威訊通訊 (VZ) 2006 Q2 法說會逐字稿

Good morning, ladies and gentlemen.

And welcome to the Rural Cellular Corporation's second quarter 2006 earnings conference call.

[OPERATOR INSTRUCTIONS]

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

Please go ahead, sir.

Good morning, everyone, and thanks for joining us for our 2006 second quarter teleconference.

This call is also being broadcast live through our website at www.Unicel.com.

After the completion of this call, a dial-in replay will be available through August 18th.

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

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

Today's call is preceded by our second quarter financial press release and the filing of our Form 10-Q with the Securities and Exchange Commission.

This teleconference should be considered together with the Form 10-Q and its related information.

On a procedural note, we anticipate conducting future quarterly teleconferences after filing our Form 10-Q as we are doing today.

Before we begin today's teleconference, I would like 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 and success of customer enrollments and retention initiatives.

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

We must also be able to service our debt.

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

For further discussion of these and other risks and uncertainties, please see RCC's report on Form 10-K for the year ended December 31, 2005 and our other filings with the Securities and Exchange Commission.

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

And now with us this morning are Richard Ekstrand, RCC's President CEO;

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

Rick and Ann and Wes will be available after these prepared remarks for a question-and-answer session.

With that, I will turn the call over to Wesley Schultz.

Thanks, Chris and good morning, everyone.

Before I get started this morning, I want to let you know that we plan to host future teleconferences after filing our Form 10-Q, just as we are doing today.

We believe that having the call after filing the 10-Q provides the most complete look at our business and its financial performance for the quarter.

With that said, let's talk about our second quarter results.

Our financial performance improved this quarter, reflecting consistent service revenue, significantly increased roaming revenue and controlled spending, which resulted in increased operating income.

Operating income without giving effect to depreciation, amortization, stock-based compensation, and impairment costs, was $55.8 million, an increase of 7% over last year.

Wireless Alliance accounted for $1.6 million of this amount.

In the past, we've discussed impact of increases in LSR and its affect on our service revenue.

As was the case during the first quarter, the second quarter continues to be a good example of that point.

For the quarter, we recorded the consistent level of service revenue despite having fewer post- paid customers than last year because LSR's increase.

The $3 increase in LSR this quarter to $53 is largely due to additional voice and data revenue from our customers.

USF payments for the quarter of approximately $11 million is comparable to the second quarter of last year.

The 73% increase in out collect minutes and the corresponding 46% increase in roaming revenue reflects the strengths and the continued development of our networks.

Partially offsetting gains in the minute growth was a decline in minute yield to $0.11 compared to $0.14 per minute last year.

Another contributing factor to out collect roaming revenues this quarter was the increase in data roaming revenue which was $1.9 million for the quarter, compared to $314,000 last year.

We said this before, but as a reminder, our GSM networks were largely being completed during the first half of last year, yet a significant portion of our GSM roaming partners' customer bases had already migrated to the new technology by that point in time.

Accordingly during the first and second quarters of 2005 we undoubtedly missed some roaming revenue opportunities which impact the year-over-year roaming revenue comparisons this year.

During the second quarter, only 8% of our roaming traffic came from analog and TDMA compared to 28% last year.

With July results already in, we continue to see strong minute growth on our network.

The equipment revenue for the quarter was $6.6 million, reflecting lower handset pricing for both new customers and migrating customers, in addition to the impact of having fewer growth additions this year.

During the quarter, post paid gross customer additions were 35,220, compared to 38,772 last year.

The higher level of gross customer additions last year reflect the early stage of our new technology product launches in both our northeast and northwest regions.

Also contributing to lower gross customer additions this quarter were tightened credit standards this year.

Moving on to the expense side, network costs for the quarter increased 21% to $34.9 million, reflecting the cost of operating 18% more sites this year than a year ago, while also running multiple technologies.

At the end of the second quarter of 2006, we had 1115 cell sites.

In collect costs again declined slightly to $11 million this quarter reflecting increased minutes that were more than offset by declines in per minute costs.

In collect costs per minute this quarter was approximately $0.09 per minute compared to $0.11 per minute last year.

Also helping to offset in collect costs this quarter was our substantially improved coverage within our own footprint compared to a year ago.

Cost of equipment decreased 10% to $13.2 million this quarter, primarily reflecting reduced costs resulting from a decline in average handset costs compared to a year ago.

Partially offsetting the effects of declining average handset costs and gross customer additions was the higher level of handset migrations and replacements.

This allowed to us maintain our migration phase with 66% of our customer base now using new technology handsets.

We again leveraged SG&A expenses during the second quarter.

SG&A expenses decreased 3.4% to $36.7 million this quarter.

Contributing factors to this decrease were a decline in sales and marketing costs for the quarter to $13.6 million compared to $15.1 million last year, resulting from lower sales commissions and various efficiencies from the organizational changes we made during the second half of 2005.

The increase in depreciation and amortization reflects the impact of accelerated depreciation of our TDMA networks and additional depreciation from our new networks.

Increased interest expense for the quarter reflects the higher level of debt resulting from the November 2005 issuance of 175 million senior subordinated floating rate notes and borrowing $58 million from our revolving facility.

Because we have additional floating rate debt that was quarterly interest payment, instead of six month payments, cash interest payments increased to $17.2 million for the quarter compared to $8.1 million last year.

We still expect cash interest payments to be higher in the first and third quarters of the year, since interest on the bulk of our debt has interest payments due in those quarters.

We did not repurchase or exchange any senior exchangeable preferred stock this quarter and therefore did not have a gain as an offset to interest expense this quarter as we did last year.

Last year, we reported a $5.5 million gain, as an offset to interest expense.

Also included in interest expense this quarter was a $3.2 million call premium for the redemption of our senior secured floating rate notes.

During the quarter we issued an additional $160 million of 8.25 senior secured notes which are due in March of 2012, and used the proceeds to repay out senior floating rate debt which was due in 2010.

Looking ahead, the operating guidance we discussed on our call in February is still valid; however, we do expect capital expenditures to be in the $55 to $60 million range for the year which is lower than our guidance at that time.

With that, thank you and I will now turn the teleconference over to Ann for her comments on operations.

Thanks, Wes, and good morning, everyone.

Over the last couple of years, we have encountered an uncommon number of problems, including billing vendor disruptions, roaming agreements, network overlays, customer migrations, while at the same time reorganizing the management structure of the Company.

Through the creativity and the hard work of our employees we have worked through these challenges and are now seeing the results of our labor.

We are pleased with many of our key metrics as reflected in our financial results but obviously, we wish we had net customer gains to share with you today as well.

We saw only a small improvement in our net customer loss for the second quarter, as compared to the first quarter; however, after a difficult April, we have seen steady, significant improvement continuing each month, including July.

Today, we expect stronger customer results in the second half of the year, as we achieve more than 70% of our customers using newer technologies.

We are pleased that we have been able to continue our customer migration case and now have about two-thirds of our customers using new technologies.

Each new segment of customers migrated is a little harder to reach, yet we are moving in the right direction and we continue to believe we will be over 80% by the end of the year.

Since our new technology churn was 2.1% which is lower than our overall churn, we clearly have incentive to complete our migration as quickly as possible.

