipate that local service revenue, or what we get from our customers will go up.

That'll be driven both from the migration of customers to new technology products. which tend to have higher LSR, both have a usage standpoint and the data services that are available with the new technology that may -- would not there be there from TDMA.

We talked about the fact that we expect that USF payments in total will be about flat with 2005, so that won't be contributing really much of any change in our service revenue on a year-over-year basis.

But certainly, one of the things on a year-over-year basis, that increased LSR needs to be there for for us to drive service revenue growth, is the fact that we have fewer customers at the end of this year of 2005 than we did when we started the year.

So we have to make up for that with new customers in 2006 -- a combination of that and increased LSR.

But the net of it is you still feel like there's some up-side for you?

Certainly.

Yes, definitely.

And then, a related question would be on USF.

There's been some rumblings around the contribution mechanism and just, generally, the USF issue, as it relates to both wireless and wireline carriers.

Could you give us an update on your thoughts of how much at risk that stream of payments is?

Well, obviously, there's talks con -- on the contributions at the FCC and depending on where that goes.

Clearly, congress has interest in both how you draw from and how you contribute to the funds, and, you know, overall where it looks in the future.

We feel quite good about this year.

You know, just the process and how it gets adjusted and the transition all obviously have an impact on it.

But I also think that, as we've talked to members of congress and their staffs relating to this subject, is that we've got some really, really great stories and customer stories about what we've done with USF funds is that we've invested in underserved areas and the advantages to those communities.

And whether it be public safety agencies or whether it be citizens there, how they're utilizing the services that, heretofore, no one was able to provide, just because of the economics of it.

So, we've expanded our reach and our ability to serve those customers very productively, and I think all those things continue to build momentum for our Company, as we get a chance to talk to both the FCC and congress on this matter.

So, as we see it, we obviously know there's pressure on it and there is talk but, nevertheless, the fact of the matter is that rural America's being well-served by how these dollars are deployed.

And we think that the system works, and we've been able to take advantage of that and provide better services to the areas we serve and our respective customers, due to those funds.

Okay, great.

And then, final question, Wes, what is your expectation on roaming yield for 2006?

Well, we said that we would expect that number to decline.

I think it's safe to say that in the fourth quarter we saw the yield at $0.12.

The year before it had been at $0.15.

So, you're talking about a $0.03 decline on a year-over-year basis from fourth quarter of '04 to '05.

We certainly don't expect that kind of rate reduction as we move on to 2006; the numbers just simply are becoming smaller.

But we do anticipate a lower yield, but not to the extent that we saw in '05?

Okay.

But roaming revenue should be up year-over-year.

We expect that roaming revenue should increase from 2005 levels.

Okay.

Thank you.

Our next question comes from David Sharret from Lehman Brothers.

Please go ahead.

Good afternoon.

I just -- first on the retention side, I just want to make sure I heard you right when you said that, on the customer's that have already converted over to GSM or CDMA, your retention is over 98%, and just to [inaudible], you accelerating the process throughout the year.

Any updated targets for where you think should get retention or churn to by the end of the year?

Is kind of a low 2% type of range for churn achievable by the end of this year?

Well, you did hear me correctly that the retention rate on our new technology customers is over 98%, and we expect that -- that to continue.

As far as what our overall rate will be by year-end, we're certainly aiming for the levels you're referring to by the end of the year.

But part of the reason we're looking at the migration and other strategies is it will depend on how quickly we can get those customers to the new technology that they seem to enjoy by using more minutes and paying more LSR to us.

And we really think that will be the key to our retention efforts.

Maybe just -- just on the CapEx side and really even beyond just this year, just your thoughts around the need for DVDO upgrades or [HSCPA] upgrades within your network, maybe if you have, you know, quantified a percentage of POPs where you're seeing a competitor with those type of upgraded networks where it would help you compete effectively to go through that type of upgrade, when do you expect that's going to start filtering itself into CapEx?

We see a relatively small amount, in fact, quite a small amount of competition in -- of that nature in our areas, although we have seen one or two carriers deploy some trials of that in areas that we serve.

As to -- so just to close out that thought, at the current moment, from what we are seeing, we're not feeling a great deal of competitive pressure from that type of offering.

