威訊通訊 (VZ) 2007 Q1 法說會逐字稿

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

Welcome to the RCC first-quarter 2007 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 Friday, May 4, 2007.

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

Please go ahead, sir.

Good morning, everyone, and thanks 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's Chief Operating Officer.

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

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

This call will be limited to about an hour this morning.

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

An archival will also be made available in the Investor Relations sections 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 the filing of our first-quarter Form 10-Q with the Securities and Exchange Commission and our first-quarter press release.

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

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

We must also be able to service our debt.

Additionally, we must meet the continuous demand for changing network technologies.

For further discussions 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 will turn the call over to Rick Ekstrand.

Thanks, Chris.

It is good to talk to you this morning.

A lot has happened so far this year -- good things.

Our very strong first-quarter results reflect a multi-year transformation of our Company, our strategic thinking and our effectiveness in today's wireless business.

And we like what we see going forward.

We believe that these results, including migration, retention and customer growth, are building on our 2006 efforts, and we expect them to continue throughout the rest of 2007.

We are especially happy that we closed on our southern Minnesota property acquisition at the beginning of April.

The details of this acquisition, the prerelease of our operating results for the first quarter, and the pending senior preferred exchange have been well received by the market.

In addition, the addition of our southern Minnesota is significant for our Midwest territory and is consistent with our strategy of providing high-quality wireless services to Main Street America and allows us to leverage our Alexandria-based operations.

Over the next several years, we anticipate increasing our distribution and network presence throughout southern Minnesota and look forward to its contribution to our financial performance.

And on that note, we are clearly seeing the financial benefits of our long-term strategies.

Our hard work and persistence have paid off with very strong first-quarter results consistent with the trends we have been talking about the last few quarters.

All cylinders were firing, as reflected in our third consecutive quarter of customer growth; improved year-over-year LSR; improved churn, which was under 2% for the first time in 11 quarters; and our strongest-ever first-quarter service and roaming revenue.

As the results of this very strong execution, operating income, without giving effect to depreciation, amortization and stock-based compensation, increased 11% and was an all-time record for the first quarter.

We were able to exchange our senior exchangeable preferred stock into subordinated debt because of our strong financial performance and confidence in our operations.

We view this exchange as a significance step toward improving our balance sheet.

Wes, of course, will provide additional color on this transaction a little bit later.

In looking at the recent recommendation by the Federal-State Joint Board, we see it is a step in a multi-year process of USF reform and do not anticipate adjusting our expectations for 2007.

Concluding, I want to express a heartfelt thank you to all of our employees for your upbeat attitude, creativeness, dedication and hard work, and extend a special welcome to our other new southern Minnesota teammates.

With that, I will turn the call over to Ann Newhall for operations.

Thanks, Rick, and good morning, everyone.

You know, we really are thrilled to be here discussing these results.

RCC's network, customer service, billing and sales teams performed very well, resulting in our third consecutive quarter of customer growth.

Through these efforts, our Company churn improved to 1.9% this quarter compared to 2.6% last year at this time.

It is particularly important that our new technology churn of 1.5% for the quarter continues to be much better than our overall churn.

Of course, better customer retention really has an incredible impact on customer growth.

This year, postpaid sales increased 16% to approximately 42,000 compared to 36,000 last year.

As a result of both the improved retention and sales, we saw a positive postpaid customer swing of 19,000 during the first quarter this year, since this year we added 8200 postpaid customers, while last year we lost customers.

Total customers, which included prepaid and wholesale, increased by 10,000.

At quarter end, 86% of our postpaid customers were using new technology handsets, and we look forward to having all of our customers migrated.

At the end of this quarter, 69% of our postpaid customers were under contract as compared to approximately 49% last year at this time.

Year over year, LSR again increased to $52 compared to $51 last year, demonstrating increased data revenue.

Data LSR more than doubled to $3.57 compared to $1.73 last year, reflecting our basic yet quite popular services offered to our customers.

As is clear from this over 100% increase, we are working hard to expand our data service offerings and increase our data LSR.

As I have emphasized in prior quarters, we believe our positive results with customer growth and LSR are a result of sensible and sustainable steps we have taken in the marketplace, which we can build on in the future.