Additional our billing systems today are providing our customers and customer service team a reliable platform which we believe improves customer satisfaction.

We also continue to expand our product line to provide popular handsets and services.

With the data services we currently offer, including text messaging, ring tones, graphics, gaming, pictures-to-go, data revenue averages $2 per customer.

As a result of the strategy to migrate customers in lower access tiers and to attract customers with lower credit ratings, we recently introduced both GSM prepaid and threshold plans which helps customers control their spending.

Other carriers have acquired a high percentage of new customers using prepaid plans.

We now have a strong competitive prepaid product as well.

We also expect these offerings to help in our migration and retention efforts.

Reflecting all of the above, momentum is shifting in our favor with gross adds increasing each month since our low watermark in April and churn moving in the right direction.

Going on to network development.

We are in construction season and are focused on the optimization of our networks, including adding more cell sites and increasing network capacity; as we look beyond 2007 we continue to evaluate and understand which advanced technologies will make economic sense for us and in what time frame we might deploy them.

Although we have no requirements from our roaming partners to put additional technologies in place, we believe these advanced technologies will be compatible with our existing network.

And in the meantime, we continue to prune, TDMA capacity, and transfer spectrum usage to the new technologies and minimize the operational cost of our TDMA network.

We are often asked when we expect to turn off our TDMA network.

We are planning to retire that network after our regulatory obligations end and when it is economically advantageous for us to do so.

As a reminder, we use the same switch for both our TDMA and analogue networks and we are required by the FCC to provide analog service through early 2008.

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

Thanks, Ann.

It's good to talk with all of you this morning.

We have been engaged in a long transformation of our Company and are happy with the way the various pieces have been reassembled and are now in place.

The final piece of this transformation is to grow our customer base.

Today we feel confident that we have addressed our billing issues, our plan design and our customer service challenges.

We believe it will result in significantly improved customer performance in the second half of this year.

Although impacted by rising gas prices and more difficult economic conditions, customer momentum is gaining strength.

As Ann mentioned, two-thirds of our customers are now using new technology handsets and these customers have higher retention rates.

Companywide, our customers are using significantly more minutes which contributed to higher local service revenue per customer.

And data revenue per customer has become an increasingly significant component of LSR, as our customers more frequently utilize a broader range of data products.

Our expanded website makes it easier for them to access these products.

Our customers are also excited about devices we have begun offering such as the Treo and the Sony Ericsson walkman.

We talk a lot about the changes in our Company.

Although we are not pleased with the second quarter's customer loss, we need to keep perspective on the transition and its effect on the customer service and the sales teams, billing systems and ultimately customer growth.

Progress is being made.

As we look at our very strong roaming minutes and the increase in the increase in our customers' usage, our networks continue to perform well.

Our branding and promotions are competitive.

Our customer service and sales teams are benefiting from the investment we have made in training.

And our billing system is stable.

Most paid customer losses appeared to have peaked in April, and have trended better in each month since then including in July.

We believe our recently launched prepaid products will have a positive impact, particularly in the south region.

We expect much better customer performance as we look to the second half of 2006.

In conclusion, as we work to provide our customers the best possible overall wireless experience, we are more confident than ever that our efforts are being matched by improving results.

With that, I'll turn the call back to our moderator who will poll you for questions.

Thank you, sir.

[OPERATOR INSTRUCTIONS]

Our first question is from Rick Prentiss with Raymond James.

Yes.

Good morning, everyone.

Couple questions for you all.

First, on the ARPU front.

It's nice to see data up to $2.

Can you talk just a little bit about what plans the customers are taking to contribute that $2, how your price plans are set up?

Maybe also what percent of your base is on those plans.

And what do you think the time frames are to get it up more in line with the $5 to $6 range that some others in the industry have seen?

Well, multiple questions.

Let's take them one at a time.

We are -- we have had a basic plan -- kind of a basic plan in the market place for some time, when we first introduced GSM where we bundled two megabytes of data usage with our overall voice access plan.

And we have somewhere over 100,000 customers on that particular plan.

We do not currently have bundled packages in the market place for data quantities but instead we have plans which bundle SMS, pictures-to-go and ring tones in various ways.

I don't have the percentage of customers that have purchased those kind of packages in front of us, but we feel that the penetration, given the short period of time, which at this moment is about four months that we've had that kind of product in the market, it's a relatively low penetration at this point.

But increasing at a very satisfactory way, since we have seen an increase of data from $0.83 from the second quarter last year to where we are currently, just over $2 this year in a very positive way.

I'm sorry, Rick, did I miss one of his questions?

Just as you go forward, you have a thought of the timeline, as far as how long it takes to get it from $2, up to $3, $4, or $5, and any specific plans as far as how to achieve that?

Well, we have some very specific plans to continue -- for our products to penetrate the market place.

Like all carriers, we are looking at different versions of bundled plans, both on the data usage side, as well as bundling ring tones and game downloads and that sort of thing.

Currently, we have some -- we have less flexibility than we would like in our billing systems to do bundling in exactly the way that some other carriers are doing, but we have -- we have plans that are approximately that same type of thing.

And of course we have incentives throughout our sales force to promote and sell the different features involving data that are taking hold now that we've had them off the market place for a bit of time.

As to prognosticating the future and how quickly we will reach higher levels of data, I think I will turn that to Wes for the appropriate color.

Well, I really appreciate you doing that.

There's a couple of things that are less specifically dollars and cents that I think will also impact this and one is that Rick had talked about our investment in training.

And certainly we spent a lot of time and effort and money in training both our customer operations teams, as well as our sales teams.

And part of that training was certainly familiarizing them with the new data products that we have to offer.

I think as they get more and more comfortable with those data products they are also more adept at selling them and up selling them in both of those areas.

Certainly customer operations touches a lot of our existing customers, some of which may not have those kind of services.

And so that's a great avenue for us to be able to start talking more about those kinds of products and services.

In addition, as more of those products get out into our market place, you see your neighbor or your friend using services like weather to see what the weather is going to be doing.

And you look up to the sky in the west, and instead of guessing, you can look right on your phone and see what's coming.

When you see other people using those kind of services, it often is a great opportunity for those kind of customers to become enthralled with that technology and add to that too.

So it's just a bit of a time had a it takes to get that penetrated within our markets as well.

Specifically to your question, Rick, as to when will we get to the $5 or $6, I think this will be a slower, steady, progress.

I don't expect that we'll have a cliff that we're going to come fourth quarter, let's say, and we're going to be at some significantly higher number.

I think this is going to be one of those natural progressions that will continue to build.

Having said that, when that will ultimately get to where some of the other players are, that's hard to tell.

But I do think that there's nothing in our market that would say that it should be any different than perhaps some of the other rural carriers that are ahead of us.

I think -- I really do believe the reason they are further ahead of us in data revenue is just simply because they've had those networks and a lot of those products and services available for their customers for a longer period.

So I don't think there's fundamentally anything different in our markets that would preclude it from happening to us as well.

Okay.

And a follow-up question on margins.

As you guys get pretty excited -- I heard that significant customer improvement and much better customer improvement on the adds in the second half of the year.