Nevertheless, it's something that's not far from our thinking.

We're looking at it.

We talk about it with our roaming partners.

We talk about it with our vendors, and we'll continue to analyze it.

I think as you've seen from watching us over years, we're quite deliberate in our choices to make sure that it makes financial sense for us and competitive sense going forward.

So at this point, we don't have anything specific to offer on that. but it's certainly something that we will continue to evaluate and look at at the right time.

We don't have any CapEx slotted for 2006 on any of those kinds of items, though.

Okay.

And just one last housekeeping, Wes, if you could update us on the [tide is] for ship-to-payments basket among your debt instruments?

It is about $73 million.

So unchanged from --

Pretty much unchanged from third quarter.

Of course, paying the dividends was a use of the restricted payment basket in the fourth quarter.

Okay.

Thanks, guys.

The next question is from Kevin Roe with Roe Equity Research.

Please go ahead.

Thanks.

A couple questions on the subscriber side.

I believe you mentioned in the prepared remarks your expecting positive post-pay customer growth in '06.

Besides your expectations for increased -- increased retention driving that, are you also expecting improvements on post-paid gross adds, and if so, is there a new strategy we should be expecting on pricing or promotions or commission payments, et cetera?

We do expect improvements on the post-paid gross adds.and -- but it's not a huge amount.

I would say that it does not demonstrate a different strategy.

It demonstrates renewed effectiveness and efficiencies, as we have fewer distractions in our life.

As we look back on last year, we had two billing system changes.

We had technology changes, heavy migration issues.

You know, a whole lot of things that took our time and attention.

This year we're focused on doing those hundreds of things right that I referred to in my prepared remarks.

It's also, I think, important to understand there's momentum that we think we'll get in the marketplace with these new networks now having matured.

The experience that consumers or our customers are seeing on our new networks is certainly better today than it was when it was first implemented, and certainly better than where our TDMA networks are today.

And, so, we think that that will build some momentum in our markets, just from the fact that we're another year into these network maturities.

But, certainly, the bulk of the improvement that we expect to drive net adds in 2006 is coming from stronger retention than what we encountered this year.

Got it.

And on the other two drivers of your sub base, prepaid and wholesale, I think you mentioned a new prepay strategy, or promotion in the second half?

Could you give us any color on that?

And are you expecting -- obviously prepay, I assume you expect that to be up total subs year-over-year like post pay?

And where do you see wholesale going?

I know that's very much out of your control, but do you expect that, also, to be a growth driver for your base in '06?

Well, maybe I'll deal with those in reverse order.

Wholesale is out of our control in the sense that there's another party that's driving the gross adds to it, but it is not something that doesn't take -- I'm sorry, I was about to use triple negatives there.

It is something that takes time and attention from us in the process of making -- making those services easier for our wholesale customers to use and easier to use us than someone else for those services.

So that does take some of our time and attention to encourage the growth in those numbers.

On prepaid, what we have right now in the marketplace is a TDMA product.

The new product that we're looking to offer would be one that is based on CDMA/GSM technologies and we've simply been trying to align those services with the appropriate billing platform for it.

So as we conclude that, we expect that it'll be rolled out in the second half of the year.

Great.

Thanks.

Our next question comes from Anthony Klarman with Deutsche.

Please go ahead.

Thanks.

Just a couple of questions here, one on the marketing side.

It sounds like, from your answer to the prior question, that a lot of the increase in the post paid productivity in 2006 is actually on the churn or retention side of it.

But I guess I'm wondering, what are you seeing on the marketing side?

We've heard some regional carriers recently realign themselves.

I think Dobson, in particular, recently signed up a distribution -- a higher add distribution channel.

I was wondering what your thoughts were on things you might do on the distribution channel front to help augment some of the gross-add productivity on the post-paid side in 2006?

Well, we're certainly all looking at each of our channels, the direct retail sales and indirect sales to businesses and government entities and of course our agent channels.

I would say that the agent channel is always the most challenging one, and if I remember correctly, that's what Dobson -- Dobson's announcement concerned.

I would just say that we are continuing to work to strengthen our agent channel, as always, in two areas; in the northwest , and the south probably has been less strong than in our other two areas, and we just continue to work to augment it and to bring that channel up to our expectations.

