威訊通訊 (VZ) 2006 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by.

Welcome to the RCC fourth quarter of 2006 earnings conference call.

During today's presentation, all parties will be in a listen-only mode.

Following the presentation, the conference will be open for questions.

[OPERATOR INSTRUCTIONS] This conference is being recorded Tuesday, March 6, 2007.

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

Please go ahead, sir.

Good morning, everyone, and thanks for joining us for today's call.

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

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

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

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 March 16, 2007.

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.

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

This teleconference should be considered together with our Form 10-K and its related financial information.

Before we begin today's teleconference, 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 to negotiate and maintain favorable roaming agreements and our ability to integrate newly-acquired properties with current operations.

We also must be able to service our debt.

Additionally, we must meet the continuous demands of 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, 2006 and our other filings with the Securities and Exchange Commission.

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

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

Thanks, Chris.

It's good to talk with you this morning direct from the 28th annual Raymond James Equity Conference.

Serving rural America with wireless communications solutions has been our focus since we began the Company in 1990.

As we look back to our years of operations, the acquisitions, the technology upgrades, and our experience in the financial markets, we've become a seasoned player in the wireless industry.

We have a network presence in 15 states.

Our distribution system is built upon our retail efforts, complimented by strong local businesses who sell our services in their stores.

Our sales and customer service teams are on the ground and in touch with the needs of our customers.

And our financial margins continue to be strong.

As we look back at 2006, many of our beliefs and efforts have proved out.

We've held to our long-term plan of providing superior wireless coverage to our service areas, because this is what our customers want.

We have diligently worked through the new technology migration-related issues since we began our launch of the new networks of 2004 and saw a real turnaround in the second half of 2006, resulting in positive net customer adds for both the third and fourth quarters.

Due to the success of both our sales and migration efforts over the last couple of years, more than 82% of our customers are now using new technology devices.

Retention improved by half a percent, and LSR increased by $1.62 in the fourth quarter versus a year ago, which shows our continued improvement.

Looking ahead, the real value of our networks will be measured by our customers, and we will continue to earn our customers' loyalty by exceeding their expectations.

We continue to see progress in our migration efforts, improvement in retention, and overall growth in our customer base.

And to that point, we also believe there is opportunity for continued LSR growth, driven primarily by increased demand for data services.

Along with our expectations for customer growth in 2007, we believe our financial performance will continue to improve.

As we announced earlier, we entered into an agreement with Alltel to purchase four southern Minnesota 850 MHz licenses and operations.

We are very excited about this opportunity and have been preparing for an effective transition in integration.

The property addition is consistent with our strategy of providing high quality wireless communication services to main street America and allows us to substantially expand our rural Minnesota footprint.

This property is nicely adjacent to our longest held and best performing market.

It is easily within driving distance of our corporate headquarters in Alexandria, so the synergies and efficiencies will be very significant.

Because we clearly know this kind of customer and market and these properties have low market share, we have a real opportunity for customer and financial growth going forward.

With this acquisition, our POPs will increase from 6.6 to 7.2 million, and our coverage geography increases to approximately 10% of the lower 48 states.

The transaction is subject to regulatory approval.

When received, we will promptly close.

In concluding, I want to express a heartfelt thank you to all of our employees for their hard work.

You improved a lot of our key metrics over the course of last year and because of that, our Company is stronger today than ever before.

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

Thanks, Rick, and good morning, everyone.

We are happy to deliver the second consecutive quarter of postpaid customer growth.

This results from consistent measured and sustainable progress on many of the key customer metrics.

As you know, customer growth has two components, sales and retention.

We are doing well on both of these fronts.

Our sales and marketing teams brought in over 46,000 postpaid gross adds for the quarter.

Through the efforts of virtually everyone in our Company, particularly our customer service, network, and billing teams, retention has also improved dramatically.

For the fourth quarter of 2006, churn came in at levels not seen for more than two years, improving a half percent to 2.2% as compared to 2.7% last year.

New technology churn of 1.6% continues to be much better than our overall churn of 2.2%.

We expect significant retention improvement in 2007, which we are already seeing in the first quarter.

Clearly, our migration efforts are a big part of our overall retention strategy and help give us the confidence that retention will continue to improve.