Talk to us a little bit about what that does to your margins, as far as going from losing customers to gaining customers, kind of getting at the question of fixed costs versus variable cost in your business.

Well, part of how we get that customer growth is not solely on the back of increasing gross customer adds, which would tend to have the biggest drain on margins if you will in the short run.

Obviously, it is a very good thing for us in the long run.

I think probably a bigger factor for us in converting from losing customers to adding customers is going to be improved retention.

And the cost of retention from an EBITDA perspective tends to be a lot less expensive in that if we are just able to keep a customer that doesn't leave, because we get to them sooner so that they don't get too far behind in paying their bills, for instance, it helps us in a margin, in a couple of ways.

We don't necessarily have to pay anything extra to keep them and we will probably reduce our bad debt that comes from that customer otherwise.

And that would also help our margins.

And so I think on the surface, for us to go to positive net adds, may or may not have any impact on -- directly on our margins.

Now we do expect to have greater gross adds in the third and the fourth quarters this year than what we saw in the second quarter of this year.

Certainly that will have some impact on our margins because we'll have more handset subsidy for those additional customers.

On the opposite side of the coin, migrations will probably level off or perhaps be even slightly less than what we saw in the second quarter.

And so we'll have some less handset subsidies that we have to contend with there.

But in addition, we're also in the third quarter looking at, you know, roaming, which is historically one of our strongest quarters for roaming revenue, that will obviously help our margins.

So we wouldn't anticipate, if we do have higher gross adds in the third quarter, that it will necessarily hurt our margins.

Now having said that, the fourth quarter tends to have some drop off in roaming, tends to have higher gross adds than what we have in other periods and those would likely reduce our margins from where we are in the third quarter.

And it may be an obvious point, but, of course once we have incurred the cost of either retaining or acquiring a customer in the short term, in the longer term, of course it does help us leverage our fixed costs as we experience customer growth.

Yes.

The beauty of the recurring revenue business model.

Sure.

Thank you.

Our next question is from David Sharret with Lehman Brothers.

Good morning.

First, I just wanted to confirm where you guys were guiding to.

In previous quarters -- I guess looking past this quarter, do you expect -- I hear improvement in postpaid results in the second half, do you expect to be positive in terms of postpaid sub results in the second half?

And mostly that's the first question.

As far as total -- if we look at the third and the fourth quarters together, whether or not we'll be positive net adds, it's hard for us to say specifically whether we will or we won't.

But I think we'll see marked improvement from where we have been in the first half of the year, having lost 20,000 customers.

We will be significantly better than and we certainly expect months that we'll have positive net adds.

The question is whether we'll make up enough for even what we've done so far in July.

We saw marked improvement but frankly we lost customers yet in the month of July.

We do expect much better results the rest of the months from thereon out though.

Can I ask for more color on the churn side maybe?

Seeing this is a low quarter in churn for you.

But it ticked a little bit higher and I guess if you look at specifically new technology churn, I think, Ann, I heard you right, you said it was 2.1% this quarter and I think last quarter, new technology churn was 1.8%.

I would have thought that churn would have at least stayed flat and the trend would be coming down as you transition more and more customers to the new technology as well as seasonality.

Maybe just what you saw in the quarter, maybe it wasn't something specific to April and maybe a cap for to us think about for the second half of the year.

I think the key to the difference there for us, as we have identified it is our involuntary churn, that is the customers that left us for non pay or other reasons.

And we have talked about this in prior quarters, but we -- we had had a product in the market place, such as a threshold plan where we had a controlled spending plan for a customer, which as we did our forced billing conversion in October, we didn't have the same controls in place on those plans which led us to some bad debt experience with some other factors.

Addressing that, we changed our credit standards earlier this year which we have talked about before.

We also developed the controls that we needed to continue to monitor and, again, market those kind of threshold plans.

And we are putting the prepaid plans into place, which will meet the need for a certain segment of our customers, all of which is going to help customers control their expenditures, as well as improving our process of addressing customer usages early in the cycle, the collection cycle, which is contributing greatly to our improvement in churn at this point.

I know we have historically seen from other carriers, other peers of yours as they get to that 70%, 80% converted over to the next generation technology that their churn does come down meaningfully.

We've seen that in some of your peers recently.

As you get to those metrics that you talked about, you know, potentially 80% by the end of the year -- I mean, do you expect to see if you could give us a sense of what kind of churn reduction we could expect in the back half of the year?

Well, I think we can't be very precise about that, but perhaps I can give you an example of a reason that we think the percent of migration is important.

This is a very popular product or a portion of a product that carriers have in the market place and we do too, which is mobile-to-mobile calling, as a feature that's bundled into plans where the mobile-to-mobile minutes don't count against whatever buffer the customer might have.

And clearly we all use that when calling our kids or our spouses.

It's very important to family plans and that type of thing.

We have not been able to have a mobile-to-mobile feature, which went across technologies.

So if you take for example, a group of users, whether it's a family or a small business where one or two of the users wanted to go to the new technology, but not move everyone to the new technology, that lack of mobile-to-mobile between the technologies has been, you know, one of the stumbling blocks that we have been dealing with in our marketing plan.

So things where we can offer them through one technology in a way that's -- more smoothly competitive in the market place, are part of the improvements that we see, that we have seen already, and that we expect to see more of, as we have a higher percentage on the new technology base.

And clearly the numbers point to a much lower churn number, as we get to those higher levels of new technology.

We have talked in most of the recent quarters about having churn of our new technologies, somewhere in the high 1.8, 1.9 or low 2s and we continue to see that, even as we go into the third quarter.

The numbers just work in our favor; unless there's a dramatic change in that, which we don't anticipate that we'll see much better retention as we get more and more of our customer base on the new technology.

I guess the last point, do you think you have seen the bulk of the involuntary churn make its way through the system now since that billing conversion, or will that continue to impact you for the next quarter or two?

Well, it's -- the bulk of it -- I'm not sure how it assesses exactly what the bulk of it is but from our standpoint, a great deal of it has gone through and we feel confident that we're in a much better place.

We're seeing much better 90-day outstanding receivable numbers.

And certainly that's a very leading -- and 60 to 90 day, I should say and those are two very big leading indicators of what would ultimately become involuntary disconnect for us.

So from looking at those as leading indicators, I would say that we should see much better involuntary churn numbers going forward.

Great.

Thanks.

Thank you.

Our next question is from Michael Nelson with Stanford Group.

Yes, thank you for taking my question.

Can you talk about some of the changes that, you know, you have made, that you kind of discussed about tightening credit standards?

Are you requiring, I guess, increased deposits or are you rejecting more potential subs?

And then what's the impact that you expect on gross adds and churn?

And then the next question is, could you talk about the -- on your junior exchangeable preferred stock?

I think that dividend payment is due on August 15th and I think that would mark, I guess the sixth quarter of nonpayment.

If you could just talk about that and what to expect on that?

And then also what to expect in terms of plans to tackle your relatively high financial leverage?

Thanks.

Well, I will start with the question regarding the credit.

Tightening credit does in effect mean that one is -- that we would look for higher deposits from customers to come on our system, who have -- who fall into the lower credit bands, as measured by our credit agencies.