Our networks continue to perform well, as shown by increasing customers and roaming MOUs.

We continue to manage the process of transferring our business to the new technologies and minimizing the operational costs for our TDMA analog networks when possible.

We have also substantially improved our margins over last quarter.

Our margins this quarter reflect the success of our work to increase revenue and our dedication to controlling our expenses.

As you have heard from Rick, we are very pleased with the acquisition of our southern Minnesota property.

These markets cover 28 counties, 621,000 people, and include 25 MHz of spectrum within the 800-850 MHz band.

At closing, there were approximately 50,000 customers, with about two-thirds postpaid.

This service area is adjacent to our very successful northern Minnesota market and includes approximately 80 cell sites, 10 stores and other indirect distribution.

This property looks great on a map and will contribute positively to our 2007 financial performance.

However, before we can see the best results from these new areas, we need to accomplish a few things in order to fully integrate this business and realize its full potential.

We need to improve the acquired networks, including the construction of additional sites and system-wide optimization.

We will add a few additional stores and remodel others.

Currently, we receive switching, billing, customer care and other services from Alltel.

This is a necessary part of the transition, but as you can imagine, less than an ideal situation.

We anticipate converting to our own system during the fourth quarter.

In addition, we anticipate launching our Unicel brand in June and look forward to a new competitive race in southern Minnesota as we become increasingly a part of these communities.

On a final positive note, we received ETC certification for these markets beginning May 1, which is much earlier than we had anticipated.

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

Thanks, Ann.

It's always great to be the CFO reporting the strongest first-quarter financial results in the Company's history, and it was those record results that allowed us to launch the senior preferred exchange process.

This quarter's financial performance reflects the continued improvement of major operating metrics which have been building over the past few quarters.

I am also pleased with our recent market price appreciation.

The past few weeks highlight how a relatively small increase in total enterprise value can significantly and positively impact our equity price.

Our very strong first quarter resulted from record levels of service and roaming revenue.

Operating income, without giving effect to depreciation, amortization and stock-based compensation, increased 11% to $59.5 million this quarter, improving our margin to a very strong 42.4%.

Wireless Alliance accounted for approximately $1.4 million of this amount.

Service revenues increased to a record first-quarter $97.9 million due to growth in LSR, together with an increase in customers.

And now, for the first time in a long time, we are better positioned for year-over-year service revenue growth because many things are coming together for us.

Let me give you just a few examples.

For the first time in more than two years, we have more postpaid customers at the end of the quarter than at the same time the previous year.

We are continuing to see strong LSR performance driven by usage and data services.

The addition of our southern Minnesota properties will (technical difficulty) this, as well as our continued customer growth.

USF payments this quarter are essentially unchanged, coming in at $11 million this quarter, and as Ann mention, we recently received regulatory approval for our southern Minnesota acquisition properties and expect to receive USF payments for eight months in 2007.

Roaming revenues increased 17% over last year, driven by the 20% increase in (technical difficulty) collect minutes, together with an increase in data roaming.

Voice yield was $0.10 this year compared to $0.11 last year per minute.

Data roaming revenue for the quarter increased more than five-fold to $2.8 million compared to $498,000 last year.

Now moving on to expenses, network costs, not including incollect expense, were essentially flat despite an increase of 61 cell sites since the end of the first quarter last year and significant minute growth on our networks during the past year.

Incollect expense for the quarter increased to $12.8 million compared to $10.8 million last year.

Lower handset costs drove the decline in cost of equipment to $12.9 million for the quarter in spite of higher handset volume.

Selling, general and administrative expenses decreased to $33.8 million for the quarter.

The decline was driven by lower bad debt expense, which was partially offset by increased sales and marketing.

Bad debt expense, net of recoveries, decreased by $2.5 million, a 65% decline to $1.4 million, which reflects successful collection efforts and credit policies and is another contributing factor to our improved retention.

Depreciation and amortization decreased 25% to $22 million, reflecting our TDMA cell sites being fully depreciated at the end of last year.

Now turning to our balance sheet, we incurred $8.3 million in CapEx for the quarter on various network projects.

And as you know, we have been focused on our outstanding senior exchangeable preferred stock for some time now.