Since we launched our CDMA network in mid 2004 and our GSM network starting in 2005, we've had various teams working very hard to increase the number of new technology customers.

At the end of the year, approximately 82% of our postpaid customer base was using CDMA or GSM compared to 47% a year ago.

We are very confident in our ability to migrate the remaining customers.

We've added 10,000 more customers during the fourth quarter of this year compared to last year.

Because of strong customer growth during the second half of the year, we finished the year with 50 more total customers than at the beginning of the year.

And although that may not seem like much, it is a major swing from our loss of 24,000 total customers in '05.

During the fourth quarter, we added approximately 8100 postpaid customers, which brought the total postpaid customers added during the second half of the year to 11,000.

At the end of the year, two-thirds of our postpaid customers were under contract as compared to approximately 48% last year at this time.

Prepaid customers for the quarter declined by 477 compared to a larger decline of 1138 in the third quarter.

However, we saw positive prepaid customer growth in recent months and expect growth to continue.

Wholesale customers for the quarter increased by about 3500.

Moving on, an important measure of the quality of our customer base is LSR, and our trends continue to be positive for this metric as well.

For the quarter, local service revenue increased year-over-year by $1.50 to approximately $52.00.

Data revenue more than doubled to $2.75 during the quarter compared to $1.13 a year ago, contributing to the increase in fourth quarter LSR.

Data LSR for all of 2006 was $2.26 compared to 93 cents in 2000.

Today, the primary contributors to data usage are SMS messaging, which for all of '06 increased 112% over last year to over 444 million messages.

Multimedia messaging, allowing customers to receive and send pictures, data services, which include Brew and Java applications, allowing customers to download ring tones, games, graphics, entertainment and information, and the mobile web, allowing customers to access the internet from a laptop computer through our wireless network.

Today, many carriers are reporting data revenue of over $5.00 per customer.

Although we've provided basic and, in fact, quite popular services to our customers, we are thoughtfully taking additional steps to expand our service offerings in what is a highly segmented market.

Like all carriers, we are devoting more time and effort to understand the lifecycle of data products and the usage by our customers.

Now, moving on to our network, as we look at our accomplishments over this past year, we've continued to expand our networks in terms of coverage, quality, and complexity, as we've add new services.

Of course, we are also looking forward to expanding the coverage and quality of the network in the new southern Minnesota markets.

Regarding our TDMA networks, roaming from TDMA continues to decline.

We are also making real progress towards moving our own TDMA customer base to new technology, as I referenced earlier.

Accordingly, we continue to prune capacity, transfer spectrum usage to new technologies, and minimize the operational costs of our TDMA networks where possible.

We see this as a process of containing the growth of future network costs rather than reducing existing costs.

As we look forward, it is important for us to not only look at the expense side of TDMA, but also the revenue side.

With over 100,000 wholesale customers using mostly TDMA technology, we will continue to work with our wholesale providers and help them transition to GSM or CDMA over the next several quarters.

We continue to evaluate and understand which advanced technologies will make economic sense for us and in what timeframe we might deploy them.

Improvements in our overall operations, as highlighted by the customer growth you've seen these last six months, reflect the continued execution of a multi-year plan, together with the basic blocking and tackling of running a business.

Improvement at every customer experience point reflects increasing excellence in what we do and our current marketing theme, "The Way Wireless Should Be", from the customer's point of view.

And finally, we believe we will be able to extend the quality of this experience to new and existing customers in the markets we will acquire from Alltel.

And with that, I'll turn the call over to Wes.

Thanks, Ann, and good morning, everyone.

Our financial performance reflects consistent levels of service revenue, increased LSR, and increasing roaming revenues.

Operating income, without giving effect to depreciation, amortization and stock-based compensation, was $52.4 million this quarter.

Wireless Alliance accounted for approximately $1.6 million of this amount.

The 17% increase in out-collect minutes, together with an increase in data roaming, resulted in a 9% overall increase in roaming revenues.

Partially offsetting gains in minutes this quarter were declines in permanent voice yield to $0.11 compared with $0.12 per minute last year.

Data roaming revenue for the quarter increased 311% to $3.3 million compared to $823,000 last year.

For the quarter, about 96% of our voice roaming traffic was either GSM or CDMA compared to about 90% in the fourth quarter of 2005.

Service revenue increased to $96.3 million this quarter.