And so by tightening credit, you are in effect not able to serve those customers who are unwilling or unable to come up with those deposits.

We had believed that our prepaid product was going to be available much earlier than the time period in which we rolled it out, which was July.

And so in the ideal world, we would have had that new prepaid product available at the same time that we were tightening these credit standards.

We do not.

And so that definitely had an impact on our -- our gross adds and how we looked at things and I guess I'm including the threshold plans in this as well.

But we have worked through that.

We have come up with -- in fact, we have loosened slightly some of the credit standards in certain areas, where we felt it was merited.

And we think that we have worked through that process.

And we now have both the postpaid and the prepaid products in the market place to capture our fair share of that segment, that we have been lacking the last couple of quarters.

Your comment about the junior exchangeable preferred stock is right on.

August 15th will mark the sixth dividend that we have not paid on the junior preferred.

Therefore it puts that class of security into a voting rights event, which allows that group, if they organize and decide they want to, to add members to our board of directors.

At this point in time, it's really pretty hard for to us know whether or not they will organize and elect to do such.

But they would have that right.

Maybe it's worth noting that the senior preferred had this same right a couple of years ago, after a period of time they did organize and added two members to our board.

It's an annual re-election or process, I should say for them to continue to have those board memberships.

This year in May, when our annual meeting was, there was no such activity done for the senior prefers to keep those members on our board.

We elected, as a board to appoint the two members that happened to have be the ones that the senior preferred had elected the prior year to our board, Jim Continenza and Jacques Leduc.

So they continue to be on our board but they are actually now appointed by the board, rather than elected by the senior preferred.

So time will tell what will happen with the juniors and we'll just take it from there.

As it relates to your other question on what our plans are for improving our financial leverage, I'm not sure that we have anything specific to talk about there.

Certainly nothing different than where we have been for quite sometime.

We continue to look at all of the options, and we continue to monitor closely the market conditions, both for our debt and for our common stock, and try to be prepared to do things that can help drive value for our common shareholders.

At this point, we don't have anything specifically that we can talk about.

Thanks a lot.

Good luck.

Thank you.

Our next question is from Pat Dyson with Credit Suisse.

Thanks.

Good morning.

Just two questions.

I guess first, as far as your outlook on growth, we obviously talked a lot around the subscriber trajectory and the fact that you are seeing some better results in July but I guess stepping back a little bit, what is the value proposition that you bring to your markets that would hopefully propel gross additions, growth going forward and is there anything new that you have done in the past of months to try to change some of your plans or to ultimately spur subscriber growth and ultimately spur EBITDA growth?

Well, first of all, as we said many times, we believe that we have the outstanding networks in our markets and service that we bring to our customers and we believe that our customers recognize and are attracted to that value, as we tell them about it.

One of the things that is an issue always is you go through a kind of transformation that we had is we have a new network.

Customers don't always realize they need a new handset to utilize the value of that network.

And we pinpointed that as one of the issues with our retention and it's something that we have been working on to convey that message in the last few months to take advantage of what we know is an edge in the market place for us.

If you think of value in terms of the packages that we offer to people and how we -- how we compete as a rural carrier, again, we have many types of packages in the market place, just as each of our competitors do.

And we look at that too, to provide competitive edges in different ways.

And without discoursing on every type of package, I might give you one example -- off-peak minute time is something that, for example, Sprint highly touted when they went to off-peak beginning at 7 p.m. versus 9 p.m. against competitor.

We have already been doing that as a regional competitor.

In fact as the national carriers move to a 7 p.m. off-peak beginning, we moved ours to 6 p.m.

Those are the kind of adjustments that are made in large and small ways across our service planning and packages as we go.

And also, we refer to it, it's hard to overstate the impact that we felt we had within our Company with a very substantial investment in training, both for our sales group and for our customer service group and collections group.

In other words, we now have a consistent path of training and -- in a way that we have not had consistently across our Company and across all of these departments.

Because we believe each of the customer service and collection groups are involved in sales to a large degree, not just our sales and distribution group.

And I think finally, I would say that we have gone through a very significant reworking of our distribution groups, both our agents and, of course, our direct sales groups to our retail store, as well as reviewing location of retail stores, continuing with our makeover of our retail stores which we began last year, prior to our GSM rollout.

And 100 other points of attack, but I think those are the basis.

Okay.

And then Wes, could you just refresh us on your outlook for roaming trends for the balance of the year?

Well, we haven't really given specific guidance as it relates to the second half of the year.

What we did talk about at the beginning of the year is that we anticipated having greater roaming revenues in 2006 than we did in 2005.

Clearly we have talked about the fact that on a year-over-year comparison, if you take that one step further is that we would expect our biggest increases year-over-year to be in the first and the second quarters, simply because this year we have had our networks for the most part, have all been -- they have all been converted, had more cell sites.

And so we were in a better position to capture as many of the minutes that were possibly out there from our roaming partners, whereas last year, we had a much different picture.

We didn't have a lot of our cell sites completed and so forth.

We would expect much better first half year-over-year comparisons.

Having said that, the second half of the year, we continue to see strong minute growth.

I mean one of the things that is encouraging for us is we have long maintained that we would start to see more apples-to-apples comparisons if there is such a thing.

The reality is, we talked about it earlier, we had 18% more cell place today than we did a year ago at the end of the end of the second quarter.

That additional 18% of cell sites doesn't make it really an apples-to-apples comparison.

It's closer because we had the base network technology brought up to speed but certainly those additional cell sites have continued to be important for us in driving roaming revenues.

The question that I think ultimately will be whether or not those minute increases in the second half of the year are going to be enough for the -- for the yield declines that we have had.

Overall roaming revenues to be higher than a year ago.

If I remember right, I think we had $41 million or thereabouts of roaming revenue in the third quarter.

Obviously that's still a big step up in the second quarter and it remains to be seen whether some of the historical roaming seasonality is still in place today, as it once was.

We still feel very good about where we are positioned from a roaming perspective.

And, you know, we do expect that we will have certainly strong roaming minute growth.

And whether or not that yields ultimate revenue growth still remains to be seen.

Okay.

Thank you.

Thank you.

Our next question is from Sandy Liang with Bear Stearns.

Hi.

Good morning.

I'm wondering if you can update us on what you think your liquidity needs are in the Company.

You ended with $171 million cash on hand which we know is, you know, high because of working capital reasons by maybe $10 million or so.

But that was significantly more than -- well, that $10 million more than what we expected.

But, you know, given that you have a lot of preferreds that are accreting at double digit rates can you give us some perspective on why you have to keep that type of cash balance when you are free cash flow positive?

Well, clearly we are keeping it for flexible purposes.

As I'm sure you are aware, Sandy, we could go and buy some of those double digit accreting preferred, but seniors are the only ones that we can really address, as long as we have six dividend payments -- or any dividend payments outstanding with the senior preferred, we can not deal with any purchases of the junior preferred.

So we would have to be talking about the senior preferred.

Having said that, we have a restrictive payment basket that would not allow us to use all $171 million, which would be enough to more or less take the senior preferreds out.

It's limited more to the $60 to $65 million range for the restrictive payment basket.