The total par amount of the seniors, back to May of 2003, when they stopped [picking], was almost $255 million.

Since then, we have patiently chipped away at the outstanding balance using a combination of common stock and cash to redeem more than half of the issue, reducing the balance to $115 million.

Coupled with our strong financial performance during the first quarter, we were able to meet the 6.5 times total debt covenant pro forma for the exchange for the first time and announce the exchange as soon as it was possible.

We also recently declared payment of nine outstanding quarterly dividends on the seniors and the four most recent quarterly dividends on our 12.25 junior exchangeable preferred stock.

With the completion of this exchange, we will no longer be encumbered by certain covenants related to the senior exchangeable preferred stock, which affect our ability to issue and reissue debt.

And we plan to repay a significant portion of our outstanding revolver when we complete this exchange, which will reduce the amount of negative interest spread.

Another important point is that the elimination of future 11 3/8 accretion will help our balance sheet going forward.

We'll be in a position to now start addressing the junior exchangeable preferred stock, and we are examining various alternatives.

Our cash balance at the end of the quarter increased to $185 million.

Our cash balance pro forma for the $45 million southern Minnesota purchase, the assumed repayment of the full revolver of $58 million, and the repayment of $74 million for dividends on our senior and junior preferred stock would be approximately $8 million.

Clearly, with a terrific first quarter behind us, it gives us more confidence than ever before that the momentum and strong performance will continue throughout the rest of 2007.

And finally, we will continue to explore our options on how we can 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.

(OPERATOR INSTRUCTIONS).

Ric Prentiss, Raymond James.

Quite a lot of the work on the balance sheet there.

That is a nice job.

A question for you guys -- I want to center on first USF.

Rick, you mentioned in the beginning you think it is a multiyear process.

Don't see any change to your numbers in '07.

Walk us through what you think the changes might be, and will you be able to keep the southern Minnesota stuff that you got on May 1?

Obviously, what the release from the Joint Board was is a recommended decision, and as we're learning about how this process all works is that there is a number of steps that the FCC goes through in consideration and ultimately adopting all or part of what the Joint Board has recommended to them.

Their cap is talked about lasting about 18 months.

And from that perspective, if the FCC adopted the cap today, the FCC action reform would happen in November 2008.

So there is quite a delay here, and it's always hard to tell how much of that happens and what the facts are through a formal intervention process is.

And one other key note to it is that the cap is on a state-by-state basis -- it's not by company or carrier.

So you would be looking at caps that were in 2006.

And we just see that there is quite a process to go through, and this is probably one of the steps that has to be considered.

Of course, Congress can weigh in, and who knows where that goes.

But nevertheless, we are watching it very carefully with our advisors and trying to figure out what it means, what it does, and what course of action we would take in order to be fully active in the process.

And southern Minnesota, they had been receiving it prior; it was just transferring it to you, right?

And how much money was that?

Yes, that is correct.

Alltel was receiving USF for these customers, so they would be part of the base that was considered in looking at the state cap for Minnesota.

So our expectation, of course, then, would be that they would be part of the formula that we would get our portion of the mix.

With respect to how much that is, I don't believe that we have provided specific amounts per state or per area.

And you got it a little bit earlier than you expected, but that probably was somewhat baked into the guidance, then?

We had not baked in, I guess, the early point in time.

It was probably several months earlier than we had planned.

And how about -- what is your total USF, then?

At least let's get what that was for the quarter.

It was a little bit over $11 million.

$11 million.

And then one final question for you; I don't mean to take the whole floor here, but also, from the regulatory, Washington, D.C., side, can you talk to us about what you think about the 700 MHz auctions, what they might mean for you guys?

We are continuing to evaluate those options -- looks like it is going to happen late this year -- and taking a look at what our inventory of spectrum is in our various areas and also taking a look at what areas are adjacent to some of our operations that might have appeal.

So it is a constant process for us as we look at spectrum availability and what this might do.

But generally speaking, as we have talked for quite some time, we rather like the 800 space we're in.

It has been very helpful to us for the last 15 years, and we have utilized it and modified the use of it through technology over time.

And our engineering team has been very good at getting the most out of that spectrum and utilizing it in a very efficient way.