And I guess beyond that, we do not have a significant change in our approach, except to improve those channels that we have.

Are there marketing dollars, perhaps, that you're holding back, or anything on the expense side for retention, and where do you stand in terms of average contract length right now for the existing base and the new subscribers that you're signing up?

As far as the length of contract for the new subscribers that we're signing up, essentially now our products are based on a two-year contract and I do not have numbers at my fingertips on the average contract length across our customer base. and I'm not sure that we've shared that in the past.

As far as looking at marketing dollars, we certainly do have marketing that goes into retention by way of direct mail and newsletters and, you know, offers, and things that are provided.

We also have marketing dollars -- if you think about it, any advertising that we do, really has two targets.

It has the target of the new customer that we would like to bring into our distribution points in order to acquire them as a customer.

But the marketing message is that we put out there all sourcing by our existing customers and help ,shape their understanding of who we are and what services and capabilities we have going forward and reassuring them in the correctness of their current choice of us as their carrier.

We tend not to look at those as being entirely separate categories as we go forward.

Just to clarify one thing here, too, the two-year contract that Ann talked about is both from a new customer perspective, as well as customer that migrates to get a new handset pricing.

They also sign up a new customer contract, so it's both new and migrated customer.

That's a good point, Wes, yes..

And just, Wes, while I've got you, I guess I'm trying to think about, sort of, the EBITDA impact of all the things we heard today, which sounded like higher LSR, positive net adds, higher roaming, stable USF, sounds like SG&A will be roughly in line.

I guess are there other puts and takes on the cost side somewhere that leave you, sort of, not willing to put a band around where you think the EBITDA is going to come in?

Is there some other spend in other areas that might trickle in or the network [costs] on?

Well, it's really a couple of factors that are going to impact where our EBITDA comes in for the year; all of those things, obviously, will, too.

But first and foremost is the migration -- the number and the timing on when we have migration.

And how important might it be for us to get that last 20% of migration sooner rather than later may require us to be a little bit more aggressive on trying to convince, you know, a customer that they're better off on this next technology.

For whatever reason they've chosen not to do it, we may need to encourage them a little bit stronger.

That is number one.

Number two, the sooner that we get to a higher percentage of our customers on new technology, the sooner we can start harvesting some of the backhaul and the back part of the network cost component, because right now we have sizeable amounts of money that are dedicated to the TDMA network, as well as separate costs, in many cases, that are tied to the GSM or CDMA network.

So, that's probably one of the biggest reasons why it's -- it's a little difficult at this stage to give an exact number, because migrations is going to have a pretty big impact on, potentially, what happens to both our EBITDA ,as well as, to some degree, on our CapEx spending in 2006.

Okay.

Thank you.

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

Please go ahead.

Hi, a couple of things.

First, the -- a clarification --or I didn't get the handset subsidy cost for the quarter and also the number of subs migrated in the quarter.

Do you have that?

We didn't talk specifically about what the handset subsidy per is.

I do believe that the migration number was something like 37,000 customers for the quarter, and now that is -- you know, migration what we mean there is simply going from TDMA to either CDMA or GSM.

Okay.

And from what you said on your last comment, did you -- are you saying that there is a significant cost savings at some point coming, when you - -when you turn off the backhaul on some of -- on your TDMA network, or did their earlier comments kind of imply that it's just kind of gradual, you'll never really notice any significant big jump or change?

Well, there is a couple of things here we need to make sure we're clear on.

I did not say, nor -- at least I did not intend to say that network costs will be lower in 2006 than 2005.

They will certainly be higher in 2006 than they were in 2005.

As you can see from looking at each quarter, it's been a building number throughout 2005 and will continue to probably grow in 2006.

What will happen in the second half of the year is we'll see a deceleration, if you will, of those costs, as we are able to gain some efficiencies when we get to the tipping point of having the vast majority of our network minutes on new technology.

And so that'll allow us to harvest off some of the costs that are associated with TDMA today.

If you look at it -- we look at it from this month versus last month, not necessarily a year ago this month, simply we've added a lot of cell sites.