So what we have elected to do is to keep the cash in hand for flexibility purposes, realizing there's a cost for us in doing that but we think that the flexibility that it gives us, and our access or non-access to the revolver, that is part of the senior preferred document, requires us to keep the cash there for flexibility purposes.

As we look to try to improve our balance sheet down the road.

Okay.

And one follow-up on that, kind of related.

Why is your CapEx guidance lower?

Are there reasons why you are spending less money than you thought?

Because I know the CapEx was also pretty low in the quarter.

No, I think as we have refined our business plan for this year, that is the things that will actually be turned up and counted -- counted in that capital expenditure total for this year we just came to a lower number.

We've also continued to go through the -- as I said in my earlier remarks, pruning our TDMA network and as we are moving our customers and our roaming minutes, are moving quickly to the new technologies.

Some of our costs have changed and we have gained some efficiencies in our network deployment.

Okay.

So it's not necessarily a timing difference?

It could be that the business requires a little bit less capital than you thought?

Yes, during this time period.

Yes.

Okay.

Thanks.

Thank you.

Our next question is from Anna Goshko with Banc of America Securities.

Hi.

Thanks.

On this new GSM prepaid product.

I'm wondering if you could help us think about what the magnitude of the impact of this is going to be going forward?

You know, prepaid is a pretty tiny portion, I think it's less than 2% of your subscriber base.

So, you know, I don't know if the way to think about it is what you anticipated as a mix of your gross adds and then in the next, you know, three to four quarters are net adds.

But anyway you think about it, I want to know what the expected magnitude of the impact is going to be overall.

And then secondly, just to refine the discussion on churn and, you know, how much of that has been because of your higher credit standards, could you tell us, in the last two quarters of your disconnect, which I think were in the 46,000 range per quarter, what percent of that was voluntary versus involuntary?

Well, let me -- let me -- I will try to answer your second question first, Anna.

As far as voluntary to involuntary, historically, that number -- when I say historically, this is going back more in time, but typically our involuntary was about one-third and voluntary was two-thirds of our disconnects.

As the last couple of quarters, it's been much higher percentage than the one-third.

It has not been one half but it's probably been in the 30% to 40% range of the disconnects, which for us, you know, ends up being a blip, probably upwards of a few, 3, 4,000 of involuntary disconnects than what otherwise it would be if it were on a one-third basis.

And so that's probably the order of magnitude that I think we're talking about on involuntary.

Okay.

Thanks.

That's helpful.

And with respect to the impact of prepaid, first of all, I don't expect that the impact of prepaid will be of great significance to us, in 2006.

When you roll a new product into the market place, and there's a period of time for the advertising to take hold, as well as the comfort level and the Company, you know, throughout the distribution, and other departments of how it is sold and placed with customers, it just takes some time to build and grow.

It's -- our pace has been satisfactory there from the very short time that it's been in the market place but we do expect it to grow, but it is not significant from the financial sense, certainly this year.

But I think for us, where it is significant is that it is our goal for every person who contacts us, whether it's through the web, through our telemarketing, through our stores or through our agents, whatever it is, it's our goal to have a solution and sell that solution to every single customer so that we have that contact with or potential customer, I should say.

And to not have prepaid is -- and we have had a prepaid product.

It just hasn't been -- it was TDMA and in the last year plus, it just hasn't been a suitable product at the moment.

So we haven't encouraged people to sell it.

We haven't encouraged people to think about how we address that segment of the market place.

And as well as I said with our threshold, which is our controlled spending kind of plan and other variations of things, we just haven't had the right pieces in place to really address all of those customers.

And we just strongly believe that when we have the full spectrum of what we can offer, to every customer that contacts us, that we will have stronger success overall, because that's been our experience in the past.

So I know that doesn't address exactly the percentage that we expect to generate from this, but it is a symbiotic relationship between the kinds of plans and approaches that we have.

I will add just maybe a couple of comments to that.

One of them is that it's also going to be, I think a helpful retention tool for us.

There will be some instances where a customer maybe cannot afford their postpaid plan for some period of time.

Having this as a clearly viable plan to migrate or move this customer over to a prepaid offering, allows to us keep a customer within the Unicel umbrella, if you will, without having any acquisition costs to do so.

It will end up showing up as a churn for purposes of post pay, but at left we have it in -- within our Company umbrella and it could very easily become a postpaid higher usage if they are a customer already.

It's also important that as we keep that customer or get a customer that is on prepaid, that at least for the most part, we believe are going to be eligible for USF.

So for to us get a prepaid customer where we know their address and some of the things that are required in order to qualify, it allows to us get USF funds from that customers which in some cases could be equally as important a prepaid customer brings us in the first place.

As we have seen in the market place, a lot of the carrier's growth has been coming in prepaid kind of offerings.

And we tend -- we have always showed them separately, detailed prepaid from postpaid from wholesale but I think a lot of people have put them together and that's where their growth is coming from.

For us not to have an effective offering has really limited an important segment of where the growth in the industry is coming from.

Thank you very much.

Thank you.

Our next question is from Mark Bishop with Boston Company.

Hi.

Just had a things.

First of all, I guess your goal is 80% migration done by the end of the year.

You used to say you wanted 10% per quarter, which would have put you more like 85% or something.

Are you purposefully slowing your migrations?

And secondly, I was wondering if you could say what the cost of the migration is, the average cost that is included in CPGA and what the handset subsidy is.

Then I have a couple little things.

Well, we are not trying to slow our migrations, I will tell you that.

We are working very hard to keep up that pace, and yes, we did have a track record for a period of time and have had a track record of 10% migration phase.

I would say in this regard, as we talked about 80% is -- our target is higher than 80%, but as we look and listen to other carriers who started a year or more ahead of us in this process, we see certainly Cingular would be one example with their recent announcement that they are going to charge people using old technology, which I believe is just a way to get that customer's attention.

Because a lot of customer if their phones are working fine and their service is satisfactory, they simply don't want to have to deal with the change if they don't think they have to.

They just don't want to think about it.

And it is the challenge of reaching those latter segments of the customers, which require a lot of creativity and we certainly have seen different carriers approach it different ways.

And we are working to learn from other carriers' experience, as well as the things we have tested and tried ourselves.

I think by saying over 80% we're trying to be realistic that keeping us to 10% paid might have a higher -- a higher cost than what we would like to incur at that point in time, but we are not trying to slow it.

We are just trying to do it in, you know, a regular advancing way.

But as always, we balance the customer at that time frame, the benefit we see at that time, and that's what goes into our thinking about our plan.

As it relates to the cost to migrate, if we look at it from purely an equipment subsidy level, in the second quarter it was about $72.

That doesn't differentiate between a new customer and a migrated customer but that's what our average equipment subsidy does.

It also takes into account the overall cost and revenue that we get from accessories.

So that gives you a general frame of mind of what it would cost, assuming the migrated customer buyS the same types of accessories on average as a new customer would which stands to reason I think.

Are there other costs for migration?

What do you think the total cost of migration is?

Well, there's some softer costs.

Certainly it time and resources within our Company anywhere from a person working in one of our stores to a customer comes in to migrate.