This increase particularly stands out after giving consideration to the customer losses we incurred through the last few years and truly highlights our improved LSR.

USF payments were essentially unchanged, coming in at $10.7 million for the quarter.

Moving on to expenses, network costs increased 12% for the quarter to $35.7 million, reflecting additional costs of operating multiple networks and about 100 additional cell sites added since the beginning of 2006.

Selling, general and administrative expenses increased to $39.1 million, driven primarily by increased sales and marketing costs.

Our bad debt expense decreased 37% to $2.8 million, which indicates the improving quality of our customer base and is another contributing factor to our improved retention.

Moving on to the non-cash operating expenses, depreciation and amortization increased 25% during the quarter, primarily reflecting the accelerated depreciation of our legacy networks.

Under SFAS number 142, goodwill and other intangible assets, we performed our annual impairment tests for various long-lived assets.

Based on this analysis, we determined that certain of these assets in our south region were impaired and that a $23.8 million non-cash impairment charge should be recognized in the fourth quarter.

Now, turning to capital expenditures, while our overlay efforts are largely complete, we continue to improve our networks.

We added 20 additional cell sites during the fourth quarter and also increased the capacity of our existing networks.

Reflecting these efforts, we incurred about $12 million in CapEx for the fourth quarter.

For all of 2006, we invested about $48 million in CapEx.

Looking at our capital structure, we continue to make progress in reducing our senior exchangeable preferred securities.

During the fourth quarter, we redeemed 10,500 shares in exchange for 1,166,000 shares of our Class A common stock.

In addition, we redeemed another 13,161 shares for $16.1 million in cash.

At the end of the quarter, we had approximately $47 million in restricted payment capacity.

Now, looking ahead to 2007.

There are a number of moving pieces in 2007, including the anticipated addition of the southern Minnesota properties and the resulting impact on service revenue, USF, and expenses.

The closing date of this transaction will determine the amount of positive impact on our 2007 financial results.

Our forward-looking comments do not reflect any assumptions regarding the pending acquisition, which we will comment on separately.

Given our increasing confidence on the customer front and improving data LSR, we anticipate increased service revenue for 2007.

We anticipate a modest increase in postpaid growth sales, and we expect retention will be much improved, resulting in strong postpaid net adds for the year.

We expect USF payments to be in the $40 million range again in 2007.

And now moving on to roaming, based on our current roaming contracts, we expect our voice yield in 2007 to be approximately $0.10 per minute, which is a decline from $0.11 in 2006.

This expected yield decline is approximately one-half as large as the decline was in 2006.

We expect growth in minutes to more than offset the decline in yield and look forward to strong roaming revenue again in 2007.

Data roaming is a bit of a wild card for us at this point because it is so new.

However, we believe that out-collect data roaming revenue will be up slightly in 2007 despite a significant drop in yield.

We anticipate network costs to increase as we continue to add cell sites, capacity, and complexity.

We expect stable selling, general and administrative expenses in 2007 compared with 2006.

Given these factors, we expect solid improvement in EBITDA for the year, and we also anticipate lower depreciation expense in 2007 since our legacy networks were largely depreciated by the end of 2006.

And we anticipate capital expenditures in 2007 to be slightly higher than they were in 2006.

We clearly expect the pending acquisition of southern Minnesota properties to contribute positively to our financial performance.

We are currently working to secure ETC certification for service areas included in this acquisition.

We don't anticipate the acquisition to have a significant impact on roaming revenues in 2007, however.

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

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

Thank you, sir.

Ladies and gentlemen, we will now begin the question and answer session.

[OPERATOR INSTRUCTIONS]

Our first question is from Richard Chu with Bear, Stearns.

Please go ahead.

Hi.

Just wondering if we can get any update on the T-Mobile contract renegotiation.

And then on top of that, in terms of that contract and the ones with other national carriers, is any provision in there for 3G, whether it's EBDO or HSDPA, or will that have to be kind of another negotiation for each one?

Plenty of questions there.

With respect to the T-Mobile contract, that contract expires at the end of 2007.

Discussions are ongoing with them, but we don't have any conclusions to report at this time.

But I would say that our relationship has been good there, and we expect that contract to be completed in the normal course.