So as you might expect, it is an ongoing process and we are looking carefully at it.

I guess with the rules looking like they will assign license areas, not just at the regional but also down to cellular-sized license areas, that would be probably more beneficial to you.

That's correct.

Definitely.

That's very correct.

Yes.

We think that that allows us to use rifle shots instead of shotguns to go after areas that we think it's necessary in.

Great.

Good luck, guys.

Richard Choe, Bear, Stearns.

This is Richard, and [Shell's] on, too.

In terms of your churn, it has gone down dramatically as opposed to a churn to 1.9.

You said your next churn was 1.5 and that is down from 1.8% in 3Q and 1.6% in 4Q.

Where can we see churn go for the rest of the year, and what is driving down that next-gen churn in itself, too?

And then I have a follow-up.

Well, peering into my crystal ball for the rest of the year, we don't normally provide guidance as to where we think that our key metrics are going to go, Richard, as I think you know.

But maybe I can comment about why we are confident in the continuing trends that we are seeing for positive news on the churn front.

Really, if we look back at least three quarters, we have had a fairly steady improvement month by month and quarter by quarter in all of the different churn factors -- that is the voluntary disconnects, customers voluntarily choosing other carriers, wireless number portability, the ratios of customers which choose other carriers and choose to leave us versus choosing to come to us, and our involuntary disconnects, where we are terminating a customer because of credit policies.

I know I have talked about some of these things before, but it is less exciting things than just very persistent excellent execution in the basic daily things, which is to set the right credit policies for how we are approaching customers initially and selling our services to them, selling them the right product, having close follow-up in our customer service and collection processes, and providing the network and services, including stable billing platforms, which make customers comfortable and desirable to continue our services.

From our research, from the trends that we have seen and the continued improvements, we just believe in each one of these areas we have done well as far as providing exactly what our customers are looking for, and the more satisfied they are, the more stable our churn becomes.

We don't think it is at the lowest point that it can become for us.

Clearly, as we see the migration of the last 14% of our customers to new technology, we believe that they will find greater satisfaction with our new technology products, just as the first 86% of our base has.

So we look forward to continuing progress on that front, but in the same measured and sensible way as we have seen it to this point.

And we are just very happy with what that tells us about our relationship with our customers and our success at this point.

And the other question was with CapEx.

It was about $8 million this quarter.

Wondering if that is a timing thing, or are we going to see this lower level, low teens last year each quarter -- is this kind of a level that you can stay at, or was it just timing, any kind of 3G build or anything like that?

It was probably part winter, part timing, part the cycle that we normally see our heavy capital expenditures are in the -- tend to be in the second, third and fourth quarter, sort of building as we conclude things through the year.

And we do not expect any major 3G expenditures this year, although we are looking at testing some products, as most carriers are.

I think as we have seen with at least one other carrier that has reported, mentioned that they felt first quarter was a little light because of some of the same factors I mentioned.

And that is true for us, too.

David Sharret, Lehman Brothers.

The first kind of big question was just on the balance sheet side.

I just wanted to get a sense -- I mean, you've talked about how you're going to use some of the $185 million in cash that you have in paying down the revolver.

And just sort of looking at the options that you have in front of you and cleaning up a lot of your high-cost debt, it would seem like on a secured basis, you are relatively underlevered.

If you think about the American Cellular transaction from a few months ago, at over 4.5 times leverage [at all] plus 200, I would think there's a lot of capacity for you on a secured basis.

Wes, if I could just get your thoughts on that as you think about refinancing some of your higher-cost debt.

I know there's a lot of subordinated debt in there -- kind of what you think about in terms of your level of secured leverage.

That would be -- and maybe just some limitations potentially as you try to get from here to there in terms of addressing that.

Well, there's probably a lot of different things we could talk about from those questions David.

Thank you for the questions.

Clearly, the thing that we have been focused on for the last several years is the senior preferred stock, and we feel really excited that we are going to be able to exchange the senior preferred stock in the sub debt.

That is the first necessary step for us to do a number of things.

We have now announced that, and clearly, what that is allowing us to do is to look at our balance sheet more broadly.