And, you know, you have to have people there to staff that as well as the new customer that comes in the store, but it's really pretty hard to put a specific number on that.

From time to time, we have given some missions for migrating customers.

I'm not sure if we are still doing that.

We're not, Ann, are we?

Yes, we do.

In a modest way as compared to our other commissions but we do, particularly with our agent supports their efforts to migrate customers.

Okay.

You also had mentioned that you had tightened credit policies in Q1 to help the churn in Q2.

And the churn was up some in Q2.

I don't know if you feel it has helped in any way or it didn't help and it will help or -- or if you could comment on that.

My finally thing, I was a little unclear on your gross adds.

You had -- I think you said they would be up but then you also said that most of the improvement from net adds I thought you said would be from improved churn going forward.

Do you think that the gross level that you have now, as it changes seasonably from here.

But at this level?

Is this an okay level that you can live with and get to where want to be in terms of net adds or do you raise the gross adds a lot?

We will do both.

The expectation of the Company is that we'll have better gross adds and we'll have fewer disconnects, combined that certainly drives both positively towards improving net customer performance.

I was just making a statement that if you go from losing 11,000 postpaid customers in a quarter, most of -- and just get to zero, let's say, for purposes of illustration, you need to do 11,000 better, whether it's 11,000 gross adds more or 11,000 fewer disconnects.

My comment really was that if you were going to increase it by 11,000 -- a higher percentage -- more than 50% was going to come from better retention, not necessarily gross adds.

That should not be interpreted in saying that we won't have additional gross adds, however.

And with respect to when the impact of the tightened credit policies hit to assist us with the involuntary churn that we have been experiencing, if you think about the collection cycle and the disconnection process, it's -- it is a 90 to 120-day cycle.

And by tightening credit in January, as we did, it's only natural that you start feeling the real impact of that, as you hit into three and four, and five months later.

And, in fact, what we were trying to convey earlier was that we felt that our -- our low watermark, so to speak was in April, both in terms of lower additions -- lower gross adds, as well as higher involuntary disconnects, and that we have seen both those trends moving in a positive direction in these last few months.

And that's what gives us confidence about the future.

I think overall, our message on this whole issue of churn is really pretty simply put.

We have had -- we have had a lot of different difficulties that have come out of our transitions, and particularly, our difficulty with our initial GSM billing vendor last year and our forced change in billing that occurred in the fall.

We have -- we have taken many good and positive steps to address the issues that came out of that, what felt like turmoil in our Company and we are confident that those major things, those major improvements that we put in play have really taken hold.

And we are seeing the benefit of that in the trends that we are seeing.

There are certainly other trends that can affect us down the road, whether that's the economy, which affects our customers as it does any retail customers or events in the news, such as we had this morning, not to mention the other industry things that flow around.

But from our standpoint, the things that affect us uniquely we believe we have a handle on and we have put strong measures in place that are now bearing fruit.

Thank you.

Our next question is from Thomas Lee with Merrill Lynch.

Hi.

Good morning, guys.

Several questions.

I think you kind of touched upon this, but do you think you guys are getting your fair share of gross adds in the market right now?

And related to that, do you think we should kind of expect a pickup in marketing from you guys?

Generally your sales and marketing have been hovering around $14 or $15 million a quarter but as we get into higher penetration of GSM, will we -- should we expect a pick up in marketing just to market your new network?

Well, I think that it is certainly true as the market penetration increases, that you have to take new and different ways to -- you know to reach new customers for gross additions in the market place.

I think naturally that they take some additional costs, but if you are asking whether we have a large ramp up plan because of our new products and services, we have already done many things to support and promote those in the market place.

And I think that we're not looking at a huge ramp up at this point for that.

I would also point out that we have done just a major, major reorganization of our Company in the last 12 months.

And one of the efficiencies that we gained through that was through our marketing and how that was designed and done and by having consistent plans in place across the Company, rather than the more distributed process we had before, where we really had four different processes going on.

We have attacked that cost basis to our benefit in the last year.

One of the things that we have done very well over time has been having a lot of referrals from our existing customers.

And there's as much of an expense to have your neighbor say the only service that you should even consider is Unicel because they have the best network.

That's a lot cheaper for us and putting that in the newspaper and trying to make that statement.

As our networks have improved and as our customer experience has improved, as our retention increases, we do believe that we'll have a lot more Company advocates that are going to allow us to get, you know, additional gross adds that way.

It doesn't necessarily get reflected in significantly changed marketing efforts or marketing dollars that go along with it.

So I think that needs to be considered as well.

Okay.

And two kind of bigger picture questions.

Just can you provide any color on what your feelings are on USF reform are and second question really relates on consolidation.

It seems like we have seen a slowdown in the wireless space and do you see that picking up maybe in a year or two years later or just what are your thoughts on that at this point in time?

On the U.S.F front, we are rather pleased with what came out of the senate committee regarding wireless and how we fit within that.

It's a big bill.

We have been very active in that process.

And we feel that wireless is well positioned.

Obviously, the process has to continue over in the house side, and we're working through that committee, as well, helping them to understand how we have used U.S.F funds to make a difference in areas that were underserved, clearly, and brought wireless services in a unique way to many areas that we serve and a lot of other carriers that are similarly received those funds, also have been very active as well.

So we're feeling -- we're feeling pretty good.

You know, with re-election looming, and the process taking time, it has to go through conference committee and a lot of -- it touches a lot of -- a lot of elements not only of our industry, of others as well.

So whether anything comes out of this particular Congress, who knows.

Probably more likely it will be a starting point when Congress reconvened next year.

And we think we're in pretty good shape.

Is it going to change?

Yeah, it will change.

But we do believe that -- that rural America deserves to have a competitive service.

We need a fair platform, and we believe that our ability to provide services in those areas using wireless is a very efficient way of offering access to event services in a unique way.

So we feel -- we feel pretty good about it.

In terms of consolidation, I'm still on the page that there's been, you know, a lot of big deals that everybody on this call certainly knows about, as well as I do.

And there's been not only big deals but there's also been a number of spinoffs that took a lot of management time.

A lot of energy that -- the same staffs have to deal with.

So I think -- I think -- and I've said this before on other calls, that I think the -- the whole industry has to kind of assimilate and move the various pieces and get those solid so that they can perform and I just think it's going to take some time for all the casts of characters to get in the right spots and that's still under -- underway as we speak.

And I think you'll probably see that pick up as time goes on, just because people are going to get their ducks in a row and get the various businesses in the right spot.

Okay.

Thank you.

Thank you.

Our next question is from Rick Prentiss with Raymond James.

A couple quick follow-ups.

I know it's been a long call.

I think these are fairly quick.

On the roaming, can you update us on percent minutes Cingular, versus T-Mobile, versus others.

Just trying to gauge how active and significant T-Mobile has become.

And one of your peer groups in the rural space had an issue in the reseller channels in the second quarter because TRAC phones would not switch off of TDMA and was not doing any GSM sales.

Can you update us as far as what your contract with TRAC phone is doing?

Certainly.

Let me start with the reseller question and defer to Wes on the roaming minutes.

We have had a contract in place with TRAC phone now for several quarters, probably approaching a year, which covers the provision of their GSM product.