As far as looking ahead to 3G requirements, we currently have no absolute requirements from any of our major roaming partners-- well, any roaming partner, with respect to what we must deploy or a particular timetable for deployment.

But as we've said before, and I suspect we will continue to say throughout this year, our study of those technologies and where it may be best for us to deploy and our discussions with our roaming partners are going to continue on that front.

They are not currently required by any of our current contracts.

Great, thank you.

Our next question comes from David Sharret with Lehman Brothers.

Please go ahead.

Good morning.

If I could just follow up, Wes, on just some of your points on guidance for '07 first.

Just in terms of roaming first, your roaming minute of use growth year-over-year was 17% in the fourth quarter.

It seems like that's come down as it's been more of an apples to apples comparison now by the fourth quarter.

I just wanted to see if that's a good run rate to look for in 2007.

And then as far as the churn target, you talked about that coming down meaningfully again and from the 2.2% or 97.8 on retention.

Just, if you can give us some, any more details on where you think a stretch goal is for that for churn in 2007.

And then maybe, just, if I could just follow up on the capital structure side.

With a lot of your debt being callable within the next year, I was just wondering if you could talk about what your thoughts are there and if that's something that you're evaluating in terms of MPVs on when that would be attractive and any reason we shouldn't expect that you would be looking to refinance some or all of your high old notes over the next year given those call dates?

Thanks.

Why don't I start on the churn question, David.

As we said earlier, the year-over-year improvement, quarter-over-quarter was from 2.7 to 2.2%, which is a very significant improvement.

And we've got a good start on first quarter this year, and I would say we have seen continued very good improvement each month.

Without providing you with the specific number, I would say that we are headed for rates that are very comparable with other carriers of like kind.

As far as the roaming question, David, clearly we've seen a drop, like you said, of the percentage growth that we've enjoyed on a year-over-year basis, 17% in the fourth quarter, I think does represent a reasonable way of looking at the growth in minutes, because we are talking essentially on an apples to apples basis.

Couple of things, though, that still could impact that, and I think these more likely will impact them positively.

There was a question earlier about the contract with T-Mobile, but one of the things with our current contract that we're seeing are nice increases in minutes from T-Mobile.

We're also now in a position to host a lot more of the large national carriers' prepaid customers and have roaming from those customers that we did not have prior to this, as well as international roaming that is now available to us.

When we start adding some of those pieces to this, it gives us confidence that we will continue to increase the minutes.

But as I think we would be able to say, we've always been surprised at the upside that we've had in roaming minutes in each of the last several years.

So, perhaps, we're looking at it more conservatively than it ultimately will be, but we think those are real positive signs for us.

As it relates to your capital structure or your refinancing question, you hit the nail right on the head.

There are a couple of our securities that now do become callable during 2007.

We currently have a couple that are already callable.

We are actively evaluating with the strength of the Capital Markets whether or not we should look to refinance some of these securities, and we will certainly make that known if and when the time is right for us to do those things.

Okay.

Thank you.

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

Please go ahead.

Thanks, good morning.

Two questions.

First, it seems like you hit an inflexion point on the relationship between churn and the percent of your base on new technologies.

I think you're at 82% of your postpaid bases, new technologies.

I assume that's one of the big drivers of the churn improvement over the next six-plus months.

Where do you expect that percentage of your postpaid base to be, let's say at the end of 2007, as a percent of new technology versus the 82% at the end of '86?

And regarding your EBITDA guidance, solid improvement in EBITDA.

I assume that's in both the absolute dollar amount, of course, and also margins.

Is that, is that the case?

I will answer the last question and then, perhaps, Ann can talk about the first one.

We-- clearly, in absolute numbers for EBITDA, we do expect it to grow from our levels in 2006.

For the total year, our EBITDA margin was just under 40%.

We do think that it will be some improvement on that, but there won't be as much improvement on the margins as there will be in the overall EBITDA levels of growth.

And what we're-- the guidance that we talked about was talking primarily about our apples to apples core business prior to the acquisition.

The acquisition will be a positive EBITDA producing --

Addition.

-- addition for us.

To the margin?

Not necessarily EBITDA margin, but in gross numbers.

Because I'm not sure that that property day one will have 40% margins out of the gate.

Yes, just a little color to that.

As we noted here, we don't expect those markets to add significantly to the roaming revenue because there are not roaming agreements in place which we are assuming.