But I would anticipate that we will continue to evaluate -- one of the -- as you suggest, there's probably some capacity there, but if you go up into the higher ends of our balance sheet and you get into the senior secured and senior unsecured notes, you are talking about -- both of those are currently not callable.

So we have to go through tender processes, and it would be, I imagine, pretty expensive for us to call those securities.

So we are going to always have to continue to balance the cost of doing those things versus the potential interest rate reductions that we can get forward.

And I guess about all I can tell you now without, because we're not in a position to lay out specifically what our intentions are until we would announce certain offerings, is that we will continue to look at the [STVs] on all of these various securities and that I would intend to progressively try to improve our balance sheet as best we can.

And just to be clear -- and thank you for that, Wes -- the [RP] baskets after the transactions you have announced are pretty much near zero at this point once you have made the preferred dividend payments?

Actually, they are in a negative balance, if you will, because we're utilizing a couple of -- I call them ancillary baskets for dividends.

So the calculated restricted payment basket is technically a negative number when you take into account the dividends that we are going to be paying on May 15.

Go back from that negative number or continue to use these ancillary baskets.

Right, and that number would be the same as the senior notes, the 9 7/8, as it would be for the sub debt?

Yes, that is correct.

And then just lastly, just a housekeeping -- I'm sorry if I missed it if you mentioned this before, but the ETC status you talked about on the newly acquired properties, did you mention the dollar amount of annual impact and exactly what quarter you expect to begin receiving that?

We haven't given specific guidance as to the amount of USF payments that we will receive, but we did talk about the fact that we've received the ETC certification, and because of that, we are eligible now to start earning, as of May 1, we will anticipate having eight months of USF payments as a part of our 2007 financial statements.

Kevin Roe, Roe Equity Research.

Terrific quarter, everyone.

A few questions.

First, on southern Minnesota, wanted to drill down a little deeper into that market.

It is my understanding that the penetration level there is significantly less than your adjacent market.

Can you talk about your ability to lift those penetration levels and over what time?

Also, on southern Minnesota, synergy opportunities?

I know Alltel has to provide billing, etc., until -- what is it?

-- towards year end.

But when that does transfer over, what would be the hope for financial synergy impact once that's fully under the Rural umbrella?

Well, you certainly are correct, Kevin, that the penetration is less for those 28 counties in southern Minnesota than it is for the balance of our Minnesota properties.

And that, of course, is one of the reasons that we are very excited about the territory.

There simply is a transition process, because the networks themselves don't have as broad coverage as we would like to have or optimization, which is another way to improve the effective coverage in the areas.

And so we will be working very hard and already have plans, people in the marketplace, site acquisition and that type of activity going on, to add about 20 cell sites to the 80 cell sites that are already there.

So you can see that we're looking to boost that network very significantly this year, although I would be the last person to say that each and every one of those 20 would be completed, because inevitably some run into delays.

But we are looking to make very substantial improvements there.

That, plus some consistency in the marketplace in terms of planned service -- you've heard us talk before about training our salespeople.

We have already -- in fact, we're nearly done with the training of that group, to give them the same base, the same approach, the same product understanding that the balance of our markets have.

All of these steps are essential to present the right face to the customers at the beginning of June when we roll out the Unicel brand name and really more fully attack the market from our point of view.

How long will it take to build up to the same penetration in the rest of Minnesota?

Well, we have been in those properties for 15 years.

I'm not going to tell you that we will receive parity here overnight, but certainly it is our goal to reach the same and to give Alltel just a terrific run for its money in those areas.

And we feel very confident about our ability to do so.

That is helpful.

And just two quick follow-ups.

First, on the bond side or on the balance sheet side, you had mentioned your recent moves will allow you to take a more holistic look at the balance sheet, which makes sense.

How long do you think the Board and management may take in this analysis?

Is this something that could take just a few months or several quarters?

Is it something you want to get done sooner rather than later, or is there -- just some sense of timing would be helpful.

And lastly, the very strong operational metrics you guys posted for the first quarter -- I know we're just a month into Q2, but has the momentum continued, particularly on the subscriber side?

Maybe I will take the last question first, and as always, let Wes tackle the balance sheet.