And in that intervening time, we have been working with TRAC phone on really deployment issues that they have with respect to GSM phones.

They still have not resolved those deployment mechanics that they are trying to work through, and we continue to talk with them on a regular basis, trying to work through that with them.

And we'll just continue that.

I believe that they will work through their product -- I'm sorry, their mechanics in the near term, but I can't really predict exactly what that will be.

In the meantime, while their sales on the TDMA side have not been robust, we do have some other resellers that have been more successful and resulted in a net gain this quarter.

To try to help answer your question, we haven't given specific percentages of the three biggest roaming partners for quite some time, Rick, but we continue to have 90% of our minutes come from Cingular, Verizon, and T-Mobile.

Oddly enough, we have seen all of three of them increasing their minutes in the second quarter, some of that is seasonality, I suspect.

Certainly T-Mobile in gross numbers has increased the roaming minutes with us pretty significantly but their percentage of the total has not changed appreciably because we have seen strong increases, really on a percentage basis quarter over quarter, from all three of them.

Okay.

So if we think out there that T-Mobile keeps growing or keeps selling dual mode handsets, there could be some upside potential on your volume side if T-Mobile keeps growing then?

There's no question in my mind that T-Mobile is still, I think I called it the wild card, probably a few quarters ago, as they continue to increase their customer base and commute our networks.

I think it bodes well for us, no question about it.

And I just want a philosophical question.

Dobson has introduced that unlimited state calling plan, significant part of their gross adds are taking that plan.

What your thoughts on how your foot print would match up on that type of plan and can you keep the off network minutes low enough to make that plan really pay off?

I think like every carrier we have tried a lot of different things and we did have a statewide unlimited calling plan for a period of time.

In a portion of our markets, which overall, we didn't feel is a very satisfactory experience from the terms of -- in terms of profitability, and of monitoring the customer's off network use.

It's typical in that kind of plan for most carriers that there is a percentage of usage on the network which is told to the customer that if you exceed that, we will have certain rights to address that fact with you.

And, of course, that takes some monitoring and addressing the fact to those people who are over users of the off network option.

And it didn't provide enough of a competitive -- a combination of competitive edge and profitability for us to continue at that time.

We do have certain unlimited plans.

We are focused on our networks and usage on our networks, I should say, and it's not a cornerstone of what we're doing at this time, and we don't have a plan at this time to reintroduce that kind of plan.

However, I say, as always, we look at everything.

When in collect rates change or other factors that make the net economic impact favorable to us or we think it would, we wouldn't hesitate to do it as we look at every kind of plan.

Your in collect rates are what? $0.09?

Yes.

That's on average what they are.

We've had regional or multi state plans that are not unlimited that are still a very important part of our offering.

And a lot of those plans include a lot of minutes.

They may not be unlimited, per say, but obviously, with off peek and mobile to mobile and some of those kind of plans that are features within those regional plans, you know, they can tend to be a lot of minutes.

And for most consumers are essentially all they want to use anyway.

So we've got versions of plans that are similar in many ways but they may not be specifically called unlimited.

Got you.

Thank you for taking the extra question, guys.

You're welcome.

Thank you.

The next question is from [Jeff Gavarkov] with CIBC World Markets.

Hi, good morning.

Thanks for taking my question.

Using the figure of $72 per migration or equipment costs per sub, back of the envelope, I've come up with migration costs of about $12 million per annum.

And I'm wondering if it would be a good way to look at it that next year you won't be incurring that same $12 million, it will be a small fraction of that in marketing costs?

Well, I -- I will let Wes address the small fraction remark.

I would just like to point out that as you're thinking about this, is that there is a -- a constant in our business, which is upgrade patterns for customers either with new handsets or different handsets or addressing handset performance issues which is -- is always with us.

The migration is a unique circumstance because it's a complete change in technology.

But the need to replace customer handsets on a regular basis is one that we deal with all of the time, as do every carrier.

Yeah, I think Ann hit it on the head.

This year we have a higher percentage of those kinds of costs that are technology change.

Next year, it will revert more to same technology upgrades of handsets.

Having said all of that, it very well should be less in total next year because there should be fewer handsets, same technology changes than there are complete new technology changes.

So we should see some reduction, but it's probably not going to be as significant as you might think if you don't take that handset into account.

Okay.

And turning to the issue of dividend payments on the senior preferreds, have you made the decision not to pay them in the coming quarter?

The board has elected not to pay the dividends for August 15th for either the junior or senior preferreds, that's correct.

And what are the gating factors that you are looking in regards to paying those dividends or paying some dividends on the seniors?

Well, the one gating factor that we've had in relative recent history is for to us refinance we cannot have more than six dividends in arrears.

Because of that, the market condition is making it attractive for to us do some refinancing well ahead of maturity on those securities is that we pay some dividends in order to make those transactions possible.

Beyond that, we look at a number of different factors all of which I think keep coming back to more flexibilities for the Company.

But that's part of what the board discusses every quarter when they make that election or non-election.

Right.

Well, it appears as though you're approaching the threshold where the operating leverage will kick in and I'm wondering if that operating leverage is visible, will that prompt you to address those dividends in arrears?

You know, certainly that's one of the factors amongst the lot that the board needs to consider, as it looks to make the decision whether or not it should be paid, but, yes, certainly that's one of the factors that they would look at.

Okay.

Thank you very much.

Thank you.

Our next question is from Matt Larson with Oppenheimer.

Hello?

Hello.

Hi, Matt.

Oh, hi.

I'm sorry.

I was spacing here.

Hi, guys.

Listen, most of the people who have been on the conference call, I sense are calling from the high yield point of view.

They are asking technical questions but no one has addressed the fact that your stock has probably done 60% in the last three months.

And I'm kind of wondering what can one do to improve that?

I'm a large shareholder, I've always been a large share shoulder and your Company has probably four or five shareholders who make up almost half the outstanding shares.

And so, you know it would be great to see some sort of insider buying at some point.

What are your comments on that?

Well, you know, you know the market as well as we do.

You have limited number of shares an a limited number of daily shares traded, and so, you know, the pressure, you know, goes along with the supply and the demand.

We -- we continue to look at it, and we get effected by all the world news as well as our industry news, as well as our peers.

And we obviously like -- like to see, you know, our equity perform well.

You have been not only a large shareholder but a long-time one as well.

We appreciate that.

And we -- we continue to look for ways to run our business to create margin, to -- you know, to improve customer performance, and take customer growth and create the EBITDA that goes with it, to drive the valuations that the market looks for.

And we continue to look for ways to do that, so that the market can reward that.

And we have been a long time looking for ways to move enterprise values of this Company from debt to equity and it is a long grueling process, especially when we have gone through the exercise of transforming the Company that -- obviously this call has been talked a lot about but we had to transform the Company, A to Z to take us to the point where we are now.

And now we look for ways to get the customers migrated and see the results that come along with it.

So all that being said, we're -- not only this management team that's on the call but, you know, the folks that deal with our customers on a daily basis think about it every day, and work hard to perform well, take care of our customers, and ultimately get the value over to equity.

And we're going to continue to work at doing that.

All right.

I mean, that -- I agree you are doing that.