And of course roaming revenue contributes to higher margins.

Also, just in the course of transition, we're using services from Alltel as part of the transition process, and it will really be some months before it's completely in our hands to shape and squeeze that margin in the direction that we want for all of the synergies.

We believe it's there.

It's just a matter of transitioning the properties.

And also, their USF payments will likely not be for at least the first, if not the second quarter after we take over, and, again, that's a high margin business.

It will have a much different look once we move into 2008 and have all of the services under our systems, if you will.

And when do you hope to sort of walk us through the pluses and minuses of that?

Well, first of all, we've got to get this thing closed.

Right.

We're waiting for regulatory approval from both the DOJ and the FCC.

And, at this time it's difficult for us to give a specific timetable on when that will happen, although we do expect it will be, hopefully, in the next short while.

And we'll talk more about this, I think, after the first-- on the first quarter call because we'll have a lot better clarity as to having, hopefully, closed the transaction and seeing some of the early returns, if you will, on that property.

As far as your first question, Kevin, reflecting -- the inflexion point.

I think as we've said several times in our quarterly calls last year, we were looking forward to hitting the 70% range or so.

Because our observation had been with looking at the track record of other carriers, that that was a point where it -- stronger customer growth was more achievable and, in fact, that really is what happened to us with the third quarter last year when we passed that point and moved towards 82% at year end.

And we think that that's largely due to, since so many of our customers come on a referral basis, that as more customers experience the new networks and the new services, clearly, their strength to belief in what we're doing in advocating for our services gets stronger, and that certainly appears to be the case.

As far as our expectation for year end, we're required to keep the TDMA network and analog -- well, we're required to keep the analog network online until February of 2008.

Since our TDMA systems run through the same switches, TDMA basically has the same kind of timeline as far as the earliest time that we are likely to turn it off.

At the moment, we continue to assess the economic advantages of keeping that network on, and we'll do so as long it makes -- is favorable for us.

As far as our expectation for year end, we're continuing with a steady monthly progress on migrating the customers and have done a lot of segmentation analysis on the remaining customers.

And we believe that the vast bulk of the remaining customers will be transitioned by year end, and, if not all of them, the final few will follow in the first quarter next year.

Terrific, thank you.

Our next question is from Michael Nelson with Stanford Group.

Please go ahead.

Yes, thank you.

Two questions.

The first is, can you talk about the seasonality in your subscriber business and if you think the postpaid net adds generated during the fourth quarter is a good run rate, or if that level can accelerate as churn improves over time?

Then the second question is, in terms of the move -- the moving parts in your network expenses, if you could talk a little bit about that, and to what degree should we expect those costs to rise in the upcoming year?

Thanks.

Well, as far as seasonality in our customer base, we have noticed changes in that.

I mean for many years, of course, as those of you know who have been following wireless, the fourth quarter holiday season was a very great part of the net adds that a carrier like ourselves experienced.

Now what we're seeing is a much stronger third quarter surge, which we refer to as back-to-school, because the bulk of it seems to happen in the last half of August, or August and September, and is nearly as solid, as far as the track record goes, with the fourth quarter.

So, I guess you could say we've seen some amount of leveling off, but it seems to continue to be stronger in the second half of the year.

We would clearly expect that our gross add sales will be better in 2007 in the first half than we saw in the first half of 2006.

But when we start looking at quarters beyond that, both the third and fourth quarter then talked about, now, the change in third quarter, we ended up having virtually the same number of gross adds in both the third and fourth quarter.

I think there's less seasonality between those two quarters than there once was.

But I think where it will be different is, there isn't necessarily the seasonality slowness in the first half of the year for us as we look to 2007, as what we ended up doing in 2006.

So your point about, with churn continuing to decline, is that 8000 postpaid adds a realistic goal for us.

I can't sit here and say we'll hit that number each and every quarter, but that is something within eyesight for us, clearly.

And then on the network cost?

Specific network costs, I think the point we wanted to make on this call was that I think there has been some belief that we're going to actually see network costs declining as we start to prune or take down our TDMA networks.

As we look to 2007, we'll continue to prune as much of the TDMA expense as we can, but we do anticipate that additional costs from the cell sites that we've added throughout 2006, and also the ones we will be adding in 2007, will probably continue to grow our network cost line, albeit probably at a smaller percentage increase clip than what we had in 2006.