We've added an awful lot of network capacity as we sit here today versus a year ago, but the change between, you know, January and February is a lot less of a change from where our opportunities are -- are on a next-month basis, trying to, like I said, decelerate that increase in expenses, as we drive additional minutes on our network, both from roaming customers, as well as our own customers.

Do you have any kind of guess as to, you know, if all of your subs were on the new technology today and you were able to not have the TDMA, but you'd have a larger GSM network, et cetera, would there be a lower cost today to serve the minutes you have today for your subs?

How much would that be?

In that particular question, I think I could say pretty honestly, yes, it would be lower.

The thing you have to take into account when you ask that question is the key was of the same number of minutes.

Typically, when a TDMA customer becomes a GSM or CDMA customer, just simply because of the broader network, we have 300 sites more in the new technologies versus the TDMA, the minutes those customers use tends to be more.

Now, we can provide those networks much more efficiently than we could on TDMA, but there are several variables that you have to take into account when we talk about that efficiency.

Some of those are step -- what I call step-variable.

You may need to have a portion of a T1 or a DS3, and at some point in the future, you may not need it.

Well, it doesn't happen just because, you know, a certain number of customers are on there.

It's really over time we may be able to take back some of those facilities.

But it's something that really will depend on what the usage patterns of -- you know, the next 50% of our customers that convert to next technology, how do they use their phones?

Is it going to be like the first 50% or is it going to be different.

That's really still a question that remains to be seen.

Okay.

And on your data revenue, you stated it's still like $1.

Is there -- is that what it is for new technology customers?

Is it $1, or is it higher there, or why do you think it's not -- why do you think it's not as high as where you've seen in some other carriers?

I think that that's the figure averaged over our entire customer base, which is about, roughly, half and half of old technology and new technology.

And, clearly, the bulk of our data revenue is coming with the new technology customers, although there are some services that would be classified as data that we had on our TDMA networks.

But, I don't believe that we've provided the specific numbers on our new technology customers, but we will be able to when we complete our migration.

Also a point that we've talked about in the past is that -- you know, when we look back to 2005, some of the data kinds of services we were not able to bill on a -- on some of the usage basis.

As we go into 2006, there is billing capability for us to bill for some things that, in the past, we haven't done.

So, that's also impacteded -- impacted that number to be a lesser number than it might otherwise be.

So combination of getting more customers onto next-generation technology and our ability to bill for all of these kinds of data services, we think, is a one of the reasons that we're pretty optimistic about talking about higher LSR for 2006 versus 2005.

Do you expect to get in line with your competitors on data revenue per user, you know, year round now?

We don't really see a reason that we would be different than our competitors, given the appropriate amount of time to build our marketplace, you know, equivalent to where they are.

Okay, and my last question's just on your cash.

Do you have a lot of cash?

You restricted payments basket is only 70-something or whatever.

What do you need -- why would you have raised so much cash, unless you -- if you can't use it anyway, unless you are anticipating significant negative free cash flow in the first half?

Is that why?

No, I think you're probably reading in a little bit more than, frankly, we are.

We ro -- raised the cash simply to have flexibility to keep all of our options open, as we look at our balance sheet.

I wouldn't read anything more into it than that.

But, are you li -- are you not limited by your restricted payments basket in what you could use in that?

Sure, we can only use $73 million for certain parts of our balance sheet.

We could use the rest of the cash, obviously, to pay back the higher-ranking debt instruments, if we chose to do that.

Okay.

Thanks.

Our next question comes from Steve [Wahlman] with [Sinacaid].

Please go ahead.

Hey, guys.

How your doing?

Good.

I had a -- two topics, the first was on churn.

With the 2% you guys talked about on the next generation network, it would imply a 3% or so churn on the TDMA network, and just trying to figure out on that if you could sort of describe why you think it is that much higher than it has been historically?

Is it a -- is it an issue of, sort of, network being migrated -- or capacity being migrated to the new technology and, therefore,dissatisfaction?

Or is it an active program from you guys to try to move -- you know, move, move out some low ARPU TDMA customers?

What's the reason for the increase there in the churn.

And then, second question was on CPGA and on handset subsidies -- just a quick back of the envelope, looks like your handset subsidies were like $180 per add, which is up $70 to $80 versus a year ago, and I'm wondering how much the retention activity impacted that part of the income statement?