It's a good sound byte, but any chance you could get any research coverage on this stock?

Again, any sort of insider buying?

I mean you all sold hundreds of thousands of shares, twice what the current price is, so that presumably there's some liquidity around personally to acknowledge that, not only is the business better than it was when you sold out, but it's more secure.

You've got money on the balance sheet.

You've got increasing revenue, EBITDA.

I mean everything is going the right way.

But it's such a liquid situation that, you know, you can honestly say no one cares, okay?

But if you are an equity voter as I have been for years, it gets a little frustrating when you owe it from 2 to 14, back to 5 up to 16 down to 7 -- I mean, you would love to see a little support there for Pete's sake.

So I really would like to see if there's any interest in supporting the equity price.

Well, I appreciate your observation.

And, you know, I personally have owned stock in this Company since day one, and I -- you know, I have owned those shares and seen the share prices in all the ranges you talked to, probably beyond that in both directions.

Obviously, it's frustrating to see it and how that happens but nevertheless, you know, it ends up being one of the realities of a lightly traded -- and with our equity incentive as it is.

And it ends up being, you know, one of the ways it happens.

In terms of -- in terms of what do we do about it?

We will continue to give that thought and see if there are ways to -- you know, to help -- help that situation.

We certainly --

Any directors willing to buy a few passing shares?

People who own a lot -- you know, millions of dollars in preferred who are now on the board?

I mean, wouldn't be a large commitment, frankly.

I mean, I think that's a question better to ask --

Well, you know.

It's a rhetorical question but you know where I'm coming from.

Okay.

Thank you, guys.

Thanks, Matt.

Thank you.

Our final question is from Oliver Blint with Alliance.

Hi.

My question is interesting in light of the previous couple questions, which is I don't mean to go beat a dead horse here but I'm having trouble understanding two things.

The first is, when you look at the gross add commentary, it seems like you guys say or are suggesting that the second half gross adds should look better than the first half gross adds.

And I guess the problem I'm having is seeing why that could possibly happen if you are not going to increase advertising, spending, or CPGA or any kind of promotional.

The idea that the word of mouth is going to drive a lot of growth sort of doesn't hang for me, because you guys have lost market share probably every quarter for the last, you know, year at least.

And I guess I'm just trying to understand, so what actually drives gross adds higher?

And I guess you talked about it.

One is organize, realigning the organizations that you can actually move forward and not backwards, but is that really going to get us significantly, materially, higher gross adds?

And then my second question related to this volume issue is on the churn front -- I guess I'm having trouble understanding two things about that.

One is we -- last quarter it seemed like the commentary was, you know, back in June -- sorry, the first half '05, we wrecked out our customer call center, we changed our billing system.

We took a lot of churn on that and we're moving on and things will turn up.

We've had another quarter of high churn and I guess -- and then on top of that, I'm going back to a gross adds, you tightened standards and we don't have a prepay product that we can let our CSRs roll people into.

The second question in all of that, what else is there that you guys will do that will not get churn lower in the second half?

It just seems like I had modeled in a lower churn number for the second quarter and you did the same thing you did in the first quarter.

And I guess, what's the gross side and the churn side?

I'm not seeing what happens in the second half that gets to us an accelerating top line.

I feel like there's only a certain amount of price pushing and price rising that you can do given your market share position.

And so just maybe I'm missing the point.

Maybe I blanked out for ten minutes of call and you explained it all.

I'm having a tough time seeing any growth here.

Let me start off and Ann can probably fill in here.

Part of why we are able to say the things we say is we are sitting here near the middle of August.

We are a month and a half into the third quarter.

Nothing can point us to a direction with more confidence than what we have seen in actual results in the month of July.

And I think in our prepared comments, we talked about the fact that we had the best month of gross adds and net add performance that we've had in 2006.

But what is driving that?

What about that is recurring?

That's the part that I don't get.

Is it that more people are walking into stores and calling the call centers or is it that you are driving and here the three specific things that we did to drive volume?

My concern about what you just said is it's not sustainable.

It was a one-off blip, the Verizon general manager didn't show up to work one month and you guys got a lot of call volume .

It hasn't been a one-month.

What we talked about is each of the last four months the gross adds have been higher than the month before that.

I don't think that's a one-month blip.

We talked specifically that we have seen the momentum in each of the last four months and I think it's a combination of probably most of the comments we have talked about in the first hour of this call, is that we invested a lot of money in training.

We have invested a lot of money on organization changes that we're made.

A lot of those things, to try to come and say that there's one thing that's created this is over simplifying dramatically what it takes to be successful in bringing gross adds.

I'm not saying one thing.

But what you are saying is that you had higher gross adds month after month in the last four months but when I look at quarter after quarter, it's slightly up over the last quarter but it's still dramatically down.

We agree with that.

And we have mentioned that.

And acknowledged that.

It is from what has happened in the quarterly numbers to date.

We do not see a dramatic change and we do not disagree with your statements on that point.

We're trying to make a different point, which is April was a lousy month for us.

And each month since then has been significantly better on both of these fronts, and in ways that give us the confidence to talk positively about the future.

You can not say that we put dramatically better numbers on the books in the second quarter.

That's absolutely true.

It's also true to say that what it takes to be successful in a proper way, that is in a way that isn't buying retention on a one-month -- you know, one-month occurrence or buying gross adds through ill thought out plans which prove to be unprofitable in the long term for the Company.

We are saying we are not doing those things.

But we are doing these things, the basic things in a proper way, in a well thought out balanced way to continue climb the financial performance on the overall performance of the Company and to augment that with balanced growth in our customer base, and in our LSI.

And that's -- that's our whole message.

And I don't know that we could be any more specific to satisfy your concerns at this point in time.

Is there anything structural about this business that makes it no longer a low 2% churn postpaid business than a high 2% business?

Because, you know, if the proof statement is the performance over the last five quarters, it would say to me, this is beginning to feel like a high 2% churns business and I we walked through all the reasons for that but -- when do we say it's a high 2% churns business and that's a fact of life.

I feel like what you are asking us to do is on taking faith that the second half will look a lot better than the first half and I'm just -- I can't -- I'm having trouble understanding that.

I think clearly that is what we are saying.

I guess at this -- you know, for you to believe that, that's -- that's going to have to come ultimately from what you believe in us, in what we are trying to tell you.

But as far as it relates to, is this a high 2% churn business.

You can look no further than some of our peers in the industry that have had a very similar process as they migrated through their customers bases and are now doing significantly better than high 2% churn.

And we believe that we have every ability to do similar kinds of improvements and that's really what we are trying to say based on the leading indicators and all of l the things that we can see that we can't talk specifically about with this audience, is that we are seeing a lot of those same kinds of trends happening for us.

Thank you.

Thank you.

At this time, I would like to turn the call back to management for additional remarks.

Thank you for the interest in the Company.

As we have talked about, the transformation continues.

We will remain focused on migration and customer retention, leading to improving customer performance.

I look forward to talking to you in November about our third quarter and the results that we deliver.

Thank you, sir.

Ladies and gentlemen, this concludes the RCC second quarter 2006 earnings conference call.

Thank you for your participation and have a pleasant day.

You may now disconnect.