Our goal, and it has been our goal for sometime, is to find a way to have expense leverage, both in SG&A expenses, as well as in network expenses.

As we've gone through this transition, we have -- we've found it impossible to leverage our network expenses, but the hope would be that we would see improvement.

And when I talk about expense leverage here, I'm talking about the percentage of network costs relative to revenue and compare that in 2007 to 2006.

When we look at the whole year, I would hope that we would have some expense leveraged, being a smaller percentage in 2007.

Great.

And if I could actually ask a follow-up on the TDMA.

What is the impact, I guess, to depreciation and amortization?

I guess, what would be a good run rate, quarterly run rate going forward now that you accelerated that?

Well, the -- I think you might have answered this, but just to clarify that, we've essentially eliminated all of our depreciation now on the TDMA analog networks in as much as we've fully depreciated them by the end of 2006.

So the run rate going forward is going to be driven primarily off of our new technology networks.

Quite honestly, I don't have right at hand what our new run rate is, but I would estimate that the additional TDMA depreciation that we had, say, in the fourth quarter, was several million dollars of additional depreciation.

I don't have our 2007 depreciation number at hand.

That's something that we could talk about offline later this week.

Okay, great.

Thanks a lot.

Our next question comes from Pat Dyson with Credit Suisse.

Please go ahead.

Thanks, good morning.

Wes, first, just on roaming, you've obviously talked a bit about your roaming outlook.

In the K, you mentioned, or it was mentioned, that you expect roaming revenue to be comparable to 2006 levels.

Is that the right guidance?

Just trying to make that consistent with your more positive comments on the call?

No, I would actually say that as we sit here today, I think comparable, up slightly, those are both ways of saying the same thing.

I think we're -- we're still very confident, though, that roaming will grow from 2006.

I wouldn't expect it to grow nearly to the extent that it did in 2006, however.

Because it's hard for us to continue to assume we're going to get 44% increases in minutes, which clearly, I wouldn't anticipate that we do.

On the other hand, we do see a smaller decline in the voice yield in 2007.

It's about a penny versus $0.02 that it was in 2006.

So given all of that, depending on how the actual roaming minutes grow, we still expect that we'll have higher roaming revenues in 2007.

Okay.

And then secondly, on your -- the RPU outlook, and maybe you went through it and I missed it, but maybe just give us a sense.

I believe you mentioned that you expect RPU to grow from present levels, or at least from the '06 levels.

Maybe just walk us through what you see as the drivers towards that growth.

Well, clearly the biggest driver for growth is data revenue that we anticipate will continue to grow.

We saw significant -- and we've seen growth each quarter going back to, really, the start of our providing data services, and we would anticipate that will continue throughout 2007.

The vast majority of the data revenue still comes from short message service kinds of revenue opportunities for us.

And we're really just embarking on some of the other content services that we think will be a nice catalyst for continued roam -- or data growth.

That's essentially where the growth will come.

I think that access, air time, all of the other components that make up our LSR will be relatively flat.

It's going to come from data roaming -- or data revenue growth.

Well, and there's one service that is extremely popular that we are just preparing to roll out, and that's what's called a -- premium short codes, which are the, the message that you use to vote for your most popular candidate on American Idol and other types of TV link-ups and web link-ups.

Those premium short message codes are very important, and it is something that we do not have deployed in the marketplace now, but will very shortly, here.

And we expect that to be a strong contributor to our data revenue.

Okay.

To follow it, so should we look at the LSR growth from 50 to 52, is that a reasonable rate to expect going into '07?

Well, I know that those are the whole numbers.

I think what we ended up saying, it was more like $1.60, or something like, was the real growth.

We -- don't let roundings distort this.

I think that the actual growth of $1.60 will be somewhat less than that, probably, in 2007.

So, when we show the rounded numbers, it's more likely to be showing $1.00 increase.

But it will be somewhere between $1.00 and $1.60 in real numbers.

Okay, perfect.

And then, just, finally, I just -- following on the balance sheets, thoughts, and just as you think about your -- the 9 and 7/8 and 9 and 3/4 that are -- the 9 and 3/4 callable, the 9 and 7/8 incoming calls.