Steve, I'm not quite sure how you calculated.

I can say, definitively, that our handset subset is not $180 per handset.

What -- our number that we showed in the press release for cost to acquire $514, unfortunately, this is a remnant of how we've always reported this.

And what it takes is the handset subsidy on all of the migration customers, as well, so that ends up being part of the numerator number that just simply gets, then, divided from our gross activations for the quarter.

So it's a little bit of apples-to-oranges, in that you got a pretty significant cost from that 37,000 customers that I talked about that we migrated, and we don't get any of the benefit of those numbers in the denominator when you calculate that.

So it's fair to assume that each one of those received a handset subsidy as part of the migration?

Yes, they would be very similar to the same kind of subsidy level that a new customer would receive, simply because, as we said earlier, if you migrate and want to get that handset at that kind of pricing, you sign a two-year contract.

So, for all intents and purposes, they're treated as if they're a new add.

And with respect to the churn, why do we think the churn rate is higher on the old technology, or the legacy customer base.

I think it's simply that, although we've talked a great deal to you and also to our customer base about the investments that we've made in our networks and expansion of cell sites and all the rest of it, all of that -- well, the vast, vast majority of that has gone into the GSM and CDMA technologies, and not into the TDMA networks.

So they haven't see -- well, they haven't seen a specific deterioration of those networks.

They also haven't seen the growth and improvement there, and there are certain number of people that just simply assume that it's not as good, because they don't understand the transition process that's going on, even though we put a lot of effort into explaining that and helping them understand that and helping that move.

So I think that that is the -- that is the root of it.

There are certainly other reasons, too.

As we've always said, retention is many things; it's not just one thing.

And so there are other things that are contributing to it.

But if you want to know the thing that drives my thinking on it and working through it, that is the fact that does that.

And the ARPU of the folks that are leaving compared to the ARPU of folks that stick around, is it comparable, or above or below?

Well, I don't have the numbers right at the tip of my fingers, but it would stand to reason that if our new technology customers are more than $5 greater than our legacy customers and the churn is on our legacy customer base much higher than what it is on new technology, it would just stand to reason that people leaving are lower LSR customers than the ones that we're getting.

On average.

On average, I think that clearly could be said.

Right, right, but I guess what I was saying was the people that are leaving, relative to the people that are staying, any sense of it -- the mix shift of the folks that are leaving, in terms of how it affects ARPU?

Is the TDMA customer that leaves a better or worse customer from an ARPU standpoint than the one that stays?

I think what we would have to define then what is staying is that they could stay as TDMA customer or they could stay as a migrated customer.

So, I mean, you'd be looking at it, potentially, from two different LSR perspectives.

I think the simple answer to the question is we don't have data readily available that tells us what our LSR for the customers that are leaving is compared to those that are staying, because it could be one of two different ways of looking at.

But I don't -- I don't have the sense from what I've seen that we're losing all of our high-end customers, and only those customers that are staying are low end.

Again, I think that gets borne out from the fact that our LSR has gone from $48 in the fourth quarter of 2004 to $51, and has steadily increased on a year-over-year basis, quarter-over-quarter.

So we're attracting, I think, the better customers than we're losing on average, at least.

Okay.

Thanks very much.

Our next question comes from Marco [Kite] with [inaudible] Knickerbocker.

Please go ahead.

Thanks for taking my call.

Wes, did you say that year-over-year roaming minutes of use were up 77%?

Yes, I did.

And as I recall in the third quarter, they were up something like 65%?

I believe that is -- yes, that is the case.

Okay.

Do you feel, like we did at one point, that there were minutes going unfulfilled out there that were missing minutes, or is that no longer the case, do you feel?

Well, I mean, if you're talking about today, I certainly would hope our networks are have the capacity.

And everything from what I've heard is, I don't think we're losing any minutes because we don't have the capabilities.

But as it's compared to the past, certainly we had been on this page long and hard that we just didn't have the inventory, if you will, of next-generation technology for the Cingular's and the Verizon's of the worlds to use our networks.

We've seen that.

Now, that's why we've seen -- you know, in the first quarter we actually saw minutes decline roaming 3% year-over-year, second quarter they were up 13% year-over year, 65% in the third quarter year-over-year, 77% in the fourth quarter year-over-year.