But I think you can gather from the tone of our conversation that we think that things are still going well, from the trends that we have seen.

We have seen no significant turn in the positive nature of our metrics, and so we feel very confident about the balance of the year from everything.

I will add one point to that.

We reported 1.9% churn for the first quarter, but we saw improved churn each month throughout the quarter.

And that strength is still evident in April.

So I think that's an important thing to note.

That's helpful.

As far as the timing of our balance sheet and decisions there, we will continue to look at this, and I'm sure we will continue to look at it for a long period of time.

I do think that there could very well be interim steps to meet the ultimate objective here.

I don't think that we have to look at the whole balance sheet and do it all in one fell swoop, so to speak.

We clearly have opportunities in various pieces of our capital structure to refinance and to enjoy cost savings.

So if we end up doing one piece, it does not necessarily mean we are going to be limited to that one piece.

But it may be the most appropriate piece to start the ball moving.

Michael Nelson, Stanford Group.

Can you talk about the opportunity to grow ARPU, and specifically the potential for data revenue growth.

And have you deployed the SMS short codes yet, and if so, what type of impact could that have on data ARPU?

And where else do you see data opportunities beyond SMS?

Thanks.

ARPU in our Company refers to our total revenue divided by customers.

And we talk about local service revenue, or LSR, when we are referring to what comes solely from our customers or based on our customer base.

So as I spoke earlier about the data LSR, which we've see more than double over the last year, we certainly do not see any kind of cap or barrier on that, nor do we see that we are different than other carriers.

Just as a reminder, we started our transformation to next-generation networks and migration about nine months later than Dobson, for example, and certainly some time later than AT&T and others providing similar products.

Currently, we are very close to rolling out the premium short codes we have added, as we do every quarter and every month, additional content of -- in fact, I believe we have a promotion going on right now with ring tones and other content related to the Spiderman 3 opening -- I should know more specifically these cultural pieces of it, but the new Spiderman movie that is opening today.

So we have really worked to provide some popular and cutting-edge offerings to our customers which we believe are going to continue to be very well received.

We have a calendar of increases and additions to those content offerings pretty frequently over the balance of the year, so we expect to see growth there.

We expect to see very similar trajectory as other carriers have seen.

And we will continue working on that and reporting it to you.

Ana Goshko, Banc of America.

I've got something on data roaming, then I've got a question on CPGA as well.

But on the data roaming, this is the first quarter that we have ever seen a sequential decline in the data roaming revenue.

And I realize that there is seasonality in the overall number, but it was an 18% sequential decline in data roaming versus an 8% in voice.

And I know, Wes, last quarter you talked about the step-down in the yield, and wondering if you can give us a sense of the magnitude of what this step-down in the data roaming yield was versus what the volume growth was.

And then also, going forward, is this step-down in the data roaming yield, is that something that happened first quarter and we should be kind of good going forward this year, or are there more step-downs to come?

Well, the step-down that has happened did happen at the beginning of the quarter.

You hit on that exact point, is that the yield decline in the first quarter was larger than the volume increase.

Now, having said that, I don't have specific volume increase amounts, but we saw significant volume increases in the first quarter.

We had a pretty significant decline in our yield on the GSM side for the first quarter.

But at this point, we don't have any other contractual step-downs in the data yield.

Of course, that will be something that will continue to be discussed as we go forward with our roaming partners.

And then on CPGA, there was a really good improvement in CPGA this quarter, which I think was one of the contributors to the good EBITDA performance.

And I know that number bounced around a lot quarter over quarter, but it really was pretty significant.

And the biggest part of it really seemed to be that your equipment subsidy for gross add really came down a lot.

I'm wondering, is that something that was sort of a blip in the quarter, or is there something kind of structural and sustainable that happened that we can kind of see that continue going forward?

Well, I can certainly address one factor of that, which is that on the handset cost side, we did have some favorable purchases of what turned out to be very well-accepted handsets in our marketplace.

It's a little difficult to predict exactly how handset purchases will play into that over time, but we certainly had some very good success on the handset side as we have consolidated our handset purchases and have restructured our handset group a little bit last year.

So I think that contributed to it, as well as, of course, the large number of gross sales spreads the cost over a greater number.