How did the refinancing options there fit in with any of your thoughts as it relates to the senior preferreds?

Well, as you know, for us to do any refinancings, we would have to, at a minimum, bring the senior preferreds under six dividends in arrears.

So, part of those refinancing is evaluating use of restricted payment capacity to deal with the dividends that we would have to pay.

We look at those on a case by case basis.

I don't think -- you could conceivably pay down the dividends as we have in the past and refinance some of that debt where it's attractive for us without necessarily doing anything with the senior preferreds as far as taking out the par value that remains.

But, clearly, one of the objectives of our Company, and it has been for sometime, is to find a way to do something with the senior preferreds in a way that refinances that piece of the capital structure, whether it's through flat out exchange, refinancing it, or whatever, using some equity to help deal with it, some combination or portion of those items is something that we continue to evaluate.

Beyond that, we will look at the MPVs on all of the various callable pieces of the debt and decide whether or not it's the right decision for us to move forward on those.

Okay, thank you.

Our next question comes from Craig Foster with Bear, Stearns.

Please go ahead.

Hi.

Actually, it's Sandy Liang.

Good morning.

Good morning.

Good morning.

I have a question just on your 2007 outlook.

Guidance was, I guess, somewhat nonspecific in that you used adjectives -- solid improvement in EBITDA, CapEx slightly higher.

What kind of adjectives would you use to describe the outlook for free cash flow in the context of that you did 50 million or so in 2006?

Well, clearly, one of the things that will impact free cash flow is answers from some of the earlier questions on our capital structure, because some of the things that would impact us pretty readily would be the potential reduction in interest expense that we might be able to get from refinancing.

So, it would depend largely on where we end up in that front, whether or not we refinance.

But because we talked about EBITDA growth in 2007, CapEx being slightly up, but not significantly up, we would anticipate that free cash flow would be up from where we were in 2006 as well.

So up, okay.

And then my other question is, cash on hand still seems pretty high at $183 million, and, obviously, you have the opportunity to call some debt, but I think I've asked this before.

How much cash do you think you need to run your business in the context of the fact you can now refinance and probably get another revolver and things like that?

And then also, how much cash are you paying for the Alltel acquisition?

We have not disclosed the amount of cash for the acquisition at this point.

Once it closes, that will become public information.

I will say, though, that it is probably a lot less than some of the rumors that are out there or some of the guesstimates as to what was paid for that acquisition.

So I think people will probably be a little bit surprised, perhaps, at what we're paying there.

But one of the uses of the cash, you talk about, clearly, is we need to have funds for that acquisition closing.

The other reason we've had and maintained a much larger cash balance than what we probably would need is essentially insurance, because of -- we've drawn our revolver.

In an ideal world, we would not have our revolver drawn, but having access to the revolver with dividends and arrears on the seniors, a conservative view on that is that we couldn't draw on the revolver, so we elected to do that, now, more than a year ago.

On an ongoing basis, you hit the nail on the head, Sandy.

We are positive free cash flow, and, so, once we get through some of these hurdles with like the senior preferred, we can run the business on a relatively modest amount of cash on hand, especially if we had access to revolvers, simply because we have a pretty significant amount of free cash flow that we generate.

Okay, thanks, guys.

Our next question comes from Ana Goshko with Banc of America Securities.

Please go ahead.

Hi, thanks very much.

Just a couple of follow-ups.

First, on some of the data items.

Wes, I think you said on the data roaming outlook for this year that -- I think you called it a wild card, but just to kind of be a little bit more precise than that.

And it seems like your data roaming is now about 9% of total roaming in 4Q, so that's up sequentially, I think from 7 in 3Q and up a lot from last year.

So where do you think that could go this year just as a percentage of your total roaming?

And then secondly, on your data RPU for your subscribers, what's the anecdotal breakout of the data take or the data RPU on your new gross additions versus what's in your base?

Then, the final question is, I think you said two-thirds of your postpaid subs are now on contract.

What's your average contract length?

Why don't I take the last couple of those, and we'll just take them in reverse order.

We do have about two-thirds of our customers on -- under contract.

I don't think that we have routinely or, perhaps, ever, disclosed our average contact -- contract length.