As we start moving into -- and I think we'll see very significant increases in minutes again in the first and second quarters.

As we get to the second half of next year, these percentages are likely going to not be at this robust level, simply because that's when we started having the inventory readily available for all of our roaming partners is probably in the second and quarter of this year, 2006.

So --

Mark, just another comment.

In our prepared remarks, I noted that the 90% of our roaming minutes were currently coming from CDMA and GSM technology, and that that mirrored -- from what we were able to see, mirrored the customer basis of our significant roaming partners, with respect to how many of their customers they've migrated.

That's another way to look at it and feel that we are -- we are meeting the demand, because its proportional.

Okay.

And second question is, you reported that the retention on next-generation customers is 98%.

If these people are signing a two-year contract to get the next-generation technology, what accounts for even that level of churn?

Is it strictly people that just don't pay the bill that we turn off eventually, or why do we even have that level of churn?

First of all, I didn't say that it was 98%.

I said it was better than 98%.

Second of all, yes, it is from a variety of things.

It could be -- it could be not -- you know, not liking how the technology works.

We don't find that very often, but it does happen.

They move to a different billing system.

When they move to that new technology and maybe they don't -- they don't like or understand or feel satisfied by those differences that are there -- obviously the vast majority of our customers do -- it's also non-pay.

We also --

They move, they die.

All the usual things that happens with customers.

We also -- as our standard now, we get two years on all contracts currently, but there were times early on in the GSM launch, if you will, that we were not getting two-year contracts.

We had some of our initial customers on a no-contract basis, as well.

So, there's a portion, at least, of the GSM customer base that does not have two-year contracts, so they were free to go when they so choose.

The thing you have to remember there is we also didn't subsidize those customers' handsets to the extent that we do when they get a contract, so they were less expensive customer for us to gear in the first place.

Got you.

Thank you very much.

Thanks, Mark.

Our final question is a follow up from Rick Prentiss.

Please go ahead.

Yes, I want to follow-up a little bit on the roaming discussions.

I think, Rick, you mentioned in your early remarks talking about the benefits of having an 850 megahertz network, in regards to roaming, how prevalent have you seen Sprint or T-Mobile showing up in your roaming tables, now that actively started selling dual-frequency handsets?

And then, also, maybe just a quick comment.

You all might have noticed today Dobson Cellular One announced a unlimited national rate plan.

I think it is $100 unlimited calling outside of Alaska, and if you're in Alaska, the cost is $125.

What are your thoughts about regional operator looking at offering kind of a -- back to kind of a higher-priced unlimited calling plan?

Well, to be frank, I spend enough time looking at our plans and what we do that I don't analyze or think to -- don't start my analysis with other competitors' new rate plans.

So, I really haven't considered what the impact of that might be.

Sprint really is not a significant roaming partner for us, in that in as much as we really have the majority of our network is GSM rather than CDMA.

We do receive some Sprint, particularly here in the midwest, where we have a very strong CDMA network and they utilize that.

They also use some analog in some of our other territories. as well. but they're certainly what I'd call a very insignificant roaming partner as compared to our larger ones.

T-Mobile, we didn't talk specifically about them in our prepared remarks, but we are encouraged that we continue to see increases, particularly on a percentage basis year-over-year, that are pretty sizeable from T-Mobile.

And we are encouraged by the fact that they are -- from what I understand, at least -- utilizing dual-band or dual-frequency, should I say, phones.

I think I read somewhere where about 50% of their customers now have 850 within their phones, and certainly our GSM networks are ready, willing and waiting for them to utilize their network --- our networks.

Great.

Thanks, guys.

That does conclude our question and answer session.

Please go ahead with any co -- closing comments you may have.

Thanks.

As we reinvented our Company this year, we're proud that we've met our earlier guidance on many fronts, such as roaming, network bills, and adjusted EBITDA, despite the challenges we've talked about over the. you know. past year.

Appreciate your interest in the Company, and we'll look forward to talking to you in May about our first quarter results.

Ladies and gentlemen, this does conclude the RCC fourth quarter earnings conference call.

You may now disconnect, and thank you for using ACT teleconferencing.