And our number of customers migrated, so the number of new technology handsets included is also somewhat smaller than what we saw last year.

So on the handset side, I think maybe what I am hearing -- it wasn't just like a one-time thing, that maybe you are just getting to a better pricing framework with your vendors -- is that fair to say, or--?

I think that certainly contributed to it this quarter.

It is difficult to predict that on a go-forward basis.

I think you've got to understand that where you are more into the technology, so there's an evolutionary path that the vendors go through with their handsets.

A year ago, we were pretty new into the evolution of the use of handsets as compared to where we are today.

And there is a natural price movement as you go through that evolution.

Mark Bishop, [The Boston Company].

I have two questions.

The first one is just a clarification of your recent answer about this yield decline for roaming.

You said that there are no more step-downs for the GSM contracts.

Is that for the rest of the year, or ever?

This was specifically talking about the data roaming, just to clarify that question.

As far as I know, there are no additional step-downs in the data roaming portion of our contract.

Ever?

Currently, is that right?

Your question, I believe, was this year about GSM data roaming.

The decline we saw was largely attributable to a GSM data-roaming step-down that occurred in the first quarter.

But you will negotiate those anyway going forward.

But my second question is about your employee stock purchase program, which I saw in your 10-Q.

You have about 750,000 shares per year are available or granted in that program.

That is not true.

The plan has a certain amount of shares that are available.

That is a plan that is expected to cover multiple years of stock purchases by our employees.

We have capped in each of the last several years the maximum number of shares that any individual can receive through that plan at 1000 shares per year.

But the 750 -- there was certainly not 750,000 shares that were issued last year for the stock purchase plan.

How many shares were issued last year?

I don't have that specific number.

It would be in our Annual Report, in our 10-K.

My concern with it is -- well, I know you -- with all these positive things, with the churn going down and growth and everything and your EBITDA going up and your very levered stock, it is likely or it's very possible that analyst estimates are way too low and that could have a dramatic impact on your stock if that was true.

So it's not inconceivable that your stock could double again this year.

If it did, the impact from your stock purchase program was zero, really, this quarter.

But already, in the second quarter, the stock is up by $12 or something, which you would have to account for in your EBITDA.

And if it went up again to -- let's just say it went up to $50, you have $40 of difference times however many shares there are in the stock purchase plan, it's a lot of money, and you haven't seen that impact, ever.

And I'm wondering if that really is such an amount -- it suddenly becomes a much higher expense than it ever has been for your Company.

And I would encourage you to revisit whether it is an appropriate thing to be given out.

And secondly, I would encourage you to think about communicating to analysts exactly what that impact might be.

Now, I don't -- people shouldn't be too worried because it only happens if the stock goes up, and secondly, the cost would only be a 2007 cost, say, and there would be probably a lesser cost next year.

And then eventually, when your stock stops going up so much, it's not a big deal.

Let me try to help answer a couple of these questions.

I have been given the number of the shares that were issued in early 2007 related to the plan that people have to sign up for at the beginning of the year.

So employees, at the beginning of the year, have an election, if they want to have payroll deductions, to purchase Company stock throughout that plan year.

Last year there was roughly 36,000 shares that were issued for this.

I don't anticipate that the number of people that signed up at the beginning of 2007 is dramatically going to be different than it was in 2006.

And so I again wouldn't anticipate that the share number is going to be that significantly different.

I think we need to make sure that we're talking about the number of shares that were done last year.

Second of all, from a reporting standpoint, this is one of the components that is in the stock-based compensation line item, that when we talk about essentially the EBITDA number, call it the operating income before depreciation, amortization and stock-based compensation, that number does not come into that calculation when we go through that, for that very purpose, since it is a noncash item.

We have long maintained that this is a very good plan for employees to help encourage our employees to be shareholders of our Company and align their interests with those of our shareholders.

And we think it has been a very successful way in allowing our employees to take money out of each and every one of their paychecks throughout the year as a way to invest in our Company.

[Jeff Kavikov], CIBC.

Congratulations on a very good quarter.

Now that subscriber adds are positive and you're getting some operating leverage, what type of growth in EBITDA do you think we could be in '07 and '08?