However, I would say that the contracts that we are signing people up to, and they do need to have a contract in order to take advantage of our, let's say, our best pricing, whether that's on service plans or phones, are two-year contracts, except in the prepaid, of course, two year for the postpaid.

So, perhaps, that's helpful.

As far as the data RPU for subscribers, again, I don't think that we've gotten into the nitty-gritty of the segmentation of our customer base, whether by newer subscribers versus older subscribers.

But I would say that we have seen a very positive uptake for customers in the new technology and much stronger interest in these type of products than, for example, we saw of usage of SMS under TDMA.

So, there are a broader range of products with a broader range of attraction to our customers.

The question that you had on data roaming as a percentage of total roaming and the fact that it's been growing significantly, I think the point that we were trying to make there is that in 2007, we clearly anticipate the usage for data roaming to continue to grow, probably, pretty significantly.

The wild card that we have there is to determine second year growth rates in data roaming.

Will they take, you know, similar strides in growth to voice minutes?

We don't -- we don't have enough clarity on that quite yet.

That's why I talked about it being a bit of a wild card.

Although we clearly anticipate significant usage increases.

What's going to impact and probably keep the growth of data roaming relatively stable, however, is that we see a significant decline in the yield on data roaming.

We have not previously, nor do we intend to talk about the yields on data at this time, but we are going to be experiencing a significant yield decline in 2007.

We do believe, though, that the increase in volume will make up for that and keep it slightly up from where it was in 2006.

But we wouldn't anticipate the overall growth in data roaming because of that phenomenon.

Okay, thanks.

And then, Wes, if I can just follow up.

Is that yield decline on the data roaming, is that a contractual thing that's sort of an '07 step-down, or is that something that's more based upon volume -- kind of volume discounts as you go forward?

As we have negotiated contracts in the past, we've often had certain incentives in the contract to us to more quickly roll out the equipment that's necessary to provide the data services to our roaming partners' customers.

So, the step-downs that we see are partly from step-downs from incentives that we had to broadly roll out, EDGE services, for example, and also step-downs that are negotiated for and are set out in the contracts.

So, it's not a change from what we expected to have happen.

It's just a part of the normal course of our agreement.

Okay.

That's helpful.

Thank you.

[OPERATOR INSTRUCTIONS]

Our next question comes from Jeff [Garvarchels] with CIBC.

Please go ahead.

Good morning, Wes.

If we assume that EBITDA is flat in '07 and CapEx is in the order of $55 million, how -- what would be the increase in the restricted payment basket?

If we assume it was flat and we had FX at that level, CapEx is a non-determinate -- does not impact at all the change in restricted payment basket.

It's really all a function of interest expense, a multiple of interest expense, subtracted from the EBITDA.

So, at a flattish number in EBITDA, there would be relatively minimal restricted payment basket growth.

But that -- just to be clear, we did not say that we would be having flat EBITDA growth in 2007.

Okay.

In fact, we indicated both growth in EBITDA as well as additional growth after we close on the southern Minnesota properties.

Right.

It seemed like the restricted payment basket increased in the fourth quarter.

Is that correct?

It was -- I do not believe it increased.

It was relatively flat, and it was flat, somewhat, because we used restricted payment to purchase some of the senior preferred securities that I talked about in my prepared remarks.

I believe we spent roughly $16 million on purchases of senior preferred.

Because, from memory, I thought we were at 51 at the end of the third quarter, and then you purchased, is it 16 million?

I think that's what I said.

I can't --

And it just seems like it went up.

It would have gone up, other than that purchase, yes, that is correct.

Right.

Definitely, it would go up.

How much did it go up?

Well, it went from, it went from 51 down to 47.

But it went down because of the $16 million use.

So, that would mean it went up by $12 million, subject to that.

But it also -- remember, it goes based on interest expense, and we have higher interest in the first and third quarters since we have more of our interest payments that are due in those periods.

Oh, okay.

I see.

All right.

Thank you.

At this time, there are no additional questions left in the queue.

I would like to turn the call back over to Mr. Ekstrand for his closing remarks.

Thanks for your interest in RCC.

We look forward to sharing our progress and first quarter results with you on our call in May.

So, have a good one.

Ladies and gentlemen, this does conclude the RCC fourth quarter 2006 earnings conference call.

You may now disconnect.

And thank you for using AT&T Teleconferencing.