Well, I think what we have been trying to tell people is that we are encouraged by what we have seen and that we are encouraged going forward.

But we have not given any specific guidance for either '07 or '08, and we are really not expecting or planning to do that at this time.

The Minnesota property that you acquired -- what is the amount of EBITDA for that property?

Again, that a something that we have not disclosed and aren't expecting to do at this time.

It is a relatively small amount in percentage of the total.

I think it's important, and we talked earlier -- one of the questions was that we maybe didn't hit it specifically, but because of its lack of roaming revenue currently, or very minimal roaming revenue currently, the margins are a lot less in that portion of our Company as compared to the rest of our Company.

So it is one of the areas that we would intend to be able to increase the margins from operational efficiencies and synergies, but clearly this is a lower-margin portion of revenue as compared to the rest of our Company today.

What type of expenses will there be for the rebranding?

It is really not, I guess I would say, a material number with respect to our overall operations.

We would expect to put some additional advertising in the marketplace and some additional billboards and other types of strategies such as speaking to local community groups, supporting local charity groups, a lot of different things, including everything from noncash items such as interviews to both television and print advertising there.

But overall, it is not a material number on our overall advertising picture.

It is a small area.

It was a good progress in the quarter.

Kevin Coyne, Goldman Sachs.

Congratulations on the solid quarter.

Just a couple questions.

I believe you said data ARPU doubled.

I may have missed the number, but if you could provide that number, that would be great.

And along the lines of the very good churn performance, do you have any metrics on let's say percentage of the subscriber base that is on contract or on multiyear contracts?

Yes.

With respect to the data ARPU, it grew from $1.73 last year, or first quarter last year, to $3.57 this year.

And with respect to the percent on contract, it is 69% under contract as compared to 49% last year.

And we have not separately split out multiple year or not multiple year remaining.

However, our standard is a two-year contract.

That's great.

And just one follow-up.

Coming off the acquisition of the Minnesota properties, would you characterize yourself as let's say still looking at or still considering other M&A opportunities?

And would you envision them probably only in the realm of or the size of the Minnesota acquisition?

Or would you consider larger targets?

We continue to look at opportunities.

We particularly get interested in properties, assets that are near or certainly adjacent to what we did in Southern Minnesota.

It's got great appeal to us so that we can leverage off of what we are currently doing using experienced management and experienced people, including customer care, that make a big difference in bringing wireless services to those areas.

So we would continue to look at the adjacent areas that are appealing to us.

We probably would take a -- not get too excited about a new cluster, far-flung areas, those kind of things.

It's just harder to lever what we're already doing.

So we will continue to be attentive to opportunities that are nearby.

[Mes Ecco, Madoff].

My question pertains to one of the previous questioner's questions about the stock ownership plan.

Can we just clarify a couple of things?

First of all, have there been any material changes in how the employees stock ownership plan works in the last year or two?

There has been no change in the plan since the inception of the plan, probably 10 years ago.

Okay, because I got the sense he was sort of implying that you might be trying to manipulate it in some subversive way, which I don't think is the case.

Secondly, if there were charges associated with the stock ownership plan that appear in EBITDA, they would be noncash in nature, is that right?

That is correct.

I just ran a quick number.

I think there's an order of magnitude, if somebody mistakenly still believes there are 750,000 shares that are going to be issued this year -- last year, we issued about 36,000 shares.

If you take 36,000, even times a $15 increase, the difference there would be roughly $600,000.

We are talking about a very small relative amount, and it certainly is a noncash charge.

Perfect.

I just wanted to make sure that everybody on the call understood that that was the case.

Great quarter.

Thank you very much.

At this time, I am showing no additional questions in the queue.

I'd like to turn the call back over to management for their closing remarks.

Again, thanks for your interest in our Company.

We will continue to look for ways to serve Main Street America.

We're pleased with what our employees are doing, how they are enthusiastic about their jobs, how we are continuing to look for ways to improve wireless experience for our customers.

And the result is the kind of quarter we just delivered.

So we'll look forward to talking with you next quarter.

Ladies and gentlemen, this does conclude the RCC first-quarter 2007 earnings conference call.

You may now disconnect, and we thank you for using AT&T teleconferencing.